Obama's Wonderful Gesture

President Obama just made my day!

He is going to scrap all tax benefits to companies creating jobs in
India instead of the US. What a way to knock out the much touted
Indian BPO industry. What a blow to outsourcing from the USA, and
what a statement to all the IT industry wannabe global citizen fools
who campaigned for him in Bangalore! I'm loving it.

(In its fullest implementation, Obama cannot really put a full stop to
outsourcing of jobs to other countries, for there are many loopholes
to legally exploit with or without tax implications. American
companies are very good at that sort of exploitation, but his move
will take effect to some extent right away.)

To all the smug IT industry mediocrity bred cattle, who acted like
they really deserved all the money they were making without being good
at anything in particular, I am glad to say, "You deserve all that
you're getting!". I have no sympathy for any business built on
speculation. I am not in favour of building a company based on
assumptions of everlasting growth, and I am most certainly very happy
about the felling of an industry built on a gold rush mentality.

India's IT and BPO industries were very much a gold rush mentality
driven run. Typically uncreative and most certainly not challenging,
the BPO industry was the perfect opportunity for many unimaginative,
unoriginal, not very intelligent Indian cattle to find jobs in. In
came the boom, now comes the bust! No more gold, folks. Eat mud.

President Obama is a fine representative of his people. For all of
our morons who constantly wonder if we are in the good books of the
USA, here is his unstated statement - "I am the president of the USA,
not India. My people matter to me first and foremost!" Why shouldn't
he stop outsourcing from his country? Why shouldn't he completely
choke off all the freebies that Indians have been enjoying thanks to
greedy American companies wanting to cut costs by hiring our slaves?

His move is the best thing that could have happened to dispel our
primary illusion that we are something of a powerhouse in Information
Technology. We're not. There is not a single Indian IT product that
is on every single computer in the world. In fact, there is not a
single Indian IT product that 90 out of a 100 computer users worldwide
can name. We haven't invented anything significant, and we do not own
anything in IT that the country can really feed its millions with.

This really is like HAL making doors for Airbus planes, with a
manpower resource that is ten times that of the European giant. It is
not even as if HAL makes all the doors for Airbus. Hindustan Motors
and Toyota were started in the same year. Toyota is now the world's
#1 car maker, while HM is all but gone. What is wrong with HM is that
it is an Indian company, run with Indian attitudes. Nothing is wrong
with it, except everything.

Our BPO industry hires young fools coming out of college, who don't
know anything in any field well enough to get them a proper job. They
are sucked in like cattle, and kept at the same mediocre level, where
the brain has to work only till the accent is learnt and the manuals
are familiar. After that, they're just part of the process. Kind of
perfect for the mentality we have towards jobs anyway.

Now, our politicians are busy yelling hoarse about Obama being
protectionist in his policies. Not a thought spared on how we can run
our IT industry based on our own requirements. How about elevating
India to a point where we use so much IT that we can support our IT
cadres? That would be hard work, unlike the invisible data train that
flies thick and fast and brings in dollars from the USA. It would be
a lot of facing up to reality. That is something we are of course not
willing to do. Nation building after all, isn't a joke, and if we'd
ever been any good at it, we'd not have to worry too much about other
nations, would we?

India sliding!

Imagine this - the Obama administration shuts down all incentives to offshore work and forces American companies to size down their India operations, in an attempt to keep jobs in the USA. At face value, this isn't likely to happen in a simple stroke of decision making, for American companies need their offshore operations to remain competitive and be able to offer their products and services at competitive prices.

But, we are still at the beginning of a true recession, and a lot of bloodletting will happen from industries that have expanded under speculative growth conditions, spurred on by high stock prices. Put simply, people have pumped in a lot of money into industries they have perceived will grow forever, and it has been easy for them to raise money to expand into the future. This has summarily come to a halt with the crash in the USA.

India has a few companies that have over the period of the last decade, done their best to diversify and build core competencies that can compete instead of waiting for the outsourcing crumbs, but the majority have indeed run for the handouts brought in by the "cheap labour" sticker. These are the companies that have mushroomed all over India, particularly in cities like Bangalore. Not surprisingly, there isn't a single Indian product that you will find on every computer in the world, and even as HCL has one of its smartypants in its ad. claim that HCL builds software that does some significant things around the world, the irony is not lost on us when the ad. ends with the claim of being a $5billion company, not a Rs.25000 crore company!

In other words, many Indian companies see themselves as totally dependent on the American economy, and the extent of them being global unfortunately is the extent to which they can beg for business from American companies. There just isn't going to be that mad rush forward growth over the next two years, because recessions are not easy to turn around, and while some Indian companies will benefit for the good reasons, many will perish because they are just not good enough.

