Sunday, July 18, 2010

Apple's misery in the emerging markets !!

Apple, the world's most innovative company, is touted as one of the most respectable firm America has ever produced. Without a doubt, Apple's products are revolutionary and always take us into a new era marked by greater sophistication. They create ripples in the markets much before their launch and the tsunami arrives the day they are in the market. Be it iPod, iPhone or the recent iPad, people have tortured their legs standing in ever-lasting queues, to get their hands on the "iProducts". But as much as Apple has succeeded in American and European markets, it has failed miserably in the emerging markets. Apple has failed to sell iMac, iPad and more so iPhone in the emerging markets like India and China. Looking at the potential these two markets possess, any CEO in the world would dream to conquer them. China is numero uno with 634 million mobile users, India is second with 427.3 million. Now that combined is fcuking 1 billion "can-be" customers. Shouldn't Steve Jobs pay attention to these markets which they respectfully deserve? Isn't it a job of Jobs, to multiply the money of his company's investors in whatever way possible?

There are many reasons as to why Apple has failed to make it's mark in these tremendously growing market. The first and the obvious reason is the cost of its products. They are humongously expensive in these countries when compared to the US. iPhone 3G(8Gb) costs around 4 times the cost as available in the US markets. And as a matter of fact, people in India and China are still not rich (despite bragging about 10% growth rate) and understandably would not like to pay such an amount of money when they can buy a bike instead. Moreover, as a part of their cheaper habits, Chinese and Indians prefer to buy Apple's products from US, either when they visit the country themselves or ask their visiting friends to purchase for them leaving their own country's market dry and hapless.

Secondly, there is a lack of aggressive marketing strategy. For no obvious reasons, the company has not shown any inclination towards making its products people's first choice in the emerging countries though they are "competition killer" in nature as they have shown in the American markets. There are no ad campaigns, no massive publicity when their competitors Nokia and Samsung are flooding the markets with the news of their new products and innovations. Apple still remains a company for elite in these countries.

Thirdly, iPhone comes bundled in with a service provider. Recently, there has been a boom in the number of service providers particularly in India which has made mobile usage as cheap as a postcard. Further, these service providers have various cellular plans which are designed to suit various kinds of users. Thus, this binding of service provider with the iPhone restricts the users to avail the services of their choice and advantage.

Fourthly, India and China do not walk hand-in-hand with US when it comes to telecommunications technology. While 3G services were introduced in the American and European markets much before 2005, they are still to be launched comprehensively in India and China. This lag in technological advancement make new Apple products which are designed keeping the latest US technology in mind less attractive in the "still developing" economies.

And last but definitely not the least, tough competition from key players in the cellular markets like Nokia and Samsung, who really understand the needs of the customers in these areas and have built their products to suit them. These companies have also invested heavily in massive campaigning, covering all the segments of the society. The competition has just grown stronger with the entry of new players. And Apple will now find it all the more difficult to sell its brand in China and India unless the governments of these countries decide to cut the duties on imported electronics items sharply.

Apple is still not the "Apple" in the emerging world. Apple might be the "God" of the American and European people but it should not overlook the other half of the globe. Purely in business terms, these market could be heaven for any technology company. American and European economies are on the verge of stagnation or rather decline, thus to keep up with the pace of growth Apple has achieved in the last decade they need to focus more on the countries like India and China providing people in these countries with what they want at a fair price. Apple knows well the power of its killer products, they are better than any of their contemporaries and should use it to their advantage rather than being gratified by their tremendous American and European sales figures.

Friday, July 16, 2010

Television makes kids smarter or dumber??

Kids like watching television specially their favorite cartoons, don't they? TV has become one of the inseparable part of childhood. And parents are always scolding their kids, asking them to switch off the "Idiot box" and open the "holy" school books. Parents are completely convinced in their mind that their child would have scored higher grades if there was no TV. Have you ever mulled otherwise? Many parents would be astounded to know that their investment in buying TV was the best ever decision they made. A study has found evidence that exposure to TV when in preschool may increase average adolescent test scores. However, the overall effects are small and effects are largest for children from households where English is not the primary language, for children whose mothers have less than a high school education, and for nonwhite children. Moreover, certain TV shows educate children about moral conduct and culture of their society, thus relaxing the task of their parents and teachers.

