Tuesday, December 19, 2006

Starting up financial planning

I am starting a financial planning company with three other friends of mine from IIM Ahmedabad 2004 batch. The company is named PARK Financial Advisors Pvt Ltd and is based out of Nariman Point Mumbai
Our website is http://www.parkfinadvisors.com

Do check it out to see if our solutions interest you! In all likelihood they will!

Saturday, December 16, 2006

Adventures in Logis Space

The next flight landed safely. Fei was not impressed. At least not unduly impressed. This was sort of routine work and she was supposed to be good at it anyways. That others were impressed was besides the point for her. She had long learnt the optimal extent of importance to be attached to such impressions or lack thereof. This time it was the sudden systemic failure of ATC tower. Apparently the system just stood still while the world around it moved as usual. Fie had seen this before at least in theory. The usual cure of a simulated crash through some flight sim program seemed to have worked yet again.

What made her curious however was the aftermath of the exercise. She realized that she had actually bypassed the problem and not solved it. It was indeed akin to shock treatment of patient in coma. The symptoms disappeared and the system got on track in terms of its functions. That did not still tell the story of how the coma set in in the first place. The more she thought of it, the more this question ate her head. Why did the ATC system stand still? As a systems engineer in aerospace engineering, she pretty much knew for sure that ATC was one area people never cut corners in. The optimization in ATC was simply ruthlessly approaching perfection to the extent possible. The direct costs of system improvement were a rather tiny fraction of the potential loss it could inflict. Nobody really cared two hoots about the cost when it came to increasing the reliability of the system. While that was true of most things related to air travel, ATC in some sense was the pinnacle. That was the area where the systems were probably the best available to mankind.

On this backdrop she was rather uncomfortable attributing the system failure to hanging of the sort seen in desktops all the time. There was something rather inexplicable in the failure of the ATC which made it significantly different from the most common types of failures. She could not put her finger on it but the nagging still remained.

She was planning to go for this boring conference in a couple of days on behalf of her employer. The conference was titled "Reliability Enhancement of Hypercritical Systems". Clearly at first go, this did not sound half as exciting as her earlier plans for the weekend which involved lot more action on various fronts! What the hell, she thought, now that I am going there, why not make the most of it anyway and pester some cute researchers on what they think of this problem of hers (the ATC, not the lack of action on various fronts!)

At the conference (which turned out to be many times more boring than she had anticipated), she came across this not so cute (and not a hunk in the remotest sense) researcher who was doing some work on what he called "Total and sudden system collapse with no irreversible effects in hypercritical systems". If someone could do research on something more specific, Fie thought, she would personally go and touch the feet of that person! Anyways, this researcher (not cute, not hunky) was very interested in Fie's problem. Fie first attributed this to her ample assets but after a brief interaction figured out that the researcher was from IIT Bombay and not from IIT Delhi. This reassured her a bit and she took up the topic of her question for further discussion with the non-cute-non-hunky researcher.

"I have come across some really similar cases. The failure of latest Korean satellite was caused by a similar inexplicable stoppage of system. Of course, there was noone to shock the system out of its slumber there."
"Is it? That is interesting. Have you thought of any way of explaining it? You know, like other hypercritical systems, people are happy to know the cure without the cause. But I have an uneasy feeling that the problem is far deeper than we can think."
"Exactly my thoughts, too! I have collected good amount of data on such failures. Let me give you a summary I have prepared. Why don't we meet post dinner to discuss our thoughts?"
Nice try, Fie thought, of hitting on me so subtly! She thought she would try it out anyway. There could be some grain of genuine interest in discussion "post-dinner". In any case, like a typical IIT Bombay guy, he was very sensible and charming and would not be a bad date! Considering the limited downside and a possibility of learning something quite interesting, she made up her mind.
"Of course. Say ten pm coffee shop?"
".." (as in, "Ok")

