Irrational Exuberance or Stupidity! Part - 2

Last week as I started to write about a - bubble of various sorts, forming across the entire gamut of the Indian economy the – sub-prime mortgage mess started to unravel in the US.

Media outlets and various financial organizations expressed shock and disbelief at the ramifications of the situation here in the US. It is interesting that none of them decided to interview the mastermind of the current fiscal mess his holiness - Mr. Alan Greenspan, under whose watchful eye the entire current sub-prime fiasco has it's genesis!

Yes, Mr.Greenspan is a very erudite and knowledgeable person; he is also the architect of this current mess. Mr.Greenspan had the knowledge and the tools at his disposal to prevent this situation in the sub-prime mortgage market as well as the deeper credit crunch that is making ripples across the globe. In fact if memory serves me and possibly other folks correctly this is not the first time Mr.Greenspan can be faulted for his acts of fiscal omissions - The Great Internet Bubble of the 20th Century also happened on his watch!

Now in India we have Prime Minister - Dr. Man Mohan Singh, who also is a very erudite fellow as well as an economist like Mr.Greenspan. Again if my memory serves me correctly the last time India as a country was almost at the doorstep of financial insolvency, this same Dr. Singh was at the head of the finance portfolio. Wonder if this is just a coincidence or fate as they say in India?

Lets look at some other interesting parallels.

Things that happened on Alan Greenspan's watch.

Black Monday 1987.

Internet pump and dump.

Beginning and end of Real-estate boom.

Super hot and sizzling economy, followed by busts and boom.

Overall decline in manufacturing economy!

Things that happened when Man Mohan Singh was lead Economic Advisor to PM, was FM, or PM himself.

India close to financial insolvency 1990.

Indian stock market pump and dump 1991/92.

Indian real-estate market becomes super hot.

Super hot and sizzling economy, followed by busts and boom.

Over all decline in manufacturing economy.

What happens next in India?

Every time I talk of the above scenario I am told to stop being a naysayer, and look at the rapid strides the service sector economy has made and the growth of employment etc. that will eventually create a trickle down effect that will uplift the Indian masses. Everyone tells me about the transition of global economies, from being agrarian to industrial manufacturing to eventually service driven.

TO WHICH I SAY CRAP! STOP THIS NONSENSE, FUELED BY PSEUDO-INTELLECTUAL DRIVEL!

SHOW ME ONE, ONLY ONE ECOMOMY THAT HAS SUSTAINED ITSELF ON A SERVICE ECONOMY WITH A GROWING POPULATION!

World War I & II saved the British Empire from being a footnote in history 50years ago. Japan has seen it's best days behind it. The Asian Tigers on the Pacific Rim are barely managing to keep their heads above water from the onslaught of the Chinese Tsunami. Countries on the African and South American continent barely register on any economic indicator or can hope to do so in the near future. Argentina and Brazil have never lived up to their potential despite the billions of dollars pumped into them in the past. Except for South Africa which has some economic activity the rest of the African continent it seems will be battling a human medical catastrophe.

Granted some of my predictions are a little extreme, but with a looming global recession, it would not take much for those predictions to come true!

Lets not forget about the nature of the Internet and electronic specialty service economy which moves at the speed of light is also susceptible to an equally rapid transformation into a commodity service that tends to flatten and remove various hierarchical barriers to entry for most service businesses. This not only reduces margins it automates and eliminates various functions that may have been essential earlier, and in turn may have been a source of wide scale employment.

The speed of the service economy is very rapid and by nature disruptive; it has a cannibalizing effect on general business and society as a whole. This is due to the constant search for greater economies of scale and optimization of efficiencies. We have witnessed this on a wide scale level during the dotcom meltdown. The same happens and has happened in an agrarian and industrialized economy, but at a much slower pace. When this reduction in economic activity does happen there is already enough ancillary business activity that has been created that it smoothes out the usual and periodic cyclical business and economic ups and downs.

My next post will touch on the immediate and near term ramifications of this service economy.

Irrational Exuberance or Stupidity? Part - I

For an individual that has been closely associated with the two business sectors in the US - IT Enabled Services and Retail, that have or are about to take off in the Southeast Asia region, especially India I sometimes find myself having a feeling of deja vu when reading excerpts of the astounding economic growth happening there. I have used the terms ITES in the US context because just as in India they were part of the IT growth boom in the US also.

This sense of deja vu is not of the same optimistic kind promoted and shared by a lot of other evangelists of developing world growth patterns.

I rejoice at the phenomenal growth that has and is continuing to happen in India; however I keep waiting to see some measure of hardcore economic activity in the development of physical infrastructure take place. Even when any activity to shore up physical infrastructure has / does happen it is only in response to an ancillary investment in islands of economic boom in places where there is already an ITES infrastructure.

