After a long time, I managed to spend some quality time on books. I picked this one in Walden, opp.KBR Park. I half expected it to be very much like 'A Brief History of Time', by Stephen Hawkings, which in itself is a fantastic book.
The book opens with a receipe to create an Universe. I thought it would follow the trail of 'Cosmos' by Carl Sagan. But this book did beat my expectations. This is not a science-for-dummies kind of book.
It touches on various aspects of science, Astro-physics, Quantum Physics, Geology, Paleantology, Genetics, Biology, Evolution etc., but doesn't explain any science in it. Rather, it goes thru the history of each of these areas and narrates how science developed to its existing state. It starts with the myths before sceience arrived, explains how scientists concluded on theories, where they missed the facts, and how they managed to sort out their differences of opinion etc.
Though some topics last a little longer than interesting, it is a good first time read. And, probably you could go thru the pages at leisure again and again.
22 November 2006
15 November 2006
God - To believe in or not to ?
I cannot believe in a God who wants to be praised all the time. - Friedrich Nietzsche
Do you Believe in God ? - I think, this eternal question has 2 important words 'Believe' and 'God', which unless explained would not give a meaningful answer.
'Belief' is the key word in the question. I dont really understand the other. When I was kid, I believed in ghosts, tooth fairies, simple maths like 1+1=2 and many other things. At that time, I didn't understand the statement 1+1=2. If my teacher or parents said that, then it had to be true. I wouldn't have dared to question on ghosts or maths. It is easier to believe in them. Belief doesn't require proof. No one ever proved to me that 1+1=2 or that ghosts exist. Belief totally depends on the person who propogates the idea, not the idea itself. What you believe in depends completely on Who said it, unless you think about it and have enough information to get to a rational conclusion.
If a hooligan in my neighbourhood claimed that a Super Massive Blackhole exists in the centre of Milky way. Would I believe it? I would probably think he has some ulterior motives behind his claim. Afterall, how much can a crook know about science. Super Massive Blackholes in Milkyway.. Crazy idea in a crazy brain..bullshit..
But if my physics professor claimed that Blackholes do not exist and have never been proved, I wouldn't think twice before believing it. Ofcourse Physics is my professor's cup of tea. And he has no benefit of misleading me.
That was a hypothetical situation. In fact a Super Massive Backhole was detected, very recently, right at the centre of Milky Way. The point is I do not have the information on everything. I have no clue on when earth was created. When a geologist says 4.6 billion years, I really can't aruge. So, be it. He could have said 400 billion and I still wouldn't argue. I believe in lot of things based on who says it. The truth value of each of things I believe in are debatable. They might be true or absolute trash. I cannot tell the difference until proved.
'God', on the other hand, is the most relative concept of all time. Every person gives a different definition of who He/She is. There are probably as many defintions of God as people on earth. Who's definition should I believe in? Two commonly agreeable properties of God are:
Omnipresent -> but somehow He chooses to be invisible.
Omnipotent -> but somehow He chooses not to give any rational proof of his power.
None of the people I know has ever claimed to see or feel God or his power. So basically I do not have a proof that He exists. I also do not have a proof that He doesn't.
My take is I would believe in any God, if defined without any paradoxes. Most of the Gods I read about are jealous, power-hungry, vindictive, childish, silly, negotiable, easily-impressable dictators. They get offended when you pray a different God or if you dont pray at all. God indulges in You-do-this-for-me-I-do-that-for-you kind of silly stuff. I really dont understand why God needs us at all. It is us who should need God. If I were God, I really wouldn't care so much about humans.
I find no definition of God which meets my expectation and no person qualified to make me believe.
Do you Believe in God ? - I think, this eternal question has 2 important words 'Believe' and 'God', which unless explained would not give a meaningful answer.
'Belief' is the key word in the question. I dont really understand the other. When I was kid, I believed in ghosts, tooth fairies, simple maths like 1+1=2 and many other things. At that time, I didn't understand the statement 1+1=2. If my teacher or parents said that, then it had to be true. I wouldn't have dared to question on ghosts or maths. It is easier to believe in them. Belief doesn't require proof. No one ever proved to me that 1+1=2 or that ghosts exist. Belief totally depends on the person who propogates the idea, not the idea itself. What you believe in depends completely on Who said it, unless you think about it and have enough information to get to a rational conclusion.
If a hooligan in my neighbourhood claimed that a Super Massive Blackhole exists in the centre of Milky way. Would I believe it? I would probably think he has some ulterior motives behind his claim. Afterall, how much can a crook know about science. Super Massive Blackholes in Milkyway.. Crazy idea in a crazy brain..bullshit..
But if my physics professor claimed that Blackholes do not exist and have never been proved, I wouldn't think twice before believing it. Ofcourse Physics is my professor's cup of tea. And he has no benefit of misleading me.
That was a hypothetical situation. In fact a Super Massive Backhole was detected, very recently, right at the centre of Milky Way. The point is I do not have the information on everything. I have no clue on when earth was created. When a geologist says 4.6 billion years, I really can't aruge. So, be it. He could have said 400 billion and I still wouldn't argue. I believe in lot of things based on who says it. The truth value of each of things I believe in are debatable. They might be true or absolute trash. I cannot tell the difference until proved.
'God', on the other hand, is the most relative concept of all time. Every person gives a different definition of who He/She is. There are probably as many defintions of God as people on earth. Who's definition should I believe in? Two commonly agreeable properties of God are:
Omnipresent -> but somehow He chooses to be invisible.
Omnipotent -> but somehow He chooses not to give any rational proof of his power.
None of the people I know has ever claimed to see or feel God or his power. So basically I do not have a proof that He exists. I also do not have a proof that He doesn't.
My take is I would believe in any God, if defined without any paradoxes. Most of the Gods I read about are jealous, power-hungry, vindictive, childish, silly, negotiable, easily-impressable dictators. They get offended when you pray a different God or if you dont pray at all. God indulges in You-do-this-for-me-I-do-that-for-you kind of silly stuff. I really dont understand why God needs us at all. It is us who should need God. If I were God, I really wouldn't care so much about humans.
I find no definition of God which meets my expectation and no person qualified to make me believe.
12 October 2006
Purpose of Government
Men are not evolved to rule one another, that's why they're so crap at it - Lee Warren
I recently moved into a new Apartment. Since the building was new, we had to form an Owner's Association to take care of common activities. What I found interesting here was the marked similarity between this and the Government we elect, where we do well and more importantly where we mess up the system.
Purpose
Getting the purpose right usually solves half the problem. For an Apartment Owner's Association , the problem is rather simple. We had a couple of common tasks like security, cleaning of common areas, water supply, gardening, electrical maintenance of common utilities etc.
Defining the purpose of Government is difficult. Some people want the Government to do everything for them, just like some of our flat owners who wanted the association to do a lot more activities, like following up with the civic authorities for better roads or to negotiate with local groceries, vegetable vendors to get cheap prices for their goods. Some owners even went to the absurd lengths of saying it is the association's responsibility to take care of kids playing in the common play-area.
Government too faces this problem. There are few who want the government to do everything. The public just needs to go to the job (9-5), pick up salaries and spend. For them the whole public has to be happy, completely devoid of self-responsibility, and just have to do their job and get good pays for doing it.
The purpose of Government should be to take care of common tasks, much like the Association, is Administration of External Security, Internal Security, Law and Order, Primary Education and Monitoring efficient usage and fair distribution of natural resources. All the remaining tasks like Health, Infrastructure, Social Welfare, Public Entertainement etc are additional burdens on the Government. I will explain why I think they are burdens.
Cost Centre
Our Association is registered as a Non-Profit Organization, i.e it is a cost centre. It does not generate any funds of its own, but spends money it receives by way of contributions. The association members are seldom paid and if so, it is only a honorary payment. The service of the members is voluntary and is respected by the community.
The Government is also a cost centre. It generates its income from Taxes and the working members (i.e ministers) are also paid honorary incomes. Their service is also voluntary and should be respected by the community.
It is very obvious that the Flat Owner would always want to keep the maintenance contribution to the minimum possible. Since the association is only a cost-centre, this can be achieved only by reducing the number of things association does. We tend to keep the barest minimal things for the association. The remaining should be done by other members and on their interest. Hence 'Ganesh Chaturdi' celebrations are not part of Association duties. It may help due to its interest in common good or authority, but this activity is strictly outside the association's perview. The accounts and activities are not part of association. The more duties we give to the association, the more difficult it is for the members to do them as they work elsewhere to earn their living and in some sense to contribute to the cost-centre.
Similarly for a Government, it is beneficial to keep its activities to minimum. If we burden the Government with every task, not only is it difficult for the few members to keep things running, but also creates a huge and inefficient system. Just think of what our Government does...It keeps law and order, develops and maintains basic infrastucture like rails, roads and ports, runs services like schools and hospitals, manufactures a varied variety of commodities from watches (HMT) to complex defence machinery (HAL), aids in research and higher education, meets transportation demands, collects tax and accounts for its expenditure and also plans for its own sustenance, apart from targetting moral social agenda like women empowerment or ensuring basic child education or eradication of caste inequalities etc. These are just some of the many many tasks our government does. No doubt you and me pay huge taxes to support such a massive system. How can a group of 300 MPs handle such varied tasks efficiently. Now doubt our system is inefficient. And try making that huge system accountable !!
Power Centre
A Flat Owner's association is a power centre. Not that it holds power in any real sense like the Governments. But its decision, in most matters, is final. To decide who will service the Apartments's gardens or How much to pay for the security or when to switch on / off the water pumping motors are routine activities. If we have each of the flat owners decide these, then we would end up in chaos. Each one would prefer a certain method. The Association helps in such decisions. Not everyone might be happy, but the system works. Since, the Association members can be changed, it gives everyone a chance to put in their effort or suggestion. But think of abuse of Power that can happen. For instance, if the Association decides that flat occupants should not keep pet animals, then they are drudging on dangerous territory. Such decisions are strictly out of Association's perview. It might be a case that all but one flat owner is in favour of banishing pets, and the association decides that since majority do not want to keep pets, no one should, then the sole flat owner's rights are abused. Majority opinion is not always the right opinion. You might feel differently that since barking dogs create a nuisance and disturb other flat owners, it is a correct decision. The question here is does an Association have the power to deny a individual right to keep pets. The answer is NO.
