Vivek Kaul
Tim Harford is a senior columnist for the Financial Times. His long-running column, “The Undercover Economist”, reveals the economic ideas behind everyday experiences. Tim’s first book, “The Undercover Economist” has sold one million copies worldwide in almost 30 languages. He is also the author of “The Logic of Life“, “Dear Undercover Economist”, “Adapt” and most recently “The Undercover Economist Strikes Back.” In this free-wheeling interview to Forbes India, Tim discusses the ideas he explores in his latest book The Undercover Economist Strikes Back, from why he feels that stimulus packages to revive the sagging economies in the Western world have been far too small to why money does buy happiness to why Henry Ford was the man who invented unemployment.
One of the most interesting parts of your book is where you talk about the baby sitting recession. What is that all about?
The babysitting recession was first discussed in an article published by Joan and Richard Sweeney in the 1970s, but it has been made famous by Paul Krugman. There was a babysitting co-op in Capitol Hill, Washington DC, that suffered a severe and lasting depression. Couples would keep track of who was babysitting for whom by exchanging babysitting tokens; however, there weren’t enough tokens in the economy. Almost everybody wanted to babysit for other people, accumulating a few more tokens, as a reserve, before they spent any tokens themselves. But of course the arithmetic does not work: somebody has to go out or this no economy at all.
So what drew you this example?
A number of things are interesting about this example – notably that a total economic breakdown could be fixed by a simple policy tweak: printing more tokens. (Paul Krugman has more recently tended not to mention the end of the story: the co-op printed too many tokens and ended up suffering from a serious inflation problem. But that is more of an interesting sting in the tale than a refutation of the entire example.) In The Undercover Economist Strikes Back I use the babysitting recession as a nice simple example of a Keynesian recession; in a Keynesian recession there is some dysfunction in the way the economy works, a dysfunction that can be fixed by governments printing money or perhaps borrowing and spending money. Some commentators believe Keynesian recessions are logically impossible; this is nonsense and it is nice to have a simple counter-example.
Another interesting part is about the prison camp recession. What is that all about?
The prison-camp I talk about was in Germany during the Second World War. The economic activity in the camp – a bit of production, but mostly trading items sent to prisoners by the Red Cross – was analysed in a quite brilliant article by one of the prisoners, Robert Radford, who published his findings a few months after the war ended.
And what did Radford find?
The prison camp is almost the perfect counter-weight to the baby-sitting co-op. Trade in the prison camp worked amazingly well. There were well-understood prices and middlemen ensuring that prices in different parts of the camp tended to converge to similar levels. At one stage, coffee was worth more outside the camp in the cafes of Munich than it was inside the camp, that meant gains from trade, and coffee began to go “over the wall” – the prison camp had an export trade! Despite various attempts from the senior officers to regulate trade and particularly to fix prices at levels they regarded as fair, prices were flexible and refused to respect any social or ethical conceptions of the “just price”. This was close to a perfect market. And yet… and yet the prisoners nearly starved to death.
Oh, why was that?
Why they starved is not hard to understand. The parcels from the Red Cross began to dry up as the war progressed. Food and cigarettes both became scarce. In the last, desperate days, there were few goods and prices fluctuated wildly. Finally the US Army arrived and liberated the prisoners.
But what does all this have to do with a modern economy?
The point is that there are two conceptions of what a recession really is. One conception is Keynesian, like the babysitting co-op: some internal malfunction that needs fixing. But another conception is Classical: that economies fluctuate not because of anything wrong within the economic system itself, but because of policy errors or external shocks. Of course the prison camp is an extreme example of a recession caused by an external shock, but modern economies are subject to technological changes, fluctuations in the price of basic commodities, and of course financial shocks from a banking crisis.
Where do the baby sitting recession and the prison camp recession meet? What are the policy lessons one can draw from them?
A Keynesian, baby-sitting co-op recession invites a role for government intervention – most famously through fiscal policy (cutting taxes or boosting spending) but also through monetary policy (cutting interest rates or even printing new money). A Classical, prison-camp recession invites a more fatalistic response: there’s nothing the government can do to make things better, and plenty of things it can do to make things worse. The huge argument that has raged in many economies about fiscal stimulus versus austerity is really a debate about whether recent recessions have been mostly Keynesian, or mostly Classical. If Classical, then austerity is the right response: we’re poorer and we need to get used to it. If Keynesian, then fiscal stimulus is the right response: we’re only poorer if the government gives up and allows us to be!
So are the recent recessions Keynesian or Classical?
In a book you can give black-and-white examples and in life, nothing is black and white. But in my view the recent recessions have been at least partially Keynesian and governments – especially in the UK and US, where they had a choice – should have postponed austerity measures.
The western world has been running stimulus programmes. Do they really work?
It’s interesting that this is your perception. I think most stimulus packages have been far too small – although the US has at least tried. The evidence on such things is always tricky because macroeconomists (unlike microeconomists) cannot run controlled trials. But we can try our best.
Can you elaborate on that?
The International Monetary Fund at first estimated a modest effect from fiscal stimulus – that is, government spending does make the economy larger in the short run, but only a bit. But the Fund later recanted and argued that in the recent recession, fiscal stimulus was far more effective than they’d believed at first.
Let’s assume this is correct (I think it is). How did the Fund make their original mistake? The problem was that they were looking at historical evidence on stimulus spending, and the historical evidence incorporated much milder recessions in which monetary policy was a good alternative to fiscal stimulus. Those mild recessions weren’t a good guide to recent experience, alas.
What is the best way to make a stimulus work?
As for how to make stimulus work, I argue in my book that the best bet is advanced planning: governments should have a list of well-planned infrastructure projects, and should accelerate those plans in case of a downturn. That way, we carry out the investment we were intending to anyway, but at a time when it will have nice macroeconomic side-effects.
Economists have been criticised for having too much faith in GDP growth. Even Simon Kuznets, the man who invented GDP never saw it as a measure of welfare. You write that “they rely on the popular misconception that much of what is wrong with the way the economy is organised is wrong because we collect GDP statistics, and that the way to fix our economic problems is to measure something else. I think that is a mistake”. Why is that a mistake?