She had clearly underestimated the depth of research the good natured and sensible but not so cute and not so hunky guy had done. The recurrent theme of the research across various events was one of "slippage". Somehow the systems seemed to be slipping out of their functions. She did not like the tone of exclusivity the research had though. With due interest and attention, even usual systems can be shown to exhibit similar trends, she conjectured. The acme of the research was however the bold speculation that human minds are similar systems in terms of complexity and are liable to stoppages of the same type. Hmmm! That was something she had never thought along the lines of. For her, the systems she maintained were mechanical. There was no life in them. There were the systems and the flights and reliability and math and then there were weekends, sex, religion and charity. What was lifeless was so thoroughly deterministic according to her that it could never mimic life, nor could life ever mimic the coldblooded framework of the material world. If human mind starts failing like systems collapsing suddenly, the boundary was clearly blurring somewhere. But more of that later, she insisted to herself.

When they actually reassembled at night for post dinner coffee, she told him of her thoughts. He looked amused.
"Of course, even smaller and less critical systems can possess similar events. So long as they are equally complex," he said.
"But what of the human mind also potentially being subject to such a failure?"
"Oh that is a tangent really. More of that later. First tell me, do you think the system failure is something to do with the systems or to do with the world around?"
"If I understood you correctly, you are asking if the systems fail due to internal malfunction or just fall prey to something around them going wrong. My guess, for no valid reason, is the latter. Not because these systems are far too well tested but more so because the type of failure is very unique and difficult to explain through internal malfunction. And of course the supreme reason that the systems tend to come back on track with no trace of internal malfunction."
"Yes. That is where I stand too. Let me come to the point. Anything said or speculated about the potential cause of failure of this type is likely to remain just that - speculation. Here is my plan to undertake some practical research in the area. My colleagues at the institute also experienced a similar systems failure in their neuromedicine lab. They were performing some live study of neurosis on a patient using those electrodes wound around his head. In the middle of the experiment, the data analysis system just stopped functioning and the patient stopped responding to any stimulus. My friends paniced and halted the experiment and restarted the system. Only later did they realize that the patiet's heart beat and other bodily functions were normal. But despite that, they are going slow on those experiments now. Apparently, there is too much processing power required and the other departments are also complaining."
"Sounds interesting. What do you propose to do though?"
"Oh, I was counting on a fellow experimenter. I am planning to undertake the experiment on myself, actually more like ourselves, if you agree. We will put those electrodes on us and my friends will perform the exact same series of activities. We will see first hand what such systems failures are!"
"You are out of your mind!" Fie nearly screamed. "You want me to believe that I would agree to get damaged permanently by electrodes around my head for the great cause of pushing the frontiers of human knowledge? I am no researcher. And maybe because of that I have a life! I have nothing more than an academic interest in such matters. So please don't stretch it."

There was not much left to discuss. Our decent guy was not very politically correct so he quickly wound up the meet. Fie came back to her room very disturbed. She was sure she did not want to risk anything as crucial as her sanity for some general insignificant curiosity. But that was an explanation that she gave him. Unfortunately, she was not quite good at deceiving herself into accepting what she told others as excuses. As a matter of fact, she was in two minds. It at once sounded rash and interesting. If it worked, there was a possibility of really "arriving in life" in her own eyes, but if it failed and failed in a bad way, she was pretty much over for the rest of her life. As rational human being, she should have stayed away from it. But then mostly due to the same reason she made up her mind in favour of it. "If everything were rational, nothing would move!", she recalled someone quoting. With the new found determination of playing with her sanity, she called the non-dude.

The laboratory at the institute was nothing like she had imagined. It was rustic in a very interesting way. That would otherwise amused her but now she was looking for some reassurance and that was nowhere in sight. To add to the effect, the non-dude was fiddling with instruments like he would with those of a very old car. His friends - two guys and one guyish girl (like most other IIT women, she noticed) inspired little confidence. They were thorough and swift and confident but did not look very polished. Academic institute's laboratories were a far cry from the corporate labs, she grimly commented to herself.