Similarly the Government is a Power Centre. What it decides is final. Further we give it the power to punish individuals by sentencing them to jail and sometimes to the gallows. This is a dangerous weapon because individual freedom is at the core of our society. And we are placing this individual freedom in the hands of a group of people. If I had not done any crime, but a court falsely implicates me and sentences me, then there is no alternative place for me in this world. My individual right are trampled at the group's mercy. To avoid such occurances, the Law should be objective. The primary responsibility of Government is to objectively define Law, and let it known to everybody in the society. i.e there should not be any ambiquity in Law. One should know in advance that doing X would incur Y punishment. And method of determining the crime should be clear, objective and precise. It should not be a case that a lower court implicates and a higher court acquits or vice-versa. Moreover each person should know what is a crime, prior to committing the crime. i.e knowledge about crime and law and order should be publicly known. Our laws should be easily accessible and clear. What benefit is it to a citizen if a court case proceeds for 20 years without a judgement, when the human lifespan itself is averaging 50 years.
Objective, Effective, Un-biased Legal System is the only and real power of a Government. Any compromise on this is suicidal to Democracy.
Since Government's authority is absolute, it is better it decides the least possible, i.e it restricts itself to the only the required tasks. If Government regulates / monitors private enterprise any more than absolutely required for "peaceful and lawful" functioning, it is nothing short of facism and this is exactly what we want to avoid in democracy.
End Note
By nature Government is not efficient. The function of a government is to provide workable solutions to common problems in areas where being effective is far far more important than being efficient. A country's external security is one such aspect. We cannot compromise on effectiveness of security for efficiency on it. This is an area for the Government to function. Further such areas should be devoid of competition. Consider what competition in terms on Internal / External security agencies would do.
Finally, Government cannot be equated to ruling a kingdom, where the subjects are at whims and fancies of the rulers. It cannot be equated to running a corporation, where duties are fixed, authorities are delegated and everybody works like a machine. Control (read Govt Regulation) and Freedom (read Industry) are inversely related. A Government is more like planning for a holiday together with your neighbours. Each one of you have the freedom and responsibility for the tour. But, since your destination is same, there is convenience in doing things together.
I recently moved into a new Apartment. Since the building was new, we had to form an Owner's Association to take care of common activities. What I found interesting here was the marked similarity between this and the Government we elect, where we do well and more importantly where we mess up the system.
Purpose
Getting the purpose right usually solves half the problem. For an Apartment Owner's Association , the problem is rather simple. We had a couple of common tasks like security, cleaning of common areas, water supply, gardening, electrical maintenance of common utilities etc.
Defining the purpose of Government is difficult. Some people want the Government to do everything for them, just like some of our flat owners who wanted the association to do a lot more activities, like following up with the civic authorities for better roads or to negotiate with local groceries, vegetable vendors to get cheap prices for their goods. Some owners even went to the absurd lengths of saying it is the association's responsibility to take care of kids playing in the common play-area.
Government too faces this problem. There are few who want the government to do everything. The public just needs to go to the job (9-5), pick up salaries and spend. For them the whole public has to be happy, completely devoid of self-responsibility, and just have to do their job and get good pays for doing it.
The purpose of Government should be to take care of common tasks, much like the Association, is Administration of External Security, Internal Security, Law and Order, Primary Education and Monitoring efficient usage and fair distribution of natural resources. All the remaining tasks like Health, Infrastructure, Social Welfare, Public Entertainement etc are additional burdens on the Government. I will explain why I think they are burdens.
Cost Centre
Our Association is registered as a Non-Profit Organization, i.e it is a cost centre. It does not generate any funds of its own, but spends money it receives by way of contributions. The association members are seldom paid and if so, it is only a honorary payment. The service of the members is voluntary and is respected by the community.
The Government is also a cost centre. It generates its income from Taxes and the working members (i.e ministers) are also paid honorary incomes. Their service is also voluntary and should be respected by the community.
It is very obvious that the Flat Owner would always want to keep the maintenance contribution to the minimum possible. Since the association is only a cost-centre, this can be achieved only by reducing the number of things association does. We tend to keep the barest minimal things for the association. The remaining should be done by other members and on their interest. Hence 'Ganesh Chaturdi' celebrations are not part of Association duties. It may help due to its interest in common good or authority, but this activity is strictly outside the association's perview. The accounts and activities are not part of association. The more duties we give to the association, the more difficult it is for the members to do them as they work elsewhere to earn their living and in some sense to contribute to the cost-centre.
Similarly for a Government, it is beneficial to keep its activities to minimum. If we burden the Government with every task, not only is it difficult for the few members to keep things running, but also creates a huge and inefficient system. Just think of what our Government does...It keeps law and order, develops and maintains basic infrastucture like rails, roads and ports, runs services like schools and hospitals, manufactures a varied variety of commodities from watches (HMT) to complex defence machinery (HAL), aids in research and higher education, meets transportation demands, collects tax and accounts for its expenditure and also plans for its own sustenance, apart from targetting moral social agenda like women empowerment or ensuring basic child education or eradication of caste inequalities etc. These are just some of the many many tasks our government does. No doubt you and me pay huge taxes to support such a massive system. How can a group of 300 MPs handle such varied tasks efficiently. Now doubt our system is inefficient. And try making that huge system accountable !!
Power Centre
A Flat Owner's association is a power centre. Not that it holds power in any real sense like the Governments. But its decision, in most matters, is final. To decide who will service the Apartments's gardens or How much to pay for the security or when to switch on / off the water pumping motors are routine activities. If we have each of the flat owners decide these, then we would end up in chaos. Each one would prefer a certain method. The Association helps in such decisions. Not everyone might be happy, but the system works. Since, the Association members can be changed, it gives everyone a chance to put in their effort or suggestion. But think of abuse of Power that can happen. For instance, if the Association decides that flat occupants should not keep pet animals, then they are drudging on dangerous territory. Such decisions are strictly out of Association's perview. It might be a case that all but one flat owner is in favour of banishing pets, and the association decides that since majority do not want to keep pets, no one should, then the sole flat owner's rights are abused. Majority opinion is not always the right opinion. You might feel differently that since barking dogs create a nuisance and disturb other flat owners, it is a correct decision. The question here is does an Association have the power to deny a individual right to keep pets. The answer is NO.
Similarly the Government is a Power Centre. What it decides is final. Further we give it the power to punish individuals by sentencing them to jail and sometimes to the gallows. This is a dangerous weapon because individual freedom is at the core of our society. And we are placing this individual freedom in the hands of a group of people. If I had not done any crime, but a court falsely implicates me and sentences me, then there is no alternative place for me in this world. My individual right are trampled at the group's mercy. To avoid such occurances, the Law should be objective. The primary responsibility of Government is to objectively define Law, and let it known to everybody in the society. i.e there should not be any ambiquity in Law. One should know in advance that doing X would incur Y punishment. And method of determining the crime should be clear, objective and precise. It should not be a case that a lower court implicates and a higher court acquits or vice-versa. Moreover each person should know what is a crime, prior to committing the crime. i.e knowledge about crime and law and order should be publicly known. Our laws should be easily accessible and clear. What benefit is it to a citizen if a court case proceeds for 20 years without a judgement, when the human lifespan itself is averaging 50 years.
Objective, Effective, Un-biased Legal System is the only and real power of a Government. Any compromise on this is suicidal to Democracy.
Since Government's authority is absolute, it is better it decides the least possible, i.e it restricts itself to the only the required tasks. If Government regulates / monitors private enterprise any more than absolutely required for "peaceful and lawful" functioning, it is nothing short of facism and this is exactly what we want to avoid in democracy.
End Note
By nature Government is not efficient. The function of a government is to provide workable solutions to common problems in areas where being effective is far far more important than being efficient. A country's external security is one such aspect. We cannot compromise on effectiveness of security for efficiency on it. This is an area for the Government to function. Further such areas should be devoid of competition. Consider what competition in terms on Internal / External security agencies would do.
Finally, Government cannot be equated to ruling a kingdom, where the subjects are at whims and fancies of the rulers. It cannot be equated to running a corporation, where duties are fixed, authorities are delegated and everybody works like a machine. Control (read Govt Regulation) and Freedom (read Industry) are inversely related. A Government is more like planning for a holiday together with your neighbours. Each one of you have the freedom and responsibility for the tour. But, since your destination is same, there is convenience in doing things together.
21 June 2006
My First Visit to US.
Finally, After 24 hours of gruelling flying, I landed on US shores.. i.e literally a 'Shore'.. since California is on the West coastline of US. The journey was as interesting as the destination. After taking off at Hyderabad at 11 pm, a quick 4 hour flight took us to Singapore at around 6.15 am. (Yep.. we lost time...3 hrs here). Singapore Airport was unlike any other airport I had seen earlier. It was like a very big mall / shopping complex, much bigger than anything I had been to in Hyderabad. I was not sure if it was an airport with a shopping complex attached or a shopping complex with an airport attached. Both compliment each other in beauty. We had a quick breakfast at the airport and had to catch the connecting flight to US at 9.15 am. The airport had huge corridoors to connect to various arrival and departure gates. And throughout the length of the corridor were travellators. Travellators are much like elevators, but run thru the length horizontally unlike elivators which run thru the height vertically.