Because it isn’t the measuring of GDP that has caused the problems. We had economic growth – and inequality, environmental degradation and other problems – long before we could measure it. Of course there are thoughtful critics of GDP who suggest additional things we could measure, or ways to make GDP a better measure of economic activity. But the more radical critics seem to assume that our economy is organised the way it is because some sinister force is trying maximise GDP. And that’s just crazy.
A lot of recent thinking talks about happy economics (or what you call happynomics). Does money buy happiness?
Money does buy happiness, it seems – or at least having more money, within a particular society, is correlated with being happier (or rather, with telling surveyors that you are more satisfied with your life). The big contested question in happynomics is whether that’s also true across countries: so, is a richer country such as the US happier than a poorer country such as India?
Is that the case?
Early research from Richard Easterlin suggested that richer countries aren’t happier – hence the phrase “the Easterlin Paradox”: if money buys happiness for individuals but not for countries which are collections of individuals, what’s going on? Two possible explanations: one is that what really counts is relative income. Indians compare themselves to other Indians; Americans compare themselves to other Americans. If Americans compared themselves to Indians they’d feel rich and would be happier. But they don’t, so they don’t. An alternative explanation – favoured by economists Justin Wolfers and Betsey Stevenson – is that Easterlin is just wrong: at the time of his research, the data were of poor quality. Now we have better quality data and we see that money is correlated with happiness both across and within countries. It will be interesting to see this debate play out.
Can economic growth carry on forever?
In principle, yes. Quite a few environmentalists and physicists have pointed out that the planet simply cannot support exponential growth – sooner or later (and, with exponential growth, sooner than we think) we will reach environmental limits.
You don’t buy that?
I regard myself as an environmentalist myself but I think this is just a simple conceptual error. Of course we cannot continue to use more resources or energy at an exponential rate. But economic growth is just growth in the market value of output. So it can continue forever – at least in principle. There are already signs that energy growth is being decoupled from economic growth: in countries such as the UK, the US, Germany and Japan, energy consumption per capita has been falling for a long time now. Population growth is also low or negative in many rich countries. I believe that we need to focus on practical environmental questions – for instance, how to reduce carbon dioxide emissions now – rather than these very abstract concerns about exponentiation.
One of things that you write about India is that “there simply isn’t enough money in India yet for it to be unequal”. What do you mean by that? Do you see it changing in the years to come?
The World Bank economist Branko Milanovic has this idea of the “inequality possibility frontier”. Imagine an extremely poor subsistence society. Then imagine some class of plutocrats, who somehow confiscate wealth and spend it themselves. How much can they take? The answer is: not much if the society is to survive, because the poor cannot dip below the average income because the average income is barely enough to keep you alive. Now imagine a much richer society. This, in principle, could be far more unequal because the poor could still survive on a tiny fraction of the average income. Milanovic and co-authors were interested not only in how unequal a society is, but how unequal it is relative to how unequal it could possibly be. My point was that despite important gains over the past twenty years, India is still a very poor society. There’s a limit to how unequal it can get until it gets richer – which should make us worry about the inequality we do see.
Why was Henry Ford the man who invented unemployment?
Ah yes, this is one of my claims – and I should say that it’s an exaggeration, of course. But here’s the puzzle: Henry Ford of the Ford Motor Company raised wages at his factory to such a level that men were queuing round the block for jobs, being hosed down by police in a sub-zero Chicago January. Why have such high wages? Why not cut them and save money, given how much demand there was for jobs?
The idea here is “efficiency wages” – that it can be efficient for an employer to pay well above the market rate because it gives him the pick of applicants, and a fiercely loyal group of workers who will do almost anything to keep their jobs. And of course, that describes many – perhaps most – jobs in the formal sector today. That means, in turn, that we’ll always have unemployment, not because of some macroeconomic slump, but because individual profit-maximising companies prefer efficiency wages.
You quote a lot of John Maynard Keynes all through the book. One of the things you quote in the last chapter is “the master economist must posses a rare combination of gifts…He must be a mathematician, historian, statesmen – in some degree….” Do you see that in current day economists?
Not enough. But that challenge is what makes economics such a marvellous subject to study. Everything is there in the subject, waiting to challenge us. Despite all the difficulties, economic remains a wonderfully important and rich topic to explore – and it’s still a great time to be an economist.
The interview originally appeared in the Forbes India magazine dated December 13, 2013
Interview
Fifth anniversary of 26/11: The Ordinary Heroes of the Taj
Vivek Kaul
Rohit Deshpandé is Sebastian S. Kresge Professor of Marketing at Harvard Business School, where he currently teaches in the Owner/President Management Program and in other executive education offerings. Deshpande is the co-author(along with Anjali Raina) of the Harvard Business Review article The Ordinary Heroes of the Taj. He has also written a case study titled Terror at the Taj Bombay.
On the fifth anniversary of 26/11, Deshpande speaks to Firstpost on the heroic behaviour of the employees of Taj Mahal Palace and Tower Hotel, which was occupied by terrorists for three days. “There was one person who was stuck at the Taj and who told this amazing story about a whole bunch of guests being surrounded by a group Taj employees, who calmed them. They surrounded them to make sure that they did not run all over the place and get into harm’s way. They later learned that these were interns, not even regular employees, who were taking care of guests,” says Deshpande.
Give us some background how did the employees of Taj react on the night of 26/11?
The story is that the staff at the Taj reacted uniformly, and that same way was to protect the guest’s safety and to get the guests out of the hotel. Both actions came at the expense of the staff’s own safety. Several of them were wounded and a number of them were killed in the process of doing this.
Were they trained for doing this?
Staff members had no training in security measures. I interviewed people in the kitchen staff. The kitchen took the heaviest casualty. The reason for this was because guests could be taken out on to the road behind Taj through the the back passages from the kitchen galleys. So they started taking hundreds of guests out from the back of the kitchen. The terrorists got to know of this. There was a lot of media attention at that time and somehow they were signalled to this. They went across to the kitchen. The chefs formed a human barrier around the guests and took the bullets. A number of chefs were killed including the number two to Executive Chef Oberoi. There were a number of chefs who were killed and who had been working only for two or three years. Young chefs. These were people who had no training in security measures. And they were instinctively taking care of the guests, and taking them to safety.