"Ok, here goes!", non-dude was suddenly bubbling with new-found energy.
Fie had seen such excitement in men at some entirely different occasions. She wondered if the non-dude ever was involved in such "different" occasions and whether he would suddenly shout out, "and hence the causal connection should be the other way round" in the middle of it. She giggled at the thought. Others did not seem too perturbed by that though. There was some reassuring serenity about the spartan look of the lab and its operating researchers. She began to feel at home.

But only till non-dude held the electrodes like he would hold a knife in front of a scapegoat.
"Should we begin?"
"Errr...yeah, sure.. why not.." Fie was gathering all the courage she could.
"You idiot! You will scare the poor girl holding electrodes like that. Let me help you", this was the guyish girl. Her voice and actions both soothed Fie a bit.

The experimenters repeated the same sequence of activities they had performed on the previous occasion. Both Fie and non-dude had several electrodes wrapped around their heads and had their eyes closed. Experimenters were shouting numbers at each other.
Fie heard few abuses (most of them coming from the girl) also. Things seemed to be going fine. The whole thing was turning out to be neither a breathstopping realization nor an utter disaster. Fie was starting to get a wee bit disappointed. She was praying for something to start happening, either ways - good or bad!

That did not take too long. There were clearly signs that something was amiss. She realized that she was not hearing anything anymore. Not even the quiet background noise of the air conditioner in the lab.
She shouted, "Guys, can't hear you. Can I open my eyes, is everything all right?"
No reaction. Hmm, this is going somewhere after all huh? she mused.
"Guys (louder this time), I said can I open my eyes?"
She suddenly realized that even if "guys" were shouting at her, she won't be able to hear it anyway! Brilliant analysis, now what do I do?
... open my eyes anyway, should I? or just be patient and watch for longer? what's the point in being panicky? I am still sane, or at least I feel sane... What is insanity like? does the insane person know so? not now, will sure think of this once I get out of this..

Her thoughts kept her occupied for a while. Soon her patience ran out. After a final warning call to the "guys", she opened her eyes.
Ok, let us say, tried to open her eyes. As it turned out, she could not. Of course, what's the fun if she could. Now she was in good trouble. This was the point at which she was justified in panicing! Which she did. While that did not help much, she tried the best she could do. Shout and cry for help. Suddenly she realized that she was not tied down or anything. There were just a few electrodes about her head. Her hands, legs and all her body was free.

Then let me just lift my hand and remove these stupid electrodes... that was so obvious.. I feel so stupid... Anyway, everyone is going to have a good laugh once I remove these and see them.. so embarrassing, wish I had not shouted!

But as the reader might correctly guess, her hands did not move. However, as the reader might fail to guess, she also realized that she did not feel she had any. Legs, no response.. any other mobile body part, nopes... so after all, I am in coma or something? This must be what it feels like. Oh my God, what have done to myself, walked into this coma all by myself. And that by my own free will.. (ok, another essay to write on free will.. but not now.. not now).. I had sensed that the whole idea was a bad one.. this researcher looked dubious right since the beginning... it is correct to say that if everything were rational, nothing would move, but ironically for my limbs, if I had been even slightly more rational, they would be happily moving now.. and what's better maybe moving inside a nice comfortable bath tub!

Anyway, that she was thinking while cursing herself helped her stay confused for a further while. Eventually she realized that she was pretty much stuck in the middle of nowhere for god knows how long. What a waste of a way to finish one's life, she sighed (mentally, that is!), if indeed this was the end!

Of course the mentally better equipped readers would have figured out by now that this was anything but the end of her life and there was more to come. If this was a movie on TV, this would have been time for another break!

As it turned out, she felt a something shaking her (later she realised that this was funny and illogical since she was not feeling her body anyway). With a sudden jolt, she felt she suddenly knew lot more than she did a moment ago. She searched her mind to figure out what it was. The thoughts she felt were new to her mind and memory were as follows.

