The US does not rule the world !

If you have followed the Toyota story, the latest twist of Toyota’s Chairman, Akio Toyoda being called to “depose” before the United States Congressional Committee, shows that the US politicians just don’t get it. “Surely if Congress can be here, so can you," Congressman Darrell Issa of California said in an electronic letter to Toyoda. Separately, he said he would "fully support" subpoenaing Toyoda, which means compelling him to appear. Behave like this and then wonder why the US is disliked so much elsewhere !!

To his credit, Toyoda-san chose to appear in person. He was subject to typical bullying and rudeness by pompous Congressmen, who were of course making political capital. Toyoda-san handled it with much grace and typical Japanese politeness. Grace and politeness are alien concepts to US Congressmen.

While Toyota is facing huge recalls and much business trouble, the key is that they have done nothing breaking the law. The “outrage” by the US Congress is all about when management knew about the defects, when it recalled etc etc. There is nothing to suggest any criminal act. While the faults itself have been in relatively few instances, the size of the recall and action is massive. If the same standards of immediacy of response were to be made applicable to US Congressmen on health care, every one of them must cool his or her heels in jail.

There is one small point to be made. Akio Toyoda is a Japanese national. He is based in Japan. He may be the Chairman of Toyota, but he does not run the US operation. Since when has the United States Congress the right to demand presence of every foreign national for “investigation” and “deposition”. If he has committed a crime on US soil, sure subject him to due process of law. If not, it might be good to reflect on the fact that the jurisdiction of the US Congress is only on US nationals and the rest of the world should bluntly tell it where its place is.

Its very rich coming from a body that preaches sovereignty to others. Would they take kindly to Bill Gates being called before the EU parliament and insulted for the anti trust violations, the Chairman of Johnson & Johnson being summoned by the Fijian parliament over the Tylenol recall, the Chairman of Boeing being grilled by every country’s parliament whenever there is an aircrash. Just imagine a US Chairman being summoned by China’s Communist party politburo whenever its Chinese subsidiary did something which angered the hosts.

There is an unbelievable amount of good and great in the US. It is a great nation with much to admire. Sadly, there is not much to admire in their lawmakers. Their sheer insensitivity, rudeness and misbehaviour may be fine in Washington, but that is strictly where it should be restricted to. Global corporations are subject to the laws and practices of each country they operate in. Equally the laws of a country stop at its borders and on its nationals. The United States Congress has no business bullying Toyoda san. The right response from Toyoda san , although he wouldn’t dream of doing it, would have been to tell the windbags to stuff it !

Toyoda san did this to manage the image of the company in the US. But he has set a dangerous precedent on a matter of principle.

When is too much, too much ?

How do you price services which are very exclusive and for which there is no possibility of a real market ? Is there some such thing as a “fair price” or is that concept an oxymoron ? Does public opinion on what constitutes “excessive” have any role to play ? Should pricing have any relation to cost at all ? Not easy questions to answer. Welcome to the world of investment banking.

The case that triggers this post is a legal suit filed by JP Morgan on Consolidated Minerals (ignore who they are for the purpose of this issue), in an Australian court. The case relates to the acquisition of Consolidated Minerals, a mining company, by Palmary for A$ 1.3 bn. JP Morgan was Consolidated Minerals' advisor in the acquisition. But the new owner, Palmary has a dispute on what fees must be paid by them to JP Morgan. Palmary believes that JP Morgan’s fees should be A$ 7m. JP Morgan believes it should be A$ 50m. Hence the dispute.

Its extremely rare for investment banking fees to be brought to court. It’s a rarified and secretive world, which usually settles its fees in cosy chats. The amounts involved are huge. In big M&A transactions, fees would routinely be in hundreds of millions of dollars. The fees are usually a percentage of the size of the transaction and since acquisitions are routinely in many billions of dollars, the adviser’s fees are also massive.

But there is growing criticism that the fees are “excessive”. Herein lies the rub – who, if anyone, is to determine what is excessive ? In a normal free market, you would say its none of anybody’s business. But as I observed before, its not a free market – in fact its not a market at all. Its all cloaked in secrecy. Does just that fact justify intervention by anybody ?

One thing is certain – the fees bear no relation to costs. But then in a million other products and services, the price bears no relation to cost. In the case of M&A adviser’s fees the costs are probably less than 5% of the fee amount. That, by itself, is no argument for saying the fees are excessive. The difficulty is that fees of many millions of dollars does seem usurious; there’s just no way it will not attract attention. Especially since it usually one of the most profitable lines of a bank leading to large bonuses, which the public and governments seem to be very agitated about.

