Sunday, April 3, 2011

From Meluha to Reason Magazine

For people who have read my previous blog and found it interesting please go through this article on Coase Theory

Saturday, March 12, 2011

How to strike a bargain @ a Restaraunt with the help of the immortals from Meluha?

It has become a habit for me to be motivated to write a blog (only) after reading an article or a book. Most probably it would be non-fiction. But this time a work of fiction has completely hijacked my mind for sometime. 'The immortals of meluha' - a nice feel good contemporising story about Indian mythology and practices. But what has that got to do with striking a bargain @ a Restaraunt?

I will let you in on some parts from the novel. The novel is about 2 kingdoms which have different ethos and consider each other evil. One of them is strikingly similar to a socialist regime ( with due appologies to author if he had not intended to do so) with the government providing for the people. This is compared to heaven (initially). Rules are strictly followed here. Everyone is equally treated. The other kingdom is more like a capitalist economy where individuals have freedom to choose what they want to do. People believe in what works rather than the rules. Some people live in object poverty while some are affluent.

You would agree with me that most of the developed and developing nations are similar to the second kingdom. Now let us do a thought experiment.

You get into a restaraunt (in India probably if that is close to your heart) and eat your stomach's full. You are smart and you know your economics. You want to strike a bargain with the restaraunt people. You want to pay less. Let us bring some numbers in to see what would work. The food you ate costs you 200 Rs. You want a bargain of 50 Rs. You go to the restaraunt manager and tell him you will only pay 150 Rs. The restaraunt manager is not pleased. This is criminal. Assuming you are strong and he cannot physically force you. He calls the local police to come and force you into paying.

The police won't turn up for this petty a case. You have now gained a point. You are now threatening to leave without paying (take 150 or none at all). The restaraunt owner would have to pay something to the police (or convince them to come over). Assume he pays 100 Rs for the police to come (provided you still stand your ground). Now , the manager does some thinking , 'what if you pay up when the police comes and settle the issue? the restaraunt manager has to still pay the police 100 Rs'. He would end up losing 100 Rs. So between a choice of going for a 50 Rs / 100 Rs loss he would choose what works , he would most probably let you pay 150 Rs and leave than take the pains of forcing you to pay the full amount as the cost is much higher.

Yes it is a thought experiment. I wouldn't recommend anyone trying that. But what am I getting at? What has this got to do with immortals from Meluha?

First , people would do what works in a free economy than what matters.

Second , in cases where the cost of an alternative is much higher , people will settle for solutions which will reduce their cost than what is right.

Third , some people can and will hack this system for their benefit.

This I believe is the source of all corruption ! This kind of a society will allow petty crimes to be commited without much intervention. If you have hundreds of thousands of petty crimes across the economy then you have a big problem at hand.

An economy will prosper if the right way to provide justice is also the cheapest.

Would love to know your ideas on 'How to solve this Restaruant paradox effectively?'

Saturday, January 8, 2011

Why pricing high could help the media companies?

I know you have a lot of questions on your mind after seeing the title. First of them would be, do Media companies need help? Well that's subjective. Being a consultant , I am 'assuming' anyone would need help . But on a serious note here's why I feel media companies need help..

First some facts,

The Watergate scandal was a 1970s United States political scandal resulting from the break-in to the Democratic National Committee headquarters at the Watergate office complex in Washington, D.C ( This led to the resignation of president Nixon , the only instance of a president resigning I presume. This was covered widely in the press. At the same time , there was also a major exposure of covert FBI operations called COINTELPRO( - read program exposed section). This did not get wide press attention and to a large extent was suppressed (Source - Noam chomsky interview to Outlook anniversary issue this year) .

Early 1990s, back in India , the 'Times of India' (started in 1838) threw open its 150 year old mast head for displaying ads.

In 2004 , Bennett, Coleman and Co. Ltd (BCCL) launches a scheme called 'Private treaty'. The scheme - BCCL picks up equity stakes in companies and in return (alleged) BCCL publishes articles on them. Livemint Article

In 2010 , much closer to us , an ad starts playing even before the final ball is bowled in the over. There used to be only one ad in-between overs a decade back , now there are at least five.

In 2010 , most of the leading political parties (at least in TN ) have their own media houses.

Ok , now what do I intent to show using these facts?

Media can be used to manipulate People's beliefs and attitudes - This would undermine media's credibility

How do you control a democracy? Simple , by changing/aligning people's attitudes and beliefs to what we want them to believe. How do we do it? By using the right message and delivering it to the people. What do we use to deliver? The media. If the media is subservient to political will , then the messages we get will also reflect political will. This severely undermines the credibility of the media.

