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Internalizing Externalities

Monday, July 25, 2005 at 11:35 AM

Is the world really flat?

Two instances of bomb blasts in London, similar incidences in Ayodhya and now in Egypt…

Put those together with a just completed course in Global Economics and a term break of five days to mull over what has been taught – what you a get is a new view of the world. The predictions of Commanding Heights are coming true.

Friedman writes in his book and article: As the world becomes flat and more deeply interconnected there is no single power which controls it.

Can we continue to live in a world with nobody at the helm? What are the new rules of the game? Who will write them?

Greater trade and globalization have increased trade all over the world but it has also made very apparent the gap between the have and have-nots.

“Oliver Twist has come to town, and he's poor, and he's got a TV set, and he's able to see how you live as compared to how he lives, and he's going to get very angry. So either you show him a capitalist route to do it and integrate him, or he's going to find another ideology. And the fact that today there is no more Kremlin that is organizing a revolt doesn't mean that they're not going to find another capital, because when these things happen, when people are unhappy and rebel against a system, they'll find another locus of power very, very quickly.” - Hernando de Soto, in Commanding Heights

The other locus of power we are seeing today is Terrorism. The desperate need of the hour is to have a real flat world with no Himalayas and no Marina Trenches – and free markets ain’t going to get you there. You need a system with people at the heart of the model not money, not technology.

Another important aspect to delve over is that power has shifted hands from governments and countries to individuals. People and ideas are reshaping and shrinking the world faster than governments and countries can react to them. And foremost among these is the Internet itself. The blog I am writing this moment is gaining a power of its own.

I believe three inventions (among multitude of others) of the twentieth century – the airplane, the telephone and the internet have changed the world we live in. And the change has been so radical and so fast that we are still grappling to understand how they fit into our lives…

To understand the rapidness of this change I always state a hypothetical example: take a man from 1801 and put him in 1901, he won’t be totally out of place in his new world. Take a man from 1901 and put him in 2001, he will be overwhelmed, frightened and stunned by the complexity of the new world…

Thursday, July 14, 2005 at 3:22 PM

The Mountain

Following is a post on our internal Blackboard site from our Global Economics prof. Today was his last class and also the last class of term 2. His classes have been a superlative learning experience.

My students look at me expectantly.
I explain to them that the life of art is a life
Of endless labor. Their expressions
Hardly change; they need to know
A little more about endless labor.
So I tell them the story of Sisyphus,
How he was doomed to push
A rock up a mountain, knowing nothing
Would come of this effort
But that he would repeat it
Indefinitely. I tell them
There is joy in this, in the artist's life,
That one eludes
Judgement, and as I speak
I am secretly pushing a rock myself,
Slyly pushing it up the steep
Face of a mountain. Why do I lie
To these children? They aren't listening.
They aren't deceived, their fingers
Tapping at the wooden desks--
So I retract
The myth; I tell them it occurs
In hell, and that the artist lies
Because he is obsessed with attainment.
That he perceives the summit
As that place where he will live forever,
A place about to be
Transformed by his burnt: with every breath,
I am standing at the top of the mountain.
Both my hands are free. And the rock has added
Heights to the mountain.

Louise Glück

Update: Prof. Krishna Kumar sent us this farewell mail today evening.

"economics, like real life, has its share
of ambiguities, fuzziness, and dead-ends.
but as john steinbeck wrote in his
beautiful novel, "sweet thursday,"
"...the clarifying leap springs from the
rich soil of confusion, and the leaper is
not unfamiliar with pain." what i or anyone
else can hope do in a short time is only
rake this soil. the leap is yours to make.

be bold. be irreverent. shift those graphs. good luck."

I feel if a teacher can stimulate interest and provoke the students into thought, then he has done his job. Everything else lies with the student. That's what I wanted when I got to ISB and I am getting it every hour. Prof. Ward had a similar comment: "You all are moving on a conveyor belt. We stand by the side and shovel in some content and then maybe respond to questions and issues."