Our next flight was to San Francisco with 1 hr stopover at Seoul. We landed at Seoul at around 4.30 pm their time (Yep.. we lost 3 hrs again.. :-( I was growing old faster). The airport was very clean and the airport staff very efficient and helpful. After we disembarked from the flight, the airport staff guided us to the appropriate gate, gave us clear instructions to the waiting area and embarking gate. None of the passengers were left with a doubt on what to do and where to go. The airport was really well-managed. If you want to see where everything works.. its here. Every light lit...every tile was clean..every tap had water ... every elevator worked.. every signboard was appropriate.. no broken glasses.. no broken tiles.. no broken seats.. no torn canvases.. Only if we could make that happen back home.
The journey next was nonstop 10 hr flight to San Francisco. Seemed a little boring, but then I also watched 3 movies back-2-back. By this time my biological clock was totally screwed up and I ended up having lunch first and breakfast next. We landed at Sanfrancisco shortly after 12 noon (we gained time, this time..). The customs clearance was quick.. there were around 20 clearance stations and within 15 min we were out of the airport. We hired a cab to Townplace Suites, Twin Dolphin Drive. The place was around 20 miles away from airport. The cab driver had no idea where it was and we were lucky to have taken the map downloaded from net. In India, our auto-drivers would know nook and corner of the city. And if its a matter of a big Hotel, like the one above, then it was all the more easier. But here, the cab drivers were totally unaware of routes. Probably they serve much larger area than our guys do.
My journey ended at the Suites. 24 hrs...4 countries..2 continents...and 2 oceans later..jet lag caught up with me...zzzzz..
Our next flight was to San Francisco with 1 hr stopover at Seoul. We landed at Seoul at around 4.30 pm their time (Yep.. we lost 3 hrs again.. :-( I was growing old faster). The airport was very clean and the airport staff very efficient and helpful. After we disembarked from the flight, the airport staff guided us to the appropriate gate, gave us clear instructions to the waiting area and embarking gate. None of the passengers were left with a doubt on what to do and where to go. The airport was really well-managed. If you want to see where everything works.. its here. Every light lit...every tile was clean..every tap had water ... every elevator worked.. every signboard was appropriate.. no broken glasses.. no broken tiles.. no broken seats.. no torn canvases.. Only if we could make that happen back home.
The journey next was nonstop 10 hr flight to San Francisco. Seemed a little boring, but then I also watched 3 movies back-2-back. By this time my biological clock was totally screwed up and I ended up having lunch first and breakfast next. We landed at Sanfrancisco shortly after 12 noon (we gained time, this time..). The customs clearance was quick.. there were around 20 clearance stations and within 15 min we were out of the airport. We hired a cab to Townplace Suites, Twin Dolphin Drive. The place was around 20 miles away from airport. The cab driver had no idea where it was and we were lucky to have taken the map downloaded from net. In India, our auto-drivers would know nook and corner of the city. And if its a matter of a big Hotel, like the one above, then it was all the more easier. But here, the cab drivers were totally unaware of routes. Probably they serve much larger area than our guys do.
My journey ended at the Suites. 24 hrs...4 countries..2 continents...and 2 oceans later..jet lag caught up with me...zzzzz..
12 June 2006
Democracy or Mediocrity
"All men are equal. Some are more so." - Anonymous
Even before I denounce Democracy for its shortcomings, let me start with communism.
"According to Marxism, capitalism is a system based on the exploitation of the proletariat by the bourgeoisie (the "capitalists", who own and control the means of production). This exploitation takes place as follows: the workers, who own no means of production of their own, must seek jobs in order to live. They get hired by a capitalist and work for him, producing some sort of goods or services. These goods or services then become the property of the capitalist, who sells them and gets a certain amount of money in exchange. One part of the wealth produced is used to pay the workers' wages, while the other part (surplus value) is split between the capitalist's private takings (profit), and the money used to pay rent, buy supplies and renew the forces of production. Thus the capitalist can earn money (profit) from the work of his employees without actually doing any work, or in excess of his own work. Marxists argue that new wealth is created through work; therefore, if someone gains wealth that he did not work for, then someone else works and does not receive the full wealth created by his work. In other words, that "someone else" is exploited. Thus, Marxists argue that capitalists make a profit by exploiting workers." - Wikipedia (Proletariat).
How very logical it seems. But do we realise how irrational and inhuman the above statement is? I say irrational becoz when the the premises are wrong, the inference will be too. There are 2 assumptions here (1) The capitalist does not work or does very little work (2) Any work adds the same value to the end product. Do you see what the capitalists puts in the venture. He puts in his ability to think and create. He is the one who makes the production possible. The new wealth is created by this ability to think. It takes away the credit from the only person who makes the wealth possible.
The second and most inhuman part of this philosophy is the assumption that all men are equal. The community where all its members are equal is a community of brutes. Humans are not equals. I would hate to live in a society where I am an exact copy of billions of others. What would be such a society where you are equal with everybody else. No matter what effort you put in, you would still be equal with others. You could top you class, but still are considered equal. You could invent the most efficient machine man has every built, but you would still be equal to others. You could manage the biggest organization with the best efficiency, but you would still be equal to every junk head around. What is insipration to work in such a society, when no matter how different your productivity is you are considered an equal?
If you still think men are equal..then please read no further. But if you are convinced that men have different abilities, then think for a moment of the injustice we are committing in the name of Democracry. We have the world's largest Democracy. We conduct free and fair elections every once in a while. If Democracy was a perfect system, why is it not working as well as expected? Simply becoz we start with a premise that all men are equal. Our election system is totally flawed. Our leader is simply a person who has the majority of votes. Whoever can convince a majority is a winner. No preference, no weightage, no marks, no special treatment is given to any person. Everybody is so damn equal. There is no difference between a person who thinks and a person who stinks. If you had done an extensive research on every candidate in your constiuency, evaluated each one of their strengths and weaknesses and identified a candidate to vote, your vote is still equal to the first bum who'll vote for first stinking swine who'll offer him a packet of biryani and a bottle of liquor. What is the insipration to think in such an atmosphere?
What ails this country is precisely this. Democracy. Every law you make, every rule you follow should meet with a majority approval, irrespective of whether the majority is informed or misugided. You could tax the minority earners and supply television sets to the majority poor (Mr.Karunanidhi's election promise in 2006 Assembly elections in Tamilnadu). You could deprive the minority General Category to provide education to the majority OBCs (Mr.Arjun Singh raised the reservation limits in insitutes of higher learning in 2006). You could tax the minority salaried class an extra 2% cess to support the education of the majority poor (We still pay this tax). You could tax the minority tax payers to supply free electricity to the majority (poor) farmers (Government of Andhra Pradesh has been providing free electricity to farmers since 2004). Do you know who is the victim in all these cases? Its the hard-working, self-sufficient tax-paying citizen. If a minority is carrying the burden of the majority, then should not the minority have a larger say in the decision making. If your tax is financing the Government expenditure, then does not the Government need your sanction on its expense? If NOT, then we are nothing but bonded labourers toiling for the benefit of some unknown millions. If YES, then we are deprived of our right to decide in this system.
There are things that are right. For instance, if a gang of 10 poor people occupy your house and claim it to be theirs, would you give it to them becoz they are in majority. No ! You know the house is yours. You have the proof for it which can stand in any court of law. And you can chase the gang away thru proper legal force. The law in this case is objective. You know what is right and what is wrong, what is yours and what is not, what is legal and what is illegal. No matter how large the gang is how big their majority is, your property is yours. Without an objective law, civilized society is not possible.
But why cant the same extend to our public administration as well? Why cant we find an objective way to identify the best possible candidate? If there is one reason why we can't do it is probably becoz we are convinced of thinking that Democracy is the best form of Government. Democracy is the best form of Government so far, not any more. We need to think and devise new ways of electing and forming Governments. The existing one will not do. Without a doubt, our Constitution is a great piece of human effort. Our Consitution's founding members have done a magnificient job in creating it. But what good are we as their successors, if we cant better their job? What good are we, If we cant think of new ways and end up following their lead forever and mouthing words of endless gratitude on their effort and never making an effort to reach their stature. Would we be worthy of their succession, if we cant better their system, but continue to screw it up for 50 year nonstop. We need a new constitution and we shud do it ourselves.
Even before I denounce Democracy for its shortcomings, let me start with communism.
"According to Marxism, capitalism is a system based on the exploitation of the proletariat by the bourgeoisie (the "capitalists", who own and control the means of production). This exploitation takes place as follows: the workers, who own no means of production of their own, must seek jobs in order to live. They get hired by a capitalist and work for him, producing some sort of goods or services. These goods or services then become the property of the capitalist, who sells them and gets a certain amount of money in exchange. One part of the wealth produced is used to pay the workers' wages, while the other part (surplus value) is split between the capitalist's private takings (profit), and the money used to pay rent, buy supplies and renew the forces of production. Thus the capitalist can earn money (profit) from the work of his employees without actually doing any work, or in excess of his own work. Marxists argue that new wealth is created through work; therefore, if someone gains wealth that he did not work for, then someone else works and does not receive the full wealth created by his work. In other words, that "someone else" is exploited. Thus, Marxists argue that capitalists make a profit by exploiting workers." - Wikipedia (Proletariat).
How very logical it seems. But do we realise how irrational and inhuman the above statement is? I say irrational becoz when the the premises are wrong, the inference will be too. There are 2 assumptions here (1) The capitalist does not work or does very little work (2) Any work adds the same value to the end product. Do you see what the capitalists puts in the venture. He puts in his ability to think and create. He is the one who makes the production possible. The new wealth is created by this ability to think. It takes away the credit from the only person who makes the wealth possible.
The second and most inhuman part of this philosophy is the assumption that all men are equal. The community where all its members are equal is a community of brutes. Humans are not equals. I would hate to live in a society where I am an exact copy of billions of others. What would be such a society where you are equal with everybody else. No matter what effort you put in, you would still be equal with others. You could top you class, but still are considered equal. You could invent the most efficient machine man has every built, but you would still be equal to others. You could manage the biggest organization with the best efficiency, but you would still be equal to every junk head around. What is insipration to work in such a society, when no matter how different your productivity is you are considered an equal?