That was very brave of them…
One of the people that I interviewed was the vice chairman of Indian Hotels(the company that runs Taj Hotels). He said, these are people who know all the back exits. And the natural human instinct, I am paraphrasing what he said, is to flee. So this is a very curious behaviour. The employees of the Taj Hotel chose not to flee but to stay and help guests out. And then comeback to help more guests out. Many of these people are the sole bread winners in the family. And yet they were doing this. This is counter-intuitive. There is decades of social psychology research that basically says that when there is a flight or flee response, and you are not trained to fight, so you flee.
When you started looking into the reasons, why do you think the staff reacted the way it did, inspite of the fact that they were not trained for it?
So here is the curious story. I asked this question to the senior management, when I was doing these interviews. And they did not know the answer. They could not understand it. Ratan Tata was one of the people that I interviewed. He could not understand it. Raymond Bickson who is the CEO of the company, he could not understand it. So, senior managers couldn’t figure it out. And I asked the employees. I asked why didn’t you run away. And people gave me all kinds of explanations. The General Manager of the hotel, Karambir Kang said, I come from a military family. When I took up this job as the General Manager of the hotel, my father always said remember that you are like the captain of the ship, you are the last one out. And that’s how I felt, I am the last one out.
He stayed on the ship despite what was happening to his own family. There were other people who said, they had more important things to do and so they stayed.
So basically people did what they did and they probably didn’t have an explanation…
It seems somehow what they did was instinctive. They didn’t really have an explanation for it. And we know for sure that they were not trained. But they were independently doing the same thing in different parts of the hotel. The same thing in the general part of it was taking care of the guests but it would translate into different things like calming guests, staying calm themselves, providing food and drink to people through the night. Remember, the attack at the Taj lasted three times longer than it did anywhere else. So actually it is interesting that the fatalities were not much much higher because it lasted three times as long.
So the kitchen etc were functioning?
They were functioning. There were banquet rooms that were sealed off, but they were providing sustenance to the guests in complete darkness. That was the curious part that the employees themselves could not explain.
So what is your explanation?
There is no simple explanation for it. Its a very very complex thing. In the Harvard Business Review(HBR) article that Anjali Raina and I wrote, we looked at the human resource policies, the kinds of people they recruit. How they train them. How they reward them. Undoubtedly that has something to do with it. Raymond Bicskon in his interview said, we hire nice people. You can train anybody to be good at housekeeping, but you can’t train them to be nice.
How do you hire nice people?
We get a little bit of that in the HBR article. There policies tend to be different from other companies. They go to small towns rather than large cities to recruit. This is actually counter intuitive because if you are trying to do recruit an employee who has to do a lot of guest interaction, you want someone who is cosmopolitan, can speak English fluently, can work with international clientèle, etc. You will think that you are more likely to find a person like that in big cities like Mumbai rather than small places like Nashik. They do the opposite. I think that is a part of it. I don’t think they were thinking that would lead them to be prepared for an attack like this. But they were thinking how can they have people who are ambassadors for their guests rather than an ambassador for their brand.
Why did you write only about the Taj and not the Oberoi as well?
There is no deep story to it. The background is that I was actually writing a branding case on Taj Hotels, in the spring of 2009. It was around the time Indian Hotels, had made this major strategic initiative to expand beyond the Taj line of hotels and add Vivanta, Gateway and Ginger brands. To my knowledge there is no other hotel chain in India that actually covers those market segments. So why were they doing this? I came to do that case. Every single interview that I did, the person that interviewed mentioned 26/11.
Why did that happen?
The context of mentioning that was a branding issue. We don’t know whether our brand has been forever besmirched by the tragedy. That people from here on will always associate the Taj with terrorism. The image of the Taj Palace Mumbai will always be an image coloured by smoke rising from the dome. These were the things that people I interviewed said. First, I was going to put that in the opening paragraph of the case but it did not make sense for a branding architecture case, which had nothing to do with. I asked if I could comeback and do a case that had to do with crisis management and brand resurgence. How do you bring your flagship brand back after the crisis? That was the story for the second case. The case was on the Taj. It was not a comparative case on the Indian hotel industry. It was a very simple case which had some marketing and branding angle to it and was focused on the Taj.
The reason for asking the question was very simple. After reading your case the first thought that came to my mind was how had the employees of the Oberoi reacted.
How did they react?
I don’t know.
I don’t know the answer because I don’t have the data. But here is the analytical point. When I teach this case, one of the learning points in the case is the meaning and management of culture. So normally when we teach the concept of culture in the MBA programme, our students are thinking of culture as in corporate culture. Here there are two corporate cultures. There is the Taj corporate culture and there is the Tata corporate culture. So automatically there is a nuance. Then there is the industry culture, which is the hospitality industry, under which will come the Oberoi and a bunch of other competitive hotels. Then there is national culture which has to do with values. Like one of the things that you know from this is atithi devo bhava, which is not a Taj thing. It is an Indian thing.
What are you trying to suggest?
If one thinks of a cultural explanation for the behaviour of the staff at Taj on the night of 26/11, it could be explained by a multiple culture interaction. If it was the hospitality culture that was dominant, one would expect the same thing to have happened at the Oberoi. If it was the Taj culture that was dominant one would expect this not to have happened at the Oberoi. If it was the Tata culture that was dominant one would have expected this to happen if Tata Tea, Tata Motors or TCS had had a crisis of similar proportion. I don’t have data for this but this is a part of our discussion in class, where students are actually trying to grapple with this notion and their learning expands beyond just going to the immediate i.e. what happened in that hotel. For us the learning is not about what happened in that hotel, but is this actually learnable, scalable and generalisable, outside of that hotel. That’s the classroom learning.
When you discuss this case, what kind of explanations people come up with for the behaviour of the Taj employees?
One particular explanation is that this is a one off that could only have happened at that particular hotel. It has to do with the 105 year old history of the Taj Palace hotel in Mumbai and the positive memories especially people in Mumbai associate with it. So, it couldn’t have happened anywhere else. It wouldn’t happen here, at the Taj Land’s End (where the interview took place) for instance. That’s one explanation.