But wait guys, before merrily giving the TV remote in your child's hand, you should go through the counter argument as well. Watching excessive television can make your child autistic. Another study has revealed that there is a direct correlation between watching TV and autistic cases among kids. The alarming rise in autism in the U.S. and some other developed nations is one of the most anguishing mysteries of modern medicine. In 1970, it's incidence was thought to be just 1 in 2500; today about 1 in 170 kids born in U.S. fall somewhere on the autism spectrum (which includes Asperger's Syndrome) according to the Centers for Disease Control and Prevention. There have been medical evidences supporting that Television is one of the major factor contributing to the increase cases of autism. Approximately 17% of the growth in autism in California, Pennsylvania and Washington during the 1970s and 1980s was due to the growth of cable television," and "just under 40% of autism diagnoses in the three states studied is the result of television watching due to precipitation. Increased violent nature in children and suicides in efforts to emulate their super hero are other side effects.

To conclude, I would like to say that everything done within limits bear juicy fruits similarly limited watching of television by kids can contribute to their overall development and is likely to make them smarter and more aware. Excessive watching, on the other hand, can do irreparable damage to their brains and their childhood innocence might be lost in the process. It goes without saying that it's in parent's benefit to keep a check on television watching by their kids for "a child's innocence is the best gift God has bestowed upon them".

Most read articles:

Interesting Economics of Prostitution !!
If not now, then when??
Economics is fun !!

Wednesday, July 14, 2010

Natural Disasters and Corruption !!

Could tornadoes, earthquakes and floods be responsible for corruption? The answer is unfortunately "Yes". Natural disasters are followed by the release of considerable amounts of funds by the federal government for the relief work, which generates activity amongst the corrupt administrators in the area. A study has revealed that each additional $100 per capita in FEMA(Federal Emergency Management Agency, USA) relief increases the average state's corruption by nearly 102 percent. It has been further found that certain regions in USA are more corrupt than others because more natural disasters strike them. More so in developing countries like India, Pakistan and Bangladesh which are amongst the most corrupt nations in the world. There, the administrators are in continuous hunt of a chance of money laundering either to deposit it in their swiss bank accounts or to buy big bungalows on the Palm Island, Dubai.

Floods are quite frequent in these countries and accordingly Central governments doles out money from various relief funds, so that the affected people can be re sheltered and protected from dying by starvation. But corrupted officials become active at the same time to stash as much cash as possible for themselves. And the contractors hired for the relief work like rebuilding houses, are their accomplice in this task. Administrators secretly invite bids from the contractors so as to judge, which contractor would give them the highest sum and the contract is awarded accordingly. Contractors put a higher price to built new houses in place of the destroyed ones, as they have to add a percentage to the cost which would go to the authorizing ministers. Thus, more the number of times, mother nature punishes a state, the greater it's administrators are likely to gain. This direct correlation can be proved by a number of instances. Gulf coast in USA, where natural strikes are frequent is more corrupt than the other states. Bihar, the most flood prone state of India is also the most corrupt state of the country.

How can we tackle this problem? How can funds and other resources be channelized such that they reach their rightful owners? Most would say, implement stricter laws against corruption and problem solved. But has that ever worked in the history? Don't forget our law-makers are the very same people accused of eating up poor people's money. And they know how to bend their "self-made" laws. I would suggest let media play a role here. Firstly, Central government should take charge if any such calamity occurs, so as to eliminate at least one level (the state-level) of the corruption. Secondary, the contracts offered should be made public with their price tag. Media can then analyse them with the help of experts and make any discrepancy ,if exists, public. That will not only bring transparency to the process but will also keep the petty officers under scrutiny of the public which elected them.

Tuesday, July 13, 2010

Divorces: Urban v/s Rural !!

