Thursday, December 26, 2013

Fleeting Views of a Floating City

Floating City
Sudhir Venkatesh
Allen Lane, 2013

Sudhir Venkatesh shot to fame with his book “Gang Leader for a Day” and also with his contributions to the chapters in Freakonomics where he analysed the behavior of drug peddlers and sex workers. “Gang Leader” was a departure from the usual works of sociology - it departed from known frameworks of social structures and frames, towards a participative ethnographic work. It was ground breaking in many ways: because of the methods; the ethical dilemma that these methods threw and the subject itself which looked deeply into the underground drug economy of Chicago. This work was a result of a much younger Sudhir, not trapped by fame of a relatively unknown student trying to get going on his doctoral thesis.

So when Sudhir came with his next book – looking at a different trade and a different city, he had already set the benchmark of “Gang Leader” and the expectations were that he would transcend his past pinnacle. However, Floating City disappoints – it is neither rich in its content nor in its insights; leaving us to wonder whether he was a one project wonder. We hope not.

The book has its contributions. However, these pale against the expectations based on his past work. The most significant insight we get is that the underground economy is not restricted to the poor, but has a seamless connection with the wealthy and the sophisticated. There are unusual suspects. In addition we find strivers trying to move from a street-side segment of the underground economy to the more sophisticated segments.

Readers’ dissonance about Floating City may be because of the un-organised nature of the trade that studies. Unlike drug peddlers of Chicago, who seem to be in a well-knit hierarchy – much like a corporate empire and living in close proximity (of the erstwhile Robert Taylor Homes), his subjects in New York come from smaller networks, and diverse residential settlements. In “Gang Leader” he discovers the relations between different players after understanding the network. Unfortunately Sudhir is lost in New York. Lost because, he is using the inter-relations between the different sets of people he talks to, to map the network. That is always much tougher.

Also unlike the carefree Sudhir of Gang Leader, here is a tenured Columbia University Professor who needs to worry about his reputation. In the earlier book, he shows the pressure to wind up his study only towards the end of the book. Now he is no longer the rogue sociologist and very much a part of the establishment. He has requirements to teach and publish – irrespective of whether he agrees with the type and nature of publications that are academically recognized and rewarded. It is evident through the book that a lot of his own personal problems of tenure, his divorce and the professional insecurities come in the way of the narration. He is no longer an outside analyst – or a fly on the wall – who is looking at the situation unfold, but by his own choice, an active participant in the deliberations.

Possibly the problem with the book lies in Sudhir’s inability to draw a line between the sociological elements that he needs to study as an outsider and the autobiographical elements that come in as a counter point. He could have chosen to write the book with a greater element of autobiography. But it would have taken a different shape. A good example of that is Aman Sethi’s “A Free Man”. Sethi goes in as a journalist, and while understanding the poor footpath dwellers of Delhi also narrates what it means to him. Sudhir is hamstrung with this image of being an academic. So he unfortunately keeps getting in his scholarly dilemmas into the narrative, never allowing the reader to even forget for a moment that he is ultimately a sociologist and this project is an academic work.

Studies such as this one are complex and cannot have a framework or a premeditated script. It is almost like writing a script for a documentary – you can only plan the subject, how you would conduct interviews, whom you would meet. Nobody can actually write the dialogues in advance or have a clear expectation of what emerges out the filming. When one does not have a clear frame the danger is in wonderment - like a child in a toyshop. If every person Sudhir meets is adding to the n (sample size) then there is a problem. Sudhir unfortunately is a victim of his success, his image constructed in our minds, and unfortunately, his image constructed in his own mind. This could have been a fascinating book if only he had shed his past. It could have been as fascinating if he had teamed up with somebody younger and unknown who could penetrate deeper into the underground economy. Unfortunately this turns out to be an attempt to live up to the past image and the halo created around himself. And that he does not live up to that image leads to a book like Floating City, which is a disappointment.

Tuesday, December 17, 2013

The Continuing Relevance of Self-Help Groups

Banking on Self-Help Groups: Twenty Years On
Ajay Tankha
Sage Publications, New Delhi
pp.295. Rs. 595

Self-Help groups (SHG) as a concept have been there in existence for ages. However, SHGs, in the arena of financial intermediation have been there for more about 25 years, starting with the early credit management groups set up by Myrada, a Non-Governmental Organisation (NGO) based in Bangalore. However, Ajay Tankha and other official chroniclers would record the birth of SHGs on the historic day of 26th February 1992 when the National Bank for Agriculture and Rural Development (NABARD) issued a ‘landmark’ circular (p.22). The construction of history has placed so much emphasis on an official recognition of an experiment that was in the making for five years. Therefore the year 2012 instead of being celebrated as the silver jubilee of SHG movement was celebrated as the twentieth anniversary of issuing a circular.

Tankha’s book is constructed on the ‘review’ of SHG movement, and performance in the past two decades. Therefore the book is organized into factual silos: origins of the groups; performance and growth; institutions involved; costs; sustainability and impact. He has succumbed to the danger of this approach: of looking at silos in detail, loaded with facts and numbers and losing the big picture in the process - the landscape of financial inclusion. By this process, his time marker is an official recognition, a day when SHGs entered into the statistical reportage of the Nation.