"Hi, sorry to intrude thus. How are you feeling? Am Tiq (the non-dude). You must be feeling a bit disoriented (yeah, right!). I do too. I think we are stuck out of normal temporal evolution of the universe around us (hmmm, that explains it, my dear!! why don't you start talking english for a change, you are goddamned half dead now). Try a bit, you can also communicate with me. I think we are moving in time but very very slowly vis-a-vis rest of the universe (even better!). Our bodies are anyway too slow to respond to us. We need to work through our minds. Just see if you can push and speak to me as I have spoken to you. Feel your way around and touch anything you lay your hands (figuratively) on. Bye!"

Fie had no clue what non-dude (if it indeed was him and not a figment of her imagination) was talking about. Something assured her that it was indeed something or someone outside her for the simple reason that she was not inclined to think along these lines even in the best or worst mental state. That of course was only a judgment! But then there was not much else to bank upon. If it was him, she thought, he wants me to speak to him the way he spoke to me - through mind?

... let me try "pushing" and "feeling around".. hmm, this seems going "someplace".. hello, anyone there!... let us push the other way.. what's that? that must be him..
"hi, is it you?" (Fie thought, anything when asked if its "you" would respond affirmatively if it could communicate...but she was counting on non-dude getting the general drift of her question...)

There ensued a "thought exchange" driven conversation which went thus:
"Yeah, it's me.. so you learnt how to do this huh.. good! Now tell me, how do you feel?"
"Considering that feeling is pretty much ALL I can do, I feel quite sad and limited!"
"Of course! I totally understand.. this is not easy for me either. But I am feeling perfectly fine otherwise, you know something like being only my mind!"
"Come to think of it, you are right! If I ignore the minor loss of my body, I think I am with you on this one!"
"Don't be sarcastic! Is there anything else you can do anyway?"
"Thanks for the encouragement. But I take your point. Small request though, can we take postpone intellectual discussion till we get "outside" and try and figure out ways to get out in the meantime?"
"That's sensible actually! hmmm, what can we do... if we just wait, I think our mind will become dysfunctional with overactivity of processing and information and that would probably mean we will die.. or else maybe we will just stop functioning mentally if the coma of our bodies is complete!.. our friends would never find out since they are infinitely slower than us and by our time, they are almost paused.. can you think of any other possibility?"
"Actually, yes. What if we try and push around and "locate" in some sense some switch?"
"What sort of switch can you operate mentally? And what is the use if we are not to move in time anyway?"
"You said we are moving slowly but have not entirely stopped... if we can switch the system off in some way, we may "evolve" out of this!"
"Granting that we can, what kind of switch do you plan to locate?"
"You tell me!"
"I think this may work. It is abominably crazy but what the hell!"
"Ok, what is it anyway?" this was Fie (actually, Fie's mind)
"The plan is as follows. We will scout around for the logical circuitry of logic gates inside the computers of the system. The physical substance is of course out of bound for us, but if we could mess with the logical elements of it, there might be a way to shut the system down."
"You are essentially saying that we make the system go mad and hence self terminate in a logical or "softwary" sense?"
"Great idea... where do we begin?"
"Let us try and "stay" together and keep talking as we 'move'"
"Sounds good, take a left.. !"
"Stop fooling around!.. Ok keep pushing some way you want and keep speaking to me .. I will try and trace you.."

They stumbled around a bit. It was a new experience for Fie and for Tiq (Let us stop calling him non-dude since he had done some really dudelike activities this evening; for starters calming a distressed woman (actually only her mind) and thinking out of the box to generate solutions for crisis management, if this does not make him a dude, nothing else could). They were indeed roaming around with only their minds in the "space" of systems. The rules of the game were of course significantly different. For one, there was no distance 'between' objects. Everything and everyone were just right there. Fie and Tiq did not have to roam around much in a spatial sense. They just had to realize that they need to sort through the nearly infinite array of logical systems they found themselves with.