There are explanations that say that this is all about India. It couldn’t have happened outside of India. There is something about the Indian culture that explains it. To some people its regional culture in South Asia or Asia in general and one would not expect this in the West. Then there are people who say this is trainable. This is coachable. This is to do with how you recruit people, and how you train and reward them. So there is a very very wide range of explanations.
You also briefly talked about the Taj brand being tainted with terrorism. How was that overcome?
One part of our discussion that we have during the case study is how do you get guests to comeback to the hotel, after a tragedy like this? This goes back to the issue of the brand being connected with terrorism and therefore people not wanting to go there because they were scared. Taj did an incredible job of reassuring people. If you recall there advertising campaign, they anthropomorphised the building and made it speak in the ad. It basically said, I have withstood generations and seen ups and downs of Indian history and I will stand strong. It was a defiant message, but it was as if the building was speaking. It struck a chord with people, to the point that when the Taj reopened, there were local people who went and lived there. This is an amazing story of resurgence. Also, it is worth remembering that this is happening at the nadir, the low point of the global financial crisis. Hospitality was one of the industries that was impacted the most dramatically. That means what? Luxury hotels occupancy rates were at an all time low, and then this thing happens. This could have wiped out the Taj brand completely. The fact that they rebounded and rebounded in such an amazing way, I think is a testimony to people’s connections with that company, with the hotel, with the staff and what they did in terms of actions and so on.
Anything else that you would like to add?
The other part of the story that comes out here is the Tata story that goes beyond the Taj. The Tata group is known for taking care of its employees. So there is a loyalty that Tata employees have towards their company and towards the Tata group. People that I was interviewing said that they were working for a higher purpose. And after the 26/11 you might know that the Tatas set up a fund to pay the medical expenses of those affected. What is interesting is that the fund covered not only the medical expenses of the Taj employees but everybody and anybody who was affected. This means that they were paying the medical expenses of not only the people who were at the railway station but presumably other people who were Oberoi employees. And that’s just mind boggling.
The interview originally appeared on www.firstpost.com on November 26, 2013
(Vivek Kaul is a writer. He tweets @kaul_vivek)
'Simplicity is the ultimate sophistication'
Vivek Kaul
Stefan H. Thomke, an authority on the management of innovation, is the William Barclay Harding Professor of Business Administration at Harvard Business School(HBS).He is chair of the Executive Education Program Leading Product Innovation, which helps business leaders in revamping their product development processes for greater competitive advantage, and is faculty chair of HBS executive education in India. He is also author of the books Experimentation Matters: Unlocking the Potential of New Technologies for Innovation and Managing Product and Service Development. In this interview he talks to Forbes on the various aspects of innovation.
Innovation is a very loosely defined term these days. How do you define innovation?
When I started looking at innovation more than 20 years back, it seemed to be a little crisper then, in terms of definition. Now its all over the place. Interestingly, Wall Street Journal did an analysis sometime back where it counted the number of times the word innovation appeared in the quarterly and annual reports in the United States in 2011. They counted more than 33,000 times. Its just a much overused word.
So what does the world really mean?
The word innovation itself really means two things. It means novelty and value. The value requirement is a really important point. And that makes it different from the word invention. Invention is a more legal term. It is about getting patents. If you have a name on your patent you know that value is not a requirement to get a patent. It just has to be new and non obvious to get a patent. There are companies that have lot of patents which have no value for anybody. So its an input to innovation.
Innovation at times can be a really simple idea as well?
I was working once with a company in the area of in vitro diagnostics. Basically they made equipment to do blood analysis. So when you go to a hospital they draw blood from you and put it into a machine. The machine analyses your blood and gives printouts. One of the biggest innovations for their customers was an algorithm, which was essentially a piece of software that ensured quality control. That was one of their main selling points and customers would basically buy their equipment because they highlighted that. They said that I have this insurance that when I run these tests that the equipment automatically checks for quality and is actually very reliable. And they marketed that. From an R&D perspective it was one of the easiest things that they have ever done. It was really just an algorithm that they figured out using data.
That’s really interesting…
Yes. So sometimes you know the most expensive things are not necessarily that provide the greatest value to the market and vice versa as well.
I came across a blog you had written on product innovation where you questioned putting more and more features into a product. Tell us something about that?
I wrote an article together with Donald Reinertsen and in this article we talk about myths. This was one of the myths. He is also an expert on product development. And we have been in many meetings where the entire meeting is dedicated to discussing more and more features. There seems to be an assumption that in a lot of teams that we are basically done when we can no longer squeeze more features into a product. Presumably assuming that more features that a product has, the customer actually sits there and counts the features, and that somehow drives our ability to price it.
And you don’t agree with this approach?
Sometimes you can actually add value to a customer experience by taking features out, by de-featuring. But that rarely happens. I have rarely been to meetings where the main purpose of the meeting was to remove features from a product with the intent to add value. Usually when we sit around and discuss to remove features, it is usually because it is too expensive, it is not manufacturable. Maybe what teams should do is think about when they can no longer take things out of a product rather than when they can no longer add things to it. It’s a very different way of thinking about it.
Making things simple is difficult…
We often talk about it as a quote attributed to Leonardo da Vinci that simplicity is the ultimate sophistication. To make things simpler is very hard because that requires you to have a very deep understanding of what the user really wants. And once you have that deep understanding you have the confidence. Mark Twain once said if I had more time I would write a short letter. In fact that should be true in your field as well?
Yes, longer pieces are easier to write.
Exactly. And the same is true about innovation. Creating something out of a lot of bells and whistles is a lot easier to do sometimes than actually creating something that has the essential features because that requires a lot more thought and a lot more research.
Can you give us an example on this, other than Apple?
A small example is the Danish company, Bang & Olufsen. They make very very high end speakers, stereo systems etc, which are beautifully designed. These speakers are one of the most expensive speakers that you can buy. But there are no buttons for adjusting the frequencies, you just have the volume button. That’s it. What they have done is that they have created products that are very expensive and they have taken away all the controls that normally you would like to have.
How did they get away that?
They set themselves a very interesting standard. They said, when you listen to something on our speakers it should sound like the real thing. And we believe that no user will be able to get close to that by tweaking a few buttons than the way we set up. So they set their standards to be very high and said we don’t want the users to fiddle with it because we are getting as close as we can. All we want you to do is turn the volume button up and down. It’s quite contradictory. You would imagine that if you are charging all that money you would want to give more control to the customers.
