Vivek Kaul
So here is a thought experiment. You have to choose between two options. The first option allows you to keep all the electronic technology invented up to 2002 which includes your laptop with a Windows 98 operating system loaded on it and an internet connection that allows you to log onto the internet to access websites. You are also allowed running water and access to indoor toilets as a part of this option, but you can’t use anything invented since 2002.
The second option allows you to keep everything invented in the last 10 years which means you can have access to Gmail, Facebook and Twitter through your iPad or iPhone or even a Samsung Galaxy or Blackberry for that matter. But you do not have access to running water and an indoor toilet. This means that every time you need water you will have to haul it up from your neighbourhood well. And going to toilet on a rainy night would mean going through a muddy pathway to the outhouse or a field near where you live.
Which option would you choose? This is a real no brainer. Everyone in their right minds would choose the first option and willingly give up on all the technology that has been developed in the last 10 years.
This thought experiment has been developed by Robert J Gordon, an American economist. And what is the point that he is trying to make? “I have posed this imaginary choice to several audiences in speeches, and the usual reaction is a guffaw, a chuckle, because the preference for Option A is so obvious. The audience realizes that it has been trapped into recognition that just one of the many late 19th century inventions is more important than the portable electronic devices of the past decade on which they have become so dependent,” writes Gordon in a recent research paper titled Is US Economic Growth Over? Faltering Innovation Confronts the Six Headwinds. (You can access the research paper here).
The broader point that Gordon is trying to make is that today’s so called “information revolution” looks rather puny and small, when you compare it to the game changing technologies that were invented over the last few centuries. And it is the invention and the subsequent exploitation of these technologies that have driven economic growth over the last few centuries.
As Martin Wolf writes in the Financial Times “The future is unknowable. But the past is revealing. The core of Prof Gordon’s argument is that growth is driven by the discovery and subsequent exploitation of specific technologies and – above all – by “general purpose technologies”, which transform life in ways both deep and broad.”
Gordon divides the invention and discovery of these technologies into three eras. As he writes “The first centered in 1750-1830 from the inventions of the steam engine and cotton gin through the early railroads and steamships, but much of the impact of railroads on the American economy came later between 1850 and 1900. At a minimum it took 150 years… to have its full range of effects.”
The second era was between 1870 and 1900 and according Gordon had the most impact. “Electric light and a workable internal combustion engine were invented in a three-month period in late 1879…The telephone, phonograph, and motion pictures were all invented in the 1880s. The benefits…included subsidiary and complementary inventions, from elevators, electric machinery and consumer appliances; to the motorcar, truck, and airplane; to highways, suburbs, and supermarkets; to sewers to carry the wastewater away,” writes Gordon.
The third era started when electronic mainframe computers began to replace routine and repetitive clerical work as early as 1960 and peaked with the advent of the internet in the mid 1990s.
Gordon argues that the second era had a higher impact on economy and society than the other two eras. “Motor power replaced animal power, across the board, removing animal waste from the roads and revolutionising speed. Running water replaced the manual hauling of water and domestic waste. Oil and gas replaced the hauling of coal and wood. Electric lights replaced candles. Electric appliances revolutionised communications, entertainment and, above all, domestic labour. Society industrialised and urbanised. Life expectancy soared,” writes Wolf in theFinancial Times.
These developments also liberated women from a lot of things that they had to previously do. As Gordon writes “The biggest inconvenience was the lack of running water. Every drop of water for laundry, cooking, and indoor chamber pots had to be hauled in by the housewife, and wastewater hauled out. The average North Carolina housewife in 1885 had to walk 148 miles per year while carrying 35 tons of water.5 Coal or wood for open-hearth fires had to be carried in and ashes had to be collected and carried out. There was no more important event that liberated women than the invention of running water and indoor plumbing, which happened in urban America between 1890 and 1930.”
These developments that happened in the late eighteenth and the early nineteenth century essentially changed the way the Western world lived. They have gradually been percolating to other parts of the world as well.
More than anything these development increased economic productivity leading to faster economic growth. The increase in per capita income in Great Britain was almost flat at 0.2% per year between 1300 and 1700. After this it marginally jumped but it was only after 1850 that this rate crossed 0.5% per year. And it crossed 1% a few years after 1900.
