Friday, 7 August 2009
Saturday, 23 May 2009
The Oldest Democracy and the Largest Democracy Face Opportunity (challenge)
So many things have been happening in past few weeks but I am going to reflect on events in two democracies. First relates the oldest (modern) mother of democracy, Britain and the second to the largest democracy in the world, India.
Westminster Parliament complex with its famous Clock Tower does not just symbolise the great city of London but also represents a source of the economic and political power that the British enjoyed for centuries till the rise of the US in late 19th century and early 20th century. Clearly the United Kingdom had lost its global economic and political leadership in the last six seven decades. However, following the disclosure of MPs’ expense claims its great democratic institution has lost much more in past two weeks. It has lost the trust that people of the UK have in their politicians and political institutions. Members of Parliament in the UK get around £64,000 per annum as salary. They are also entitled to claim expenses like allowances for second home etc. Most of the claims made by the MPs have been according to the rules set by members of parliament. But the manner and nature of the claims have invited strongest ever public outcry and disbelief from ordinary citizens. I will not describe in detail these expenses as there is already a lot published about these. However, I’ll focus on the principles violated and why that matters not only for democracy in the UK but democracy in general. First, it seems over the years a convention had evolved to claim expenses for second house expenses etc. as a compensation for low salaries that MPs get. So rather than arguing openly for increase in salaries, the rules were framed and implemented that in a way allowed MPs to claim expenses, which don’t necessarily fit the criterion set by the parliament rules, i.e., the expenses should be wholly and exclusively necessary to perform their duties as MP. Second, the MPs tried to justify their claims referring to the rules in words rather than in admitting to the violation of spirit of rules. This does not behold good for gentlemen and ladies of the British parliament. They hold public offices and should be accountable for tax payers' money.
The consequences of the expense claims political scandal is having far reaching effects on the House of Commons and political career of many politicians. The Speaker of the Commons resigned two days ago, first time in the last 300 years of British parliament! Many politicians have been forced to declare that they will not be standing for election to parliament in future. Some ministers are worried about their jobs. The government has announced that there will be an independent regulator to monitor and sanction MPs expenses in future and that there will be complete overhaul of expenses allowed.
Now, let’s turn from this remarkable political development in the UK to India where as I write the government is being formed by newly elected parliament. There are so many challenges that the largest democracy in the world faces. They arise from the facts like the size of the nation (both geographically and demographically), coalition politics, poverty, global economic recession and its impact on India, the security and so on. All this makes the Indian prime minister perhaps, the most important executive in the world. The Indian parliament owes it to the people of India to improve the institutions and offer high quality public service. Will the MPs of Indian parliament do it? We have to be optimistic and see what happens. However, what they could easily do, as they are starting a new term, follow the spirit of Freedom of Information Act and set up individual websites. They could put before their constituents an agenda for their five year term, provide a quarterly report on how they are progressing the agenda, declare the perks/expenses they claim in addition to their salary from tax payers' money and declare a time table (even though it may vary occasionally) when they will be visiting their constituency and where so that the people whom they represent can meet and talk to them. I don’t think above few things are too difficult but they are basic mechanisms for public accountability which the MPs as public servants politicians should be expected to abide by.
If the parliamentarians in the UK fail to clean up the system effectively it will be bad example for democracy everywhere. If the parliamentarians in India become more accountable and learn from others' mistake, they will add a feather to democratic political system. What a coincident that two torch bearers of democracy face historic opportunity to improve record of democracy to serve the people who choose to be governed by politicians.