But a lot of people love fiddling with features…
Yeah. There is always a market for everything.
If you look at mobile phone marketing, the selling point seems to be features…
Look at Japan for example. If you look at Japanese mobile phones they have more features than anything you can imagine. You can watch television on them. They have got everything on these phones. But when you ask Japanese consumers, one of their problems is that they are so complicated to use. Not surprisingly, the iPhone has one of the highest penetrations in the Japanese markets. So the question is how can that be? It is more expensive. It has less technology in it. It has fewer features in it and yet it has one of the highest penetrations in terms of growth.
That’s an interesting example…
The reason why I came up with this observation is because I bought this toaster, which came with a manual and had a little LCD display on it. And it set me thinking. I bought an iMac and it had no manual and I bought a toaster and it came with a manual that thick.
There is no manual with an iMac?
No. There is no manual with an iPhone. You just get a little leaflet in there in terms of what to do if something goes wrong. In fact when Steve Jobs came back to Apple one of the first things he did was he took manuals away from developers. The belief was that manuals are for developers who don’t know how to make it intuitive. So as a developer if we don’t know how to make it intuitive we think that’s there is always the manual where we can write down and explain how it works. The problem is that nobody ever reads a manual. So the perfect solution was lets just take away the manuals from the developers. If you cannot explain it, if you cannot make it intuitive, then don’t it.
Do organisations become less innovative as they become large?
I wish I could give you a yes or no response. There are actually certain advantages that come with size and there are some disadvantages that come with size. As you get bigger., you have a momentum. You have an established customer base. Sometimes you can take a long term view as well because you have got an ongoing business and you can afford to wait a little bit. But you have some disadvantages as well. You have got a customer base, that may hold you back and drive you in a different direction. As you get a bigger, you need to have processes and procedures for coordination that are often then viewed as bureaucratic.
Can you give us an example of a large company that is innovative?
Take a company like BMW. It is very innovative. Right now they are launching the i3 which is an extremely innovative car. Its a fully electric car. But that’s not the only innovation. They also figured out how to actually make the entire body shell out of carbon fibre. This is an example a great innovation in all dimensions. They had to come up with a process innovation. Carbon fibres are basically carbon bodies, very light structures that go into very high end automobiles. For example, Formula 1 cars are typically made from re-enforced carbon fibre bodies. You need to bake them. Its a very labour intensive process.
And BMW changed that?
They couldn’t follow a manual process for a car like this because they want to mass manufacture it. It would be way too expensive. So they had to actually innovate in manufacturing. They had to automate the production of carbon fibre. And it changes everything. Once you make the body of your car from carbon fibre, things like crash dynamics totally change. Then there was the electric side of it as well. So the i3 which is coming out this fall. The whole project was more expensive than any of the car platforms that they have developed recently. Estimates are of around $1-5-2 billion. Its a huge risk and they don’t know whether the car is going to sell in enough numbers. It is going to be priced pretty close to $35,000-40,000 in the United States and close to around 35,000 euros in Europe. This is a huge bet that they are placing.
And they are able to do it because they are big?
BMW is a very big company . A small company may not be able to take that bet because they don’t have the expertise. They may have the expertise in one area but they don’t have all the different knowledge bases that this will require to put something like this together. So BMW has the deep expertise. They are very profitable. So they can afford. Whether they can afford to let the i3 fail that remains to be seen. If it fails that will be a big dent. But they can afford to put $2 billion into something like this which could really change the future not just for BMW but for the car industry as well. So large companies can be innovative.
I was reading one your research papers in which you talk about the fact that you cannot treat R&D like manufacturing and unleash techniques like six sigma….
There is a real danger right. I was working in the quality field when six sigma first came out. Six sigma was essentially designed to address production variability in Motorola’s semiconductor factories. It was adopted by others. And at GE it became a big change management programme. But we should also fundamentally understand what Six Sigma is all about. Six Sigma is about reduction of variability. And that is very suitable for tasks that are very repetitive. Variability is actually a bad thing and you want to drive it out. If I am at a bank and I am processing transactions then I want to these transactions to go through with zero mistakes. Any kind of variability is bad. That’s true…
But if you take a concept like this to innovation where we talk about experimentation, creativity and all these sort of things, variability is something that is quite natural. You take a technique like this and you are trying to drive out variability you can kill the entire process. The more upstream you go the more dangerous it is. Something by the way 3M found out the hard way. Jim McNerney became CEO of 3M. Having come from GE he was a master of six sigma. He drove it in at 3M. It initially helped them because there was a lot of variability at 3M. Fifty five divisions there was not enough co-ordination. When six sigma was implemented in upstream R&D driving out variability, they killed a lot of good things that they were working on. This frustrated a lot of people and later on when the next CEO came he really had to correct that.
Ideas often come at the edges.
It is also sometimes not predictable. If I am a developer and I am developing something new I don’t know exactly what I am going to be doing three weeks down the road. I don’t know the tests I am going to run one month from now because that is the whole point of innovation. Its uncertain. If I had all these answers, I probably wouldn’t be innovating. There wouldn’t be novel because I already know everything about what is going to happen. So inherently there is uncertainty that is built in and we just have to be comfortable living with that uncertainty. That is why I talk about business experimentation.
Can you tell us something about?
One of things that executives need to understand is that most assumptions/hypothesis that they make about novelty turn out to be wrong. The real danger for an executive is that if they feel they have an assumption about novelty and they go out without running the experiment, it could be quite disastrous. I don’t know if you have been following the JC Penney story.
What’s happened there?
It’s a fascinating story. Ron Johnson was the person responsible for Apple stores. More than 1 million are walking through Apple Stores everyday now. He was hired by J C Penney as their CEO, with the mission to revolutionise retail for JC Penney. So that was his job. He was one of the most admired executives in the retailing space for having done what he had at Apple. He tried to innovate retail for JC Penney and it turned out to be a disaster. I think sales were down 25-30% or so. And he didn’t run the experiment.
What happened?