Let's not forget what the acronym ITES stands for - Information Technology Enabled Services, in the majority of cases this is nothing but once again a fancy term for low end backroom processing support work that has been offshored to India from the more developed nations.

Support activity can only happen if there is primary business activity to be supported, if we keep on creating and encouraging an environment where home grown physical industries are decimated and discouraged we will face the same consequences that the US is currently facing.

The home grown US economy is already frayed at the edges and is starting to tear apart due to the lack of regular investments in in the physical infrastructure for almost the last 30years. Let's not forget even the robust internet era of the 1990's in the US could not keep the economy going for long.

I understand all investments follow the money trail, but you cannot have isolated islands of economic prosperity and growth in a land of 1.2billion people, not have some kind of equitable balance being maintained without having nasty repercussions. We have seen the former USSR implode and explode over ten years ago, which had similar kind of isolated pockets of growth. Granted India does have a wider base of business, but we have already seen the erosion and extinction of numerous small scale businesses and industries all over India, especially in areas far from these Special Economic Zones - SEZs.

At the time when I was moving to the US in the early '90s, major trans-national consumer (hard and soft goods) corporations were making a beeline to India to capitalize on the spending power of the - emerging Indian middle class. Many of them lost their shirts in the ensuing years and some have barely managed to stay around profitably even after all these years. This despite all the years of boom activity.

There is risk in all activity, however when people lose sight of rationality in understanding and accepting risk, it is politely termed - Irrational Exuberance, or in layman terms - Stupidity!

The Indian stock market has been growing at a double digit rates for the past few years, the real-estate situation is even worse prices are going up in triple digits and the lay people are lapping it up in the name of growth, being led around by organized opportunists - like rats dancing to the tune of the Pied Piper!

My opinions may seem harsh to many, but I have my reasons and will elaborate on them going forward.

Sample of my musings on Linked In - 14

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Is attrition a "thing" of the new century? Why isn't anybody bothered about it?



“Attrition, it can be a blessing as well as a curse for both the employer & employee, has always been there & is not a new buzz word.

When organizations face a tough competitive landscape for cost control, attrition - albeit voluntary may provide an easy way to cut spending without having to incur additional costs related to separation. Depending on the employee that departs there may be associated repercussions, for example if a key employee that is part of a crucial project or team leaves then there may be more problems, however, if a relatively non-essential/under-performing employee departs it may be a blessing?

Attrition also keeps an organization vibrant a& dynamic by infusing new ideas & talent, the flip side is loss of employees with key talent & experience possibly to competitors exacerbating the situation further.

For organizations facing high attrition rates in any industry or geographical location it is symptomatic of problems such as -

*Highly skilled workers employed in basic entry level jobs.

*Depressed wages in a high demand industry.

*Stressful & high pressure work environment.

*Improper or lack of verification of candidate credentials.

*Poor internal company culture that contradicts the projected company vision.

*Last, but not the least poor HR practices - hiring, training, & orientation of new employees.

Of the above I would like to touch on the last 3 in more detail -

In my experience employees having a short history of tenure at earlier 'jobs' are unlikely to stay longer at any future opportunity.

2ndly, their short tenure at previous positions would seriously inhibit their ability to gain expertise for future positions.

The part about internal company culture vs. projected vision. I 'm sure almost all of us can vouch for knowing organizations embodying the above. Due a meteoric rise or an isolated blockbuster product/service companies starts to live in their own 'lala land' which has absolutely no co-relation to their work practices.

Lastly, due to internal organizational pressures the HR staff is out of the communication loop when parameters are being drawn up for the various requirements internal departments have for workforce selection.

I have come across situations where requirements are so vague that all you need is a - 'warm body with a pulse' or so exacting and stringent no matter where you look you may not find a qualified candidate. Once a consensus is reached on hiring a certain individual there hardly any proper follow up regarding training/orientation.

Per my observations almost 80% of new employees get a cursory walk through of organizational practices & objectives & then get thrown into a grind-mill. There is no communication with these employees from the HR staff who after hiring take a hands off approach. There is very little if any contact of new employees with their immediate supervisors except in work related meetings, where they are supposed to listen only. Till the time they get their formal review/appraisal at least 6 months if not a year down the road, new employees are 'MAYBE" given a benchmark of performance objectives they were supposed to have been performing against. Even so no rhyme or reason is given for a majority of the ratings that are handed out. Most companies have some kind of exit interview programs, but they are hardly utilized. In HR forums everyone agrees ‘Exit interviews’ are a powerful tool to reveal causes for attrition, however most either do not use them or even when they are used nothing is done with the results.

Going back to my point about internal communication of HR staff within the organization, they have an unenviable job if it is to be done right. Almost 90% of HR recruiters are generalists & people who are usually at the entry level position of most organizations yet we put the burden of screening and selecting potential future superstars for the organization on them. Would welcome more observations... ”