Westminster Parliament complex with its famous Clock Tower does not just symbolise the great city of London but also represents a source of the economic and political power that the British enjoyed for centuries till the rise of the US in late 19th century and early 20th century. Clearly the United Kingdom had lost its global economic and political leadership in the last six seven decades. However, following the disclosure of MPs’ expense claims its great democratic institution has lost much more in past two weeks. It has lost the trust that people of the UK have in their politicians and political institutions. Members of Parliament in the UK get around £64,000 per annum as salary. They are also entitled to claim expenses like allowances for second home etc. Most of the claims made by the MPs have been according to the rules set by members of parliament. But the manner and nature of the claims have invited strongest ever public outcry and disbelief from ordinary citizens. I will not describe in detail these expenses as there is already a lot published about these. However, I’ll focus on the principles violated and why that matters not only for democracy in the UK but democracy in general. First, it seems over the years a convention had evolved to claim expenses for second house expenses etc. as a compensation for low salaries that MPs get. So rather than arguing openly for increase in salaries, the rules were framed and implemented that in a way allowed MPs to claim expenses, which don’t necessarily fit the criterion set by the parliament rules, i.e., the expenses should be wholly and exclusively necessary to perform their duties as MP. Second, the MPs tried to justify their claims referring to the rules in words rather than in admitting to the violation of spirit of rules. This does not behold good for gentlemen and ladies of the British parliament. They hold public offices and should be accountable for tax payers' money.
The consequences of the expense claims political scandal is having far reaching effects on the House of Commons and political career of many politicians. The Speaker of the Commons resigned two days ago, first time in the last 300 years of British parliament! Many politicians have been forced to declare that they will not be standing for election to parliament in future. Some ministers are worried about their jobs. The government has announced that there will be an independent regulator to monitor and sanction MPs expenses in future and that there will be complete overhaul of expenses allowed.
Now, let’s turn from this remarkable political development in the UK to India where as I write the government is being formed by newly elected parliament. There are so many challenges that the largest democracy in the world faces. They arise from the facts like the size of the nation (both geographically and demographically), coalition politics, poverty, global economic recession and its impact on India, the security and so on. All this makes the Indian prime minister perhaps, the most important executive in the world. The Indian parliament owes it to the people of India to improve the institutions and offer high quality public service. Will the MPs of Indian parliament do it? We have to be optimistic and see what happens. However, what they could easily do, as they are starting a new term, follow the spirit of Freedom of Information Act and set up individual websites. They could put before their constituents an agenda for their five year term, provide a quarterly report on how they are progressing the agenda, declare the perks/expenses they claim in addition to their salary from tax payers' money and declare a time table (even though it may vary occasionally) when they will be visiting their constituency and where so that the people whom they represent can meet and talk to them. I don’t think above few things are too difficult but they are basic mechanisms for public accountability which the MPs as public servants politicians should be expected to abide by.
If the parliamentarians in the UK fail to clean up the system effectively it will be bad example for democracy everywhere. If the parliamentarians in India become more accountable and learn from others' mistake, they will add a feather to democratic political system. What a coincident that two torch bearers of democracy face historic opportunity to improve record of democracy to serve the people who choose to be governed by politicians.
Wednesday, 22 April 2009
Who is a wise person? and curious science of detecting lies
Few days ago one of the readers of this blog wrote to me that “you read lot of different and varied things”. This is true but that does not mean I could boast of being knowledgeable in many areas, on the contrary, the more you read about the various things and find that so many different aspects of physical and social phenomena are studied by scholars, the more you realise how much you don’t know. For me reading has simply ensured that I don’t lose the humility. So in all humility let me start with a story that is attributed to Socrates. Once he was asked to define wisdom. The following remarkable response that I have shared earlier with many of my students, but at the risk of repeating for some of them here, is put below. The Socratic view on wise person goes something like this:
A person who does not know and does not know that s/he does not know is ignorant
A person who does not know but thinks that s/he knows is fool
A person who does not know and knows that s/he does not know is wise
Professor Richard Wiseman (the surname is real) is the only professor of promoting Public Uderstanding of Psychology at a university in England, UK. He is Quirkologist. ‘Quirk’ means peculiar or strange and logy is a Greek suffix found in hundreds of words in English and means ‘study of’ something. For instance psych-ology is study of mind or etym-ology is study of origin of words. So quirk-ology is study of strange or quirky things. For instance, how or why people smile, study of people telling lies. Professor Wiseman has written a book entitled Quirkology: The Curious Science of Everyday Lives. I got this book as summer reading for my son but when it arrived in the post I started reading it with great interest.. One of the studies Wiseman conducted involved national survey on people telling lies. A large number of people participated in the survey that was run in collaboration with a British daily. Only 8% of the people said they had never lied meaning 92% of us tell lies at one or other time in our life. He also reports from other studies that 80% of respondents said that they had lied to get a job, 60% of the people have cheated on their partners at least once..hmm. Mercifully 4 out of 5 lies remain undetected. What will happen to the number of divorces if all cheaters on their partners were found! A quirky question for Professor Wiseman could be, to what extent is the institution of marriage dependent on our inability to detect lies.