If you still think men are equal..then please read no further. But if you are convinced that men have different abilities, then think for a moment of the injustice we are committing in the name of Democracry. We have the world's largest Democracy. We conduct free and fair elections every once in a while. If Democracy was a perfect system, why is it not working as well as expected? Simply becoz we start with a premise that all men are equal. Our election system is totally flawed. Our leader is simply a person who has the majority of votes. Whoever can convince a majority is a winner. No preference, no weightage, no marks, no special treatment is given to any person. Everybody is so damn equal. There is no difference between a person who thinks and a person who stinks. If you had done an extensive research on every candidate in your constiuency, evaluated each one of their strengths and weaknesses and identified a candidate to vote, your vote is still equal to the first bum who'll vote for first stinking swine who'll offer him a packet of biryani and a bottle of liquor. What is the insipration to think in such an atmosphere?
What ails this country is precisely this. Democracy. Every law you make, every rule you follow should meet with a majority approval, irrespective of whether the majority is informed or misugided. You could tax the minority earners and supply television sets to the majority poor (Mr.Karunanidhi's election promise in 2006 Assembly elections in Tamilnadu). You could deprive the minority General Category to provide education to the majority OBCs (Mr.Arjun Singh raised the reservation limits in insitutes of higher learning in 2006). You could tax the minority salaried class an extra 2% cess to support the education of the majority poor (We still pay this tax). You could tax the minority tax payers to supply free electricity to the majority (poor) farmers (Government of Andhra Pradesh has been providing free electricity to farmers since 2004). Do you know who is the victim in all these cases? Its the hard-working, self-sufficient tax-paying citizen. If a minority is carrying the burden of the majority, then should not the minority have a larger say in the decision making. If your tax is financing the Government expenditure, then does not the Government need your sanction on its expense? If NOT, then we are nothing but bonded labourers toiling for the benefit of some unknown millions. If YES, then we are deprived of our right to decide in this system.
There are things that are right. For instance, if a gang of 10 poor people occupy your house and claim it to be theirs, would you give it to them becoz they are in majority. No ! You know the house is yours. You have the proof for it which can stand in any court of law. And you can chase the gang away thru proper legal force. The law in this case is objective. You know what is right and what is wrong, what is yours and what is not, what is legal and what is illegal. No matter how large the gang is how big their majority is, your property is yours. Without an objective law, civilized society is not possible.
But why cant the same extend to our public administration as well? Why cant we find an objective way to identify the best possible candidate? If there is one reason why we can't do it is probably becoz we are convinced of thinking that Democracy is the best form of Government. Democracy is the best form of Government so far, not any more. We need to think and devise new ways of electing and forming Governments. The existing one will not do. Without a doubt, our Constitution is a great piece of human effort. Our Consitution's founding members have done a magnificient job in creating it. But what good are we as their successors, if we cant better their job? What good are we, If we cant think of new ways and end up following their lead forever and mouthing words of endless gratitude on their effort and never making an effort to reach their stature. Would we be worthy of their succession, if we cant better their system, but continue to screw it up for 50 year nonstop. We need a new constitution and we shud do it ourselves.
05 June 2006
Comedy in Movies
"A joke is all about timing..You miss one and you messed the other."
Humor is one serious business.. very serious indeed.. so serious that a recent statistic yells that almost 80% of the women looking out for a date want a Humorous person. Now I guess you understand how serious it is..Not to be left behind in the chick-race, I tried my hand at humor. Not that I enjoy making fun of every little happening around, but you see, when its a matter of wife and then life..your opinion hardly matters. That's when I realised being funny is not all that funny. I turned to movies for help, and here I found a pattern between jokes and its audience.
Seems like food, Sense of Humor, also has a regional flavour. As much as the content of the joke matters, so does the geography of the audience. My Telugu speaking friends generally like jokes on characterization. They generally enjoy things which exaggerate a persons character or mannerism. Telugu movies also follow this trend, and have a comedy track along these lines, be it gag on a person who's obsessed with 30-day learning courses or a person who's crazy about singing (terribly), a fat person who's intent on eating more and more or a lean guy who gets blown away by wind. They are mostly repetitive, i.e the same dialogue / scene gets repeated regularly and it is this repeatition that aims to be funny. Be it the old Telugu movies which their equivalents of Laurrel and Hardy in Ramana Reddy and Relangi - the later anyday better than the former - or the the more recent movies of Jandhyala or Rajendra Prasad, the comedy is mostly in the style of dialogue delivery and the extreme mannerisms.
My Tamil speaking friends on the otherhand enjoy a different kind of humor.Their humor is mostly quick-witted or plain insulting. Their movies also keep up with them. A lot of those jokes are between 2 people, one making a fool of other. They jokes are usually cleverly-worded and some of their good comedy movies use lot of puns for the fun. Some of their other jokes I heard were like abusing the clown of the show which where downright degrading. If Nagesh's movies (one of my faviourite Tamil comedian) were funny becoz of his antics and timings, today's comedians like Senthil or Vadivel depend on insults to humor, But my Tamil speaking friends enjoyed them. Even when 2 tamilians speak, they usually mince no words in belittling each other, and all in good spirit. And neither of them seems to mind it. But my Telugu speaking friends are taken aback by this and feel that Tamilian humor is crass. And some of my Tamilian friends think that Telugu jokes are overdrawn and repetitive.
Kannada jokes are between these 2 extremes. As their current movies mostly are a rip off from either a Tamil movie or a Telugu one, their comic sense also seems to stem from both. But if you care to watch the older movies, like Ananthnag's movies or the Ganesha series, they have a very subtle kind of humor. Its neither obvious nor absent. If you want an example, watch the "Swamy and Friends" directed by Shankar Nag. It shows the quitessential Kannada Humor. Jokes are not intentionally put, but the lighter vein runs throughout the narrative.
Hindi movies entertain a lot more diverse group than the southern regional films, and so its humor also falls in many categories. Though I am not a fan of Govinda and his high-pitched, loud-mouthed blabbering, there are quite a few who'll laugh at reruns of his movies. Two of Hindi's all time comic hits 'Jaane bhi do yaaron' and 'Andaz Apna Apna' banked of quick-wit and stupidity for humor. And Priyadarshan (HeraPheri / Hulchul) today is remaking old Tamil and Malayalam comedies for that quick buck. Most of today's highly successful Hindi movies are either quick-witted or dumb-witted. But I have seen very few Hindi movies to think of a pattern.
Humor is one serious business.. very serious indeed.. so serious that a recent statistic yells that almost 80% of the women looking out for a date want a Humorous person. Now I guess you understand how serious it is..Not to be left behind in the chick-race, I tried my hand at humor. Not that I enjoy making fun of every little happening around, but you see, when its a matter of wife and then life..your opinion hardly matters. That's when I realised being funny is not all that funny. I turned to movies for help, and here I found a pattern between jokes and its audience.
Seems like food, Sense of Humor, also has a regional flavour. As much as the content of the joke matters, so does the geography of the audience. My Telugu speaking friends generally like jokes on characterization. They generally enjoy things which exaggerate a persons character or mannerism. Telugu movies also follow this trend, and have a comedy track along these lines, be it gag on a person who's obsessed with 30-day learning courses or a person who's crazy about singing (terribly), a fat person who's intent on eating more and more or a lean guy who gets blown away by wind. They are mostly repetitive, i.e the same dialogue / scene gets repeated regularly and it is this repeatition that aims to be funny. Be it the old Telugu movies which their equivalents of Laurrel and Hardy in Ramana Reddy and Relangi - the later anyday better than the former - or the the more recent movies of Jandhyala or Rajendra Prasad, the comedy is mostly in the style of dialogue delivery and the extreme mannerisms.
My Tamil speaking friends on the otherhand enjoy a different kind of humor.Their humor is mostly quick-witted or plain insulting. Their movies also keep up with them. A lot of those jokes are between 2 people, one making a fool of other. They jokes are usually cleverly-worded and some of their good comedy movies use lot of puns for the fun. Some of their other jokes I heard were like abusing the clown of the show which where downright degrading. If Nagesh's movies (one of my faviourite Tamil comedian) were funny becoz of his antics and timings, today's comedians like Senthil or Vadivel depend on insults to humor, But my Tamil speaking friends enjoyed them. Even when 2 tamilians speak, they usually mince no words in belittling each other, and all in good spirit. And neither of them seems to mind it. But my Telugu speaking friends are taken aback by this and feel that Tamilian humor is crass. And some of my Tamilian friends think that Telugu jokes are overdrawn and repetitive.
Kannada jokes are between these 2 extremes. As their current movies mostly are a rip off from either a Tamil movie or a Telugu one, their comic sense also seems to stem from both. But if you care to watch the older movies, like Ananthnag's movies or the Ganesha series, they have a very subtle kind of humor. Its neither obvious nor absent. If you want an example, watch the "Swamy and Friends" directed by Shankar Nag. It shows the quitessential Kannada Humor. Jokes are not intentionally put, but the lighter vein runs throughout the narrative.
Hindi movies entertain a lot more diverse group than the southern regional films, and so its humor also falls in many categories. Though I am not a fan of Govinda and his high-pitched, loud-mouthed blabbering, there are quite a few who'll laugh at reruns of his movies. Two of Hindi's all time comic hits 'Jaane bhi do yaaron' and 'Andaz Apna Apna' banked of quick-wit and stupidity for humor. And Priyadarshan (HeraPheri / Hulchul) today is remaking old Tamil and Malayalam comedies for that quick buck. Most of today's highly successful Hindi movies are either quick-witted or dumb-witted. But I have seen very few Hindi movies to think of a pattern.