Defenders say that as long as a company is willing to pay the fee, it’s a matter between the company and the adviser and everybody else should keep their noses out of the matter. There is a lot of merit in this position. If at all anybody should object, it should be the shareholders of the company - they are the ones with the power to restrain Boards from paying excessive amounts. And they should exercise that power, and not merely keep quiet.

But the socialist bleeding heart that I am, I have some qualms. I have had some insight into this business in a previous avatar. With a few shining exceptions, the “advice” the many investment banks dole out is often trash. That they should be paid many hundreds of millions for this, doesn’t sit easily, even though the economic rationale for it may be somewhat strong.

I have some difficulty swallowing the pricing of different services in the banking world. It does look a bit too much. But then, when is too much, too much ? And who is to say so ?

Hu nian kuai le

Hu nian kuai le; or as they say in Guangdong, Kung hei fat choi.

It’s the end of the spring festival holiday in China. After a week of festivities, millions of people are wending their way back to work. Come Monday, and life will be back to the routine. The overwhelming feeling is akin to a schoolgirl having to go back to school after the summer vacation.

It is rather a strange feeling being in Guangzhou during this period. It's my third spring festival in China and I still haven’t got over this strangeness. For Guangzhou is half empty at this period as everybody who’s from elsewhere in China goes back home for the new year celebrations.

This period sees the largest human migration in the world. Some 200 million people leave their place of work and go home for the festival. As China is full of migrant labour who have come from for work, this number balloons every year. Imagine the challenge of transporting 200 million people in a week. And then a week later transporting them back. Amazing. Even though I come from a country where crowds are usual, I am still open mouthed at the sheer number involved here.

Spring festival is a period when the family congregates at home. Somewhat like Christmas in other parts of the world. It is not unusual in rural China that both the mother and father have gone to work in different cities of the country. The children are left with the grandparents. And the spring festival holiday is almost the only time the husband and wife meet each other as well as get to see their child. No wonder, despite rain and snow, people will do anything to get back home.

But in Guangzhou, it’s a very strange period. The city is empty, for half its usual population has gone away. The roads are empty; the shops are deserted. Fireworks, a critical part of the celebration is banned in Guangzhou. The Chinese are the world leaders in fireworks – even Diwali has to take second place when it comes to defeaning and amazing fireworks. So, while most of China is suffering from sore eardrums, Guangzhou is eerily silent. Its hard to kindle a festive atmosphere in Guangzhou.

Being an expat, one of things you miss is festival time. When its Diwali, it feels odd to go to work as if it’s a normal day and not have the festive cheer. But at least you can make up by enjoying the local festivals. Unfortunately in Guangzhou, even that is denied – the still, empty and quiet spring festival is a, sort of, let down.

There’s a quaint tradition here. Come Feb, in every shop, you’ll see red underwear all over the place. The belief here is that if you are a tiger and this is the year of the tiger, you may get bad luck. To ward off ill luck and bring some of the good variety, you are supposed to wear something red all through the year. But men wearing red is somewhat odd – so the tradition has been interpreted to mean that its OK to wear red underwear ! Hence all the red underwear in the shops !!

Well, I am a tiger, but ……… . Hu nian kuai le (Happy year of the tiger).

Hail the entrepreneur

One of the largest job creators in the world is, well, you. You don’t need to necessarily work for somebody else – you can work for yourself. Millions do. Entrepreneurship is truly a magic bullet to overcome unemployment.

Entrepreneurship is a long and complicated word. It hints at some grandiose big startup ; it doesn’t need to be. The largest number of entrepreneurs run an organization of 1 – themselves. It’s the corner shopkeeper, the street trader, the plumber, the carpenter, the doctor, the taxi driver, who are truly the greatest of entrepreneurs. They don’t moan about unemployment. They don’t demand 6 weeks of holidays a year. They don’t demand travel privileges in first class. They just work hard and earn their own living.

Entrepreneurship need not necessarily need huge capital. It doesn’t need breakthrough ideas. It doesn’t need a MBA. It however needs commitment, guts, hard work, luck and some breaks.