He basically made an assumption of what the future of JC Penney retail should look like and he did away with discounts. He was very confident because he was right in the past. And turned out to be wrong. He should have taken some 20 stores and run randomised field trials. A lot of executives get hired for their expertise and they have a lot of confidence. If you were right ten times in the past. You believe that you will be right the 11th time as well. Sometimes its a curse if we are right all the time. Sometimes the kinds of things we learn in one context we may not be able to move it to another context, when the context changes.
No interview around innovation is complete without talking about Google. The company keeps doing many things, but other than there AdSense business nothing really has been a big money spinner.
That’s been making a lot of money.
Innovation should also lead to some profit. How do you explain the disconnect in case of Google?
I am no expert on Google. There are two ways to look at. One way to look at it is the way you describe it. They have got one business model essentially and they are trying all these things. None of it, at this point seems to be able to create another business model or another source of significant revenue for them. Another way of looking at it is that all the things they do drive more traffic towards them. I don’t know how much money they are spending on Google Glass. But that in itself is driving so much traffic to their site, which then increases the costs of the ads. They can probably pay for the whole project and more, just from the addition of the incremental traffic and the incremental ad revenue that one project created.
This makes tremendous sense…
When you use Gmail, you are actually giving them information. They can actually use it to place customised ads. Its the same thing with Android, which they give away for free. But by making Andorid available for free, its all on the mobile phones and gives them access to mobile phones, which then allows them to do ads on mobile phone. You can kind of see the whole logic. All these things ultimately lead back to their fundamental business model which is the ad model. I bet they are trying really hard to think of other ways at one level, but at another level they are probably thinking about an eco system that they are trying to create that ultimately drives people back into the ad space, and gets more information about them.
So basically they won’t allow any other search engine to come up…
They won’t want to do that. Of course not. They want traffic. The worse thing that can happen to them is traffic going somewhere else and the ad revenue falling .The whole business model will go away.
The interview originally appeared in the Forbes India magazine dated November 15, 2013 with a different headline
Ramachandra Guha: The Nehru-Gandhi dynasty is clearly on its last legs
Vivek Kaul
Ramachandra Guha is one of the foremost Indian historians of this era. In his latest book Gandhi Before India (Allen Lane, Rs 899) he chronicles the early life of Mahatma Gandhi. The book focusses on the years Gandhi spent in London and South Africa and how they shaped his ideology and philosophy. Indians who have grown up watching Richard Attenborough’s Gandhi are largely unaware about this part of his life. Hence, the book is a must read for every Indian who wants to know what turned a lawyer called Mohandas Karamchand Gandhi into Mahatma Gandhi.
Guha feels none of the political parties of today follow the principles of Gandhi, even though they claim so. “Various politicians and political parties claim to speak in the name of Gandhi: the Congress because he was in that party for a very long time, Narendra Modi because he was also a Gujarati, the Aam Admi Party(AAP) because its main leaders were, like Gandhi, professionals who became social activists. All these claims are dubious. The cronyism and corruption of the Congress is worlds removed from Gandhi or Gandhism; as is the megalomania and sectarianism of Mr Modi. As for the AAP, their claims to be Gandhian in inspiration are nullified by the negative nature of their politics, which is based so completely on carping attacks on other parties,” he told Firstpost in an interview.
Intellectually who are the people who had the foremost impact on Gandhi in the years that he spent in South Africa?
Gandhi’s main mentors were a Gujarati poet and thinker, Raychandbhai; the pioneering Indian nationalist and social reformer, Gopal Krishna Gokhale; and the great Russian writer, Leo Tolstoy. He had an extensive correspondence with all three. Gandhi also spent a great deal of time with Raychand in Bombay in 1891-2, and with Gokhale in Calcutta in 1902 and again in South Africa in 1912. Tolstoy he never met, but perhaps it was the Russian who had the greatest influence on his moral and social philosophy. The idea of religious pluralism was common to all three of Gandhi’s mentors; the idea of ending caste and gender discrimination he got from Gokhale; the practice of abstinence and a simple life from Raychand and Tolstoy. Non-violence was in part an adaptation and refinement of Tolstoy’s pacifist ideals.
You also point out that Rabindranath Tagore was not the first man to call Gandhi a Mahatma. It was his doctor turned jeweller friend Pranjivan Mehta. Can you tell us a little bit about that as well as the kind of relationship Gandhi shared with Mehta?
This remarkable associate of Gandhi has been treated most casually in earlier biographies. But, as I show, their relationship was absolutely fundamental to the making of the Mahatma. Gandhi and Mehta spent time together in London, Rangoon, Durban; and wrote to one another at least once a week all through the period he was in South Africa. Mehta was the Engels to Gandhi’s Marx: that is to say, his closest friend, his most steadfast and consistent patron, and the first man to recognize and proclaim his greatness.
One of the most moving parts of the book is the relationship that Gandhi shared with his sons particularly Harilal, his eldest son . Do you think he failed as a father?
Gandhi had excessively high expectations of both Harilal and his second son Manilal. He wanted them to be perfect satyagrahis, perfect brahmacharis. He can certainly be said to have failed as a father. This is not uncommon—writers, artists, activists obsessed with their calling often their spouses and children very badly indeed.
You write in great detail about the family of Gandhi being a very close part of his struggle in South Africa. Even his wife went to jail for the cause. What intrigues me is that none of his sons or nephews played an active part in Indian politics once Gandhi returned to India. Why did that happen?
Yes, in the context of Indian politics today, Gandhi’s refusal to promote his family to positions of power and authority is remarkable. He even willed all his writings to a Trust of which none of his sons were members, thereby denying them any financial benefits from what he knew could be a very profitable legacy.
Would it be fair to say that Gandhi wasn’t born great, but became great through a series of events and experiences?
Gandhi certainly had great physical and moral courage. He had a tremendous capacity for hard work. He had an unusual ability to cultivate friendships across social boundaries. He was curious about other ways of living and thinking. Even so, had he succeeded as a lawyer in Bombay he would never have become a major political figure. Had he not lived in the diaspora he would not have appreciated the religious and linguistic heterogeneity of India. So, in this sense, it was a series of accidental encounters that helped grow Gandhi as a leader, thinker, and social activist.