A person who does not know and does not know that s/he does not know is ignorant
A person who does not know but thinks that s/he knows is fool
A person who does not know and knows that s/he does not know is wise
Professor Richard Wiseman (the surname is real) is the only professor of promoting Public Uderstanding of Psychology at a university in England, UK. He is Quirkologist. ‘Quirk’ means peculiar or strange and logy is a Greek suffix found in hundreds of words in English and means ‘study of’ something. For instance psych-ology is study of mind or etym-ology is study of origin of words. So quirk-ology is study of strange or quirky things. For instance, how or why people smile, study of people telling lies. Professor Wiseman has written a book entitled Quirkology: The Curious Science of Everyday Lives. I got this book as summer reading for my son but when it arrived in the post I started reading it with great interest.. One of the studies Wiseman conducted involved national survey on people telling lies. A large number of people participated in the survey that was run in collaboration with a British daily. Only 8% of the people said they had never lied meaning 92% of us tell lies at one or other time in our life. He also reports from other studies that 80% of respondents said that they had lied to get a job, 60% of the people have cheated on their partners at least once..hmm. Mercifully 4 out of 5 lies remain undetected. What will happen to the number of divorces if all cheaters on their partners were found! A quirky question for Professor Wiseman could be, to what extent is the institution of marriage dependent on our inability to detect lies.
Talking of detecting lies Prof. Wiseman reports his work on how to differentiate between an artificial and real smile. If you want to try and see if you can differentiate a real smile from an artificial one go to the link provided below. Meanwhile let me leave you with a simple philosophical statement that has puzzled quite a few wise people thus far:
When someone makes the following statement, is s/he telling truth?
‘I am telling truth that I always tell lies.’
When someone makes the following statement, is s/he telling truth?
‘I am telling truth that I always tell lies.’
Link to Prof. Wiseman’s experiments and other material on Quirkology
http://www.quirkology.com/UK/Experiment_lying.shtml
Monday, 13 April 2009
Intoxication to assassination!
These days the word assassin is used for a killer, particularly if the person killed is an important person in society or major political leader. But the history of the word assassin takes us back nearly 1000 years to conflicts between middle eastern Muslims and Christians from European. As is known the Christian holy land is part of present day Israel and Palestine area. The Christians from around the world including Europeans would visit the Holy Land for purpose of pilgrimage. However, from early 11th century AD trouble started with Christians finding it difficult to visit their Holy Land. What followed was a series of confrontations between the Christians inspired by the Pope Urban II and supported by many European kings and knights leading their armies to conquer the areas from Muslims in Egypt and Palestine. It is argued that these attacks by Christians were partly religious and partly driven by search for conquests over different lands and the wealth that it would have brought. These expeditions are known as Christian Crusades that lasted for almost two hundred years. Obviously the Muslims were not sitting quiet, they fought back too. The Islamic fighters who killed the Christians in response gave the word assassin. These fighters had religious rationale to fight Christian crusaders. Many of these fighters would consume hashish before they went into fighting, mostly as secret attacks. Hashish is a cannibus drug that temporarily gives euphoric feeling and causes intoxication. The drug is illegal in most countries now. These hashish using Muslim fighters came to be known as hashishin a word that travelling through Italian and French languages has found its place in English as assassin! In 17th century it meant Muslim assassin but now it is used for any killer.