The tragedy of the SHGs has been the evangelical obsession with the “movement” rather than the concept. The concept of people getting together as a group for doing financial transactions was not new, a fact that Tankha recognizes early on. There are informal chit funds in India operating on a similar lines. SHGs just tweaked the model to suit its acceptance with the formal banking sector. SHGs conceptually addressed issues that bother the bankers. They created a collective identity for the women in the group, and gave transaction aggregation. As it was a savings led model, it also created a transaction trail for the bankers. This was important in the absence of a bankable collateral.

Before this book, Tankha has worked and written on diverse issues pertaining to SHGs – his particular contribution was in estimating the cost of promoting SHGs and SHG Federations. We can see that the overall approach of this book is towards evaluating the movement on financial terms. But at the end of twenty (five) years, we should look at whether the concept is relevant, the reasons for limited regional success and what it means to be taken over by the state. When we look at the future directions as Tankha attempts to do, it is important to go back to see if the base principles are in-tact.

Tankha fails to recognize the conceptual triggers behind the growth of the movement in a particular direction. For instance, were SHG federations necessary? While it looks natural that as the movement grows, we need consolidation and federations are a natural outcome. That, is the line of argument he takes. However, if we examine it from an intermediation perspective –it does not make sense to add another layer of costs between the bank and the ultimate customer. Aggregation of SHG transactions at the Federation level would make sense if the spread of banking was not deep. It would, for instance, make sense for a Kotak Mahindra Bank or a Yes Bank. But for public sector banks having a physical presence in more than 45,000 rural and semi-urban locations it does not. It only cannibalizes the local business through an aggregation at the regional office level and by-passing the branch network through an alternative federation route. This takes us to the design principles to see if they work.

The unfortunate part of Tankha’s approach in this rather well researched and detailed book is that he does not question the status quo. He takes facts as they appear and chronicles them. It would have been delightful if he had looked at each of the landmark events to build a story on how these events changed the course of history. If he had done that, he would have re-narrated our story of innovation that is so Indian in nature.

The story is that this innovation did happen. The natural excitement for this innovation should have come from the commercial world – particularly the banks who should have engaged with this segment commercially. However, the excitement came from the State in the paradigm of empowerment, inclusion and development. While it made sense for SHG movement to seek the patronage of the State during the initial phases to sell the concepts to the banking world, going forward the basic commerce and the commercial exchanges were compromised because of the State. Initially it started with subsidies that provided funding for building the social architecture. But when the subsidies and intervention entered the commercial transactions, the decline of the spirit of SHGs started. Tankha fails to grasp this nuance.

Without undermining his remarkable work, we need to recognize one significant gap in the book. While Tankha locates SHGs in the world of financial inclusion, he fails to look at some emerging trends that question the fabric of groups. Technology led interventions and state policy is moving towards disintermediation. The Aadhar enabled payments, the direct benefit transfers or payment of MNREGA wages are sought to be loaded on to the individual bank account of the poor customer. What does this do the SHGs? Is the State suffering from the schizophrenia of the Rural Development Strategy being at cross purposes with the Financial Inclusion Strategy? Unfortunately Tankha does not engage with this scenario at all.

But for my reservations about the approach of the book, this is an important resource book for anybody interested in the field of SHG based financial inclusion programme in India.

Transcending Economies, Transcending Economics

Mass Flourishing
How Grassroots Innovation Created Jobs, Challenge and Change
Edmund Phelps
Princeton University Press

Mass Flourishing is a deceptive title for a remarkable book. While the title indicates that it would throw light on innovation and job creation, it is much larger. It covers several centuries of thought; has a range that touches economics but moves into politics, literature and philosophy; places short term events on a long timeline; helps understand the implications of a patchwork over the fabric of economies. All these are packed into a tight and gripping writing.

The book engages with the concept of a “modern economy”. How do we achieve happiness in a just and equitable society? The process of unravelling what a modern economy leads to a discussion of multiple economic ideas capitalism, socialism, Marxism, corporatism. All these ideologies are discussed in the context of economic growth, common good and happiness. While statistics help in parameterizing, Phelps draws upon art and literature to assess how people were perceiving the changes. These ideas are discussed in the context of a larger eco-system. Nothing happens in vacuum – even individual excellence and scientific discoveries and inventions happen at a time and place; the context is as important as the event.

Look at the following quote to understand where Phelps is coming from:

“Some might think to say that gifted inventors, even if untrained, were adding to scientific knowledge when their tinkering led to an invention. But these inventors did not create scientific knowledge any more than bartenders inventing new drinks create chemical knowledge: they lacked the training to do so. An addition to scientific knowledge occurred if and when trained theorists managed to understand why the invention worked. (It took a musicologist to see how Bach’s cantas “worked”).  (p.13)

So, what makes this modern economy? Where are the ideas coming from? Are they from the science labs? How do ideas emerge? How do we understand the non-pecuniary motives driving innovations? How do these ideas grow, and spread? These are difficult questions. But in these he sees the seeds of a modern economy, where ideas, innovation and invention were converted to economic products leading to an explosion of material benefits. The modern economy was about increase in productivity- resulting in fast and boundless growth. But the question was whether growth resulted in widespread benefit? While the numbers of rich increased, what about the wages of the unskilled workers? Were they benefitting from the innovation and the modern economy?