Has Gandhi’s concept of satyagraha been abused in independent India (particularly politicians deciding to go on a fast for anything and everything)? How relevant is the philosophy of Gandhi in India of today?
Yes, of course, politicians have made a mockery of Gandhian techniques of protest by their one-day fasts and their dharnas and rasta rokos. However, Gandhi’s ideas do in many ways remain relevant to India and the world. His principled opposition to violence, his promotion of inter-faith harmony, his precocious environmentalism, and his practice of an open and transparent politics are all worth studying, and perhaps emulating in some part, today.
Do you see any political party in India being close to the principles that Gandhi had espoused? Various politicians and political parties claim to speak in the name of Gandhi: the Congress because he was in that party for a very long time, Narendra Modi because he was also a Gujarati, the Aam Admi Party because its main leaders were, like Gandhi, professionals who became social activists. All these claims are dubious. The cronyism and corruption of the Congress is worlds removed from Gandhi or Gandhism; as is the megalomania and sectarianism of Mr Modi. As for the AAP, their claims to be Gandhian in inspiration are nullified by the negative nature of their politics, which is based so completely on carping attacks on other parties.
But there must be some people who still follow Gandhian principles?
The spirit of Gandhi animates many non-party social movements and groups. Remarkable Indians such as Chandi Prasad Bhatt, founder of the Chipko movement, and Ela Bhatt, founder of SEWA, are outstanding exemplars of Gandhian practice. Other activists working away from the media gaze in the spheres of rural health, primary education and similar spheres are also deeply inspired by Gandhi. A flavour of how Gandhi lives on in civil society movements in India is captured in Rajni Bakshi’s excellent book Bapu Kuti.
In a recent interview you said “My fantasy is BJP without the RSS and the Congress without the Gandhis.” Do you see the country getting anywhere close to that fantasy?
Not immediately, but there are some slight signs and indications that my fantasy is perhaps a few small steps closer to being realized. The Nehru-Gandhi dynasty is clearly on its last legs. The charisma of the family is fading: fewer and fewer voters remember Indira or even Rajiv. Rahul Gandhi lacks ideas as well as energy. Many people in the Congress are exasperated with his lack of initiative and his penchant for making howlers. If the Congress does very badly in the next elections, then it will be hard for the family to assert its leadership in the manner it has been accustomed to in the past.
What about the BJP?
In organizational and ideological terms, the BJP remains closely tied to the RSS. But again, young voters have no time for the medievalist mind set of the RSS. Many of them are flocking to the BJP because of their disgust at the corruption of the Congress, not because of any attraction for the idea of a Hindu Rashtra. In my lifetime (I am now 55) I may not see my fantasy being fulfilled. But I hope the Indian experiment with democracy and pluralism extends into the lifetimes of my children, grandchildren, and beyond. So I am not so despairing!
In the first chapter of your book you write that “of all modern politicians and statesmen, only Gandhi is an authentically global figure.” Could you please elaborate on that?
Gandhi’s name is still invoked, often positively and sometimes negatively, all across the world, sixty-five years after his death. His ideas on non-violence, religious harmony, and environmental prudence are actively debated in countries he never even visited. No other 20th century leader, not Churchill, not Roosevelt, not Stalin or Lenin, has had anywhere this kind of salience or influence. That is why I maintain that Gandhi is the most interesting and important political figure of the modern world.
The interview originally appeared on www.firstpost.com on November 6, 2013
(Vivek Kaul is a writer. He tweets @kaul_vivek)
How exposing corruption in India is different from China
Vivek Kaul
Does exposing corruption work all the time? “(In India) every media outlet seems to have a story about corruption. But in the context of this hyper-transparency, the moral outrage is lost. Additional information on corruption does little to move the needle. So, yes, transparency is a potent tool against corruption particularly when you’re dealing with low aggregate levels of transparency…In high aggregate levels of transparency, the next new story about corruption has to be followed up with real enforcement for it to be effective,” says Karthik Ramanna, Associate Professor of Business Administration at the Harvard Business School. Ramanna is also the faculty for the Leadership and Corporate Accountability-India (LCAI) programme being offered by Harvard Business School in India, later this month. In this interview he speaks to Firstpost about various online attempts around the world to tackle corruption.
What impact does corruption have on economic growth in a country? Can you give us some numbers that research in economics has thrown up?
Corruption has emerged over the last five to ten years as a big issue both in the public discourse as well as among corporate managers, particularly in emerging markets. A 2012 World Economic Forum survey of corporate managers and senior leaders from China, Russia, and India identified corruption as one of the top five issues in each of these countries. However, it’s hard to directly measure , the impact of corruption because you can only observe corruption when it is surfaced in a legal context. But, of course, not all cases of corruption will be prosecuted to the extent that there are limits to legal resources and that prosecutors themselves or the judicial system itself is corrupt. So it’s hard to estimate this beyond surveys.
How much does corruption impact the amount of foreign direct investment and foreign portfolio investments coming into any country?
It is in the long-term interest of any free-market society to have an independent judiciary, an effective legal system, and strong democratic institutions that promote an accountable and trustworthy government. Corruption detracts from those long-term objectives and thus compromises the basis of a free-market system. Corruption might help a foreign investor seek short-term recourse to a problem, but, in the long-run, it destroys the foundation for capitalism and negatively impacts foreign investment. This has been shown in the context of several emerging-market nations.
You have written that “corruption is the top issue in emerging market economies — and transparency is the most potent tool available to combat corruption.” Could you explain that in some detail through some examples?
One of the things I’ve been exploring over the last two to three years is the role of transparency as an instrument of accountability against corruption in different emerging-market contexts. In Russia, where I’ve studied the work of Alexey Navalny and his web platform RosPil.info, transparency seems to have quite a large impact on instances of corruption. In part, I think this is because the aggregate level of transparency in this context is low. In Russia, you’re dealing with a mainstream media environment that generally does not report on public corruption and that is pro-government. In that context, even small amounts of information can have a profound impact. So when RosPil.info releases information about a potentially corrupt government tender, it seems to have an impact in how that tender is re-evaluated or reassessed.
What about a country like India?