Note: I am neither an authority on religion nor on history so take the above write up as simple historical note to understand the meaning and history of the word assassin. The use of any drugs like hashish is harmful and illegal in most countries in the world today.
Sunday, 5 April 2009
80-20 Principle, G-20 Summit and Your Life
103 years ago in 1906 Vilfredo Pareto made a remarkable observation that 80 per cent of land in Italy was owned by 20 per cent of the population. Little did he realise then that he had unwittingly hit upon the ratio which will be found in so many different walks of life.
The Pareto principle of the vital few causing maximum consequences is a frequently mentioned rule of thumb in economics and management classes. For example, 20 per cent of customers contributing 80 per cent of profits, 20 per cent of employees contributing to 80 per cent of profits (and losses if they happen to be in banks one may say these days!). Try thinking about your life, does 80% of your happiness depend on 20% activities you do? Just count those vital few things you do or vital few people in your life who make your life feel good. Does 80% of your income get spent on 20% of habits? Does 20% of your knowledge contribute to 80% of your productivity?
Where the Pareto principle may not apply perhaps is the number of financial institutions that caused the financial crises. Perhaps it was less than 20 per cent of banks that created more 80 per cent of bad assets that subsequently caused havoc in financial world. Anyway, let’s see if 80-20 principle can be applied to G20 summit outcomes.
A group of leaders from 20 countries and regions representing 80 per cent of global trade came together in London to fix global economic recession. The deliberations over two days and many preceding weeks resulted in a statement by G20 leaders published on Thursday. The statement runs into nine pages, 29 numbered paragraphs and contains 3,077 words. I am going to look for those vital few 20 per cent of the statements made and try to make 80 per cent of sense! Applying the principle strictly I am going to search for maximum six paragraphs that seem vital to me.
The first vital paragraph is number five which says that the global lender of last resort for countries, the International Monetary Fund, will be provided additional resources of about $1.1 trillion; reasoning being that this will provide money to various countries’ governments to spend on public projects, green technologies and so on to boost demand and create jobs in hope of reviving the economy. The Keynesian economic principles applied on a global scale! Vital issue: The evidence of public management of infrastructure in most cases is far from satisfactory.
Second vital paragraph is number 13 which identifies the failures by financial sector players, watchdogs and regulators as the primary causes of crises. Fair enough. Response is in vital paragraphs 14 and 15 which call for setting up of tougher regulatory regimes nationally and internationally. These super regulators will regulate financial sector players, watchdogs and will coordinate with other national regulators to reduce unnecessary risk taking, improve global financial system and accountability. Vital issue: Regulatory capabilities and effectiveness would need to leap frog to higher level. Regulating smart bankers will require smart regulators who are as good as bankers. But if they are as good as bankers why would they work as regulators?
Fifth vital paragraph is number 22. It declares the intention of G20 countries to protect the world from economic protectionism. No issues with this so long as the most European countries and the USA follow this.
Sixth and final vital paragraph for me is number 25 which refers back to the problem that disturbed Pareto 100 years ago. The G20 statement promises help for the poorest countries. It is recognised that problems caused by vital few have serious immediate consequences for many. Steps announced to this end are most welcome.
Finally, there are vital signs in the communiqué that address many issues addressed by the protestors on London’s streets over the two days. Pushing for greener developmental options, promoting the interests of the poorest, controlling exorbitant compensations in financial industry and improving the transparency in tax systems are all ambitious statements. Has the G20 summit promised far too much? On the face of it this appears to be the case. Let’s wait and watch till the next summit which is likely to be in 2009 itself.
The Pareto principle of the vital few causing maximum consequences is a frequently mentioned rule of thumb in economics and management classes. For example, 20 per cent of customers contributing 80 per cent of profits, 20 per cent of employees contributing to 80 per cent of profits (and losses if they happen to be in banks one may say these days!). Try thinking about your life, does 80% of your happiness depend on 20% activities you do? Just count those vital few things you do or vital few people in your life who make your life feel good. Does 80% of your income get spent on 20% of habits? Does 20% of your knowledge contribute to 80% of your productivity?
