Aug 16, 2007

Of CEO salaries and Capitalism

In recent times, the high salaries drawn by CEOs in India have been questioned by some. Even the PM has suggested that they should be lowered. This post presents a counter-opinion, and a lot of other thoughts.

First of all, let us correctly identify the problem. The situation is that a few people in this country are earning a lot, while many continue to live below the poverty line.

Let us, for the sake of discussion, take income as a proxy for happiness. I know this is a very narrow and materialistic view of life and happiness, but it is a simple and valid approximation (find me someone who is NOT happy to earn more, and I'll take that back).

Now, some people have a lot of 'happiness' (to the extent of living in a noxiously lavish manner), while some have little or no happiness (being driven to the extent of suicide). Reducing CEO salaries makes CEOs less happy, and does not make the poor any happier.

One scenario in which the poorest could benefit, was if they got the money that the CEOs had to forego. However, this scenario does not play out in real life. Any reduction in CEO salaries will only add to the company's bottomline, and eventually be distributed to the shareholders. The shareholders are definitely upper and upper-middle class people, who already have enough cash to risk investing it in the stock market. So, all that the CEO salary cut will accomplish is some re-distribution of wealth among more or less affluent people, while being singularly severe on one sub-group (CEOs).

This surely does not sound like a real problem has been correctly solved. So, I conclude that the CEO salaries are not the problem at all!

The problem is clearly with the poorest lot, and the solution is to enable them to earn more. To draw an analogy, if you have a traffic jam due to a bottleneck junction, you construct a flyover in place of the bottleneck. You do not pass a law forbidding people from driving at speeds above 20 kmph.

But if high CEO salaries are not the problem, why are people protesting against them? The answer is - the stark disparity between income levels draws attention to the real problem (poverty) which is difficult for the administrators and polity to solve. Their defensive response is to divert attention from the real problem (poverty) and make the public believe that the symptoms (disparity) are the problem. This works incredibly well in a country where, historically, denial was respected, and profit was considered a dirty word.

Regarding the re-distribution of wealth mentioned earlier, I believe that no one has any right to decide how wealth is distributed, other than it's creators. This is a fundamental concept of Capitalism. People receive rewards for what they accomplish, and are not obligated to share with others who had no contribution. Many of my fellow-countrymen find this idea difficult to accept. "One can not be so selfish. We have to take some responsibility for the weaker". This line of thought is probably a product of our education system - which drills into our heads that pure capitalism is evil, and socialism is noble.

However, socialism, as nice and humane as it may sound in theory, simply does not work. Consider these cases:
1. USSR and USA - both became superpowers after the first World War. USSR did not survive the 20th century.
2. East and West Germany. One country split into two after the second World War. At the time of re-unification, West Germany's per capita income was about 4 times higher than the Communist East.
3. North and South Korea. Separated after the Second World War. Today, South Korea is on par with the Developed nations, while the Communist North has a GDP per capita only 1/13 (yes, one by thirteen) that of the South.

I could argue that the Capitalist system is the most efficient and practical, but I'm sure someone would produce some ideological argument in favor of Socialism. So I just cite historical, empirical evidence (above) in support of Capitalism, and rest my case.

I believe our Constitution still proclaims India as a 'sovereign, socialist, secular, democratic republic', and we are taught in school to be proud of all these. But later, objective education at good institutions has made me (and probably many others) realize that the 'socialist' there was a mistake our previous generations made, and it's high time we corrected it. India will not realize her potential at the World stage, unless we break free of the socialist legacy, and genuinely embrace Capitalism.

Another thought I feel I should include in this post. CEOs salaries, unlike any other income levels in the country, are determined by International supply-and-demand. Indian companies will be run by the best, only if they are paid the amounts that some people find obscenely high. If these guys are offered less, they will simply go and ply their trade elsewhere. This is exactly how the infamous 'brain drain' had started. If India wants to be counted as a World Power in the 21st century, we can not repeat the same mistakes.

Aug 12, 2007

Wats wrong with Dravid?

This post refers to this Test match. India bowled England out, and had a lead of 319 at the end of the first innings. By enforcing the follow-on, India would have absolutely eliminated the possibility of losing this match (and allowing England to tie the series). This would also be the best strategy for actually winning the match.

In stead, Dravid chose NOT to enforce the follow on. The problem with this - England will have a definite target to chase for victory. As difficult as it could possibly be, at least they would know exactly what they'd need to do. And - India would have less time to bowl England out for a win. Especially if there are any rain delays. This scenario is EXACTLY what ENgland would want, and is definitely the worst choice India could make. I can see no reason to support Dravid's decision, except possibly the desire to give the bowlers some rest.

Now, the bowlers have only been in the field for less than 4 sessions, which India have dominated. If India squanders the best opportunity they've had to win an Away series in decades, because they chose to let the bowlers rest, rather than doing what was required to win, this bunch should be lynched and hanged at a public place.