24 May 2006
Reservations
"Too often we are so preoccupied with the destination, we forget the journey". - Unknown
It seems the opposite is true in our case. We are so attached to the journey that the destination now seems unimportant. Reservations have been in vogue in India from past 50 odd years and we are so convinced with it being right, that we fail to see what it was meant to achieve.
Any institution whether educational, government or business or social has a purpose and when that purpose is compromised, its functional efficiency takes a beating. Lets take the case of educational institutions, although the same logic holds good for any organization. The purpose of an educational institute is to impart knowledge. As a society we have founded and funded many good educational institutions that involved lot of cost and effort. The purpose of this funding is to create a knowledge-based society to nurture a generation that will inturn help our economy grow and increase our knowledge capital. If this aim has to be achieved, then we need to find the best student who is capable of doing justice to the knowledge these institutions provide. Since there is a physical limitation of number of students we can train at a given time, we are forced to restrict the influx to give quality output.
To make a good Physicist, we need to pick & choose the person who's good in Physics. This is the one basic choice on which we cannot compromise. Just as choosing a student of History or Literature to study Physics will not work, the same way choosing students on Quotas will not. Nothing but a bright student in the relevant subject would do. Period.
But, picking a bright student is not easy. India, unfortunately, has a baggage of castes because its history and some of these castes are deprived of social benefits. Since it is equally possible to have a bright student from any caste, and since some weaker sections of the society cannot afford the sophistication and luxury of many others, bright students from among these castes get overshadowed by more fortunate, but less brilliant students from stronger sections. Our traditional scoring, grading and ranking system might not be best way to identify such good students from disadvantaged backgrounds. Giving such students an opportunity is of paramount importance to us because they bring better returns to our investment. Finding such students is necessary for the society and makes economic sense, and the money we put in running the educational institutions is wellspent.The aim of the Reservations should be to identify brilliant students from weaker sections and provide them opportunities, not becoz they require help, but becoz the institutions that we found needs them. We are not helping these students because they are weak, but because we require them for their strengths, i.e their brilliance and intelligence and hence we go attract them by giving reservations. This is the only reason for providing Reservation. This is the only reason which respects the person and brings dignity to their section of society. Any other reason is a deception and an insult to these castes.
Our educational institutes need not reflect the demographic or social patterns of the society. We need not mimic the social setup in each class. To make good doctors, we should start with a class full of good students of medicine, and NOT 20% of Caste A, 10% of Caste B etc. How to select these students and how to implement Reservations is still debatable, but solving social inequalities thru our funded institutions is arrogance of power and ignorance of purpose.
It seems the opposite is true in our case. We are so attached to the journey that the destination now seems unimportant. Reservations have been in vogue in India from past 50 odd years and we are so convinced with it being right, that we fail to see what it was meant to achieve.
Any institution whether educational, government or business or social has a purpose and when that purpose is compromised, its functional efficiency takes a beating. Lets take the case of educational institutions, although the same logic holds good for any organization. The purpose of an educational institute is to impart knowledge. As a society we have founded and funded many good educational institutions that involved lot of cost and effort. The purpose of this funding is to create a knowledge-based society to nurture a generation that will inturn help our economy grow and increase our knowledge capital. If this aim has to be achieved, then we need to find the best student who is capable of doing justice to the knowledge these institutions provide. Since there is a physical limitation of number of students we can train at a given time, we are forced to restrict the influx to give quality output.
To make a good Physicist, we need to pick & choose the person who's good in Physics. This is the one basic choice on which we cannot compromise. Just as choosing a student of History or Literature to study Physics will not work, the same way choosing students on Quotas will not. Nothing but a bright student in the relevant subject would do. Period.
But, picking a bright student is not easy. India, unfortunately, has a baggage of castes because its history and some of these castes are deprived of social benefits. Since it is equally possible to have a bright student from any caste, and since some weaker sections of the society cannot afford the sophistication and luxury of many others, bright students from among these castes get overshadowed by more fortunate, but less brilliant students from stronger sections. Our traditional scoring, grading and ranking system might not be best way to identify such good students from disadvantaged backgrounds. Giving such students an opportunity is of paramount importance to us because they bring better returns to our investment. Finding such students is necessary for the society and makes economic sense, and the money we put in running the educational institutions is wellspent.The aim of the Reservations should be to identify brilliant students from weaker sections and provide them opportunities, not becoz they require help, but becoz the institutions that we found needs them. We are not helping these students because they are weak, but because we require them for their strengths, i.e their brilliance and intelligence and hence we go attract them by giving reservations. This is the only reason for providing Reservation. This is the only reason which respects the person and brings dignity to their section of society. Any other reason is a deception and an insult to these castes.
Our educational institutes need not reflect the demographic or social patterns of the society. We need not mimic the social setup in each class. To make good doctors, we should start with a class full of good students of medicine, and NOT 20% of Caste A, 10% of Caste B etc. How to select these students and how to implement Reservations is still debatable, but solving social inequalities thru our funded institutions is arrogance of power and ignorance of purpose.
17 April 2006
Network Marketing
Network Marketing is a unique way of marketing goods, where the manufacturer does not rely on the traditional channels of marketing like distributors, wholesalers, retailers etc but uses the end-users themselves to market goods. This concept of distribution channel, has so far been successfully implemented by Amway, Herbalife etc. A lot many of us hate networking marketing, probably becoz it somehow beats our logic of earning money and some of us becoz we are usually not comfortable building networks or just plain selling. But there are quite a number of people who jump at the opportunity to make a quick buck. How many of us realize the economics behind this and the earning potential is highly debatable.
The general process in any networking is roughly the same. Take the case of company producing, say belts, each belt costing $1. In the usual marketing world, each belt would be marked a retail price of $10, where the difference of $9 goes into the pockets of manufacturers, distributors, wholesalers, retailers, advertisers etc. In this case, each one of them continuously works in order to earn the buck. And the difference of $9 you pay goes for the service rendered by each one of them to bring the belt to your door.
In the networking world, this equation changes drastically. Lets say, a person X, in the marketing chain (lets call him an Associate), purchases the product at $20. It is his choice to either sell it to a 3rd party or use it for this own. For each purchase he gets 25% cut. So, for every product of worth $20, he gets $5 back. Not much money, right? Especially, when you pay more money than what you would in the usual market. The difference here is that, X can appoint or refer or recruit some more persons to do the same buying and selling, and each one of the associates he refers can further refer some more people to buy and sell the product. In this way, X builds up his own network or chain. The benefit for X in referring people below him is that for ever sale made by an associate under his chain, he gets a cut of it. Lets suppose he gets 20% of the sales made by associates under his chain. The more people he has under him, the more he earns. If an associate under him fails to refer anyone else, then X suffers the loss of income from that chain. Lets see who benefits from this and how much.
I'll take a simple example of a company, which produces items each worth $1 and labels for $20. Each associate sells $20 per month and refers 2 more people. where he gets a cut of 25% for each sale made. Suppose one particular Associate X sold goods worth $20 in that month and has refered 2 more associates Y and Z and each one of his reference sold $20. Together they have raised $40, out of which Y will get $5 as his share and Z will get $5 as his share. The remaining $30 moves up the chain. X will get $5 for the sales he has made and 20% of the $30 which has come up the chain, i.e $5+$6 = $11. Total amount sold for $20*3 = $60, out of which $21 is distributed to X,Y and Z. The remaining goes to the company, i.e $39. In this case 3 items were sold, one by each person, so for each item the company got $13. The company got a huge margin of $12 per item, Y and Z get only $5 back after spending $20 for a product which would be avlb in open market for $10. X meanwhile would get $11 back.
The crucial questions are: Why should the company charge $20 which is double the market price and what is the actual benefit of X, Y and Z, if they are overspending.
For the first question on why the company charges $20:
The example above only shows for 2 levels of associates. X at the top level and Y & Z are the next level. If the number of levels increases, i.e Y and Z too start refering associates, then the profitability of the company falls drastically. Hence it forced to price products very high.
See the same example for 5 levels.
The first column shows no. of person in each level, if each person refers 2 more people below him. If each such person sells goods worth $20 each, then lowest in the chain get $5 per sale, while
the top in the chain get $682.19, if every person below him sells $20.
The company has sold a total of 1023 units, each for $20 and gets back $2723.78, i.e each item
fetches $2.7. Not so much as compared to $13 when only 2 levels of associates where present.
So, the company earns less and less as the number of levels increase. In fact, it is better for the company to have a flat hierarchy than a long one. If the company would have charged only $10 for the product, then it would have earned only $1.3 per item, after distributing all the sale proceeds. This is one more reason the company is forced to charge very high prices. Not necessarily becos the quality of the product is good.
The biggest looser is the end-user, who buys a product worth $10 for $20, just to keep the 10 levels alive. The last level (i.e person who have not referred anybody) are the next biggest loosers. If they buy the products for themselves then they loose as much as $5 per item. If they sell it to others who are not in this chain, then they make $5 per item (almost as much as any retailer would make).
The biggest gainer here is the person highest in the chain. He makes cash of everybody's effort down the chain.
Now the second biggest question: Why do X,Y and Z overspend or force others to overspend? The answer is closely related to why someone chooses to do Network Marketing. Some of the prime reasons are:
1. Unconventional Income (or, Side-Income)
2. Getting into Business
3. Improving our network
4. To avoid over-dependence or become independent of the regular channels of income.
5. To work for few years and reap the high rewards.
6. High returns for meagre effort and investment (both economic and technical).
Points 1-4 are equally valid for any other kind of work and not only to Network marketing. The real reasons that work in favour of Network Marketing are reasons 5 and 6. The thought process for Reason 5 is: "Its OK if someone is taking advantage of my work today, but if I work hard enough and build a strong enough network, I can retire early and simply keep earning money becoz my network would then be working for me." Its not that vile to expect to ENJOY-THE-UNEARNED, but what is gross is to expect to BENEFIT-FROM-SOMEONE-ELSE'S-EFFORT. And, that is the biggest selling point of Network Marketing. No matter what sugar coating each one would give for their reason, it is this BENEFIT-FROM-SOMEONE-ELSE'S-EFFORT view that really drives the last nail in. Ofcourse meagre effort and investment in terms of technology or finances addes fuel to fire. This reason though a deciding factor in many cases, does not equal the GREED-OF-UNEARNED.