Sunday, July 10, 2005 at 3:19 PM

The Rain @ ISB

It's cold...it's dark...it's grey...it is raining...the Sun has been constantly losing its battle with the clouds for the last couple of weeks...

Not an ideal climate for delving into any kind of business except sleep or hot pakoras with steaming cups of chai or coffee. That’s exactly what our group meeting turned into on Friday evening – a pakora and coffee making session. Yesterday’s meeting turned into a pizza eating session.

I don’t like the rain per se...but I like the smell of the earth before it rains. I don’t like the time after the rains for the puddles – but like the droplets of water clinging on to leaves. Nor do I like the never-ending drizzle – what a like is a short torrential downpour. I like the rain with sunshine – it’s uncommon and chances for a rainbow are high.

The distances from the student village to the acad centre are just enough to get you wet in a drizzle. Without an umbrella and a waterproof bag for the laptop one must be prepared to sit it out at the lrc (library) or the village. Spent the whole afternoon at the lrc researching Tata Motors for my competitive strategy project.

Like anywhere else the rain adversely affects the participation levels in meetings and events. The inter-section quiz event yesterday evening saw few takers. Section C – that’s my section – won the quiz. Our sporty section has won most inter-section events – cricket, basketball and a tie in football.

We had a talk by Mr. Parthasarathy, co-founder of Mindtree, yesterday afternoon – people poured in with the rain – not a seat was empty. Apart from his views on the IT industry he shared ten key learning’s from his experiences and about work-life balance – an excellent talk.

Attendance in any event at ISB is not governed simply by the rain. A whole bunch of factors govern the participation levels – interest in event, return on time invested, perceived popularity of speaker, clash with assignments and academic workload and a bunch of other factors. Would be interesting to do a regression analysis!!

The rain has stopped now...there are the shiny globules clinging desperately onto the leaves – and then there are the puddles on the ground - that's life.

Next week – The Wind @ ISB.

Thursday, July 07, 2005 at 10:14 PM

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at 3:09 PM

The chicken and egg story

Number of chickens and chicken farms in US, how much they eat, the social hierarchy among chickens and establishment of peck order, homicidal rates among chickens, egg production rates. These are some of the things that plagued my mind for last couple of days.

I furiously tried to write a marketing plan in one slide - those were the instructions, present whatever info you want on one slide. And what was to be marketed – contact lenses for chicken…if you don’t believe me click on the following link:

HBS Case link

Prof. Raju also showed us a promotional video for the product. This is one of Harvard’s best selling cases – sells about 6000 copies a year – and is used to give insights into marketing radically new products.

As always Prof. dealt with the case very well – when everybody said that the best way to sell is door to door, he asked people to enact a sales call. And boy it was tough – I mean what do you go and say – knock on a farmers door on a quiet Tuesday afternoon and say – eh, look I have this tremendous new breakthrough technology – contact lenses for chicken and these are the benefits – cost savings, they eat less, fight less with each other, lay more eggs – just buy these and you will save thousands!!

Apart from the door slamming shut on your face there not too many alternate end game scenarios. Even though the lens has been proven to offer cost savings and in all possibility is a great product, it is very difficult to make people try it and adopt.

What’s more interesting is the number of insights and angles Prof. Raju makes you think transcends the boundaries of the case. All those who say that the case method of teaching is outdated should take a seat in his class – it will be a humbling experience. Another great insight he shared was the diffusion of new technology in markets – cost reduction technology diffuses much slower – if one person sees the advantage he would want it to be exclusive and is not willing to share it – once other people recognize the benefit and adopt it – there no longer remains a cost advantage.

Another mistake the entrepreneur, in this case a Harvard graduate made was that he had very high targets. He thought this would revolutionize the farm industry and animal behavior just like IBM revolutionized the processing of data. Sometimes it is necessary to think small – with a market of about $50 million there is so little you can do.

Another virtue is patience – new ideas don’t get assimilated easily – sometimes it takes years and you need to have the capital and resolve to pursue it.

Often people get lost in numbers – when presenting to venture capitalists they try to push numbers across – but VCs can see through these and questions like where will you get sales from, what’s your positioning come up. Everything needs to tie together.