Do you read your newspaper to look at an 'Aria' ad? No, you read it to get an unbiased account on what's happening around you.

Do you really get an unbiased view? You might not.If this continues , what value would the media be to you as a customer?

Media houses are more worried about commercial gains than providing quality content these days - The perceived utility of traditional media is bound to come down

Right after India was liberalized , main stream media has concentrated mostly on advertising revenues ( same with US media companies too) . The heights of it being media companies buying stake in other companies. This will obviously raise conflicts of interests.

Will the media company publish any negative news on a company it holds equity in? This again raises some serious questions on the utility of media today.

We have other reliable sources of free information - No one might need unreliable media in the future

The final nail in the coffin comes from Internet and Social networks. A connected world will expose biases even more faster ( as we have multiple sources , some of which will bring out the truth) . People would realize the farse and move away from these media houses which tend to be biased (for monetary gains/political will). The readership of some big dailies in US are already showing decline!

With the utility of content provided by the media companies going down and with other free sources of reliable content , the future of these companies look bleak. I understand that in the current context competition has made higher pricing an impossibility while advertising has made low price a possibility. But in the future if people completely stop buying, media houses will lose on both counts.

Yes this is partly because of technology and partly because of their own making.

So what would be the solution for this? Technology related problems are easy to identify and solve. But the problems of irrelevance and dependability are at the core of what media companies do or rather fail to do. The media companies should concentrate on providing dependable and quality content which the consumers would be ready to pay for.

So a bold but a workable solution would be to start competing on reliability and the depth of analysis and stop competing on price. In other words charge a higher price , do the necessary research the price requires and deliver good quality content. People will be ready to pay.

Do we have examples of near-zero ad newspapers which people buy and read just for the content? Enter La Jordana , this gets near zero commercial ads as the government hates it, but boasts of 287000 readers in Mexico city. If this paper can do it , why not others?

Disclaimer: These are my individual opinions. Please refer online resources if you need information further.

Saturday, January 1, 2011

In Credit(ble) India

I was reading 'The week' anniversary edition. It had a cover story on 'Incredible India'. The cover story pointed out the obvious anomalies in India. For example the tele-density in India is greater than toilet density! and Pizza arrives within 30 minutes while ambulances seldom reach on time. Yes , it makes for fascinating reading.The article is very relevant as we would have experienced them hands-on at some point of time and can connect with it.

One of the things which got me thinking was 'Car loans are cheaper than education loans' in India. The article further goes on to explain the reasons behind this. This is possible because car manufacturers subsidize the loans and there is a collateral in the form of the car. Now , how do we subsidize education loans? The article suggests the government could subsidize education loans. Good. Agreed. But do all of those promised 'goods' ( both literal and contextual) the government promises reach us. My intention here is not to point fingers but to understand what would be practical. OK, we assume that the government is indeed capable of delivering and it subsidizes the loan to some extent. But ,without the collateral our bankers would still have to charge higher interest rates.

Ok , the bankers decide let us bring in a 'repaying capacity' based interest rate policy. The higher your repaying capacity the lower your interest rate. What an idea sir ji! The bankers would get hit as implementing such a scheme is an operational night mare. India does not have all its data digitized to make this a reality. Now, we have to find someone who can subsidize and also find a collateral in this case. Why don't the corporates who recruit subsidize the education loans? Why should the corporate subsidize? Let us understand who benefits from the loan. Yes of course the student, the parents , the educational institute (indirectly the government) and the entity which employs him. The student and the parents have to repay the loan . The educational institute provides its services for the fees paid. Some of them also have scholarships . They also play their part (of course this can be questioned). Assuming that you need that money to provide quality education we will leave the universities here. That leaves us with the corporates . How are the corporates helping. Yes , they pay the salaries. They recruit people who fit and pay them salaries.

Now , imagine if there is a change in how the corporates see this. The corporates pay the educational institutes to identify and groom talent. This would subsidize the educational expenses for the students. The corporates would also get better and fit candidates. Where would the corporates get this money? The banks would finance them with loans. How would the corporates pay the loan back? They would allocate part of the Salary they pay to the talent they recruit. The corporates would play the part of both subsidizing and being a collateral.

That seems like a feasible and viable solution. But if as a corporate I do this and the person leaves and joins another company. How would this work? As an industry we come together and form this educational pool. As long as the person remains in this industry it would work. If a person moves to an other industry which has not opted for this, then it would stop and the burden of the loan would be on the individual but now he/she has job which pays and the person can be traced

Yes, this is a bold idea. Yes, we don't know whether it would work. On paper , it seems to be good. Is anyone ready to test this out?