I’ll tell you the story of an entrepreneur I know. He comes from Bihar, one of the poorest states in India. He came to Bangalore, a few thousand miles away, to try and earn a living. Without real qualifications, he did not stand much chance of a job. So he took to being an entrepreneur. He made snacks and came to the office area in the evening and sold it to hungry office workers. He didn’t have a place to sell from; nor had he a roadside stall. Instead, he brought his stuff to the staircase in the office building and caught the attention of the smokers who usually inhabit this place. Little by little his business grew. Come rain or shine, he was there. The office folk started to regularly buy from him. He was meticulously polite. He was always there, everyday. He looked upon each person buying his stuff as “God” – who was enabling him to survive. Little by little he grew his business. He started doing well with a steady clientele, a steady income . So much so that he caught the attention of a catering outfit who found him an ideal candidate to run one of their shops. He is still humble, polite to a fault and still looks on you as “God” when you buy something from him. He is truly an unsung hero and he shows the way how to overcome unemployment.

In this entire series on jobs, I have been preaching that governments should do this or not do that. Entrepreneurship is one area where my position is that governments should do nothing. Just stay out of the entrepreneur’s hair. Not do like what has happened in Europe - any entrepreneur there will tear his hair out trying to follow a million directives from Brussels and a million more from his own country. Stop putting barriers in front of entrepreneurs and then let them find their own way.

This series on creating jobs has dragged on, but I submit that this is a justified topic to examine in some detail. One of the most degrading of situations is to be unemployed. One of the most "punch in the pit of the stomach" feeling is losing your job for no fault of yours. Being gainfully employed is fundamental to any person. Besides the economic necessity, it brings a sense of identity to a person. Some measure of social standing. An anchor in this difficult world.

Full employment is not an utopian dream. It is something every society must strive for. It is possible to achieve this to a large measure. It is a holy grail worth toiling for.

Build baby, build

Build and they’ll come. Economists hate this phrase. They won’t come; they say. Maybe not to the land of the politician who said "Drill baby, drill" and to whom the title of this post owes apologies to. But in most parts of the world, they will indeed come.

Infrastructure development is surely the policy area where most countries have performed poorly in. In developing countries it is because of lack of prioritisation (wasteful subsidies are considered more important) and rampant corruption. In developed countries – it is the NIMBY problem – do it anywhere, but not in my backyard. Everywhere infrastructure has been allowed to dramatically deteriorate (witness America’s airports, Britain’s M25, California’s power cuts, …..) Two stellar exceptions – Britain in the colonies in the early twentieth century and China of today.

That a robust infrastructure is fundamental for economic growth is well known. But I argue here for infrastructure building as a great way of creating jobs.

China has created a huge number of jobs in the construction sector. It cushioned the unemployment caused by the recession primarily because of stepping up infrastructure development to an even higher level. In India, despite the leakages, the National Rural Employment Guarantee Scheme has been successful primarily because of the big jump in road building happening in various parts of the country. China is successfully exporting this concept – it goes around the world scouring for minerals and oil and offers infrastructure development in return, which incidentally also sucks up a fair amount of Chinese labour.

India has a crying need of infrastructure development – both urban and rural. It can safely be depended upon to provide millions of jobs for the next 20 years Bottlenecks such as land acquisition and corruption can be overcome and should not be conveniently explained away as the “price of democracy”. That’s sheer bunk.

Developed countries have allowed their superb infrastructure of 50 years ago to wither away. No country typifies this more than the US. Because any lobby with half a dozen supporters can block anything, America has allowed its infrastructure, especially airports, railroads and power plants, to drop to third world levels. With its high potential for adding jobs, the current economic climate is a great opportunity to correct this aberration.

What about the money ; the sheer size of investment required. Much of this can be recouped by economically pricing the services – tolls on roads, fair price for power, etc etc. Capital is always available if there is a possibility of adequate returns. Its unbelievable that infrastructure investments cannot yield a proper return – after all what competition can there be for an airport or a road or a port ?? The trouble has been mistaken pricing policies for generations which have made infrastructure seem a dead investment.

Build baby, build; for the legions are coming !

Brightly fades the Don

That’s the title of the book written by Jack Fingleton, for me the greatest cricket writer who ever lived. Its about the famous post war series, which was Don Bradman’s last series ever, when he led the 1948 Aussies, arguably the greatest test team of all.

So a visit to the home of Don Bradman, is a form of pilgrimage to a cricket lover. I was in Adelaide last week and did something which I rarely do in business travel – took an evening off to go to the Adelaide Oval to see Australia play West Indies in a one dayer.