It would be hard to describe their adventure in the exact sense since not much of their activities can be translated in our usual language. So let us stick to analogies. They pushed they way around and tried to sense things, actually entities in the logic space. They themselves were equivalent to two complex systems interacting and evolving continuously. Time in the material universe was infinitely slower than theirs, but at least they had time, else they would simply be rendered ineffective - like being frozen alive with all senses operating but no possibility of actively doing anything.

"Tiq, what are we looking for?"
"Anything we can mess with"
"Tiq, what are we looking for?"
"Oh I am sorry. I mean things like gate logic, software programs, sequence of logical steps etc"
"Hmmmm. How do we figure out?"
"Keep looking"

As it turned out, Tiq and Fie learnt their way around quite quickly. While most other systems they came across were inert, some were dynamic and showed some action. They felt like roaming around in the machinery room of a ship with some general stuff lying around and some moving equipment making hissing sounds. They came across this fascinating and intricate web of causalities which changed very rapidly. They also came across several structures which seemed very rigid and changed little. There were still more which were linked to both the structures and the dynamic systems. If one were to draw a picture, it was similar to and engine room with pistons, cylinders, transmission rods, controls and all that.

"Fie, I think we are hovering around the main program of the system. Look here, I mean feel here, this is so intricate and complex. It is so dynamic. Should we try and destroy this someway?"
"If you say so! How should we?"
"I have an idea, let me locate the loops and remove the loop finishing element. That may put the system in infinite loop and it will hang!"
"You mean you want to do the equivalent of changing 'WHILE i > 4' to 'WHILE 5>4'?"
"Yes, something like that but more complex."
"Go ahead!"

Unfortunately, Tiq could not locate the loop. He tried to generally assault the system in anywhich way he could. After a bit there was something of the sort of a mini-explosion in the space they were in and both Tiq and Fie received a quick succession of shocks; similar to the ones they used to communicate with each other.

Of course, someone had spoken to them.

"You morons! What are you up to? I came here to save you guys and you are attacking me? This is Miti."

Tiq recovered first.
"Miti, what are you doing here? How the hell you even knew something was wrong? Is your time not infinitely slower than ours?"
"Tiq, who is Miti? What is she doing here", that was Fie
"One at a time, fellows! Fie, I am Tiq's friend helping you guys out. We met outside, remember? Tiq, I anyway knew something had to go wrong and was on standby. The moment the signals from electrodes started to weaken, I got in. Thankfully just in time. Otherwise it would be too late for you guys anyway."

Tiq thought at length and then came up with a brilliant problem.
"How does that change anything? Now there are three of us stuck!"
"You clearly could use some brains! I have written the program for the operating system of the machine. I essentially have brought you the map of the jungle in which you are lost."

"Ok, so which way it out", Fie was focusing on the essentials.
"I am transferring the system architecture to you guys and also the proposed way out. Tiq, as you are thinking, making some loop infinite is probably a good way out of here."

What followed next was not much of a glorious happening. They eventually located the loop they were looking to extend to infinity so that the system hung due to lack of RAM. That worked and the system stopped functioning. In due course of time, they came out unscathed. However, the small time system took to come to a halt was fairly long for our fellows and they managed to scout around quite a bit. Very soon in their adventures both Miti and Fie had ruled out getting into a relationship with Tiq or with each other (in fact to add insult to injury, Miti even commented on how she found Fie a better match than Tiq). However, they became good friends due to vast exchange of ideas, thoughts, fantasies (again, Tiq was brutally left out of the last part) since exchanging them was so much more easier in logic space!

Needless to say, they were a far different people when they got into governing their material bodies!!!

