Tuesday, August 26, 2008

State Run Vs Private Enterprise

This summer I was in India. I made my travel plans through makemytrip.com and made it very clear while booking my tickets that I was Vegetarian and would like to be served Vegetarian meals on board. My flight out to India was United Airlines to Kuwait and Kuwait Airlines to Hyderabad and my flight back was Indian Airlines (or whatever they call it now) to Kuwait and United Airlines from Kuwait. My flight out was pretty uneventful. My return flight was very significant. It was a night flight to Kuwait from Hyderabad, through Indian Airlines or whatever it is called now, and I was tired and trying to sleep and was woken up repeatedly by the cabin attendant cause he wanted to serve me food. Not only was I woken up, I was asked if I wanted non-vegetarian food, despite my dietary request at the time of ticket booking, and I was served a meal with chicken in it. I had almost eaten a third of my meal before I noticed the pieces of chicken in it and was very upset. When I pointed it out to the cabin attendant, all they could do was apologize. I was really furious with them and asked the lady to leave me alone. I think the attendants do not understand English, cause in spite of my repeated requests to be left alone, she kept nagging me asking me if I wanted something else to eat. I am terribly disappointed with Indian Airlines (not that I had too high expectations form them to begin with). The next leg of my journey through United from Kuwait to Dulles was comfortable even though I had the window seat and it was a 14 hour non-stop flight. My meals were not only vegetarian, they came with a special sign that said it was specially prepared for me based on my requests at the time of flight booking. Also, I fell asleep before their first meal service and no one woke me up to serve me food. I just asked for my meal when I woke up. 
The contrasts are stark. Customer comfort seems to be at the low end of the totem pole with Indian Airlines. That is understandable. Who are they accountable to? It is no wonder that service is seriously lacking. It was also clear with their occupancy. The flight was pretty much empty. 

The end seems in sight

As I begin my fourth year of Grad School at GMU, I am finally beginning to see the light at the end of the long tunnel. First year was just a blur of classes and exams and prelims and what not. Second year was just a blast in comparison, thinking about a variety of topics and writing short 3 page (double spaced) papers almost every week for three classes and dabbling with several ideas for the dissertation which suddenly seemed like a blue whale with a million appendages. Third year was awesome fun once the dissertation idea took shape and the appendages were chipped away and the whale took shape and began to look more like a big fish than a blue whale. Beginning fourth year, a third of the blue whale has taken shape with the other two thirds coming along finely. Grad school has been a blast and I am glad I have lasted this long to see the end in sight. If all goes according to plan the big beautiful fish should be complete by Summer next year. I am looking forward to an exciting fourth year at Grad School.  

Monday, August 11, 2008

Social Capital in the way of efficiency?

Social Capital is big in India. The amount of social capital here is simply amazing to observe. It jumped out at me initially when my parents refused to go to a local big store (which is a new concept) to do their grocery shopping. They still stick to the grocer we have been going to for 12 years. They have a personal relationship with him and he has certainly helped us when we went through a rough phase. My parents show their gratitude by taking their business to him and him alone. In fact they are even unwilling to move to a different locality, because of the social capital (grocer, vegetable and fruit vendors, local handy men, pharmacists, family doctor, domestic help, and odd people who live around here who are helpful in times of need even if their work is not up to mark) they have built in this area. The feeling is mutual as well. The local flower vendor bikes 2 Kms out of his way to bring us fresh flowers everyday. 
It is nice to see Social capital in action; however, there is also inefficiency in this system that is not weeded out through competition. It is well and good in a small society with a handful of people to rely on the local handy man who does everything from electrical to plumbing works. It helps people out initially when the society is starting, but the society needs to move out of its small bounds. The local vendor may be efficient when the next closest vendor is a few miles away, but when competition develops in the market and there are other more efficient players in the market that can get the job done cheaper and better there is no economic reason to use the services of the regular vendor. There is nothing personal in this arrangement. Just as the vendor is in the market to make money, so is the buyer to buy the best product he can afford. Especially in situations where the willingness to pay is high there is little reason to continue to pay high for poor services when better services can be gained with the same amount of money. 
My observation in India is that people are unwilling to cut the umbilical cord and make efficient choices, thus rewarding inefficiency and penalizing efficiency in the market. Social capital is indeed in the way of building efficiency in the market. This would explain why essential market services, such as plumbing, house construction, quality of grocery store goods, and such still suffer from basic failures. The ideas of help the small guy are also big in India. The common argument is that these small guys are really poor and need a helping hand from people who are better off so that they can come up in life. I am all for the humanitarian aspect of it, but not at the cost of efficiency. Many of these people are inefficient because these are the professions they have been driven to out of poverty. However, by not fining them for bad quality work the incentives for him to grow and become efficient are taken away and thus we observe this cycle of inefficiency perpetuating.