The Adelaide Oval is one of prettiest cricket grounds in the world. Not the barbed wire coliseums that you see in India. Not even the huge gargantuan monument that is the MCG (Melbourne Cricket Ground for the cricket uninitiated). A small pretty ground where you can roll on the grass near the sight screen and watch a lazy day’s cricket.

It was a day night match and I could only go after the end of one innings. But then summer evenings are long in Adelaide and it was more like an afternoon’s viewing. The match itself was a hugely one sided affair. The West Indies are no longer the cricket force of yore and Australia specializes in pulverizing anyone who’s not as good as them. But then I didn’t go for the game alone. I went to drink in the atmosphere and to listen to the ghost of Don Bradman.

Cricket is a much changed game these days. Even the one dayers are on their way out – Twenty20 is the “in thing”. In the Don’s days, men wore white. Full sleeves rolled up. The players are now garishly dressed – in red and green with huge numbers on their back and the batsman looking more like the American football hunks. The Don would have tut tutted. The fall of a wicket gave rise to weird contortions in the name of celebrations – do men behave like that in real life ?? The Don would rather have approved a cheery “well done mate”.

Batsmen these days are often wild sloggers – maybe that’s why they are more often called batters. Ugly heaves like a six over third man are met with rapturous applause. One foot is in the air and the other is pointing towards square leg. But then Ponting made a fifty in this game. He still makes those silken cover drives. The impeccable forward defence. The late cut. The straight drive all along the ground …..

As the Aussies pulverized the Windies. I looked around. Rolling on the grass were the usual Aussie types. A river of beer was flowing. Hoots at the scantily clad Sheilas. Wild yells whenever an Aussie hit a sixer. The sun was going down and it was twilight time. The grass never looked greener. The air was still. Not a cloud in the sky. You could hear the satisfying sound of leather striking willow. As if on cue, church bells tolled in the distance. Ponting just delicately glanced for four. All was well with the world. I fancy I saw the Don smile.


PS – Today is Chinese New Year – the dawn of the year of the Tiger. To all my Chinese friends – xin nian kuai le.

Invest in Vocational Training

Education is key to development – it would be hard to dispute this simplistic truism. But what education ? Primary ? Secondary ? Institutions of high learning ? What ?

This post argues for vocational training being the single biggest priority. There is no doubt that universal primary education has to be a basic human right, and a basic human responsibility. But I would place vocational training a shade above even that. For vocational training ensures people have jobs. Ensures that they have a little more wealth. And when they have that they would themselves ensure that their children receive the best primary education they can find, and afford.

Both China and India do a lot in the field of vocational training. Training people to be machine operators, welders, plumbers, carpenters, nurses, technicians – there are scores and scores of professions where , with a little training, people, who are otherwise unemployable, can find a job. These don’t need a very high basic education for it to be effective. And they offer quick rewards – it does not take an enormous amount of time to acquire these skills and get a job. And even if jobs are not plentiful readily, these skills lend themselves to entrepreneurship.

Start National Institutes of Vocational Training. Give them an aura of respectability. Start dozens of them in every city, in every state, in every country. Governments, in partnership with industry, must invest heavily in them (better to invest in this than to pay the dole). Make it virtually free for those being trained. Make employers, or employees, pay off some portion of the costs after they have found the job.

Make these institutes a place where people can come back to multiple times in their career. If they get laid off, they come back and acquire a different skill, perhaps. If at that point in time, there are plentiful jobs for hair dressers, but not so much for boiler operators, well – whoever wants to train to be a hairdresser can easily do so (incidentally, the most promising profession in China should surely be the hairdresser; every Chinese is obsessed with his or her hair and there are only 5 hairdressers every 10 mtrs in China ! And surely it has to be the most depressing profession in India; Rajalakshmi wouldn’t be caught dead having her hair cut !!)

I also suggest that when somebody is laid off, the employer is required to fund that person’s reentry into the technical school as part of the compensation. And the employee needs to constantly re skill into the professions that are in demand. To my mind, it’s a tragedy that most of us, when we pass out of University and take up work, stop re skilling ourselves.

So IITs, IIMs, Harvard, Jiaotong, are all very good. But they should come slightly lower down in the pecking order. The technical schools should occupy the pride of place. Mao Zedong said, in a completely different context, “Let a hundred flowers bloom”. I suggest, “Let a million technical schools bloom”.