Where the Pareto principle may not apply perhaps is the number of financial institutions that caused the financial crises. Perhaps it was less than 20 per cent of banks that created more 80 per cent of bad assets that subsequently caused havoc in financial world. Anyway, let’s see if 80-20 principle can be applied to G20 summit outcomes.
A group of leaders from 20 countries and regions representing 80 per cent of global trade came together in London to fix global economic recession. The deliberations over two days and many preceding weeks resulted in a statement by G20 leaders published on Thursday. The statement runs into nine pages, 29 numbered paragraphs and contains 3,077 words. I am going to look for those vital few 20 per cent of the statements made and try to make 80 per cent of sense! Applying the principle strictly I am going to search for maximum six paragraphs that seem vital to me.
The first vital paragraph is number five which says that the global lender of last resort for countries, the International Monetary Fund, will be provided additional resources of about $1.1 trillion; reasoning being that this will provide money to various countries’ governments to spend on public projects, green technologies and so on to boost demand and create jobs in hope of reviving the economy. The Keynesian economic principles applied on a global scale! Vital issue: The evidence of public management of infrastructure in most cases is far from satisfactory.
Second vital paragraph is number 13 which identifies the failures by financial sector players, watchdogs and regulators as the primary causes of crises. Fair enough. Response is in vital paragraphs 14 and 15 which call for setting up of tougher regulatory regimes nationally and internationally. These super regulators will regulate financial sector players, watchdogs and will coordinate with other national regulators to reduce unnecessary risk taking, improve global financial system and accountability. Vital issue: Regulatory capabilities and effectiveness would need to leap frog to higher level. Regulating smart bankers will require smart regulators who are as good as bankers. But if they are as good as bankers why would they work as regulators?
Fifth vital paragraph is number 22. It declares the intention of G20 countries to protect the world from economic protectionism. No issues with this so long as the most European countries and the USA follow this.
Sixth and final vital paragraph for me is number 25 which refers back to the problem that disturbed Pareto 100 years ago. The G20 statement promises help for the poorest countries. It is recognised that problems caused by vital few have serious immediate consequences for many. Steps announced to this end are most welcome.
Finally, there are vital signs in the communiqué that address many issues addressed by the protestors on London’s streets over the two days. Pushing for greener developmental options, promoting the interests of the poorest, controlling exorbitant compensations in financial industry and improving the transparency in tax systems are all ambitious statements. Has the G20 summit promised far too much? On the face of it this appears to be the case. Let’s wait and watch till the next summit which is likely to be in 2009 itself.
Sunday, 29 March 2009
Foolish ‘nice’ and Sub-prime Monarchs!
I would be very happy if you said after reading this article that it is a ‘nice’ article as it would mean a compliment. But if I wrote some article few centuries ago and you said it’s a ‘nice’ article, it would be not be compliment; it would be an insult to me! Why?
Well few centuries ago, ‘nice’ did not mean ‘nice’ or good but it meant ‘foolish’ or ‘ignorant’! Surprised. Don’t be. Look carefully at the word ‘nice’. The word comes from Latin word nescius. Travelling through the old French nescius reached English and ended up as nice. Nescius is derived from nescre which means to be ignorant. In root of nescius is scire that means ‘to know’ and gives us so many words related to knowledge such as science, omniscient (all knowing), conscience, conscious and prescient. However, over centuries the meaning and the form of nescience has changed from foolish or ignorant to nice. But nescient is still usable adjective which means ignorant. Isn’t this a ‘nice’ story about journey of word ‘nice’? Bye the way there is also a nice town called Nice in southeast France! Let’s move from Nice to Venice and Florence in Italy the hotbed of commerce and banking in middle ages.