So the entire concept of economic growth is a fairly recent trend if we look through history. As bestselling author and economist Tim Harford put it in a recent column “Economic growth is a modern invention: 20th-century growth rates were far higher than those in the 19th century, and pre-1750 growth rates were almost imperceptible by modern standards.” (You can read the complete here).
The economic impact of these inventions was so huge that it led to the assumption that economic growth will continue forever. As Gordon puts it “Economic growth has been regarded as a continuous process that will persist forever. But there was virtually no economic growth before 1750, suggesting that the rapid progress made over the past 250 years could well be a unique episode in human history rather than a guarantee of endless future advance at the same rate.”
And it might very well come out to be true. The core of Gordon’s argument is that modern inventions are less impressive than those that happened more than 100 years back. “Attention in the past decade has focused not on labor-saving innovation, but rather on a succession of entertainment and communication devices that do the same things as we could do before, but now in smaller and more convenient packages. The iPod replaced the CD Walkman; the smartphone replaced the garden-variety “dumb” cellphone with functions that in part replaced desktop and laptop computers; and the iPad provided further competition with traditional personal computers. These innovations were enthusiastically adopted, but they provided new opportunities for consumption on the job and in leisure hours rather than a continuation of the historical tradition of replacing human labor with machines,” writes Gordon.
The phenomenon is not limited only to the last ten years. As Tim Harford told me in an interview I did for the Economic Times a little over one year back “If I wanted to fly to India, I would probably fly on the Boeing 747. The 747 was a plane that was developed in the late 1960s. The expectation of aviation experts is that the Boeing 747 will still be flying in the 2030s and 2040s and that gives it a nearly 100 year life span for its design. That is pretty remarkable if you compare what was flying in 1930s, the propeller aeroplanes. In the 1920s they didn’t think that it was possible for planes to fly at over 200 miles an hour. There was this tremendous progress and then it seems to have slowed down.”
The same seems to be true for medicines. “Look at medicine, look at drugs, antibiotics. Tremendous progress was made in antibiotics after 1945. But since 1980 it really slowed down. We haven’t had any major classes of antibiotics and people started to worry about antibiotic resistance. They wouldn’t be worried about antibiotic resistance if we thought we could create new antibiotics at will,” Harford added. (You can read the complete interview here).
So the basic point is that growth of economic productivity has petered out over the last few years because game changing inventions are a thing of the past. These game changing inventions changed the Western countries (i.e. the US and Europe) and helped them rise at a much faster rate than rest of the world. But that might have very well been a fluke of history.
William J Bonner, an economist and a bestselling author made a very interesting point in an interview I did with him a couple of years back. “It seems normal to us that a person born in Houston earns 10 times or 20 times as much per hour as a person born in Bombay. It has been that way for a long time. We have known nothing else in our lifetimes…in our parents’ lifetimes…or in the lives of our grandparents. But go back a bit further and you will find that through most of the time the human race was the human race, the fellow born in Bombay was just as rich…or even richer…than the fellow born in other places. A man’s labor produced about the same output, whether then man was in Tennessee or Timbuktu. We’re only aware of a single exception – the space of time beginning in the 18th century to the present…or a period of less than 0.2% of the human experience. During this time, and this time only, people in what we now call ‘developed’ countries spurted ahead.”
And why did they spurt ahead? “The biggest leap forward of all came in the 18th century, when Europeans found that they could get a lot more energy. Great advances in living standards have been driven by big increases in energy use. The really big boom came in the 19th century when we learned how to use the earth’s stored-up energy – in coal…and then in oil. GDP growth rates – which had been negligible for thousands of years – soared above 5%. Human population bulged too. European countries – and their colonies – were on the case first. The use of stored energy allowed them to spurt ahead of their competitors in Asia. Over the course of the 19th and 20th centuries, Europeans came to dominate the world,” said Bonner.
And perhaps now that boom phase is now behind them. As Bonner put it “Trains were invented 200 years ago. Automobiles were invented 100 years ago. Aeroplanes came on the scene soon after. Electricity – fired by coal, oil…and later, atomic power – made a big change too. But all the major breakthroughs date back to a century or more. Even atomic power was pioneered a half century ago. Since then, improvements have been incremental…with diminishing rates of return from innovations. The Internet did nothing to change that. It was not a ‘game changer.’ The game is the same as it has been since the steam engine was first developed.” (You can read the complete interview here).
