[By Himmat Rathore from New Delhi, India, CC0, via Wikimedia Commons]
Good morning,
If there is one domain where second order thinking is much needed, it is public policy making. But that it is sorely missing is a lament we hear often from those who are witnesses to decisions of consequence. When pressed to name those who possess it, the economist and academic Vijay Kelkar’s name surfaces often. That is why we like to revisit his works every once a while. Such as his book, In Service of the Republic, co-authored with fellow economist Ajay Shah.
They describe many firms the government controls as ‘zombie firms’. “These firms are the walking dead, the firms that ought to have died, but have been artificially kept alive through state or bank support.” What happens when the government gives up control over a zombie firm? By way of example, they describe Air India (this book was written at a time when Air India was still a PSU).
“When Air India is privatised, and the flow of public money into Air India is halted, all private airlines will benefit, as the prices charged by Air India for tickets are likely to go up.
“In the Indian context, zombie firms are particularly harmful given the weak discipline of the budget process. When a government faces a soft budget constraint, there is a greater temptation to support zombie firms to walk the earth for a few years more. This is one reason why public sector companies are a problem for the economy: there is a greater risk of them becoming zombie firms backed by the exchequer. This is bad for public finance and bad for the economy.
“Another pathway through which a kind of zombie firm comes about is when some firms violate laws or evade taxes. In India, we see many markets where low-productivity firms coexist with high-productivity firms. The competitive market process should force the exit of low-productivity firms. This does not happen when the low-productivity firms violate laws—e.g., a low-productivity firm may emit pollution, while the high-productivity firm incurs the higher costs associated with the pollution control required in the law. In similar fashion, a low-productivity firm may survive, in competition against a high-productivity firm, by evading taxes.
“When enforcement capabilities, of laws or of taxes, are improved, low-productivity firms will exit. Production will shift from low-productivity firms to high-productivity firms. This reallocation will yield GDP growth, in and of itself.
“In some areas, we have seen the meteoric rise of certain firms who are allied with the prevailing ruling party. For some time, such politically connected firms fare well, through harmful means such as obtaining support from regulators. When the sweetheart arrangements break down, such firms tend to collapse, as their skill lies in political manoeuvring and not in achieving high productivity. When institutional quality improves in India, the time period for which such firms will have a happy ride will come down.”
Think about that! And have a good week.
FF Exclusive: All things digital
Earlier in the year, Founding Fuel worked to curate Beacon, a month-long Ideas Festival for the BITS School of Management (BITSoM). It had thought leaders across domains engaging with each other on the most important themes of our times. One of the conversations was a compelling session with Nandan Nilekani and Tanuj Bhojwani on personal technology. It is all pervasive and most of us appear to be overwhelmed by it. Our interactions with Nilekani and Bhojwani suggest they know a thing or two about how to handle it.
“Digital is pernicious because of its easy availability. In the physical world, if I go to a bar I know that I am going to socialise; if I go to a library I know I am going to sit down and work; if I go to a park I know I am going for a walk and get some exercise. The fact that there is a different context allows you to switch. In the digital world everything is in the same device—your work, life, relationships. So use simple techniques to carve out different profiles of yourself and switch into that profile. You’ll probably be able to be more calm,” Nilekani told our moderator Charles Assisi in response to a question on how to deal with overload.
There was much else they had to talk about in the hour-long conversation. Such as on cryptocurrencies and NFTs as well. Bhojwani said: “Now that we all agree that our time is going to be spent doing things digitally, what are the symbols and markers of status? As a thing in the world, its time has arrived. How do you want to engineer this so that it does good for all? But if you ask me, should I invest in NFTs, I’d say please don’t.”
Dig deeper
- How Nandan Nilekani learnt to use tech mindfully
- Vishy Anand on what makes world champions ticks
- The Best of Beacon 2022
The significance of A-teams
We spent the weekend watching 83 on Disney+ Hotstar starring Ranveer Singh and directed by Kabir Khan. Most of us on the team were in school when India, the underdogs of cricket, pulled off a historic win at Lord’s against the mighty West Indies to claim the ICC World Cup Championship. The movie is heart warming and there is much territory Indian cricket has covered. That is also why an essay by Tim Wigmore in The Cricket Monthly on why an A-team matters got our attention.
In cricketing parlance, an A-team is the place players cut their teeth before making it to a country’s national squad. Metaphorically speaking, the board of a company ought to imagine this as a place where talent for the future is groomed.
Consider Mohammed Siraj, for instance who created history when he made his debut with a seven wicket haul against Australia in test cricket and is part of the IPL franchise. “Before his Test debut, Siraj had played 16 first-class games for India A, taking 70 wickets at 21.9 apiece. He had represented India A in South Africa, England, New Zealand and the West Indies… Siraj's tale embodies the trend of a growing emphasis on A-team cricket,” writes Wigmore.
He goes on to make the case that an A-team must do two things. “First, it should give the national selectors useful information when picking squads for the senior side by helping identify the country's next best players. Second, it should improve the players in the second string, by exposing them to the types of conditions, and opponents, that they will have to confront if they make it to the national side. Siraj's development with India A while bowling in overseas conditions is an instructive example.”
But this requires financial investments in the short and medium term and taking a long-term view as well. There is much to think about in this piece that most managers don’t consider.
Dig deeper
- Bringing the A game (The Cricket Monthly)
- Mohammed Siraj’s father’s dream (The Indian Express)
- 83 movie trailer
Marriage explained
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Warm regards,
Team Founding Fuel
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