This post explains how and why a true fan is supposed to support his team through tough times, and I agree with the author. But a line has to be drawn. If the team is making an honest effort against good opposition or in difficult circumstances, you support them. There is no sense in supporting fools commiting harakiri.

For the record, India is 13/3 as I finish writing this. For the first time in weeks, it is beginning to look like they may (just may) not win this series. DAMN!


I had to shift to a new apartment a short while back. Unable to find a decent place on my own, I decided to use the services of a broker. During and after the search, I realized just how dishonest these people are. Consider these cases:

My first broker (liar no 1) had told me any house i selected would be finished (woodwork, elec fittings etc.) within a week. However, owner-chappie was honest enough to tell me it would take 3 weeks for the house i liked, but i could move to another one (which was ready) anytime. He was also quite honest about the amount of time it would take for the swimming pool etc. to be fully functional. However, when i tried to negotiate the rent, he tried to explain the finances to me, and to prove that he would lose money at the rate i was asking for. He's liar no 2 - smart, subtle, and clever. If i hadn't been formally trained in finance, I'd never realize he was being utterly dishonest in the last negotiation.

I eventually took another house, through another broker (liar no 3). I liked the house as such, but i needed some other info, regarding availability of power backup, 24 hrs water supply, and needed some minor repairs here-and-there. This f%&^er told me all the facilities were available (when they are NOT) and made a million false promises about the repairs etc. I've moved into the house, and like it overall, but the experience was so bad, my blood boils every time i see him

So we've come across 3 different kinds of dealers, with varying degrees of scruple:
1. A guy who does not lie about anything which i can later find out. He does mislead customers, but 99% of the time, they will never find out, nor suffer in any respect. I feel we can let this pass - given that the guy is in a business to make profits

2. Another guy, who makes some promises which he knows he probably wont be able to
fulfil. He knows the customer will probably suffer later. But he could argue that he assumed the best case scenario, and told the customer what he genuinely beleived. This is questionable, but i guess we can just about let it pass, 'cause he may not survive in a higly competitive market otherwise.

3. The bas%^&* liar. He cheats his customer, giving them false information, and reneging on all promises once he receives his payment. I can not think of any possible argument is this fella's defense.

What bothers me is the omnipresence of type 3. They clearly cheat customers, and get away with it with no problems at all. And people like us accept this. Grudgingly, but without any real resistance. We've come to accept such malpractices as 'the way things work' in this country. I'm trying to understand why, and to figure out if there is some way to change this.

Let's examine the 'whys' through the process, and possible solutions:

1. Slackness and carelessness. When we are paying for a service, we should insist the conditions and deliverables be defined and documented before commiting a payment. We usually do this at our workplace, for our employers. However, we do not display the same diligence in our personal transactions.

2. Avoiding confrontation. This is a typically 'Indian' behavior. When we are being suckered, we give in with a 'Chalta hai. Chhodo.' We are satisfied if only some or most expectations are met (usually the most basic). We shouldn't be satisfied so easily, and insist on getting the full value for our hard-earned money

3. Lack of awareness. Ok, I feel suckered and angry. What can I do? No idea. The Govt and NGOs should spread awareness. The best way to do this would be sharing some success stories. It would motivate other aggrieved customers to fight. We have so many media now - with news channels having enough airtime available to cover a lot of trivial shit in mind-numbing detail (such as the Abhi-Ash wedding, Brangelina and their kids et al). Devoting some time to spreading awareness about consumer rights and possible recourses against malpractice, would do a lot of social good. A TV program called 'India's most wanted' comes to mind. That was constructive usage of airtime. There should be more.

4. Fear. I can take this guy to court. But what if he has connections with thugs, and gives me a real tough time? Well, to tackle this problem, we'd first of all need balls. But more importantly, we'd need to have a lot of faith in our police and the administration - whose job is to protect the interest of good, law-abiding citizens. This is perhaps a deeper problem than the main subject of this post. We can only hope

5. Effective grivenace redressal forums. I know there are consumer courts and all in India, and have heard of the rare success story. But I've also heard that it usually takes 1-2 years to resolve a case, and it is difficult to win unless you have documented proof. This may be OK for physical product transactions, but its definitely not suitable for service transactions - where most evidence would be circumstantial and verbal. Is it realistic to expect a cheat to provide you a properly documented record of the swindle he pulled? Nope. For this, WE need to be more stringent (as outlined in points 1 and 2 above). AND we also need laws and courts that can actually solve real-world problems, and not pose more problems of their own.

A lot of social commentary from me, but no action. Trust me - I am going to try. If anyone can guide me - where to begin and how - I'd do it.

I dont know if anyone will ever bother reading this whole post - but i do hope some do, and at least learn from some of my mistakes. Ideally, I'd like to meet more people who've had such problems, and get together with them to do something. Not likely to happen, but there's always hope...