To conclude, let me quote Martin Wolf “This was the world of the American dream and American exceptionalism. Now innovation is slow and economic catch-up fast. The elites of the high-income countries quite like this new world. The rest of their population likes it vastly less. Get used to this. It will not change.”
The piece originally appeared on www.firstpost.com on October 4, 2012. http://www.firstpost.com/economy/ipad-or-running-water-todays-tech-is-no-patch-on-the-past-478789.html)
(Vivek Kaul is a writer. He can be reached at [email protected])
Month: October 2012
If Modi is Goebbels, what does that make Digvijay?
Vivek Kaul
Digvijay Singh, currently one of the powerful general secretaries in the Congress party, was born in February 1947. Given this he must have been in his late teens when the Yash Chopra directed multi-starrer Waqt released in 1965.
While I am not sure whether Singh is a movie buff or not, chances are he might have seen the movie. We all do when we are in our teens.
There are two things from Waqt that have survived the test of times. One is the qawali “ae meri zohra jabeen” sung by Manna De, set to tune by Ravi, and written by the great Sahir Ludhianvi.
Another is a dialogue written by Akhtar-Ul-Iman and spoken by Raj Kumar in the movie, which goes like this: “Chinoi Seth…jinke apne ghar sheeshe ke hon wo dusron par pathar nahi feka karte (Chinoi Seth…those who live in glass houses don’t throw stones at others).”
If Digvijay Singh hasn’t seen this movie its time he did. If watching a 206 minute long movie doesn’t fit into his scheme of things, he can at least watch this 18 second YouTube clip, to realise that those who live in glass houses don’t throw stones at others.
Singh has accused Narendra Modi of being well trained by the Rashtriya Swayemsevak Sangh (RSS) in the “Nazi tradition” of false propaganda. He tweeted twice on this to say:
1. “Sangh trains it’s cadre in disinformation campaign. Obviously Modi has been trained well! Sangh has modeled itself in the Nazi tradition.”
2. “Sangh training to its cadre. Jhoot bolo zor se bolo aur baar baar bolo (Tell a lie, tell it loudly and tell it hundred times). Doesn’t it remind you of Hitler’s Goebbels?”
These tweets came after Narendra Modi accused the government of having spent Rs 1880 crore in the treatment of Sonia Gandhi’s mysterious illness. Modi claimed to have got this number from a media report.
Singh has compared Modi to Paul Joseph Goebbels who was a German politician and Adolf Hitler’s Minister of Propaganda in Nazi Germany. There is no denying that Modi might be wrong with his Rs 1880 crore claim but the fact of the matter is that the Congress leaders including Digvijay Singh have been doing the same thing that they have just accused Modi of i.e. false propaganda, over and over again.
Let’s take a look at something that Digvijay Singh said in the context of the coalgate scam sometime back. “The way the CAG is going, it is clear he (i.e. Vinod Rai) has political ambitions like TN Chaturvedi (a former CAG who later joined the BJP). He has been giving notional and fictional figures that have no relevance to facts. How has he computed these figures? He is talking through his hat,” said Singh.
The CAG put the losses due to the government giving away coal blocks for free at Rs 1,86,000 crore. Singh would like us to believe that the figures put out by the CAG were notional and fictional and had no relevance to facts. As I explain here it was Singh and not the CAG who was talking through his hat.
Singh’s esteemed colleague, the finance minister P Chidambaram, also tried to tell the nation that there had been no loss in coalgate. “If coal is not mined, where is the loss? The loss will only occur if coal is sold at a certain price or undervalued,” said Chidambaram.
The union Finance Minister wanted us to believe that since almost all companies which got free coal blocks have not started to mine coal till date, hence there have been no losses. This is like saying that I gave away my house for free, but since the person I gave it away to is not able to sell it, hence I did not face any losses.
Chidambaram was basically trying to confuse us by mixing two issues here. One is the fact that the government gave away the blocks for free. And another is the inability of the companies who got these blocks to start mining coal. Just because these companies haven’t been able to mine coal doesn’t mean that the government of India did not face a loss by giving away the mines for free. (You can read the complete argument here).