Some of the people who are into Network Markting were offended when I offered them the above reason. The immediate examples which they offered as an argument were:
1. In a corporate world, the top management is usually richly rewarded and despite their minimal effort enjoys the benefit of the effort of the working class.
2. In any traditional marketing 80% of the cost is paid to the middlemen and network marketing does nothing but distribute this 80% amount within the network which is (somehow) noble.
In any industry, each person's work is different and is dependent on his/her ability. The CEO of the company has different task than the watchman at the gate. We cannot replace one with the other and expect the same work to be done. Without the CEO's direction, the company would fall like a deck of cards and the large working class would be left without anything to earn. But, in a Network Marketing each associate is essentially the same with respect to the work each one undertakes, with only their personal ability to differentiate them of one another. The only reason why person X would earn better than person Y, if both of them put in the same effort is becoz X was in the Network much earlier than Y. In a traditional industry too, there would be such instances, but the difference would be very dismal. But in a Network, the earning potential would vary many times over. In the above example a 10th rung associate would earn approx 30times less than the top associate !!!.
In traditional marketing, there are lot of people involved at various levels like dealers, wholesalers and retailers. Each person's work is different and at a different cost structure. Each person earns for the sales he makes in that particular month. There are no free lunches anywhere in the chain. In Networking, each associate picks up goods to be delivered. Neither goods nor money flows thru the chain, but the chain earns the commission just because it exists. In other words, the structure comes free of cost in the traditional marketing, only the effort is paid for. But, in network marketing the structure is a cost centre, and the end-user pays for maintaining the structure,i.e in addition to the cost of effort put in by the structure.
The final question Does Network Marketing Work?
IT DOES.. for the first few. In a network marketing,
1. The company gains, if the hierarchy is flat, so that it can price its products low and earn profit on volume. The company stands to gain if lot of associates join, but few are able to build deep hierarchies below them.
2. The individual associate earns more if the hierarchy below him is deep, so that the numbers below him are huge and hence his cut.
The company and the associate benefit at different structures. Its anybody's guess who'll benefit best.
The general process in any networking is roughly the same. Take the case of company producing, say belts, each belt costing $1. In the usual marketing world, each belt would be marked a retail price of $10, where the difference of $9 goes into the pockets of manufacturers, distributors, wholesalers, retailers, advertisers etc. In this case, each one of them continuously works in order to earn the buck. And the difference of $9 you pay goes for the service rendered by each one of them to bring the belt to your door.
In the networking world, this equation changes drastically. Lets say, a person X, in the marketing chain (lets call him an Associate), purchases the product at $20. It is his choice to either sell it to a 3rd party or use it for this own. For each purchase he gets 25% cut. So, for every product of worth $20, he gets $5 back. Not much money, right? Especially, when you pay more money than what you would in the usual market. The difference here is that, X can appoint or refer or recruit some more persons to do the same buying and selling, and each one of the associates he refers can further refer some more people to buy and sell the product. In this way, X builds up his own network or chain. The benefit for X in referring people below him is that for ever sale made by an associate under his chain, he gets a cut of it. Lets suppose he gets 20% of the sales made by associates under his chain. The more people he has under him, the more he earns. If an associate under him fails to refer anyone else, then X suffers the loss of income from that chain. Lets see who benefits from this and how much.
I'll take a simple example of a company, which produces items each worth $1 and labels for $20. Each associate sells $20 per month and refers 2 more people. where he gets a cut of 25% for each sale made. Suppose one particular Associate X sold goods worth $20 in that month and has refered 2 more associates Y and Z and each one of his reference sold $20. Together they have raised $40, out of which Y will get $5 as his share and Z will get $5 as his share. The remaining $30 moves up the chain. X will get $5 for the sales he has made and 20% of the $30 which has come up the chain, i.e $5+$6 = $11. Total amount sold for $20*3 = $60, out of which $21 is distributed to X,Y and Z. The remaining goes to the company, i.e $39. In this case 3 items were sold, one by each person, so for each item the company got $13. The company got a huge margin of $12 per item, Y and Z get only $5 back after spending $20 for a product which would be avlb in open market for $10. X meanwhile would get $11 back.
The crucial questions are: Why should the company charge $20 which is double the market price and what is the actual benefit of X, Y and Z, if they are overspending.
For the first question on why the company charges $20:
The example above only shows for 2 levels of associates. X at the top level and Y & Z are the next level. If the number of levels increases, i.e Y and Z too start refering associates, then the profitability of the company falls drastically. Hence it forced to price products very high.
See the same example for 5 levels.
The first column shows no. of person in each level, if each person refers 2 more people below him. If each such person sells goods worth $20 each, then lowest in the chain get $5 per sale, while
the top in the chain get $682.19, if every person below him sells $20.
The company has sold a total of 1023 units, each for $20 and gets back $2723.78, i.e each item
fetches $2.7. Not so much as compared to $13 when only 2 levels of associates where present.
So, the company earns less and less as the number of levels increase. In fact, it is better for the company to have a flat hierarchy than a long one. If the company would have charged only $10 for the product, then it would have earned only $1.3 per item, after distributing all the sale proceeds. This is one more reason the company is forced to charge very high prices. Not necessarily becos the quality of the product is good.
The biggest looser is the end-user, who buys a product worth $10 for $20, just to keep the 10 levels alive. The last level (i.e person who have not referred anybody) are the next biggest loosers. If they buy the products for themselves then they loose as much as $5 per item. If they sell it to others who are not in this chain, then they make $5 per item (almost as much as any retailer would make).
The biggest gainer here is the person highest in the chain. He makes cash of everybody's effort down the chain.
Now the second biggest question: Why do X,Y and Z overspend or force others to overspend? The answer is closely related to why someone chooses to do Network Marketing. Some of the prime reasons are:
1. Unconventional Income (or, Side-Income)
2. Getting into Business
3. Improving our network
4. To avoid over-dependence or become independent of the regular channels of income.
5. To work for few years and reap the high rewards.
6. High returns for meagre effort and investment (both economic and technical).
Points 1-4 are equally valid for any other kind of work and not only to Network marketing. The real reasons that work in favour of Network Marketing are reasons 5 and 6. The thought process for Reason 5 is: "Its OK if someone is taking advantage of my work today, but if I work hard enough and build a strong enough network, I can retire early and simply keep earning money becoz my network would then be working for me." Its not that vile to expect to ENJOY-THE-UNEARNED, but what is gross is to expect to BENEFIT-FROM-SOMEONE-ELSE'S-EFFORT. And, that is the biggest selling point of Network Marketing. No matter what sugar coating each one would give for their reason, it is this BENEFIT-FROM-SOMEONE-ELSE'S-EFFORT view that really drives the last nail in. Ofcourse meagre effort and investment in terms of technology or finances addes fuel to fire. This reason though a deciding factor in many cases, does not equal the GREED-OF-UNEARNED.
Some of the people who are into Network Markting were offended when I offered them the above reason. The immediate examples which they offered as an argument were:
1. In a corporate world, the top management is usually richly rewarded and despite their minimal effort enjoys the benefit of the effort of the working class.
2. In any traditional marketing 80% of the cost is paid to the middlemen and network marketing does nothing but distribute this 80% amount within the network which is (somehow) noble.
In any industry, each person's work is different and is dependent on his/her ability. The CEO of the company has different task than the watchman at the gate. We cannot replace one with the other and expect the same work to be done. Without the CEO's direction, the company would fall like a deck of cards and the large working class would be left without anything to earn. But, in a Network Marketing each associate is essentially the same with respect to the work each one undertakes, with only their personal ability to differentiate them of one another. The only reason why person X would earn better than person Y, if both of them put in the same effort is becoz X was in the Network much earlier than Y. In a traditional industry too, there would be such instances, but the difference would be very dismal. But in a Network, the earning potential would vary many times over. In the above example a 10th rung associate would earn approx 30times less than the top associate !!!.
In traditional marketing, there are lot of people involved at various levels like dealers, wholesalers and retailers. Each person's work is different and at a different cost structure. Each person earns for the sales he makes in that particular month. There are no free lunches anywhere in the chain. In Networking, each associate picks up goods to be delivered. Neither goods nor money flows thru the chain, but the chain earns the commission just because it exists. In other words, the structure comes free of cost in the traditional marketing, only the effort is paid for. But, in network marketing the structure is a cost centre, and the end-user pays for maintaining the structure,i.e in addition to the cost of effort put in by the structure.
The final question Does Network Marketing Work?
IT DOES.. for the first few. In a network marketing,
1. The company gains, if the hierarchy is flat, so that it can price its products low and earn profit on volume. The company stands to gain if lot of associates join, but few are able to build deep hierarchies below them.
2. The individual associate earns more if the hierarchy below him is deep, so that the numbers below him are huge and hence his cut.
The company and the associate benefit at different structures. Its anybody's guess who'll benefit best.
14 February 2006
Virtual Economy Vs Cash Economy
Almost everyday we're bombarded with anti-credit card campaigns, with newspapers and media denouncing the free availability of credit. Nevertheless, the number of credit card users is on the rise. If the credit system were so evil, why are we still favouring it? Are we missing something here? Is there some method to this madness?
Before we begin to bash up the virtual economy for its shortcomings, let us first understand what we are against, and if we really are against it.
Not very long ago, (assuming...) we had our much beloved and stable cash based economy. My Father, then in his prime, used to dutifully work for a month, get his paycheck on the 5th of subsequent month, and then set aside money for the expenses for the month, pay the house rent, my school fees etc., and a little for savings for buying that dream house by the end of his career. A typical lower middle class life. Nothing wrong with it. And it worked. Almost. That was our cash economony, WHERE YOU EAT WHAT YOU EARN, AND AFTER YOU EARN.