Divorces are higher in urban areas than in rural areas. Why is this? Is it due to availability of greater number of potential partners in urban areas or is it the lifestyle of urban crowd that distances them from their spouse. A research has suggested that that the proportion of people getting divorced in urban areas is almost 25% higher than in rural areas, country being the same. Now that's startling considering the fact that these people were natives of the same country, they followed the same traditions and shared similar beliefs, and the fact that either they or their ancestors once resided in the rural areas. But again this data can vary across continents, if not across countries. In some countries getting divorce is not a cakewalk while in some you can divorce your spouse by just reciting the term "Divorce" three times.

Urban areas are densely populated and cities are spread across hundreds of kilometers, such that people have to travel plenty for their work. On the contrary, 10 villages combined might not have roads more than 40-50 kilometers long. The lack of transportation facilities in rural areas keeps people confined within their respective areas. Thus, the urban people interact with greater number of potential partners than their counterparts in rural areas. Moreover, urban crowd is outspoken and believe in continuously experimenting in terms of partners, until they are convinced to have found a real "soul mate". More so in developed American and European Countries. Developing Asian nations have a plethora of social and legal restrictions to even think about experimenting. For instance, in some parts of rural India, people still practice "Honor Killing", of a couple if they belong to different castes. Changing partners within one's caste is also considered a blot on the family's reputation.

I know it is out-of-the -context of this topic but let me take some time to say: Though it is one's right to get divorced, but divorces benefit no body. Especially, not the children of the divorced couple. It might have a long term negative psychological impact on the children, seeing their parents fight, when they should be nourishing them "together" and with love and care. Considering this, certain law-makers are lobbying to make divorces difficult to get, but at the same time, living with someone you don't like "anymore" can be suicidal. Can we have a middle path? The only solution to reduce the instances of divorce would be to cultivate a sense of "one-partner" into the teenagers right from puberty. Parents should themselves set an example by being loyal to each other.
Children of every divorced couple must have thought this: "Mom hates dad, Dad hates mom, it all makes you feel so sad ".

Monday, July 12, 2010

Experience blurs the gender boundaries !!

A number of evidences suggest that males tend to outperform females during a competition. However, the researches further confirm that these gender differences vanish with experience. Males, for example, may have a more competitive exposure and find the idea of competing less intimidating or more exciting than females. But as females are exposed to more and more competition they become comfortable with the competitive environment and tend to work hard due to an unnerving feeling of being left behind, males when exposed to more and more competition may loose the enthusiasm and thus the craving for better and better results. This causes the differences between male and female performances to disappear.

Experiments have been conducted on samples of college students where they were made to solve Math problems. In the first round of the competition, males fared better than females on account of gender and ability. But as more and more rounds of competition were carried out and the results observed, it was found that the performance was in line with the individual's math ability and had nothing to do with one's gender. This study suggests that females are not averse to competition, instead they are not as excited as males and need time to acclimatize to the competitive environment. Because the gender gap disappears, the study in no way reveals that there is any significant or permanent difference between males and females e.g. males are better at handling stress situations or care more about winning . Initial gender gap appears due to male over-performance rather than female under-performance. Both the genders show similar improvements in the further rounds of the competition.

At last I have just one thing to say: "No body will ever win the battle of sexes".

Most read articles:
Interesting Economics of Prostitution !!
If not now, then when??
Economics is fun !!

Saturday, July 10, 2010

Economics is fun !!

Don't believe me?? Check this out.

I mean who could have thought that legalizing abortion was the root cause that controlled crime rate in 1990's in USA. Moreover, the fact that this theory is being published in a freaking economics book titled "Freakonomics". This book, for me, is a revolutionary step towards the way we look at economics. Economics to some is a "dismal" science that is used with mathematical tools like graphs and charts to explain the cause and effect of growth, output, inflation etc. Generally, people consider economics to be the study of monetary and fiscal policies. But to some it is much more than that. People like Steven D. Levitt, the author of Freakonomics and the winner of "John Bates Clark Medal", consider economics to be an art which when when used practically can solve many mysteries and reveal the reasons behind many events.