Kapil Sibal the union telecom minister wanted us to believe that the government hadn’t faced any losses by giving away licenses to telecom companies on a first come first serve basis rather than auctioning them. The CAG had put these losses on account of this at Rs 1,76,000 crore. What these examples clearly bring out is that Congress leaders like Digvijay Singh are indulging in false propaganda of the worst kind, something they have just accused Narendra Modi of.
Another interesting point is that there can be a clear difference of opinion when it comes to the losses suffered by the government on account of coalgate. The assumptions that CAG worked with put the losses at Rs 1,86,000 crore. As I showed in an earlier piece with some more aggressive assumptions the losses could have even shown to be at Rs Rs 13.5 lakh crore (You can read about it here).
But there can be no such variation when it comes to the amount of money that the government has been spending on the treatment of Sonia Gandhi’s illness (if at all it has). A very simple way to puncture Narendra Modi’s argument is to just tell the nation, how much money has really been spent.
Modi claims that the government has spent around Rs 1880 crore or around $356 million on Sonia Gandhi’s illness. That’s a lot of money. If that is not the right amount, what is the right amount? All it needs is a simple clarification from the government.
And that hasn’t come. What has come is a comment that accuses Modi being a Nazi. As an earlier piece on this website pointed out that there is an RTI application pending before the UPA government asking for details of her visits, the amounts spent and for what purposes. What Singh’s comment also shows is that the Congress doesn’t know how to tackle Modi in Gujarat. Sonia Gandhi in 2007 had labeled him maut ka saudagar. Singh has now labeled him a Nazi. By trying to tarnish Modi’s image the Congress is only helping Brand Modi become much stronger at least in Gujarat. And that can’t be clearly good for a party which claims to be secular.
The article originally appeared on www.firstpost.com on October 3, 2012. http://www.firstpost.com/politics/if-modi-is-goebbels-what-does-that-make-digvijaya-477800.html
(Vivek Kaul is a writer. He can be reached at [email protected])
Why FM is tickling the markets: it’s his only chance
Vivek Kaul
So P Chidambaram’s at it again, trying to bully the Reserve Bank of India (RBI) to cut interest rates. “In our view, the government and monetary authority must point in the same direction and walk in the same direction. As we take steps on the fiscal side, RBI should take steps on the monetary side,” the Union Finance Minister told the Economic Times.
Economic theory suggests that when interest rates are low, consumers and businesses tend to borrow more. When consumers borrow and spend money businesses benefit. When businesses benefit they tend to expand their operations by borrowing money. And this benefits the entire economy and it grows at a much faster rate.
But then economics is no science and so theory and practice do not always go together. If they did the world we live would be a much better place. As John Kenneth Galbraith points out in The Economics of Innocent Fraud: “If in recession the interest rate is lowered by the central bank, the member banks are counted on to pass the lower rate along to their customers, thus encouraging them to borrow. Producers will thus produce goods and services, buy the plant and machinery they can afford now and from which they can make money, and consumption paid for by cheaper loans will expand..The difficulty is that this highly plausible, wholly agreeable process exists only in well-established economic belief and not in real life… Business firms borrow when they can make money and not because interest rates are low.”
While India is not in a recession exactly, economic growth has slowed down considerably this year. And this has led to businesses not borrowing. As a story in theBusiness Standard points out “At a recent meeting with the Reserve Bank of India (RBI), 10 of the country’s top bankers said companies were still keeping expansion plans on hold, as business growth continued to be slow in an uncertain economic environment. Nine of 10 bankers who attended the meeting admitted their sanctioned loan pipeline was shrinking fast due to tepid demand.”
This is borne out even by RBI data. The incremental credit deposit ratio for scheduled commercial banks between March 30, 2012 and September7, 2012, stood at 14.4%. This meant that for every Rs 100 that bank raised as deposits during this period they only lent out Rs 14.4 as loans. Hence, businesses are not borrowing to expand neither are consumers borrowing to buy flats, cars, motorcycles and consumer durables.
One reason for this lack of borrowing is high interest rates. But just cutting interest rates won’t ensure that the borrowing will pick up. As Galbraith aptly puts it business firms borrow when they can make money. But that doesn’t seem to be the case right now. Take the case of the infrastructure sector which was one of the most hyped sectors in 2007. As Swaminathan Aiyar points out in the Times of India “The government claims India is a global leader in public-private partnerships in infrastructure. The private sector financed 36% of infrastructure in the 11th Plan (2007-12 ),and is expected to finance fully 50% in the 12th Plan. This is now a pie in the sky. Corporations that charged into this sector have suffered heavy losses. They expected a gold mine, but found only quicksand. They have been hit by financially disastrous time and cost overruns.”