Venicians and Florentians contributed a lot to modern banking development. The word bank comes from banca meaning a bench on which the money lenders and exchangers sat and did the lending, borrowing and guaranteeing payments for facilitating trade. However, if a banker incurred losses and was unable to honour the agreements, he would be taken out of the business and his bank (bench) would be literally broken. Latin word rupta means broken. Combine bench+rupta and you get bankrupt that we use today to describe a business enterprise or individuals who have more to pay than what they own.
Everyone reading this, I am sure by now knows that some American and European banks collapsed in 2007-08 after their borrowers, particularly the US house-owners failed to pay their housing loan instalments. These banks went bankrupt or were taken over by the governments with tax payers’ money. In this case the cause of bankruptcy of some of the banks was poor business judgement and or greed to make quick money. But in the middle ages (roughly 5th century to 16th century AD) the biggest risk of bankruptcy for European banks came from the kings and the queens. The monarchs used to borrow very heavily from banks to finance the innumerable wars which went on. Some monarchs paid as high as 45% interest rate. However, if the monarchs could not return the loan, the bankers could not do much, they simply went bankrupt. Lending to monarchs was as big a gamble (or unavoidable risk if they were forced to lend) by those middle ages’ banks as some of the contemporary banks took by lending to poor quality borrowers in the US housing markets. Many monarchs of middle ages in Europe and the humble households of the present day US thus share a poor creditworthiness, an equality not very welcome. Sub-prime loans are not new!
Well few centuries ago, ‘nice’ did not mean ‘nice’ or good but it meant ‘foolish’ or ‘ignorant’! Surprised. Don’t be. Look carefully at the word ‘nice’. The word comes from Latin word nescius. Travelling through the old French nescius reached English and ended up as nice. Nescius is derived from nescre which means to be ignorant. In root of nescius is scire that means ‘to know’ and gives us so many words related to knowledge such as science, omniscient (all knowing), conscience, conscious and prescient. However, over centuries the meaning and the form of nescience has changed from foolish or ignorant to nice. But nescient is still usable adjective which means ignorant. Isn’t this a ‘nice’ story about journey of word ‘nice’? Bye the way there is also a nice town called Nice in southeast France! Let’s move from Nice to Venice and Florence in Italy the hotbed of commerce and banking in middle ages.
Venicians and Florentians contributed a lot to modern banking development. The word bank comes from banca meaning a bench on which the money lenders and exchangers sat and did the lending, borrowing and guaranteeing payments for facilitating trade. However, if a banker incurred losses and was unable to honour the agreements, he would be taken out of the business and his bank (bench) would be literally broken. Latin word rupta means broken. Combine bench+rupta and you get bankrupt that we use today to describe a business enterprise or individuals who have more to pay than what they own.
Everyone reading this, I am sure by now knows that some American and European banks collapsed in 2007-08 after their borrowers, particularly the US house-owners failed to pay their housing loan instalments. These banks went bankrupt or were taken over by the governments with tax payers’ money. In this case the cause of bankruptcy of some of the banks was poor business judgement and or greed to make quick money. But in the middle ages (roughly 5th century to 16th century AD) the biggest risk of bankruptcy for European banks came from the kings and the queens. The monarchs used to borrow very heavily from banks to finance the innumerable wars which went on. Some monarchs paid as high as 45% interest rate. However, if the monarchs could not return the loan, the bankers could not do much, they simply went bankrupt. Lending to monarchs was as big a gamble (or unavoidable risk if they were forced to lend) by those middle ages’ banks as some of the contemporary banks took by lending to poor quality borrowers in the US housing markets. Many monarchs of middle ages in Europe and the humble households of the present day US thus share a poor creditworthiness, an equality not very welcome. Sub-prime loans are not new!
Thursday, 26 March 2009
Big Bonuses in failed banks: corporate governance failure
One of the big issues in the current banking crises in the western banks has been 'excessive bonuses' and executive compensation paid in banks that incurred huge losses and were saved by tax payers money. Read this article for more on bonus culture and corporate governance issues. More...
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