Iran going the Iraq way

Read a few shocking facts about the history of gulf war and the more recent strike of US on iraq.. and then some more current happenings on Iran which indicate the designs of US and its allies to invade Iran as well..
1. Pushing through IAEA unrealistic demands on disclsure of military secrets..
2. Claiming of Iran having nuclear weapons irrespective of what IAEA inspectors say..
3. Invading Iran and then after not finding any WMD, claiming it to be a coninuation of war on terror for the overall good of human society (the west?)

I get a feeling that US is running into a near certainty by fanning opposition rather than dialogue and trying muscle show in arrogance... it should understand better than any other country that show of military power can still not protect its civilians from madmen terrorists.. god save humanity from the US foreign policy!!

On Income Inequality

Expressing opinions on distribution of income and wealth leads to a grave danger of being labeled leftist or rightist. Hoping that the readers of this essay will be somewhat more forgiving than that, I am stating some general feelings and analyses in this area.

For the purpose of income distribution I like to classify income in three categories namely wage income, returns on assets and entrepreneurial income. Here I am including income on only individuals and am also aspiring to include illegal activities in this. Hence the heads wages and entrepreneurial income need to be appropriately broadened.

In the following, we will see how income differs across people due to various factors influencing these three. For a new entrant in the economy, she has to either inherit assets to earn good asset income or have good skills to command a good wage rate or be entrepreneurial (with sufficient funding) to earn above average. Else she joins the labor pool and earns the average. Statistically speaking, only a minority ever manages to earn above average. But that is a tautology. That is the meaning of averages and distributions. What would be relevant is to see if the average moves up or down over time and whether the difference between the generally rich and generally poor changes over time. It amounts to tracking the changes in the mean and standard deviation of income distribution.

Keeping aside productivity improvements due to technological changes, the average generally goes up with time. That is of course based on an assumption of surpluses. The surplus left after consumption in crude terms, is invested. These investments generate further income and so on. Now the question is, how is this incremental income distributed? The income generated due to incremental investments goes to investors of the same. The income generated due to extra work created in the process goes to the wage earners. How does the standard deviation of income distribution change?

For a while, let us club the income from assets and entrepreneurship under same heading of “return on assets.” Then there are essentially two factors namely capital and labor each expecting some income from the economy. What they actually get is a function of demand and supply of each. With population increase aided by advances in medical science, the supply of labor increases significantly while capital growth may be more or less depending on various other factors. The industrial revolution led to an equally strong growth in stock of capital keeping the balance between capital and labor to some extent. However, it seems in twentieth century, convergence of multiple factors actually tilted the balance in favor of capital in a big way.

First factor is technological improvements leading to two things. One is productivity improvement of those working and two is the replacement of humans by machines across various processes. Both these reduce the demand for labor. Second factor is increase in growth rate of population. This is again culmination of two things. First is the increased “stock” of human beings.

Second is the great advances in medical science reducing infant mortality and increasing life spans as well. Combined effect of the two is effectively an explosion in population. That increases the labor supply many times over.

Third factor is the introduction of structural barriers in movement of people up the socio-economic strata. Increasingly, it is not merely entrepreneurship that one needs to make big money but is a combination of skills, credibility and access to angel investors which enables one to start a business. While that may seem a minor factor, what it does is to exclude a fairly large section of population from moving upwards in socio-economic pyramid.

The last but in no way the least significant is the introduction of formal professional education. Unlike the past where apprenticeship with appropriate professionals led to taking up that profession later on, introduction of formal professional education saw people investing a significant amount of time as well as money in being qualified for a certain job. That led to two things. First is a dissociation (or at least “distancing”) of actual demand from number of apprentices. Second is elimination of poor sections of society from aspiring to get into jobs which require costlier education. No longer could the apprentice pay through man hours of assistance (barring research assistants in universities though).