Clearly these firms are not in a state to borrow. Several other business sectors are in a mess. Airlines are not going anywhere. The big Indian companies that got into organised retail have lost a lot of money. The telecom sector is bleeding. So just because interest rates are low it doesn’t automatically follow that businesses will borrow money.
“If you take a poll of the top 100 companies in the country, you will find them saying nothing has changed despite the reforms. Confidence will return only if things start happening on the ground,” a Chief Executive of a leading foreign bank in India was quoted as saying in the Business Standard.
Confidence on the ground can only come back once businesses start feeling that this business is committed to genuine economic reform, there is lesser corruption, more transparency, so and so forth. These things cannot happen overnight.
Consumers are also feeling the heat with salary increments having been low this year and the consumer price inflation remaining higher than 10%. Borrowing doesn’t exactly make sense in an environment like this, when just trying to make ends meet has become more and more difficult.
Given these reasons why has Chidambaram been after the RBI to try and get it to cut interest rates? The thing is that the finance minister is not so concerned about consumers and businesses, but what he is concerned about is the stock market.
With interest rates on fixed income investments like bank fixed deposits, corporate fixed deposits, debentures, etc, being close to 10%, there is very little incentive for the Indian investor to channelise his money into the stock market.
Since the beginning of the year the domestic institutional investors have taken out Rs 38,000.5 crore from the stock market. If the RBI does cut interest rates as Chidambaram wants it to, then investing in fixed income investments will become less lucrative and this might just get Indian investors interested in the stock market.
The lucky thing is that even though Indian investors have been selling out of the stock market, the foreign investors have been buying. Since the beginning of the year the foreign institutional investors have bought stocks worth Rs 72,065.2 crore. This has ensured that stock market has not fallen despite the Indian investors selling out.
If the RBI does cut interest rates and that leads Indian investors getting back into the stock market there might be several other positive things that can happen. If Indian investors turn net buyers and the stock market goes up, more foreign money will come in. This will push up the stock market even further up.
The other thing that will happen with the foreign money coming in is that the rupee will appreciate against the dollar. When foreigners bring dollars into India they have to sell those dollars and buy rupees. This increases the demand for the rupee and it gains value against the dollar.
An appreciating rupee will also spruce up returns for foreign investors. Let us say a foreign investor gets $1million to invest in Indian stocks when one dollar is worth Rs 55. He converts the dollars into rupees and invests Rs 5.5 crore ($1million x Rs 55) into the Indian market. He invests for a period of one year and makes a return of 10%. His investment is now worth Rs 6.05 crore. One dollar is now worth Rs 50. When he converts the investors ends up with $1.21million or a return of 21% in dollar terms. An appreciating rupee thus spruces up his returns. This prospect of making more money in dollar terms is likely to get more and more foreign investors into India, which will lead to the rupee appreciating further. So the cycle will feeds on itself.
In the month of September 2012, foreign investors have bought stocks worth Rs 20,807.8 crore. Correspondingly, the rupee has gained in value against the dollar. On September 1, 2012, one dollar was worth Rs 55.42. Currently it quotes at around Rs 52.8. This means that the rupee has appreciated against the dollar by 4.72%.
An immediate impact of the appreciating rupee is that it brings down the oil bill. Oil is sold internationally in dollars. Let us say the Indian basket of crude oil is selling at $108 per barrel (one barrel equals 159 litres). If one dollar is worth Rs 55.4 then India has to pay Rs 5983.2 for a barrel of oil. If one dollar is worth Rs 52.8, then India has to pay Rs 5702.4 per barrel. So as the rupee appreciates the oil bill comes down.
The oil marketing companies (OMCs) sell diesel, kerosene and cooking gas at a price which is lower than the cost price and thus incur huge losses. The government compensates the OMCs for these losses to prevent them from going bankrupt. This money is provided out of the annual budget of the government under the oil subsidy account. But as the rupee appreciates and the losses come down, the oil subsidy also comes down. This means that the expenditure of the government comes down as well, thus lowering the fiscal deficit. Fiscal deficit is the difference between what the government earns and what it spends.
