VR Logo

Dumb by Default

We have little right to complain about anyone else's dysfunctional politicians when our politicians are just as prone to put into practice ludicrous ideas

Last week, when the US House of Representatives finally agreed to a deal to raise the debt ceiling and prevent a sovereign default, there were two types of reactions. One, there were those people who heaved a sigh relief that the eleventh hour deal had averted a potentially catastrophic default. And two, there were those who thought that it was always known that there would be a deal at the eleventh hour so there was no real surprise or relief. In fact, it was a non-event because they just knew that sane heads would eventually prevail.

Certainly, if you see the way yields on US government bonds moved, it was clear that the financial markets did not believe that anything momentous would happen, except, with a very small probability, a temporary hiccup in the shortest maturity paper. The general idea seems to be that US politics is dysfunctional so these dramas will keep happening, with the next one due in late January or early February.

Even so, there are some genuinely alarming undercurrents in the US. Here's something I read in a blog () by someone who should know what he's talking about. It seems that there's actually a reasonably widespread idea among some Republicans that a debt default by the US government would be a good thing, that it's something to work towards. For people who are pathologically attached to the idea of a perfectly balanced budget, the logic seems to be that if the US treasury defaults, no one will lend it any money so balanced budgets will be forced upon it!

However, we in India have little right to complain about anyone else's dysfunctional politicians. Ours are just as prone to put into practice ludicrous ideas and not just in macroeconomics. One of the most amusing sideshows of the UPA's 'big bang' reforms have been the earnest effort by politicians and bureaucrats to invent a new business model for the retailers of the world. This new business model is based upon the rediscovery of the age old belief, handed down by the forefathers of Indian government policy, that while all businesses are evil, small businesses are less evil and therefore virtue lies in making sure that small businesses are encouraged (failing which, forced) to stay small.

The result is that while the government have been sounding desperate to get the retailers of the world to come to India, it has also decided that 30 percent of the goods sourced by them must be made by 'Indian small industries'. Now the reality is that the retailers of the world, no matter how hard they scratch their heads can't figure out how this would work. You see, anyone who has run a business for more than five minutes knows that you don't get to decide what sells, your customers do (unless you are a government monopoly). The government's statements as well as all media comments avoid discussing this problem by saying 'sourced', but what that means is 'sell'. For every customer who walks out of your store having bought Rs 10,000 worth of goods made by a large company, you have to somehow persuade someone else to buy Rs 4,280 of goods made by a small company.

I don't know whether anyone in the world has ever tried this in practice, but it's probably pretty hard to force retail shoppers to plan their shopping on the basis of the capital invested in the companies which are making the stuff. Can you visualise stores laid out along these lines? Or shopping reward programs based on manufacturer size? Free! one gold coin for the shopper who wins today's small scale sourcing award!

Forget about Walmart or Tesco or whoever, no Indian business, whether in organised retail or your neighbourhood kirana store, can possibly function like this. It can't be done. Not without fudging and cheating, anyhow. Basically, this is what you get when the sort of people who run Air India decide they are qualified to design the detailed business model for everyone else.