A few years later, the neighbourhood grocer got a little enterprising. He proposed to extend credit to my family on purchases for the whole month and we could pay him at the end of the month. A mutually beneficial deal. The grocer would get loyalty and a definite customer, while we would get cash-free and hassle-free purchases for the month, which had to be settled in the next month. Now the first month of this deal we had excess cash which would have gone to the groceries, if not for the deal. What we did with that cash is anybody's guess. This was the birth of our virtual economony. Nothing changed much in our lives, just that WE STARTED TO EAT BEFORE WE EARNED IT. So, the obligation with which had to live was to earn atleast as much to pay to grocer for the next month and the less visible obligation to procure goods from the same grocer, sometimes compromising on quality.
Now, who is actual beneficiary here? The shopkeeper took a little risk of giving credit to me, meanwhile ensuring himself of guaranteed sales for the month. I on the other hand got the service of hassle-free transactions with the obligation of raising enuf cash during the month. Both of us are equal beneficiaries. I pay for the service with my obligation. Thats how business is done. If I were a manufacturer, I would buy raw materials on credit, even If I were able to pay the supplier, becoz, cash in my business would create more value for me, and my loss is minimal as it is a zero-interest credit. The flipside of it is my liability has increased and If I fail to make up the money, I would be bankrupt. But a little intelligent financial planning and awareness my risk capacity is enuf to ensure I dont fall into this trap.
If that made my life a little simpler, I wanted more. (I wouldn't say better, as I still earn the same). Now I would have to purchase more than just groceries every month. So what do I do for these other purchases? This time, banks came up with the enterprising idea. The proposal this time was to provide me with cash for the whole month on purchase of goods sold my any seller anywhere, with the clause that I had to repay the month by the end of the month. As with every deal, this one too does have its costs and benefits. The benefit to the bank is that, it gets a transaction fee, usually paid by the seller, on every purchase. The cost to the bank is the risk of my credit. The seller gets more customers for a little fee and I get cash upfront for my purchases without any obligation to trade with a particular seller. Now the actual loss is to the seller who is to pay the extra transaction fee, without getting the loyalty of the customer and his loss in not being part of the deal is the rediced number of customers who trade. My benefit in this deal, as a customer, is to procure goods without having to carry enough cash each time, and the freedom from a sticking onto a single vendor. The cost to me was to bank with a single banker (although I am not too keen on banking with many of them) and the additional obligation of raising enuf cash to repay my debt. Now, even here the only thing that can save me from a debt-trap is my own skill at financial planning and my own awareness of my risk capacity. At the end of it, I started to eat more from the to-be-earned.
There is nothing bad or wrong about this. Just that everything we do has a consequence. In business too much depends on these promises and obligations. Suppliers would risk the payment and pass on raw materials to the manufactueres on credit. Manufacturers risk the payment and pass the finished goods to the warehouses or distributors on credit. Usually the period allowed for credit is a function of the frequency with which the orders come in. In case of groceries, it is one month. In case of share-trading, it is one Trading cycle etc. If the businessman who takes the credit has his finances wellplanned, takes calculated risks and repays his debtors in time, his credibility in the market increases, he can loan more money which in turn can be used to improve his business and his earning capability and so he builds a brand. This is the begining of brand building. If the businessman is not careful with his finances, overspends/overlends his assets, and hence is unable to repay his debtors, his reputation falls, his credibility reduces and so are his chances of doing business and getting new business. The same is true for credit-cards and individuals.
The availability of credit is not the reason of distress in either case. It is actually the credit-system which greatly accelerated the pace of increase in our standard of living. Bad financial planning is the culprit.
Now we move on the much touted Share Trading. Most of us feel that Share Trading is evil, speculative and is only a richman's game. Why should the rich earn money at the click of a button, while the poor toil in the soil? But isn't that the difference between them. The more intelligently you work, the more you can achieve, and hence the more you earn. A Turner in an industrial unit makes less money than the Manager who supervises the unit, though the Turner's work is physically more streneous. Some argue that not all work is simple and that physical work has to be done. But the choice is, either you do it and earn less or get it done and earn more. But if everybody chooses to delegate it, then who will do the work eventually? It is the person who chooses to do it, and doesn't mind earning less. It is each individual's choice of how much he earns. And, that is the basis of free economy.
In simple terms Shares, as their name signifies, are equivalents of quantity of ownership in the worth of a company. Not so simple, right. Lets suppose a group of enterpreneurs have an idea to set up a new company. They are able to garner some 10,000$. But their company needs 20,000$ to start. So, they float an IPO, asking the public to invest 10,000$ in their venture. So, we have 100 people from public, who invest 100$. each and get 10 shares each of worth 10$. Simple mathematics. So, whats so profitable in this?
Now, after 1 year lets suppose the company earns a profit of 4000$, out of which the management take their share of 1000$ for working for the company. Out of remaining 3000$, we invest back 2000$ back into the company and the remaining 1000$ is equally spent among the share-holders. The promoters get 500$ and the public get 500$. So, for each share a person gets 500/10000 = 0.05$ as profit, also known as dividend. If I had 10 shares, I will get 0.5$ as dividend, i.e, and at the end of 1 year my investment of 100$ fetched me a dividend of 0.5$. Not much.. for so much trouble, right! But that's not the complete story. Now the 2000$ which went back into the capital raised the company's worth from 20,000$ to 22,000$. Public's share of worth is raise to 11,000$, and there are 1000 shares in market. So, each share is worth 11$, and my investment of 100$ has become 110$. So far so good. Now, if I wish to withdraw my investment, take out the $110 and have a long holiday in Swizz, it is not as easily done. Since, the company does not wish to buy back the publicly held shares, I have to get hold of some other investor who is interested in buying these shares. It is here the Stock Exchanges come into picture. Stock exchanges are nothing but places to trade in shares. But, why should the price of the stock vary so much, if its worth is only 11$. Here is where the demand and supply effect the prices.
This year, the company starting with a capital of 20,000$ could earn a profit of 4000$. Extrapolating this, the company with its current capital of 22,000$ is expected to atleast earn a profit of 4400$. So, next year the company worth migh tbe 24,200$. of my 10 shares will be worth 121$ next year, if everything goes well. Now, when I go to the stock exchange to sell my shares at 11$, and I see a lot of people willing to buy these shares, since they also see the worth of 121$ next year, I increase my selling price as I see lot of demand for it. Lets say 100 buyers were interested at $11, only 50 might be interested at $11.20, only 2 might be interested at $11.50, and probably no one will be interested at $12, as the buyer will be at a loss, if he buys at 12$ and sells it at 12.1$ the next year (Inflation eats away his 0.1$ profit). So, I get to sell my shares at $11.5 (highest bidder). I get a cut of the YET-TO-BE-EARNED profit of the company and the buyer in the hope that the company will definitely make a good profit, settles for less profit and buys the share.
Now, suppose the company lost one of its major account and is not in a position to generate the anticipated 4400$ profit the subsequent year. If, at this juncture, I go to the stock market to sell the share, I might not find anyone willing to buy at $11. I might find someone willing to buy it at $10.8, and about 50 buyers willing to buy it at $10.6. So, I take a loss of $0.2 and sell the stock at $10.8. After I sell it at $10.8, the lone buyer who was interested at $10.8 is gone. So, the next seller would have to sell his stock at $10.6. This is how stock prices fall.
Who is the beneficiary here, what is his cost and his risk?
I put up $100 of my money in a venture risking its return for a year. I receive my fair share of profit in its sales. If I invest my money in a venture which is making profit, it earns profit for me and if I invest my money in a failing venture, I make a loss. It is me who has to select the company to invest, and decide on the amount to be risked. Any miscalculation might lead a loss to me. There is an argument that I do not work for the company, and hence I should not be entitled to its profit. It is my investment into the company that makes the work possible. Hence the investor is entitled to every bit of profit as the promoter is. The promoter in this case, in addition to his profit, gets his cut of $1000 for working in it.
Share trading is all about investing the available liquids asset into the right company, and if judiciously done, money in the economy will flow into those areas which are making high profits, and hence will attract more players into those areas, increasing competition. Capital flows into those areas which make high profits. Customers trade with those companies who can keep the prices down. The more the customers, the higher the profit. So, companies in effect reduce thier prices. Reducing their prices will drastically reduce their profitability. The only way out to for companies is to bring down their operating costs, so as to ensure increased profitablity. Those companies which can bring down the operating costs and can keep the prices low are the ones which eventually succeed. This is in effect the basis of capitalism.
Now, even here there is nothing wrong in Trading per se., it is actually beneficial for any economy to have a free and easy trading system. If somebody makes profit out of it, it is only becoz they are taking the risk of it.
But without an effective Trading system, public in general would be unable to invest in new ventures. Since, the enterprising enterpreneurs might not have all cash to setup new industries, the goverment would end up supporting industries or enterpreneurs themselves start taking loans from banks to setup industries. If neither is possible, only the rich will be in a position to setup industries, increasing the rich-poor gap. If goverment starts setting up industries, its involvement in core sectors like defence, infrastructure and health tends to get effected and we would end up having inefficient bulky governments. If only banks are to be banked on for loans, then surely the interest rates would go up and there would be more demand than the supply of cash (irrespective of how much the Central Regulatory Banks try to regulate the interest rates), which again reduces the profitability of the company. Any of the above 3 scenarios, result in reduced industries due to cash or administrative requirements and will result in increase in unemployment.
Virtual Economony is not a choice in modern economy, it is the cause of it.
Before we begin to bash up the virtual economy for its shortcomings, let us first understand what we are against, and if we really are against it.