There are two different approaches with building companies, in general. The first model is the honest model, where investors and core workers come together to build a company that will produce goods or provide services that they believe has a good chance of making the company profitable through revenue streams they can sustain over fairly long periods of time. The intent is to capitalize on ability and demand for whatever this company produces. There is competence, and there is honesty. The other model is to build a company that lasts long enough to make enough noise before going public, and then use the stock market to sucker the public into buying their stock at as high a price as possible, giving an "exit strategy" to many of its founders and early employees, particularly senior management. This is the "get rich quick legally" scheme, which works very well when there is positive sentiment about the sector and the country's economy. Indian animation companies have done well with this conniving intent, and the people who bought their stock are nothing but fools.

The .com boom period brought the second model to light in India. Many Indian companies were overjoyed at how they could con the public into investing in companies that might be duds two years down the line, but how could the investors and senior management care any more if they made tons of money and "exited", leaving the company to flutter as the winds blew? A lot of companies that are not in the core sectors like energy and infrastructure will obviously decline now that the proverbial bubble has burst and if there are Indian software companies that are low in the pecking order of larger companies built up in stock markets rather than in real produce, then they are all on their way down.

The gleeful Indian "technocrat" is about to be exposed for his true incompetence and more importantly for how disposable he is. This is going to shock a lot of people, but Indians are fiercely proud and will find it very hard to cut back on lifestyle, which in the last five years has been the single biggest paradigm shift. All of a sudden, we will witness a robust coming of age of Indian industry, particularly the software and services industry that simply has no product or service the world desperately needs. This is the best thing to happen now, rather than five years later, and it won't be fun if you are one of the people going to lose your job. But it will be fun for the rest of us to watch, since the booming retail sector might need some of your foreign accents and groomed looks - you might even get discounts on groceries and low end consumer goods.

America has been an engine, no doubt. But it has been a fake engine, fuelled by growth based on speculation and financial experts who lost their fundamentals in an attempt to build quick empires. This is a time when empires older than a hundred years old are collapsing. No amount of government intervention is going to help restore the order of a year ago, because that was not order in the first place. It was already in a state of decay, and delusion kept the world going. The US dollar is not based on gold reserves. It is helped by commodities like oil being pegged against it. The Euro is based on gold, and is bound to be much more stable because there won't be any more Euros than there is gold to buy with it. The American dollar is paper money and unless America becomes truly productive, its dollar won't be worth much in the days to come.

America currently imports more than it exports. China holds most of the debt Americans owe, and they can afford to because they are a manufacturing economy. They are regularly producing things that the world cannot live without. India is in a bind being a services economy since it is much more dependent on what others want from us. America wanted cheap programmers, we produced them. America wanted people with fake accents talking on phones, we manufactured them. Now, America wants to reduce its energy dependence on oil and wants millions of solar modules and wind turbines, it is going to ask China, not us, to make them!

That is where we stand today. Our biggest boon is our size and our people have to consume and be the engine for our own economy. But our software "techies" haven't produced much for our consumption, and we basically don't have so much need to drive this overgrown and overrated industry. We did not grow other areas in the same time, because we were shortsighted and highly opportunistic. Now we will witness the reality check. Techies without jobs. The big shots will do fine if they adapt and have saved money, but the middle to bottom rung of fools who can't put a sentence together but have been in the software industry for a few years are toast. These aren't "techies" but low level assembly line workers in an air conditioned environment. If an ape could read code, it could do this job.

Suicides, broken marriages, they're all a coming, my friends. Indian pride will be hurt, and our sense of panic will come to the fore again. It is never pretty, but this time, the show promises to be particularly ugly.

What meltdown?

This financial "m e l t d o w n" that our media loves to directly copy from American media is to say the least, comical. Why can't the fools who get paid insane amounts of money to serve as financial experts see a bubble when it is blowing sky high? It isn't as if Wall Street didn't know this was coming. But nobody wanted to poke the balloon and question the unreality of banks that lent fifty times their asset base, and obviously American borrowers were stupid enough to buy homes they could not afford now, but based on how much their precious homes would be worth thirty years down the line!

Stupidity - and this is fast becoming my favourite word - is always expensive. The speculative optimism of American people doesn't border on stupidity, it is entrenched and enshrined in it. Just after Sept 11th, I had a conversation with an American man - I told him I wanted no part of the American Dream where each citizen owed an average of $36,000. He brushed off my concern and said his money was making him more than he was paying for. In other words, he was telling me that his investments were raking in good returns while he was paying a small interest on the money he owed. Of course that means some bank was being a sucker and he was in a good part of the food chain, where he could essentially grow fat without doing much.