Phelps connects several unrelated events to trace the evolution of modern economy. The absolute and real increase in wages; reduction in incidence of disease because of advancement of science (elsewhere, and a result of international exchanges); reduction of poverty and pauperism. He then examines urbanization. He argues that rural areas only had under employment but not unemployment. But working for somebody, for an enterprise defined what employment was, and also sharply defined the phenomenon of unemployment. Urbanization was on the rise, because it was a worthwhile trade-off for the underemployed rural populace. In understanding this, Phelps not only uses data of that era, but also refers to Blake’s poetry and the image of “dark satanic mills”.

Urbanization was also about clustering. People went to places where there were new ideas, new challenges; industrial agglomerations. So the quality of life and moving out of poverty was not only the economic aspect, but the pleasure of encountering new problems and the satisfaction of solving them. The nuanced view he has about an assembly line is evidenced by this observation: “Charlie Chaplin’s image of the assembly line in his 1937 film Modern Times looked more mindless than oppressive” (p.52). Modern economy, while it brought higher wage and better financial returns, also had associated questions on impacts on mental stimulation.

Modern economies brought benefits in better health and longevity. Even the less advantaged had these benefits. This led to a different perspective: more time invested in equipping oneself and planning for a longer career. Going to a “work place” beyond the closed community relationships led to an “interchange” of ideas – where a large number of diverse people turned up. So what happened to people during these changing times? Here Phelps moves beyond data and uses literature – the ideas expressed in the works of Charles Dickens, Mary Shelley, Emile Bronte, Jane Austen, Balzac and Emily Zola. He moves from fiction to art and to music. The canvas gets bigger. His understanding of economies and economics is not purely dependent on trade, economy and monetary policy. He is questioning Ceteris Paribus (All other things being equal); arguing that all other things are never equal; we live in a dynamic world; and we pick up signals from multiple fields to understand the changing phenomenon of the dominant paradigm.

With innovation, modernization, longevity and better quality of life as a backdrop Phelps examines the other building blocks. These come from a larger eco-system. In discussing institutions, he examines institutions of governance (feudal systems, church, governments); institutions of justice; institutions that grant ownership rights on property. As the world moved from production based economies to idea based commerce, there was a need to protect intellectual property rights. Starting with intellectual property protection Phelps lays the foundation for modern enterprise to emerge. The emergence of the enterprise is not a pure function of innovation and risk taking. It needs an eco-system that provides protection for investments in ideas. This could come through patent laws that provide exclusivity to commercially use the ideas to reap the benefits of investments.

Just ideas and inventions do not result in economic phenomena. Protecting intellectual property makes sense only when there is a possibility of commercial exploitation of the idea. A commercial exploitation needs an element of scale. It has to move beyond the individual capability. Chartered corporations that undertook business with the backing of monarchies, laid the framework for a corporation. Initially Charters were set up with the intention of trade, exploration and colonization. However, as monopoly institutions with state support, charters did not have the agility to innovate and expand the horizons. It was a hurdle. Eventually this grew into the idea of a joint stock company. This provided the entrepreneurs the protection of a limited liability. The legal framework for this emerged in the United States and moved on to Great Britain and then extending all the way to Germany and France. This was followed up by better bankruptcy protection laws and a vibrant banking system.

On the political front, the movement towards representative democracy provided an ecosystem for accountability. Accountability to the electorate supported the interests of the underserved, and moved towards publicly funded education and opened support institutions. There were downsides to this, but the larger ecosystem for enterprise to flourish was more likely in a representative democracy than an autocracy.

While urbanization brought about unemployment, the modern economy brought taxation that collected money from the wealthy to provide social security for the deprived. This brought to the fore, the question of inclusivity. Does the modern economy and its growth provide opportunity for everybody to get employment and a share in the economic action? Phelps argues that if capitalism is working in the right spirit with other institutional mechanisms fostering innovation, the answer might be yes. But most of the time capitalism does not work the way it ought to – the governments direct the economic space in a manner that stymies innovation and free trade. This could happen if the state was a major actor as it were in the Chartered companies, and it could happen when the state resorts to corporatism – an arrangement when the state favours agreements with corporations and workers to create exclusive rights. While Phelps does not refer to India in this context, this could have happened in the licence raj, and might be continuing with crony capitalism.

Phelps argues that the age of innovation and mass flourishing happened between 1820s and the 1960s (the years of the great depression notwithstanding). He argues that this was a western phenomenon led by the United States and followed by European nations. He illustrates why China, though it had the ingredients of density of population, exchange of ideas, innovation and even enterprise did not keep up as it lacked economic institutions and economic culture (p.106).

Phelps goes on to discuss economic thought that was against the concept of modern economy – Socialism and Corporatism. He argues that neither the middle-income earners were pushed into the proletariat, nor did wage inequality appear to increase (p.114). The discontent with the modern economy was with the precariousness of jobs and wages – the episodic high unemployment and recession led job losses in certain sectors. Phelps sees socialism as a concept with inherent contradictions. Look at this quote of Sassoon that he reproduces:

“Socialism’s appeal, when it had one, was to say, at one and the same time, that its mission was to transcend capitalism while improving it; that everyone was equal by that the proletariat was the leading class; that money was the root of all evil but the workers needed more of it; that capitalism was doomed but the capitalists’ profits were as high as ever; that religion was the opium of the people but that Jesus was the first socialist; that the family was a bourgeois conspiracy but it needed defending from untrammeled industrialistion; that individualism was to be deplored but that capitalist alienation reduced people to undifferentiated atoms; that there was more to politics than voting every few years while demanding universal suffrage; that consumerism beguiles the workers but they should all have a color television, a car and go on holidays abroad.”