Switching to a country like India, where you encounter a hyper-transparent environment, and you have, for all practical purposes, a vibrant, free press, in this context reporting on corruption has almost become a national sport. Every media outlet seems to have a story about corruption. But in the context of this hyper-transparency, the moral outrage is lost. Additional information on corruption does little to move the needle. So, yes, transparency is a potent tool against corruption particularly when you’re dealing with low aggregate levels of transparency. But there seems to be a nonlinearity associated with the way transparency is effective against corruption. In high aggregate levels of transparency, the next new story about corruption has to be followed up with real enforcement for it to be effective.
In a HBR article you wrote that “Private Citizens are also joining the fight against corruption. Some are making the effort via for-profit ventures.” Could you discuss this in some detail with global examples?
Caijing is an example of a for-profit venture that is fighting corruption in China. It is a magazine that is about 15 years old, and was established by a gentleman called Wang Boming who is a very central figure in the development of capital markets in China. Mr. Wang was asked by the State Council, which is one of the highest organs of the state in China, to develop a financial press in the country in the late 90s. And with that charge, he established Caijing. Mr. Wang was educated in the United States and has worked in the media environment in the West. He is committed to a long-term vision of a free and transparent press in China. That being said, he has built his magazine very much on the principle of working with the state rather than opposed to it. The strategy of an organization such as Caijing, which embeds itself as a long-term ally of the government, working to create conditions that make markets work, might be, in fact, the approach that works best.
Could you elaborate on that?
Over the last 15 years Caijing has built a reputation for breaking stories about corruption and corporate governance malfeasance in China, including those involving very senior officials in the country, but has done so in a very deliberate and measured way. It has earned international respect and recognition for its coverage, but at the same time doubts remain about how closely aligned it is with the state. Mr. Wang has in part pursued this strategy because he’s running a for-profit business, which is listed on the Hong Kong Stock Exchange. He very much needs to turn a profit and needs to survive to tell another story another day. This is not a one-shot game for him, this is a long-term game. And in part it’s that sustainability aspect that gets him to work with rather than opposed to state institutions.
That’s interesting…
One could argue that the long-term profit motive is what has built that sustainability into the organization. The interesting thing about this long-term approach is that Caijing has over time been able to push the limits of subjects that it can acceptably cover. Fifteen years ago when Boming started the magazine, it was hard even to touch local government officials or report on local government officials. Today he can report on corruption at the local government level without much concern about censorship. It’s only if he’s dealing with top national officials that there is some concern around those issues. Thus, there’s been a gradual evolution in a way which Boming would consider progress.
Are there any such examples in India where for profit ventures are fighting corruption?
IPaidABribe is a not-for-profit organization leveraging transparency and both the ubiquity and the anonymity of the internet to bring greater light to petty bribery or what is called “retail corruption.” This is the corruption necessary to turn on your water supply or to turn on your electric supply or to pay your property tax bill. In some ways retail corruption is more dangerous that “wholesale corruption,” the massive bribes paid for public licenses. Retail corruption corrodes not just a few; it corrodes the ethic of an entire nation. Then when in fact citizens do observe instances of wholesale corruption, they appear less egregious. Part of what the website ipaidabribe.com does is to leverage the anonymity of the internet to bring back some shame, if you must, to corruption or to the payment of bribes.
Could you tell us a little more about it?
The purpose of something like ipaidabribe.com is to restore a national consciousness to the idea that bribe-paying is unusual, it is ethically wrong, as opposed to something that is a common and necessary for day-to-day existence. The next challenge for reformers in this area is how to close the loop. What happens after you report your bribe? As I said earlier, when we are in the context of hyper transparency, if you’re dealing with an environment where reporting on corruption is widespread, it’s important to have institutions to close the loop around corruption. It’s important to be able to give people some sense of closure. It’s not simply about saying, “Yes, I paid a bribe,” it’s about how is justice in fact being meted out to the corrupt.
What do you think about the New Companies Bill? Is it fair for a government to mandate that businesses spend an ‘X’ amount of money on corporate social responsibility?
Milton Friedman famously said that the social responsibility of business is to increase its profits. I think that the general spirit of the New Companies Bill is the idea that companies have responsibilities beyond delivering on shareholder profits. This idea is broadly consistent with a lot of the research that has been done since Professor Friedman wrote that article in 1970. In particular, we’ve come to see that there are at times “negative externalities” associated with corporate profit-seeking activity, which is to say that there are costs imposed on labour, on customers, and on local communities from profit-seeing activity. This is especially true in the presence of what we recognize as “institutional voids,” that is when the institutional architecture of the market system is underdeveloped.
Can you give us an example on this?
For example, in India, where courts are clogged and access to justice is notoriously slow, customers and employees often rely on corporate responsibility – rather than legal recourse – for their well being. In this context, unbridled profit-seeking activity could impose significant costs on society. So, it is in the long-term interests of corporations to take a more nuanced view of what their objective function should be. It is not viewed as a distraction or as a luxury, but as something very core to the business. As managers start taking a long-term view on their business, they recognize that incorporating corporate responsibility into corporate strategy is good business and good leadership.
Anything else you would like to add to that?
All this said, the idea of mandating a 2% of net profit expenditure on CSR, as the new law does, strikes me as aggressive in that it’s not clear that every company has tightly developed a way to integrate corporate responsibility into its strategy. It’s not clear that every company has the right ideas and the right vehicles to invest this money on behalf of their shareholders and society. I think about this Act as, on the one hand, recognizing a moral imperative for companies to take their social responsibility seriously, but, on the other hand, potentially opening the door to considerable value destruction by mandating such activity.
Do you think companies are seriously following this or will they find accounting tricks to get around it?
I wouldn’t be surprised if some companies found ways to circumvent this mandate, by pursuing activities that ostensibly seek to serve the public interest, but in practice only serve the interests of, say, family members of founders and managers. I could also see ways in which this sort of mandate could become an avenue to bribe politicians by, for example, contributing to the charities of powerful ministers. There are many ways in which this law could be misused. Again, I think we don’t want to lose sight of the ethical principle behind the law, but we must also recognize that mandating corporate expenditure to this effect might be stepping too far.
The interview originally appeared on www.firstpost.com on November 5, 2013.
(Vivek Kaul is a writer. He tweets @kaul_vivek