This is how a rising stock market may lead to a lower fiscal deficit. But that’s just one part of the argument. A rising stock market will also allow the government to sell some of the shares that it owns in public sector enterprises to the general public. The targeted disinvestment for the year is Rs 30,000 crore. While that can be easily met the government has to exceed this target given that the government is unlikely to meet the fiscal deficit target of 5.1% of GDP as its subsidy bill keeps going up. The Kelkar Committee recently estimated that the fiscal deficit level can even reach 6.1% of the GDP.
For the government to exceed this target the stock markets need to continue to do well. It is a well known fact people buy stocks only when the stock markets have rallied for a while. As Akash Prakash writes in the Business Standard “The finance minister will have to do a lot more than raise Rs 40,000 crore from spectrum and Rs 30,000 crore from divestment. We will need to see movement on selling the SUUTI (Specified Undertaking of UTI) stakes, strategic assets like Hindustan Zinc, land with companies like VSNL, coal block auctions, etc. To enable the government to raise resources of the required magnitude, the capital markets have to remain healthy, both to absorb equity issuance and to enable companies to raise enough debt resources to participate in these asset auctions.”
Given this the stock market has a very important role to play in the scheme of things. Controlling the burgeoning fiscal deficit remains the top priority for the government. But it is easier said than done. “Given the difficulty in getting the coalition to accept the diesel hike and LPG-targeting measures, there are limitations as to how much the current subsidies and revenue expenditure can be compressed. We can see some further measures on fuel price hikes and maybe some movement on a nutrient-based subsidy on urea; but with elections only 15-18 months away, there are serious political costs to any subsidy cuts,” points out Prakash.
Over and above this with elections around the corner the government is also likely to announce more freebies. Money to finance this also needs to come from somewhere. As Prakash writes “There is also intense pressure on the government to roll out more freebies through the right to food, free medicines and so on. If expenditure compression is intensely difficult in the run-up to an election cycle, higher revenue is the only way to control the fiscal deficit.”
For the government to raise a higher revenue it is very important that more and more money keeps coming into the stock market. For this to happen interest rates need to fall. And that is something that D Subbarao the governor of RBI controls and not Chidambaram.
The article originally appeared on www.firstpost.com on October 1, 2012. http://www.firstpost.com/economy/why-fm-is-tickling-the-markets-its-his-only-chance-474908.html
Vivek Kaul is a writer. He can be reached at [email protected]
‘How we organise our digital inheritance will be a major concern in the future’
With more and more of our lives moving online in the days to come we will have to figure out who to leave that legacy to. “How do we organise our digital inheritance will be a major concern in the future. To whom do you want to transfer all your digital life is a question that will need to be answered,” says Ferdinando Pennarolla, an associate professor at the department of management and technology, Bocconi University in Milan, Italy. He was in India teaching the first batch of students at the Mumbai International School of Business, an initiative of the SDA Bocconi School of Management. In this interview he speaks to Vivek Kaul.
I wanted to start by talking a little bit about our digital lives. More and more of your lives are moving online. So how private are our lives?
There are two pitfalls of this story. One is the pitfall of the consumer and the other one is the pitfall of the agencies and the authorities that have to set rules about the privacy for the future. The consumers are not asking themselves to what extent their digital lives are there forever. When you write something on the internet it is written on the stone. It is forever. It is very difficult to erase things on the internet. Once you get Googlised it is very difficult to cancel or erase your news. There many stories of people who want to remove themselves from Facebook and Twitter. But there are many other stories where people cannot erase their contribution to things like community groups and forums. How do we organise our digital inheritance will be a major concern in the future. To whom do you want to transfer all your digital life is a question that will need to be answered.
Could you discuss this in detail?
Our digital lives are characterised by services to which we have subscribed, say newsletters, social networks, e-commerce websites, free email accounts, blogs, and any other sort of profiling registration we do on the web to access to services and make our online purchases. Since we are not yet in the (eventually) forecoming era of the “digital identity” with an hopeful single sign-on technology that gives the pass to all we need on the web, the issue that remains open today is what happens to all this digital heritage when we will pass away. Who will have access to all of this? Will these accounts just be cancelled because they will remain unutilised? Will the vendors still keep on bombarding our mailboxes with news and advertising? I think there is a need of an integrated service that in the future will take care of all our digital and networked life, and pass it to our loves, according to our will.