Phelps goes on to discuss economic thought that was against the concept of modern economy – Socialism and Corporatism. He argues that neither the middle-income earners were pushed into the proletariat, nor did wage inequality appear to increase (p.114). The discontent with the modern economy was with the precariousness of jobs and wages – the episodic high unemployment and recession led job losses in certain sectors. Phelps sees socialism as a concept with inherent contradictions, examining tension between socialist values and Western humanist values. While Phelps looks at socialism as an ideology to be debated and critiqued, he does not think that Corporatism has strong ideological roots. It could be the association of Corporatism with Mussolini and the fascist regime and it could also be that Corporatism is also anti-competitive in nature. However he engages with the concept at length, citing examples from Europe, where it evolved, how it grew and why it was not a positive thought for the modern economy. Phelps argues that corporatism was anti innovation, anti-enterprise and growth. He even indicates that the reason for the decline of the Western enterprise, particularly of the United States is because of the modern day corporatism. While recession and slowdown is seen as recent phenomena, Phelps traces this recession back to the 1970s.

The last section “Regaining the Modern” deals with the approach to taxation. Low taxation, heavy borrowing – and spending – both on welfare as well as a supply side Keynesian measure to maintain growth leading to very high fiscal deficit was unsustainable. Not only did the State borrow, but it encouraged corporations and individuals to borrow – in the hope that this would lead to growth and larger tax collections. That this did not work, is there for us to see.

The last section “Regaining the Modern” deals with the approach to taxation. Low taxation, heavy borrowing – and spending – both on welfare as well as a supply side Keynesian measure to maintain growth leading to very high fiscal deficit was unsustainable. Not only did the State borrow, but it encouraged corporations and individuals to borrow – in the hope that this would lead to growth and larger tax collections. That this did not work, is there for us to see. A high tax regime with a wider net gave State enough resources for funding infrastructure and public projects. A low tax regime, wider compliance and exemptions at the lower level resulted in an illusion of “reduction in take home inequality” but actually reduced investments in public infrastructure leading to the poor paying out of pocket for some services (education, healthcare) that should have been available in public domain.

This book is vast in its expanse, deep in its insight and philosophical in its approach. It is not only a must-read, but a must-multiple-read book. The canvas laid out by Phelps overwhelms you, but this is by far one of the best treatises written on the concept of a modern economy.

Sunday, June 09, 2013

A New Tilt in the Tale

Global Tilt
Leading Your Business Through the Great Economic Power Shift
Ram Charan
RH Business Books, 2013

Every few years there appears a business book that dictates the discourse; changes the spoken language and that too will pass. Business is all about winning the consumers and outwitting the competition. This needs a sharp sense of where the world is moving and how one could spot opportunities. Consultants are better placed to spot these trends because their core business is in being voyeuristic about others’ businesses; understanding the levers of success and transmitting it. Gurus attain their position because of their universality of view rather than the specificity of a context. Ram Charan’s latest book is to be seen in this light.

The world of business is constantly looking at markets to be penetrated, markets not saturated, markets with purchasing power and markets with enthusiasm and appetite translating a pent up desire into an actionable purchase. These markets are not only to be identified but doing business in those settings is to be learnt. Like Ruchir Sharma’s "Breakout Nations" that looked at how economies function, and how to spot long haul performers and Rama Bijapurkar’s “We Are Like That Only” which contextualizes the opportunity, Ram Charan’s “Global Tilt” is designed to combine both – identity the opportunities and then offer nuggets on how the opportunities could be encashed.

Ram Charan identifies that the opportunity set is moving away from the North to the region below the thrity first parallel - South. That is the Global Tilt. In this Tilt North’s assumption is that it is moving into the so-called emerging markets from a position of strength. This needs to be rechecked. It is somewhat similar to the comment Muhammed Yunus made when Grameen tied up with Danone to supply low cost fortified curd in Bangla Desh. Yunus called this Social Business and said that Danone was convinced about the “purpose”. Somebody asked him if he was sure that Danone was not using Grameen, he turned around and said “Why do you think Danone is using me, and not that I am using Danone?” This is the line of argument that Ram Charan offers: Identifying vulnerabilities and proving how this current belief of a position of strength is really a weakness in the long run.

This is an interesting argument. If a company were to occupy a new market, it would need a partner in order to understand the new territory and get feet on the ground. The “occupier” has technology, experience and product. However, access to markets are provided on a partnership basis with the partner with “territory” having a major stake. While the “occupier” company looks at this as a door ajar, to be pried open to get full access, the host actually welcomes the guest to get access to the technology, and eventually a steep learning curve ensures that the partnership progresses with a position of equal strength.