Friday, August 08, 2008

Inefficient rain planning

India is famous for monsoons. Last month I was in Delhi and lamented the lack of city planning for rains. Here is an even more personal account of the inefficiency in the building markets in India. Four years back my parents contracted with a builder to build a house. This is in Hyderabad which is notorious for heavy downpours almost everyday between June and November. So you would imagine that the weather proofing of houses is pretty much a well developed technology. Wrong! After paying the builder close to $30,000 which is a lot of money for a middle class family in India (actually its several years' salary for my dad) we find that even the most basic weather proofing has not been done on this house. Its been raining since yesterday afternoon and water is actually seeping through the walls, and dripping and pouring into the house. I never imagined something like this would happen, especially to a willing-to-pay-for-quality middle income household in India. there is no legal recourse because there are no such guarantees. I know in the US builders give guarantees for roofs, walls etc, not here no siree!! The solution is to spend $2500 out of our pocket to fix it, and it cannot be fixed until the rains stop which means we have to live in a flooding house for another 4 months. What is appalling is that this seems to be common practice, and people are ok with it. In fact the owners of the apartments in this complex are willing to defend the builder cause they believe they would have been worse off in the absence of their ownership and living in this complex.
The builder's inefficiency is what is argued as market failure by people (and an excuse for government intervention in the building markets). I believe the failure is that of the government who for years have regulated the building industry to prevent efficient small and big players to enter the market by keeping prices of building materials artificially low and norms so silly that no entrepreneur in his right mind would venture into this. The only kind the building industry has attracted is the rent seeking type who have found ample opportunity for gains. There is no market failure. There is simply information asymmetry and we have been unable to find the guys with the right experience and knowledge. Since there is sufficient competition in the market, especially since demand for housing is increasing faster than supply of qualified builders there is bound to be such problems. Knowledge is the biggest problem in this market. There is an entrepreneurial opportunity here for a firm to simply engage in collecting knowledge about efficient builders and sell it to potential home owners for a fee, something like the CARFAX report. There are so much profits to be made in this market. But yeah! Until then we have to contend with a market that is inefficient due to knowledge problems and political intervention.

Sunday, August 03, 2008

What a joke!!!

This morning, I was looking for online resources for some of the data I am working on. I stumbled on a labour department portal which acts as a one point resource for other state labour department websites in India. For a second I thought a pop up advertisement had opened up, but it was the Government portal, multi coloured with flashing signs and photos. Here is the link. That is not the joke. The joke is this link here which is the FAQ page of the Kerala Labour department. Actually, even that can be considered ok. Here is a sample Q&A from the Trade Union section of the page

Q: fghgsaddd
A: ftsdadydsdds

Q: How many persons required for
making an application for Registration of a Trade Union
A: yyyyyyyyyyy
Go check it out if you do not believe me. Here is what made me roll on the floor laughing. Go to the drop down list in the Search menu in the above website, select RTE and hit search. Now, you know where to go if you forget your typing alphabets. This from a state supposed to have 100% literacy and who's next goal is to be 100% computer literate. Yippie Ki yay!