What are the pitfalls at the agency level?
The pitfall of the agencies and the regulatory people who have to work on privacy are the following. I think we have to reformulate drastically what we mean by privacy. Let me quote a story which I was not mistaken happened two years ago and turned into a major scandal. It was found that there was a log file in the Apple iPhone available only when the user was synchronizing the iPhone with iTunes and this file was sent to Apple. It contained all the log information about the GPS presence of the user. And it was a big scandal. People started saying things like Apple is investigating about our lives. Apple knows where I am walking with whom I am talking. Apple knows whether I am travelling not travelling. Is this fair? Is this against private? It was a big debate.
And what happened?
I went onto the internet and I saw many of the blogs talking about it as well. And do you know what was the most common response? Who cares! I am not a criminal. I am not a government representative. Whether I am walking in Mumbai or I am walking elsewhere, who cares that they know. So there are people who have no problem in disseminating their information. The problem is that in many cases we think privacy is being violated but everyone else may not be thinking on similar lines.
That’s a very interesting point you make…
Let me elaborate on this a little more. I don’t wish that this happens to anybody, but do you know what is the very first thing you will do, if you are diagnosed with a cancer? You will go on the internet. Yes. You will go on the internet. You will start grabbing information about your case and similar cases. And do you know what is going to be next step? You will be sharing your story with other people. There are zillions of websites with cancer patients sharing their super private lives with everybody and pharmaceutical companies don’t know what to do with it. So there are some circumstances in life, where the traditional old fashioned notion of privacy is definitely in dire straits. Zuckerberg and his friends, they made an IPO with our privacy. They built a huge company with pictures and facts that I share with my circle of friends.
How are companies using this information that we leave online?
I think there is a big room for business on this. Let me make a case. Yesterday it rained very heavily in Mumbai (the interview was taken on an earlier date). I just talked to the head of the academic activities at my school and it took her four hours to get home and she only reached around midnight. Is that sane? It’s insane. Now routing traffic on the basis that people want to share their local information would be fantastic. It would mean exploiting the possibility of returning services to citizens based on the data they produce and the data they want to share. Google has started this in some cities. But they are still in the test phase. So we will have to wait and see to what extent this will become a popular service. I like to say that it is much less expensive to move bytes instead of moving atoms. Moving atoms should be the ultimate solution.
Any other examples?
Then there is the case for the health care businesses. And I would say that we are at a very early stage. I have been working with the giants of the industry and if you get into the Facebook pages of the pharmaceutical companies or look into the social network strategies of these companies, you will discover that some of these companies are trying to listen what is happening on the web. They are trying to understand how consumers are talking about their products and their therapies. That I think is a start and then eventually these companies will use this kind of data for returning services to the end consumer.
But you are talking from a positive point of view…
Yes. You know it is a of trade off. Let me put a case. Every time something dramatic happens in my country like a kidnapping, shooting, or a major accident, what happens is that police gets into a desperate search of webcams that eventually had the fortunate possibility to shoot the situation. These cameras could be something like private cameras for security purposes at a hotel. Now if you spread out cameras all over the city definitely you are invading the private life of your citizens and that they are being filmed at every single step of their lives in the city. But the returning action is that you can defeat criminals, who are a major problem in any country. Nothing is safe because in the end we are talking about human beings. But I do believe in policies and practices and I do believe in their enforcement.
Do companies like Google benefit because they have an access to a major part of our digital lives?
There is the famous quote from the Google founders “don’t be evil”. They know that they run the risk of being perceived as the evil of the world sitting on an incredible amount of data on processing information about users. I think Google is sitting on a pile of data which is very difficult to process and analyse. In fact, they are very cautious in turning this data into further initiatives. It is very difficult to trace behaviours when you move in different areas of the world, when you have different IP numbers and when you have different devices. So it is very difficult to then a have an interpreting model of the user behaviour. So once again it’s not easy to trace what you are actually doing. Can I say that, that’s the not the solution that we have to talk about.
Then what should we talk about?