What Ram Charan further states is that the governments themselves have these policies laid out; the governments of emerging economies are smart; they will eventually give the “occupiers” a run for their money. I am not sure that all emerging economies, have a well thought national competitiveness strategy. As he rightly identifies capital, human resources, and ownership of corporations is becoming seamless; without nationality; becoming mercenary. It is natural that the businesses move to locations that provide the best arbitrage. According to Ram Charan the new “occupiers” are countries like China, India and countries of the South; markets could be the universe; is something that the emerging “occupiers” the countries from the south seem to be doing much better in regions like Africa, while it should have been a natural destination for the traditional “occupiers” from the North.

Basically Ram Charan’s thesis ends there. He adds one more term repeatedly used in the book: outside-in future-back strategy. Look at the business diapassionately and place yourself up on a timescale and review your current. His book ends when he proposes that economic power has shifted from the traditional regions to emerging regions. This essence is in the first 24 pages. Beyond this he moves on to explain the financial world to the reader, rather ineffectively. The rest of the book is written in a somewhat preachy condescending tone which is more of a to do and a not-to-do list. Random examples pop up every now and then to justify and illustrate a grand universal phenomenon that he tries to explain a concept. The book is a great example of how a good tight article for Harvard Business Review can be pulled stretched into 300+ pages. In places the book also becomes incoherent and verbose.

As to the longevity of the Tilt theory, before a new fancy term replaces it – your guess is as good as mine. Given the stature of the author, people will talk about it for a while, before he or somebody else invents a new buzz word. My estimate is that the Tilt theory will last about six months.

New Ideas in an Old Framework

Conscious Capitalism
Liberating the Heroic Spirit of Business
John Mackey and Raj Sisodia
Harvard Business Review Press 2013

Talking about the limitations and the potential of capitalism is the flavor of the season. The turmoil in the financial sector, its ramification across geographies; the long road to recovery has led to questions about the philosophical underpinnings of market-capital based model. Conscious Capitalism is to be examined in this context.

Contemporary writings have three strands of arguments in defining enterprises with a conscience. These strands of equitable and humane face of capitalism had started emerging much before the crisis; but the context for examining these models is important in the post crisis era.

The first strand does not question the basic structure of capitalism. It accepts the philosophical underpinnings, but argues for tweaking. The tweaking is articulated as transparency; disclosure of interests; independent oversight; and better corporate governance practices. This strand looks at failures as failure of governance than as an inherent philosophical flaw.

The second strand argues for alternative forms of organization. In the past, the alternative to capital based enterprise was co-operatives, a patronage based enterprise. There are not-for-profit entities that do not distribute any residual claims; not having “maximizing return on capital” as the core purpose. A new dimension in this strand comes from Muhammad Yunus as “Social Business” which ring fences profiteering, while allowing nominal investments to be taken out.

Conscious Capitalism falls into the third strand that accepts the basic framework of the capital centric model, but would want it to be accountable on other parameters. This is the clutter of social enterprises. Customer centricity, ecological sustainability, ethical practices, employee engagement, and patient capital without a compromise on the financial returns are the features of such enterprises. Depending on the type of business, entrepreneur and investor, the focus on these capital plus factors would change.

The authors provide a framework for “conscious” capitalism by integrating four aspects of the business: management of culture, leadership, articulation of purpose (beyond earning profits) and integrating the stakeholders. The basic message is that if you do no evil, your business will survive and prosper; earn competitive returns without guilt. A large part of the book is about the business of Whole Foods Market (WFM) and the choices that the firm had to make at various points in time. The authors also draw from the experiences of other “Conscious” businesses like the Tatas, Posco, Walmart, Patagonia and Southwest Airlines. The businesses which are classified as “conscious” businesses have had their share of controversy.

The folklore of employee centricity of the Tatas in the aftermath of the Mumbai terrorist attack is used as an instance to show the consciousness of the Tatas. However, Tatas are not just about Taj Hotels. A difficult situation of larger ethical dilemma at Singur is not touched. Or that of Posco’s land acquisition process as a “conscious” capitalist? Does Walmart’s zero waste to landfills aspiration (p.149) make it a conscious capitalist while literature suggests insensitive handling of workmen healthcare benefits that were “outsourced” to the State!

The middle ground argument has thick borders between what is acceptable and what is not. A practice could become desirable on the basis of a strong argument. Take this quote: “people ask us, ‘Why does WFM sell some foods that aren’t particularly healthy?’” The justification is “Ultimately our customers ‘vote with their money’ every time they shop. Just as, over time, they have voted for more and more organic foods, we hope they will gradually vote the unhealthiest foods out of our stores by choosing not to buy them” (p.79). This is an argument that could easily be applied to Philip Morris. The authors dismiss this “great” (as described by Jim Collins) company with the question “what has been the net impact of Philip Morris, the world’s largest tobacco company for much of the past century?” (p.282). Storing not-so-healthy food in WFM is a customer choice, while “the world is (not) a better place because the company (Philip Morris) exists” (p.282).

While the authors sound optimistic that the future will move towards “conscious” capitalism because of the inevitability of the reward structure, it belies experience where WFM had to make compromises “At WFM, our salary cap has been in place for about twenty five years (the ratio has risen gradually over the years…. To stay reasonably competitive with the external market”(p.94).