Fixed costs – in most cases because of the name we think that these costs are inevitable – but these are the costs actually in our control and we should track them more diligently - the first thing turnaround specialists do is attack fixed costs to bring back a company!!

One case discussion can lead to a myriad of thoughts. Some professors just repeat case facts and fail to give any insights to its applicability and context. Its not that the case method of teaching is a thing of the past – what has gone wrong is the way people are teaching which has lead to its perceived ineffectiveness.

Sunday, July 03, 2005 at 3:11 PM


The title of this post, though it sounds like it comes from some far eastern language, is actually a Sanskrit word meaning oneness and unity.

Life at ISB is a continuous chain of events – each trying to draw your attention and striving to leave a lasting imprint on your mind. Today, we had the launch of the Aikya program. It is truly a novel concept and hats off to whoever thought of this at ISB three years back.

Our batch divided into 60 study groups met with their respective host families today at campus. Each group had been assigned to a host family from Hyderabad with whom we will interact for the rest of the year. Needless to say the families comprised of the who’s who of Hyderabad. The atmosphere was festive and the decor was befitting a lavish wedding – right from a Ganesh statue carved out of ice to mouth watering malpua and rabri.

The host family assigned to our group are second generation entrepreneurs with an AC manufacturing business in Hyderabad – to me they represent the quintessence of emergent India. We showed them around the campus and had a fun time interacting with them.

They in turn invite us for festivals at their homes and we reciprocate by inviting them to events at ISB. Apart from the cultural mix and home away from home factors, there is this great business angle as well. The families get to meet other families in Hyderabad and also get fresh perspectives and ideas about the business environment from us – the students. We have been invited to visit the manufacturing plant by our host family. Its win-win all the way.

Have had a whale of a time this weekend – and the fun has not stopped. There is the screening of the F1 Grand Prix later in the evening sponsored by Kingfisher and the finals of Wimbledon.

There is an assignment to be submitted tomorrow and case readings to be completed. But now they are just an hour’s work – not like when I landed here and was running all round looking for time!!

at 1:02 AM

Commanding Heights

Saturday evening was cool – the first time in the second term when I felt relaxed – mind you it’s a relative term – so relatively relaxed would be better.

In this heightened state of relaxation I attended the screening of a documentary at the auditorium and then chilled out in the atrium in an informal quiz jamming session.

Prof. Krishna Kumar from USC is taking part of our Global Economics course. The documentary he screened was not ordinary stuff – I never knew documentaries could be so exciting.

If you even have an inkling of interest in global economy, then you will love the following videos available free on the PBS site. It is based on the book Commanding Heights which was converted into a TV series.

Commanding Heights: Storyline | on PBS

"The program provides a spellbinding history of the world economy over the past 90 years...it should be required viewing for audiences around the world, for there could be no better launching pad for a meaningful debate about globalization and its future."
Business Week

Commanding Heights lays down the evolution of global economy. The first episode deals with the Battle of Ideas – who should control Steel, railroads, coal, the heavy industries – what Lenin termed as the commanding heights of the economy – the power of government or the forces of the marketplace. In essence the battle between Keynesian and Classical schools of economic thought.

The second episode deals with the Agony of Reform – a new capitalist revolution with the markets ruling the commanding heights sees the collapse of government regulation and privatization sweeps in. Though the wealth of nations expands people have to deal with unequal distribution.

The third episode shows us the new rules of the Game. With the world getting deeply interconnected and with no one having a clear control of the global economy – who will write the new rules? Global terrorism has already given indications that imbalances may threaten the stability of the global village.

If Markstrat and Prof. Raju's class are exiciting, then Global Eco is not far behind. Here all Profs are battling it out for the Commanding Heights!!

Incidentally, Prof. Krishna Kumar won the best faculty for core courses last year at ISB. Seeing the passion he has for the subject and the amount of interest he is able to generate in class – it won’t be a surprise if he wins it again this year. But each term I think the professors are the best and then the next term I find better ones. I am sure I will have to eat my words each term.