The Google people made the brilliant contribution of re-inventing the way we do searches and making a business about that. Searches will be the most important engine of mankind in the years to come. But because of all the information that will be there, the difficulty will be in catching the information that you are looking for. So we need different engines. I predict the Google story will come to an end or they themselves may re-formulate their engine view and get into different type of searches. People get a little bit dissatisfied when they do traditional searches on the web. They get lots of popular stuff that they are not looking for. When you are under pressure when you have to make a fast decision you don’t want that to happen. You want to have exactly what you are looking for. This will have to change.
What kind of specialised things do you see them getting into?
The answer is semantic search engines which have the ability to interpret what you are looking for. But these are still in their early stages because semantic engines are very expensive to build and they need a lot of self learning. This database of semantic searches is the future that I see. In a recent blog you wrote “customer service operations today are similar to the organisation of the early mills and factories of 100 years ago. There is a long long way to improve in customer service, anywhere in the world. Neither the best admired companies are immune from this.” What made you say that?
Deploying a service with a face to face encounter in many businesses is no longer rewarding. Think of type of services like insurance or giving support to the customer once the product supplies have been done. They don’t have any reason to keep on opening local offices and having customers visiting those local branches. So more and more customers are logging onto the web or making a phone conversation to get their problems resolved. But there is a problem with the way customer service operations and call centres are organised. These jobs are of the highly repetitive kind where you do and do the same thing over and over again. You are bombarded by mails and phone conversations and then at the end of the day you are exhausted because you are working hard eight hours a day managing hundreds of complaints from customers.
Yes, I guess that’s true….
If you visit these organisations, I am sorry to say, they look like chicken gates, where people are organised in small cubicles. Sometimes the environment is very noisy as well and at the same time the people who work in these call centres are trying to understand what the customers are saying on the phone. I would say that this is insane. This is really like old industrialised assembly lines of 150 years ago. The other kind of organisations have been evolving their orgnisational modes towards much more up to date and more humanised, productive and motivation oriented environments. I am not surprised in many of the customer service operations, also in India, experience high turnover rates. So there is a major challenge for customer service managers to reinvest these organisations in such a way that I enter the customer service operation as a junior manager and I leave at the retirement age, let me provocatively say.
Do you see that happening?
No. It is not happening with the exception of a few cases. In 2003, there was a scientific research in the Academy of Management Journal which is one of the leading publications in my field. The research demonstrated for the first time ever that in customer service operations there is a positive correlation between customer churn rate and employee churn rate. This is very interesting and which means that if you want your customers happy, you have to make sure that your employees are happy. As opposite, if your customers are unhappy it is very likely that one of the reasons is that your employees are unhappy. But are customers happy with customer service operations? I fight on a daily basis to be served on the phone. And the quality of the service is lousy. It is very poor. Sometimes you have to remake the connection or re-explain the things with several agents over and over before getting a problem solved. This is happening in insurance, banking, travel, transportation and even in telecommunications.
Why?
Just to be frank and open, it is very difficult to find the right solutions and the right processes working in the back-office without any face to face interaction with the customer.
Another interesting blog of yours was on the growing number of digital subscribers of the New York Times newspaper. That raises a few questions. Do you see newspapers being a viable business model in the days to come? Or will the biggest newspapers of the world largely move online?
We are at a turning point and the turning point is the following. Definitely the news business is becoming more and more free. Everybody has news. The earthquake followed by the tsunami in Japan was communicated across the planet, faster than anything else. And it started with basically a few people shouting about it on Twitter. All this is fantastic news for mankind. We want to be informed and we spread out the news all over the planet. But the point is that we have to make a balance between the crowd-sourcing of news and the authoritative production of news.
Could you elaborate on that?
I would not want to stop the crowd-sourcing of news from people who become journalists simply because they are eye witnessing something that is very important. At the same time we need editorials. We need people who can interpret news. I value this a lot. I am still on old fashioned customer. I still purchase newspapers. Of course I purchase the digital version. But I still pay for the news that I get. But at the same time I am a very well informed citizen. I am always connected to the internet. I have my news websites open. And I grab the news instantly as soon as it comes. But still a day after I love to get into editorials to get an understanding of what is happening. I think the publishing industry has to find a solution. Is a solution readily available now? No. They are still in between.
The interview originally appeared in the Daily News and Analysis on October 1, 2012. http://www.dnaindia.com/money/interview_how-we-organise-our-digital-inheritance-will-be-a-major-concern-in-future_1747236
(Interviewer Kaul is a writer and he can be reached at [email protected])