There are ways to make a persuasive argument. The most impressive is to have a logical argument based on consistency. The least impressive is the evangelical method that invokes the unknown; a sense of shame; and guilt to convince. Unfortunately the book has more of the latter strategy than the former. While there is a need to discuss and re-define capitalism in a world that is getting excessively polarized, this book does not add to the intellectual debate on the matter. It gives a series of convenient examples retrofitted to the “Conscious Capitalism” argument. This is a problem when the practitioner narrates his achievements and the academic takes a back seat without distilling practices into economic arguments. The book loses because it has more of John Mackey (co-CEO WFM) and less of Raj Sisodia (Professor at Bentley University).

Creators amidst Predators

The Locust and The Bee
Predators and Creators in Capitalism’s Future
Geoff Mulgan
Princeton University Press 2013

With so much of churn in the capitalistic world, it might well be the right time to look back and wonder if capitalism has failed. Geoff Mulgan’s book on Capitalism is set at a philosophical level. Therefore he looks at the entire business world not only from and economic lens, but also from a moral and ethical lens. At the same time he keeps the thought process and examples largely restricted to the world of business, except in a brilliant chapter where he traces how Monarchies have dissipated making way for democracies, hinting that there could potentially be another form in which the world of business could operate. Not, that such attempts have not been made, but those attempts have come as a counter to what Mulgan calls as the predatory tendencies of capitalism than the creative tendencies of capitalism.

The largest counter-capitalist thought was from Karl Marx. And when we discuss Marx, the discourse has to be raised to a philosophical level – because Marx transcends the world of business, government and looks at the phenomenon from a societal point of view. While Mulgan’s book is set at a philosophical level, it looks at capitalism as a mere tool than as a philosophy. That is because, Capitalism itself does not transcend beyond commerce. For a large part of the book Mulgan has put a boundary around himself in unpeeling the layers of the world of business. I use the word “tool” deliberately, because it is only a tool that could harm or help depending on the use we put it to. The underlying argument in Mulgan’s book is one of acceptance of capitalism, and then exploring how it could be saved from predators and used constructively. Look at this quote as evidence:

“…(Marx) misread the ability of capitalism to respond to threats and pressures, and in particular he misread how well it would be able to spread wealth as well as hoarding it. That the distribution of wealth was often forced on it by striking workers, or reforming governments, is one of the paradoxes of history. If capitalism had been left to the capitalists it probably would have destroyed itself. Instead, the capitalists were bullied into saving themselves”(p.118-119)

The questioning of the future of capitalism is follows arguments of capitalism’s constructiveness. Mulgan does not find an inherent design feature in capitalism that ensures capitalists do not behave like locusts. His examples show predatory practices like the genetically modified “terminator” seeds exist. The technology also gets protection and it takes a long time before non-capitalist forces (like the State) make the capitalists behave.

Clearly, what capitalism provides is a framework to do business. This framework makes capital the central part of the business and rewards the capital with all the residues after all other factors of production have been paid. In a utopian world of perfect competition, there should be no excessive rent sought by a single factor of production. However, capitalism does not provide a fix for aberrations. That fix would either come from capitalists themselves – firms like Patagonia, Selco Solar, Narayana Hrudayalaya which suo motu decide to restrict the residual claims and ensure that the returns from the business are spread more widely or from the society at large. In his brilliant chapter “New Accomodations”, Mulgan talks about a “small town of Saltsjobaden near Stockholm where the representatives of business, government and unions agreed to create a society with no rich individuals but rich concerns (p.230)”. It is evident this design initiative will more often come from outside than inside.

Mulgan concludes with a range of ideas. Some of these clearly move away from the centrality of capital – an alternative measure of exchange that looks at time and moves beyond money. How do we change the measure of performance? How do we introduce multiple measures of performance? All these ideas come from beyond the business, from the larger society of which business is a small sub-set.

Mulgan draws from a wide range of examples which makes it such a pleasure to read the book. He has referred to the Honey Bee network that documents innovations, the radical positive outcomes that the unique identification exercise in India which could have in personalizing transactions with the government, including taxes. He also draws from a wide range of sources, beyond business, science fiction, literature, life sciences and sociology.

With this entire range of discussions, it is surprising that Mulgan does not devote attention to one viable alternate business model that questioned the primacy of capital. Co-operatives though not very successful across sectors and geographies moved the locus away from capital to “patronage” making capital one more factor of production with residual profits going to people providing the service or “patronage”. Co-operatives also propogated equality of vote of all the users without discrimination, making it possible for somebody who could be small and marginal to have a equal say in the way the business is done. He also does not discuss the Social Business model that is being propogated by Muhammad Yunus which also rejects the accumulative tendency of capitalism. If Mulgan had built many more such counter-capitalist ideas in the book, he would have had a much lesser tentative answer to the question he asks about the future of capitalism.

The Locust and the Bee is a brilliant book, full of great ideas, provoking us to pause and think. He ends the book with a brilliant picture of imagining the identity of a city. How do we define a city? Through its palaces and forts, churches and temples, railway stations, airports and museums or the skyline of Manhattan. If our image of USA is predominantly filled with the Manhattan skyline, we know that Capitalism is still around.

Sunday, April 07, 2013

The State of Our Cities Evidence from Karnataka

Samuel Paul, Kala Seetharam Sridhar, A Venugopala Reddy and Pavan Srinath
2012 Oxford University Press, New Delhi
pp.297. Price Rs.765

There is a fairly widespread recognition that we are moving towards a rapid process of urbanization. Issues of development and poverty that was once focused in the rural areas is now finding increasing importance in the urban context and setting. The need to make informed decisions and customize interventions to the areas where such interventions are needed depends heavily on the quality of data. One of the aspects that we constantly lament about is the non-availability of meaningful data either for research or for policy making.