Not very long ago, (assuming...) we had our much beloved and stable cash based economy. My Father, then in his prime, used to dutifully work for a month, get his paycheck on the 5th of subsequent month, and then set aside money for the expenses for the month, pay the house rent, my school fees etc., and a little for savings for buying that dream house by the end of his career. A typical lower middle class life. Nothing wrong with it. And it worked. Almost. That was our cash economony, WHERE YOU EAT WHAT YOU EARN, AND AFTER YOU EARN.
A few years later, the neighbourhood grocer got a little enterprising. He proposed to extend credit to my family on purchases for the whole month and we could pay him at the end of the month. A mutually beneficial deal. The grocer would get loyalty and a definite customer, while we would get cash-free and hassle-free purchases for the month, which had to be settled in the next month. Now the first month of this deal we had excess cash which would have gone to the groceries, if not for the deal. What we did with that cash is anybody's guess. This was the birth of our virtual economony. Nothing changed much in our lives, just that WE STARTED TO EAT BEFORE WE EARNED IT. So, the obligation with which had to live was to earn atleast as much to pay to grocer for the next month and the less visible obligation to procure goods from the same grocer, sometimes compromising on quality.
Now, who is actual beneficiary here? The shopkeeper took a little risk of giving credit to me, meanwhile ensuring himself of guaranteed sales for the month. I on the other hand got the service of hassle-free transactions with the obligation of raising enuf cash during the month. Both of us are equal beneficiaries. I pay for the service with my obligation. Thats how business is done. If I were a manufacturer, I would buy raw materials on credit, even If I were able to pay the supplier, becoz, cash in my business would create more value for me, and my loss is minimal as it is a zero-interest credit. The flipside of it is my liability has increased and If I fail to make up the money, I would be bankrupt. But a little intelligent financial planning and awareness my risk capacity is enuf to ensure I dont fall into this trap.
If that made my life a little simpler, I wanted more. (I wouldn't say better, as I still earn the same). Now I would have to purchase more than just groceries every month. So what do I do for these other purchases? This time, banks came up with the enterprising idea. The proposal this time was to provide me with cash for the whole month on purchase of goods sold my any seller anywhere, with the clause that I had to repay the month by the end of the month. As with every deal, this one too does have its costs and benefits. The benefit to the bank is that, it gets a transaction fee, usually paid by the seller, on every purchase. The cost to the bank is the risk of my credit. The seller gets more customers for a little fee and I get cash upfront for my purchases without any obligation to trade with a particular seller. Now the actual loss is to the seller who is to pay the extra transaction fee, without getting the loyalty of the customer and his loss in not being part of the deal is the rediced number of customers who trade. My benefit in this deal, as a customer, is to procure goods without having to carry enough cash each time, and the freedom from a sticking onto a single vendor. The cost to me was to bank with a single banker (although I am not too keen on banking with many of them) and the additional obligation of raising enuf cash to repay my debt. Now, even here the only thing that can save me from a debt-trap is my own skill at financial planning and my own awareness of my risk capacity. At the end of it, I started to eat more from the to-be-earned.
There is nothing bad or wrong about this. Just that everything we do has a consequence. In business too much depends on these promises and obligations. Suppliers would risk the payment and pass on raw materials to the manufactueres on credit. Manufacturers risk the payment and pass the finished goods to the warehouses or distributors on credit. Usually the period allowed for credit is a function of the frequency with which the orders come in. In case of groceries, it is one month. In case of share-trading, it is one Trading cycle etc. If the businessman who takes the credit has his finances wellplanned, takes calculated risks and repays his debtors in time, his credibility in the market increases, he can loan more money which in turn can be used to improve his business and his earning capability and so he builds a brand. This is the begining of brand building. If the businessman is not careful with his finances, overspends/overlends his assets, and hence is unable to repay his debtors, his reputation falls, his credibility reduces and so are his chances of doing business and getting new business. The same is true for credit-cards and individuals.
The availability of credit is not the reason of distress in either case. It is actually the credit-system which greatly accelerated the pace of increase in our standard of living. Bad financial planning is the culprit.
Now we move on the much touted Share Trading. Most of us feel that Share Trading is evil, speculative and is only a richman's game. Why should the rich earn money at the click of a button, while the poor toil in the soil? But isn't that the difference between them. The more intelligently you work, the more you can achieve, and hence the more you earn. A Turner in an industrial unit makes less money than the Manager who supervises the unit, though the Turner's work is physically more streneous. Some argue that not all work is simple and that physical work has to be done. But the choice is, either you do it and earn less or get it done and earn more. But if everybody chooses to delegate it, then who will do the work eventually? It is the person who chooses to do it, and doesn't mind earning less. It is each individual's choice of how much he earns. And, that is the basis of free economy.
In simple terms Shares, as their name signifies, are equivalents of quantity of ownership in the worth of a company. Not so simple, right. Lets suppose a group of enterpreneurs have an idea to set up a new company. They are able to garner some 10,000$. But their company needs 20,000$ to start. So, they float an IPO, asking the public to invest 10,000$ in their venture. So, we have 100 people from public, who invest 100$. each and get 10 shares each of worth 10$. Simple mathematics. So, whats so profitable in this?
Now, after 1 year lets suppose the company earns a profit of 4000$, out of which the management take their share of 1000$ for working for the company. Out of remaining 3000$, we invest back 2000$ back into the company and the remaining 1000$ is equally spent among the share-holders. The promoters get 500$ and the public get 500$. So, for each share a person gets 500/10000 = 0.05$ as profit, also known as dividend. If I had 10 shares, I will get 0.5$ as dividend, i.e, and at the end of 1 year my investment of 100$ fetched me a dividend of 0.5$. Not much.. for so much trouble, right! But that's not the complete story. Now the 2000$ which went back into the capital raised the company's worth from 20,000$ to 22,000$. Public's share of worth is raise to 11,000$, and there are 1000 shares in market. So, each share is worth 11$, and my investment of 100$ has become 110$. So far so good. Now, if I wish to withdraw my investment, take out the $110 and have a long holiday in Swizz, it is not as easily done. Since, the company does not wish to buy back the publicly held shares, I have to get hold of some other investor who is interested in buying these shares. It is here the Stock Exchanges come into picture. Stock exchanges are nothing but places to trade in shares. But, why should the price of the stock vary so much, if its worth is only 11$. Here is where the demand and supply effect the prices.
This year, the company starting with a capital of 20,000$ could earn a profit of 4000$. Extrapolating this, the company with its current capital of 22,000$ is expected to atleast earn a profit of 4400$. So, next year the company worth migh tbe 24,200$. of my 10 shares will be worth 121$ next year, if everything goes well. Now, when I go to the stock exchange to sell my shares at 11$, and I see a lot of people willing to buy these shares, since they also see the worth of 121$ next year, I increase my selling price as I see lot of demand for it. Lets say 100 buyers were interested at $11, only 50 might be interested at $11.20, only 2 might be interested at $11.50, and probably no one will be interested at $12, as the buyer will be at a loss, if he buys at 12$ and sells it at 12.1$ the next year (Inflation eats away his 0.1$ profit). So, I get to sell my shares at $11.5 (highest bidder). I get a cut of the YET-TO-BE-EARNED profit of the company and the buyer in the hope that the company will definitely make a good profit, settles for less profit and buys the share.
Now, suppose the company lost one of its major account and is not in a position to generate the anticipated 4400$ profit the subsequent year. If, at this juncture, I go to the stock market to sell the share, I might not find anyone willing to buy at $11. I might find someone willing to buy it at $10.8, and about 50 buyers willing to buy it at $10.6. So, I take a loss of $0.2 and sell the stock at $10.8. After I sell it at $10.8, the lone buyer who was interested at $10.8 is gone. So, the next seller would have to sell his stock at $10.6. This is how stock prices fall.
Who is the beneficiary here, what is his cost and his risk?
I put up $100 of my money in a venture risking its return for a year. I receive my fair share of profit in its sales. If I invest my money in a venture which is making profit, it earns profit for me and if I invest my money in a failing venture, I make a loss. It is me who has to select the company to invest, and decide on the amount to be risked. Any miscalculation might lead a loss to me. There is an argument that I do not work for the company, and hence I should not be entitled to its profit. It is my investment into the company that makes the work possible. Hence the investor is entitled to every bit of profit as the promoter is. The promoter in this case, in addition to his profit, gets his cut of $1000 for working in it.
Share trading is all about investing the available liquids asset into the right company, and if judiciously done, money in the economy will flow into those areas which are making high profits, and hence will attract more players into those areas, increasing competition. Capital flows into those areas which make high profits. Customers trade with those companies who can keep the prices down. The more the customers, the higher the profit. So, companies in effect reduce thier prices. Reducing their prices will drastically reduce their profitability. The only way out to for companies is to bring down their operating costs, so as to ensure increased profitablity. Those companies which can bring down the operating costs and can keep the prices low are the ones which eventually succeed. This is in effect the basis of capitalism.
Now, even here there is nothing wrong in Trading per se., it is actually beneficial for any economy to have a free and easy trading system. If somebody makes profit out of it, it is only becoz they are taking the risk of it.
But without an effective Trading system, public in general would be unable to invest in new ventures. Since, the enterprising enterpreneurs might not have all cash to setup new industries, the goverment would end up supporting industries or enterpreneurs themselves start taking loans from banks to setup industries. If neither is possible, only the rich will be in a position to setup industries, increasing the rich-poor gap. If goverment starts setting up industries, its involvement in core sectors like defence, infrastructure and health tends to get effected and we would end up having inefficient bulky governments. If only banks are to be banked on for loans, then surely the interest rates would go up and there would be more demand than the supply of cash (irrespective of how much the Central Regulatory Banks try to regulate the interest rates), which again reduces the profitability of the company. Any of the above 3 scenarios, result in reduced industries due to cash or administrative requirements and will result in increase in unemployment.
Virtual Economony is not a choice in modern economy, it is the cause of it.
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