Thursday, June 05, 2008

hyperinflation in zimbabwe

Yes, the nightmare is playing out again.  that ugly beast called hyperinflation has reared its head in an unprecedented scale even in a modern world of globalization and free market capitalism.  So much for the Bush Doctrine of ushering in democracy and economic freedom all over the world.

The classic oft cited hyperinflation story goes back many decades to the story of the Weimar Republic.  Hyperinflation was so rampant that it was cheaper to cove one's walls with currency rather than buy the wall paper.  Times were different then; free market economics dod not rule the roost, Keynesian economics were still untested and the invisible hand of Adam Smith played a very constrained role.  It is great shame that Zimbabwe is facing this even today!  

The article reports the despicable state of affairs - an average worker's one month salary for a 2-liter bottle of Coke (talk of a global brand!). The last time I heard Bush, he was talking about the US's moral stance in the fight against dictatorships and military regimes.  I must be stupid or something, because to me Mugabe is no different from Saddam.. Aaha! Hold on! There is no oil in Zimbabwe.  Yes!  I got it now.  

At this moment, a very memorable quote from a movie comes to my mind.  Danny Archer, a mercenary brilliantly portrayed by Leonardo DeCaprio, in the movie Blood Diamond says, "This is Africa".  He says that to convey the message that the world does not care.  How True!

Wednesday, June 04, 2008

Will US need a Lalu?

The rising price of gasoline is ushering many changes into the lives of millions across the world.  Nowhere is this effect grander than in the US where consumers have been pampered by both good old road trips and cheap flights for their travel needs. 

Anyone who has lived in the US would understand that the country just moves on its roads; millions of vehicles ply its roads 24/7/365 and thousands of flights depart from hundreds of airports all over the country.  However, good old oil and its price climb is affecting both road and air transportation in ways one can only begin to imagine.  The profound implications of how this will affect travel behavior over the long run can only be mulled upon at this point in time.  AAA recently reported that fewer Americans (0.9% lower than last year) had taken to the roads for their memorial day trips - not a great change, but clearly a pointer of things to come.  Airlines are going bankrupt at an increasing rate; they are looking for mergers, closing hubs, cutting down routes and laying off employees.

If maintaining large family vehicles becomes impossible and there are no flight options - what will consumers do?  How will they travel? Clearly, these things will affect travel behavior and in turn tourism, local economies and maybe the structure of relationships between people (relatives and friends).  A far stretched argument for sure, but nothing seems impossible given the pace of these changes.

Two things might happen - 1) consumers would group into segments based on whether travel is discretionary or not and/or 2) trains will make a comeback. If India can run a large train network across the length and breadth of the country, so can US. It might not seem like a efficient, optimal solution at this point in time.  However, it is a reasonable change given consumers are also willing to make sacrifices and adjust their travel behavior.  Maybe someone like Lalu will emerge to take charge and change the fortunes of railroads in the US!

Sunday, June 01, 2008

Innovating to disaster: Does India need Nano?

I have never been a big fan of the car revolution in India.  Many free market enthusiasts would argue that people should be allowed to purchase and enjoy what they can afford and hence, the development of cars such as the Nano is justified.  However, given the huge environmental concerns and all the costs that come along with over 350 million Indians driving a Nanoish car to work, I vote for institutional intervention over free market capitalism.  It is time that we all realize we are on the verge of a global collapse due to oil dependence.  What india needs is better commuting solutions, preferably involving mass transit, not small cars that lead to greater pollution and traffic jams in India's already clogged cities.

The role of institutions cannot be underplayed in scenarios such as the one that many developing economies face today. Faced with energy insecurity governments all over the world are scrambling to set-up unholy alliances with countries that have perpetuated this "insecurity" to begin with.  The apt response would have been to invest in renewable energy sources and reward innovation that creates novel solutions to problems involving mass transit, fuel economy, alternative energy resources among others.  These issues are more important for countries such as India than for maybe, a developed country such as the US that can bulldoze its way around the world for secure energy, maybe not for too long but at least for the moment.  It is a disaster of scientific progress that Tata Motors chose to focus on the Nano in times such as these. Lack of forward thinking by our leaders (industry captains and the babus)  will only lead to further chaos and instability in India's quest for energy sufficiency.  Creative solutions could include, tax subsidies to people who motor-pool, use two-wheelers, use public transit.  Further, public transportation could be privatized - leading to efficient and effective services facilitate through market dynamics.

For example, no new license are being granted to three-wheeled auto-rickshaws in Hyderabad. Good intentions were behind this, I am sure.  However, if this is not complemented with an increase in buses -it would only lead to an increase in private vehicles and thus further deterioration of the city's road network.  A better approach would have been to retire old  autos and grant new licenses to energy efficient ones and those that can take in more than 3 passengers and ply specific routes.  This would have eased the burden on the resource constrained public system and also kept a number of private vehicles off the roads.

The market's solution of  putting a car in the hands of millions of Indians might be a dream come true for its investors, but it is a nightmare for the country.  What we need is an efficient transportations solution at an aggregate level not a micro-answer to middle class dreams. The truth is bitter - by the time millions of Indians climbed the economic ladder to be able to afford a car, the world has changed. This truth must be accepted and sacrifices have to be made to achieve better growth. One maybe able to afford the Nano, but may never be able to commute to work, given oil's never ending rise.