In this context this is a very important book. It is important because it recognizes the gap that an academic always encounters, it tries to fill in the gap and offers a template of a database that could be built up over a period of time across all the habitations – not necessarily cities. It will be particularly useful in not only preparing master plans for the habitations, but it will help the local administration to prepare and plan for civic amenities.

The book opens by making a case for itself and also detailing the methodology of collection of data. The book covers data on 15 cities of Karnataka, a chapter dedicated to a city. The overall template covers the history, demographics, economic dimensions, infrastructure and other services, quality of life and the budgets. All these are interesting pieces of data. Indeed as the authors present the data, they also bring to the fore the difficulty in obtaining granular city based data. It is somewhat surprising that given that the national databases are built on the basis of primary granular data we find it so much more difficult to get disaggregated data.

Take for instance the availability of credit and banking data. While the book has been able to present the data with the co-operation of the Reserve Bank of India [RBI], one should have had a natural access to such data bases. With the level of technology being used, it should not be difficult for agencies like RBI to put the entire database [subject to the confidentiality aspects] in a manner that could be downloaded and accessed as per the requirements of the seeker of data.

As we work with databases and use these databases to draw policy inferences, we also discover that there is disconnect between the agency that collects the data and the users of the data. For instance, let us discuss the observation made by the authors:

“Given India’s service revolution, we examined if at all there is any single sector which dominates the services category in all the cities. Talking all the 15 cities into account, we found that a little more than a fifth of workers were in wholesale and/or retail trade and an additional one-fifth in “other” services such as public administration and defence, compulsory social security, education, health and social work, other community, social and personal service activities, private households with employed persons, and extra territorial organizations and bodies. Unfortunately we neither have data on information technology [IT] or IT enabled services in the cities not enough data to examine if employment in traditional services [such as work in hotels, restaurants, or trade and commerce] were high in smaller cities.” [p.16]

This quote from the book opens up a classic question on the methodology of data collection by government. Do we do our collection on the pre-specified silos and populate them, or collect raw data and later classify them into some silos? If it is the latter, then the database should be able to turn in the data that the researchers want. The above quote is also an indication of how badly the statistics of the country lag the trend shown by the primary sector. Given that IT and ITES are expected to be one of the significant employers in the services sector, the data classification not capturing the detail is something we should ponder over.

The book does not touch upon the government inter-departmental co-ordination specifically, but we may have to discuss this issue in the context of the book. In most of these, there is little co-ordination between departments. For instance, the Ministry of Labour has classified all the occupations in the country using a four level hierarchy and aligning it with International Standard Classification of Occupations. This classification is called the National Classification of Occupations. Wonder how many of our surveys done by other government departments use this classification in mapping the occupational patterns. If the government does not use this classification, the probability of someone else using this classification is remote. If we were to make data comparable across time and across sectors and locations then these protocols need to be followed. While bringing out the data on cities, the book points out not only to the gaps, but also the direction in which data could be organized.

The angst about the data continues elsewhere in the book as they are looking at comparing city data sets:

“Despite the JNNURM and numerous urban poverty programmes, basic information on the urban poor is sorely lacking. No data exists on a city-wide basis on the magnitude and the problems of the urban poor, their households, and the services delivered to them. How programmes can be designed and delivered in the cities without such basic knowledge is difficult to fathom. There are wide variations among the 15 cities on most of the parameters on which this study has gathered official data. The inter-city disparities in resource distribution and utilization are most striking. The fact that different departments of the state government are in charge of different services and programmes could be one reason”.

This could be a nightmare not only for the policy maker, but a lesser mortal like an academic. Where would you start a quest if basic information is not available? How would one draw up a population and a sampling plan? And what level of triangulation could we do between the primary data and the database to understand representativeness? In this sense the book really throws open the inadequacy of information and the need for organized data.

Even when we take the broad parameters on which the book presents data there are further questions that crop up. It is okay to look at data at a city level, but how a city is broken up by the various departments is not uniform. The way the Bangalore Water Supply and Sewerage Board divides up a city like Bangalore is different from how the wards are cut up under the Brihat Bengaluru Mahanagara Palike; this is different from how the postal department has organized pincodes; Bangalore Metropolitan Transport Corporations organization of divisions is unique and the Bangalore Electricity Supply Company’s organization of divisions would also be uniquely different. Each one of these data providers would have a different definition of the borders of Bangalore. Therefore any researcher or policy maker working in the field of urban issues is bound to face significant problems in secondary data and how it is organized. The authors also highlight the other problems with data. Look at this quote for instance:

“As far as hospitals are concerned, we found that Bangalore [The city] has 13 hospitals [including government hospitals, private hospitals, and nursing homes] per lakh population [or a total of 1,027 hospitals]. However, what matters is number of beds in the hospitals rather than the number of hospitals themselves. Unfortunately, our data on the number of hospital beds cover only government hospitals since we did not have data on beds in all hospitals.”