Due to these four factors, post the great depression and through middle of twentieth century we had a picture of a constant oversupply of labor leading to what is generally called “unemployment.” Much has been written on this topic. What is most intriguing though is the very existence of it. I shall not delve further into this due to lack of competence. My overall feeling is that unemployment exists due to structural barriers in the job market such skill requirements. But this is anyway not the topic of our interest as of now.

What I was coming to was essentially the stronger growth in labor supply than in capital supply in the previous century. Owing to this, we can quite comfortably claim two things. The mean of income distribution has gone up and that the standard deviation has gone up too. While everyone is richer on average, the richer earn many more times over the poor than they did earlier.

Where are we headed? I can foresee two scenarios. Which one will unfold will depend on whether the crucial inflexion point I will describe later will come before the gradual reversal of the demand supply mismatch.

It is obvious that the rate of labor supply is coming down (not the labor supply itself though). Population growth is dwindling overall and is in fact negative in some parts of developed world. On the other hand the capital is growing faster and faster. Part of it is owing to simple base effect. Part of it is also the emergence of financial institutions which have led to increase in the productivity of capital owing to greater scrutiny of investments and dedicated expertise in financial investment. It is clear that the directions of changes in labor supply and capital supply are opposite. What is not clear is one the absolute values of these changes and two the starting points of these changes. These two together decide how long will it be before, in an abstracted sense, the “returns” on labor exceed those on capital. In essence, how long before the labor earns enough to match the income of investor in some per capita sense.
On the basis of when it can potentially do so, we can draw following two scenarios. The first is when the population of the world actually has been falling for a long time and is now stabilized somewhere much lesser than where it was in the middle of twenty first century. The capital in the meantime has grown significantly and the avenues for investment have not kept pace. The capital is employed in assets which generate meager income owing to large labor rates. The labor has become scarce and commands a large premium across the globe. Over time, even the poorer sections of society have caught up owing to easier access to education partly fuelled by subsidizing by governments and corporates to increase the labor supply. The increased incomes across wider sections of society are leading to greater savings even by the “poorer” (mostly defined only as being on the other side of income distribution) leading to them having increasing asset income. Overall, just as the mean of income distribution has increased, the standard deviation has come down. Over time, society is moving towards equilibrium where means of production are owned by firms which in turn are owned by financial institutions and run by professional managers. These financial institutions are instruments of investment by the entire population though individual investments differ on account of saving vs consumption preferences.

It can however happen that this scenario can take a very long time to unfold. Meanwhile other forces operating within the society can lead to serious disruptions of this development.

Let me start with describing these forces first. These are the forces coming from three major sources. First source is the frustration from unfulfilled ambitions of a large section of population which does not get what it desires. This has always been there since the beginning of civilization. What has exacerbated it in current times is the enabling of the poor to “see” in all its glory the glitter of being rich. Through increased media presence, the poor of today know the rich of today far better (in a general sense) than their counterparts in the past. Many things which one comes across everyday in today’s world reminds a poor person of what all she lacks and can never even aspire to get her hands on in her entire life.

Second source is the anger due to denial of opportunity to poorer people on account of lack of resources, lack of connections/credibility, nexus amongst the established etc. Statistical distribution of gifted individuals in society combined with the fact that the poor people are far more in number than rich would mean that quite naturally; in any given field the “masses” are likely to beget more gifted individuals than the elite. However, several structural barriers usually lead to lack of development of these gifted individuals. In obvious cases of such denial due to inability to go to the right school, inability to get funding, inability to play a certain sport, the poor will eventually develop a strong hatred of establishment which denies them an opportunity. While various mechanisms exist to correct these distortions, the most obvious natural course of capitalist economy will anyway work with such denials as an unavoidable evil.