Economics is fun. That's one message books like Freakonomics want to convey. It is fun to practice economics yourself and it is also fun to see others practicing it. Economics can be taught in entertaining ways rather than by boring graphs and mathematical equations. It can be taught in such gripping ways that it also appeals to the most social, literate and the most popular guy in the high school. Economics can shed light on the most exciting, sexy and eye-catching issues rather than reading endlessly on government budgets and deficits. Nothing in social life falls outside the purview of economics. The fun lies in studying things that you can see happening in front of your eyes or if you can relate to them and economics can be taught this way. This helps in imparting "out-of-the-box" thinking to the students which would yield better results when they arrive in the "real world".

Though we are still living in a traditional era as far as economics is concerned, students are still made to cram the monstrous mathematical equations and "learn by heart" graphs on demand and supply, however, the outlook of economists is changing. Now less people appear astonished when they see an article titled "More sex is safer sex " or "Why blondes make more money than brunettes?" or "Paying students to perform better" or "Daughters make you more conservative" published in an economics journal. There is a whole new spectrum of ideas to be explored in this field and loads of mysteries to be solved. What we need is creative thinking and "application oriented" teaching by the tutors. They need to spice up the topics by developing interesting theories which keeps students glued to this subject at their own will. Remember, that's when "true learning" takes place.

Read the previous article here "If not now, then when?"

Friday, July 9, 2010

If not now, then when?

Yes, that's the question boggling the mind of many environmentalists and researchers who understand exactly what's up with mother nature. We never faced a threat more severe than what we are up against now, "Global Warming". It is not only some social or economical threat rather it threatens the very "existence" of human survival on Earth. Isn't that grave enough?? Looking at the actions taken by our administrators, to mitigate this threat, it doesn't seem so. They are busy playing blame games against each other. India, China and other developing countries say US and European countries are responsible for Climate Change, hence they must take the responsibility of cutting down the carbon emissions (root cause of Global Warming). US and European countries on the other hand, hold the recent high growth in demand of fossil fuels in the developing nations responsible for the surge in Global Warming and wants them to cut down their use of carbon emitting substances drastically.

The average temperature of the globe has augmented more than 1 degree Fahrenheit since 1900 and the speed of warming has been almost three folds the century long average since 1970. All studies suggest that human actions, mainly discharge of green house gases from manufacturing units, vehicles and burning forests, are perhaps the leading factors contributing to global warming. Without action to reduce these emissions, the global average temperature is likely to rise a further 1.8-4.0 degree Celsius this century and by up to 6.4 degree Celsius in the worst case scenario, the IPCC projects. Even the lower end of this range would take the temperature to a threshold beyond which many scientists believe irreversible and possibly catastrophic changes would become more likely.

So the big question is, What steps are being taken by our administrators to avoid this catastrophe? And if we make an effort to find an answer, we'll see many promises being made by the Obamas and the Jintaos and the Sarkozys but nothing concrete has been achieved yet. Kyoto protocol, which is considered to be the first most comprehensive step towards arresting the quantity of green house gases emitted in the atmosphere, is a miserable failure. First of all, having an emission reduction treaty without USA cannot succeed. It is not only bias for developing nation who have just learnt the meaning of growth but also envious for developed European nation. They can't compromise their growth to control global warming when the biggest polluter in the world, cares least about it. Secondly, there are differences in the treaty regarding the levels of emission cut by individual nations. Some developing countries are allowed to pollute more. Moreover, on the technical front, scientists and researchers argue that the protocol was misconceived from the start because it was based on previous international treaties to protect the ozone layer, to stop acid rain and to control the proliferation of nuclear weapons. This borrowing simply failed to accommodate the complexity of the "climate-change" issue.
Then the whole world watched what happened at the Copenhagen Summit in December, 2009. The Copenhagen accord was drafted by the US, India, China, Brazil and South Africa. It was sought as a successful agreement by the Obama administration, but all the nations didn't take it likewise. It wasn't adopted in the debate of all participating countries. The document does not force nations to make any legally binding commitments for reducing carbon dioxide emissions, it leaves the decision on the social welfare will of the nations.