So, while the book works as a resource book and an aggregation point of organized data on 15 cities of Karnataka, it also implicitly raises many more questions about the quality and quantity of data that is available in the public domain. Therefore what is unsaid in the book is as important [if not more] as what the books brings to the table.

This is certainly not a book to be read. It is a book to be referred to. In that sense, the book is a bit of a let down due to one factor. It has been published late for the 2001 census data where it ends and a bit too early before the 2011 census data could be obtained. If only the authors had added the 2011 data it would have been even more useful for somebody who wanted to analyse this neat data over time. Clearly if one indeed tries to “read” the book, then the problem encountered would be that of a monotony. Unless one was doing a specific research on a particular city, the format looks repetitive – and seems to say the same thing about each city. A little bit of work would have made the text more readable. While there is a comprehensive chapter that looks at data across cities, it would have been good when specific data of a particular city was being discussed a counter point, a comparison, a reinforcement of that using data from other comparable cities could have been slipped in. It would have made the book a little more readable.

Irrespective of other expectations, this is no doubt an important book, but only as a starting point. The quality of data and the quality of analysis from now on should only improve – both in terms of coverage of cities and in terms of the depth of the data provided, and also in terms of the granularity of the data.

Prof. Paul and his team need to be complemented for this painstaking and frustrating work that they have undertaken

The Truth Shall Prevail?

The Resurgence of Satyam, The Global IT Giant
Zafar Anjum
Random House India, 2012
pp.268. Price Rs.399

At one level, corporate frauds are difficult to pull off. There are thousands of employees, control systems, auditors, analysts, regulators, and the board. And yet a look at the history of corporate scams, it makes us wonder about the reams written about corporate governance, the golden peacocks, the theory of an independent professional board. In case of Satyam, we also wonder about banks, auditors and more. Reading about scams at the base level titillative and at a cerebral level introspective. A book about scams and frauds comes with huge and diverse expectations.

On the face, by focusing on the resurgence, we believe Zafar Anjum tempers the expectations to the resurgence and reconstruction. But, a large part of the book is dedicated to the background of trying to dissect and reconstruct the modus operandi of the fraud perpetrated by Ramalinga Raju on Satyam. The reconstruction effort gets disproportionately lesser pages. It could have been very interesting if his research understood the homework done by Mahindras in the run up to the acquisition. How does one evaluate a stake in a company that was opaque and fraught with fraud? A company listed on NASDAQ and facing class action suits in the US? How could a clannish company transformed to professional one? Was the deal worth it?

Unfortunately Anjum’s book does not provide fulfillment. It draws heavily on existing literature and in particular from the book “The Satyam Saga” published by Business Standard. While the book is well crafted, simple and straightforward, the narrative is inspired by the chronicling style of Tim Bouquet and Byron Ousey who authored Cold Steel, the saga of the marriage between Mittal Steel and Arcelor. Anjum also seems to be inspired by Kingshuk Nag who wrote The Double Life of Ramalinga Raju both for style and for content. While this style makes the text readable, it does not come across as a rigorous piece of work.

Inane trivia are a part of this style. The prologue subjects the readers to how Anjum stumbled on story of Satyam, the flight [with the number] to Hyderabad, the weather and the menu on board. With action he gets to the chronicle mode: “Karnik could feel a palpable sense of urgency in Goel’s voice. Being a representative of the government, Goel seemed determined to save the situation at Satyam. Karnik gave in and said yes, accepting the ‘responsibility’ in principle.” [p.93]. Unfortunately this style is not followed in the reconstruction phase. It appears that Anjum had access to the Mahindras [the spine sports the Mahindra-Satyam logo], but we get no insights into the minds of Anand Mahindra or CP Gurnani. Except for the fact that Anjum had an interview with Gurnani and visited the Satyam Headquarters to meet a few senior level employees we do not get evidence of extensive interviews and primary field-work, interviews with other stake holders, which would be considered necessary even if we treated this as a journalistic piece of work rather than academic research. Instead, there is a dry rendering of events that followed the take over, the communications strategy, a peek into Gurnani’s blog and the events thereafter. But: What about the tension? What about the dilemma of whom to trust? The problem of what lay within this black box? None of these come out. The resurgence story ends much before it starts. The learnings we have: communication was important; there was internal restructuring; a Shadow Board was set up to make decision-making agile. The content could have been more insightful than a collage of material neatly culled and ordered from secondary sources.

This should have been an important book in management literature. The concept of “too big to fail” so often used in the banking sector was applied to an unlikely sector. The government stepped in, while it could have let go. The Enrons, the Worldcoms and many an Indian company have been allowed to fail. There was something in Satyam that triggered the government to save it. It was saved without a bail-out. A significant share of the credit for holding out must rightly go to the employees, it should also go to the State for handling the IT brand of India so carefully. The competitors in general seem to have acted with maturity promising not to poach. It was a great case of Statesmanship and revival. Anjum touches upon this, but fails to weave these pieces together.

And finally, Satyam tells us a tale of how decorative the boards are and the limited role they have in “governance” if the management decides to cheat. The Boards at best could give strategic inputs and directions, but governance? A question we should probe very deeply.

There was a lot of fun and pun about the name Satyam. The book ends with a note that indicates that ultimately as the truth prevails the name might fully be erased when the company merges with Tech Mahindra. A case where the truth prevailed but not Satyam?