Third is the possibility of making it big by subverting the legally acceptable system. This is in some ways a fall out of the first two. However, the circle becomes self sustaining only if there are more than enough poor people willing to try subversive paths and are also working in an environment which is not too strict about it. The fear of punishment typically keeps people from subverting the system. The assumption there is that a rational individual will consider the chances of getting caught, degree of punishment and the opportunity cost in terms of what she gives up. For a middle class individual, not subverting may seem the obvious path since the opportunity cost is high. At an appropriately low level of income however, the balance tilts in favor of subversion. Add to that two reinforcing factors. One is the network effect of having more of one’s relatives/acquaintances involved in such activities and the other is formation of organized syndicates which will reduce the degree of punishment even if caught.

These are the forces of disruption. No doubt they will be there all the time and there mere presence is not enough for causing a disruption. Whether they result in an actual disruption is dependent on the rate at which the unrest is growing vis-à-vis the rate at which the restoration of balance of returns on capital and labor is growing. These two in turn are not unrelated. A decrease in inequality of income leads to reduction in the strength of the forces of unrest. However there seems to be a factor in the nature of these forces simply dependent on time. It is quite difficult to explain the same. It really signifies the collective patience of the poor in some ways. A patient poor class may feel fine with the much smaller fruits of development reaching to it and may wait for a tiny increase in the same year after year. Over time, this patience can get stretched. When one views even the poor class as a dynamic system involving the proponents of status quo citing from the expectations of grand future and the opponents of status quo who refuse to believe any claims of poor coming into mainstream, we can get an idea of how the “patience” is really a matter of who is the dominant of the two.

Having thus described the forces of disruption let me come to the scenario in which these forces overpower the path of restoration of income equality. In this case, the poor start out with subverting the system in more and more organized manner. They do not remain poor any longer but they are not rich like rich within the system. They promote many more like them and reduce both the probability of getting caught and degree of punishment. They eventually establish a control over the system which makes them the obvious choice for the remaining poor. Thus is established a parallel economy which is intimately linked to the mainstream but at the same time not answerable to anything in the mainstream. Over time, it can only grow in power. The only thing that can check its growth over and above the mainstream economy is the fundamental restriction on where economic value comes from. This parallel system in a way is a derivative of the mainstream and hence is eventually limited by very size of mainstream. Nonetheless, in spirit, the equalization of incomes begins at a much faster rate than earlier in this case as well. However, the finesse of the equilibrium of the earlier case is missing. This scenario is of two competing modes of thought and action. It is characterized by constant flair up between the two fractions. Everyone lives in a state of fear from the opposite camp. The society gives more and more importance to physical/monetory power and such subtleties as arts and sciences (in areas other than weaponry) are ignored over time. Economic growth is stifled because the labor supply abruptly goes down and a derivative parallel economy based largely on extortions and loot saps most of the savings of the mainstream. The society becomes largely consumerist. The parallel economy spends because it has no legal means to invest fruitfully. The mainstream spends because it has no surety of tomorrow’s existence. Investments dwindle as well. Since the population has not really come down significantly, this leads to overall reduction of income in medium term. So although the standard deviation of income distribution goes down, the mean goes down as well.

Which of the two will unfold? Although life does not need to be so dramatic and can eventually lead to a more mediocre looking middle path instead of either of these, I somehow feel only an extreme is likely owing to the complexity of the society we are.

Friday, December 15, 2006

my second month as an entrepreneur

december was my second month as an entrepreneur.. first formal, second in terms of having started work. Interesting so far!
Many things change from being an employee to an entrepreneur. But one stark thing I noticed was this - when you are an employee, a light day/week brings out a sigh of relief. When you are an entrepreneur, a light day/week is more stressful than a heavy one for obvious reasons!
Of course selling is a also a much tougher nut to crack than one thinks as an employee. And one more thing - consulting prepares one for strategy definition and problem solving, not so much for on-the-ground selling.
I guess the learning will accrue as I go along. The space looks vast and open for exploration. It always feels better to be one of the early explorers (which is what I feel like in current work) of a mine rather than a worker doing routine maintainance job there (which is what I felt earlier). There is more challenge no doubt. But there is also more interest and more direct impact of what you think and what yo do!