Somehow, in a connected world, when you are unproductive, you tend to get your arse kicked sooner or later. Sure enough, American banks went crazy over easy money they were making based on home values bloating all over the place, and it is such a great economy that there were a great number of people buying homes, and then refinancing them to pocket a good chunk of money every so many years, and the few that weren't able to pay were becoming an acceptable percentage of repossessions. Now, in a bad economy, which Bush and Co. ensured Americans would face, people's confidence tends to sag as incomes aren't as rosy as they used to be, and jobs are harder to come by as more and more money went to Iraq and for buying oil!

So, a lot of loans went bad, and repossessions meant nothing when there were no "other customers" to push those homes to. The bubble had already burst but nobody was willing to use the word "recession" in case it threw people into a bigger panic. See, it is all about perception, and relying on perception instead of knowledge is .. you said it, "stupidity". The stock market is all about perception too. Stock value is buoyed up by the perception of a company doing well and how badly people want or do not want to be a part of that company. Fair enough if things are going well. But when one thing connects to another and big lending institutions like Fannie Mae and Freddie Mac have to face the reality of having bet on the bubble, all they get is soap water.

So, Bush, after pissing away billions in Iraq, and having done nothing to improve his country's competitiveness or productivity (America consumes 6% to 7% more than it produces), knowing fully well that the Chinese own the 3 trillion dollars of credit card debt that Americans have all accumulated, did nothing but put on a show for the fools watching the superfool on TV. The reason he could afford this luxury was because for nearly the entire second half of the last century, America was the engine for the world's economy, by the power of consumption alone. But to get to the bottom of it all, at some point, laziness comes at a price, and when America isn't quite as productive as it once was, it is bound to be forced to correct itself. Add high oil prices to this mess, and Americans are really being squeezed - because, guess what, surprise, surprise, they also consume the most oil per capita! (It is another matter that the USA with 4% of the world's population also consumes 25% of the world's energy)

So, as money kept drying up in American institutions, others stepped in to lend, because who doesn't want the animal that consumes so much? It's like a bar loves big drinkers, but doesn't like drunkards! As if debt is going to really mean anything if the borrower commits suicide! That suicide is what is being prevented by Bush and Co. with this famous 700 billion dollar "bailout", but the joke continues beyond the American tax payer!

This is what the "liquidity crunch" is really due to. Americans could show their houses as their "piggy banks" (to quote George Soros) and keep borrowing and spending out of notoriously good "refinancing" schemes! But when the housing bubble burst, everything went down the toilet rather fast! Houses were suddenly worth less, or worthless depending on how candid you want to be, and banks couldn't do much beyond gawk, since there were hundreds of such bad loans and nobody to palm the bad loans off to, based on these houses!

Since most banks are international institutions now, money flows across borders quite a bit in this free market economy we have all signed on for. It is all nice and dandy when our products and services are being consumed by others, and when we are raking in the money, but not quite so nice when we lend to unproductive fools. Luckily India doesn't usually lend to unproductive fools, and we are rather tight fisted about giving out large loans based on sentiments. That is the reason our economy here in India is fundamentally sound and nearly impossible to whip up to any frenzied activity - in growth or in decline. We are, thankfully, like financial donkeys.

The clowns on Dalal Street that are busy selling in panic induced frenzy clearly do not have an understanding of realities beyond their own sentiments. The idiots who spread rumours about ICICI going down, without even checking the facts on the ground, sent text messages to people that their insurance companies were going down are nothing but idiots who suddenly see themselves as "global" carriers of panic, who reel under imaginary winds of enormous change, who almost by whim or fashion, have to react to something like this, just in case they don't look out of place!

Quite staggeringly, there are a lot of people here in India, that seriously believe America will not pay that heavy a price for its follies. They feel that some "innovative" move will give them a genius break out of this and somehow the American financial flag will fly high again very soon. That is not a bad wish, and this is not to piss on the optimism or wish anything bad on American people, but from my understanding of "fundamentals" of any economy, you have to produce more than you consume in order to be competitive.

America needs to find a way to become competitive again. It is as simple as that, but for that to materialize, a lot of things have to fundamentally change, starting from curing the fever of betting a large amount of money on speculation of unending growth. That kind of growth is no longer happening in America. It is happening in India and China, but both these countries have such enormous cushions of populations that are coming into new habits of consumerism coupled with good, traditional, conservative fiscal sense, that there is hope we won't repeat the mistakes of the West here in the East.

I remember the time in the 90s when the developed "world" complained that India wasn't opening up its economy soon enough, while Indonesia, Malaysia, and the Far East were doing that. I remember our wise men didn't follow suit and sure enough all tigers turned out to be made of paper and India stood strong enough. It is no different now, but there is madness in the air of this New India. Baseless madness. Financial meltdown, my left foot toe, we have a bit of a character meltdown!