Is this our approach towards fighting this issue? Is this what we expect from our administrators? Aren't they aware of the rising number of instances of floods, storms and other natural calamities? I am a big Obama fan, but disappointingly, he has failed to deliver on this front, though this was one of his most promised agenda. The world, specifically our leaders need to wake up and address this issue with utmost priority and diligence before it's too late. Environmentalists should have a greater say and authority in policy making, because they know exactly what needs to be done. Agreements and deadline on Climate Change should be strictly met, in fact a severe penalty should be levied on the countries not meeting the proposed carbon cuts. A sense of "peer pressure" be built among economically similar nations to impose the reduction in emissions. And most importantly, people need to be taught and made aware of the ill-effects of carbon dioxide emission in to our atmosphere. A concerted effort is needed to arrest and control global warming. Be it the underdeveloped Africa or the developing Asia or the developed America and Europe, all need to come forward to fight for "human existence".

Read the previous article here Microfinance .

Wednesday, July 7, 2010


Microfinance has been continuously cited as the most powerful tool to alleviate poverty, but has this tool been used to its full potential?. Microfinance has contributed significantly in reducing, if not eradicating poverty in many parts of the world. Its success stories are pretty impressive but, the question of whether microfinance be a vehicle through which even greater and more critical contributions to global poverty alleviation might be made needs further research. Many governments are still hesitant to adopt this model to help the poor and needy, and many tried but gave up too early. Microfinance should be adopted with the aim of social benefit rather than personal economical profits. People involved in economic decision making should realize that putting a microfinance framework in place effectively is arduous and time-consuming task. It involves teaching and making people aware of the rules and benefits of microfinance. It is particularly difficult as poor people have almost negligible literacy rate and they are afraid of paperwork because they have never done it before.

The growth of microfinance is fueled not by market forces, rather it has been due to sincere and conscious efforts of some governments, NGO's and donors who view microfinance as an effective tool to eradicate poverty. There have been many revolutionaries who have shown how microfinance can be used most effectively. Mohd. Yunus, the founder of Grameen bank, is the most notable of them all. His model of Grameen bank has yielded unprecedented results. This bank has not only improved the standard of living of 5 million bangaldeshi families but has also succeded in making economic profits out of it. The success story of Grameen bank was a surprise to many economists. There are many lessons to be learnt from Grameen Bank model, especially for the governments of developing and underdeveloped Asian and African nations where poverty is widespread. Mohd. Yunus had to work really hard to find his way through red tapes and lack of awareness among his fellow citizens. But he was determined to bring a change in his society and so he did.

There are many things worth noticing in how he implemented his model of microfinance. Firstly, he was not in any kind of a hurry, he gave the poor time to absorb and get used to the idea. He focused on spreading awareness by appointing some student volunteers who would go door-to-door and talk to the villagers about the benefits of microfincance. Though people would reject the idea of taking a loan at first, but the volunteers were trained to accept it and not get disheartened. Instead they were taught to be humble and keep trying such that at some point people would agree to give it a try. Secondly, he never gave loans to individuals, rather he would ask the borrowers to form a group, and the loan was granted to the group. This helped him reduce the rate of defaults. As even if one person in the group repays the loan, it inspires the others to do the same. And people in the group had someone to watch their back if they deviated from the right and proposed use of money. This would be reported to the volunteer assigned and then he would try to reslove the matter. Thirdly, Grameen Bank focused on lending to women. Yunus found that women members of poor and needy families are more hard-working and inclined to take care of their children in the best possible manner than the male members. This zeal and determination of the women borrowers assisted them to earn enough to repay the loan as well as run their families. Fourthly, the Bank kept the paperwork to be minimal and borrowers did not come to bank for loan, rather bank went to the doors of the poor. One or two volunteers were assigned to each village who would note down the name of the borrower with the date and amount of the loan and would visit the village once in a week to collect the installments. Minimizing the paper work avoided red-tapes and delays in allocating the loan. Fifthly and most importantly, Yunus was not afraid of incurring a loss, infact he did suffer a loss at first, but he kept his belief alive. Grameen Bank would not send a recovery guy if somebody defaulted, instead, they were provided assistance. Assigned volunteer would speak to the defaultor about what led to the failure and if the borrower appeared reasonable, she was offered another loan to start all over again. Yunus's autobiography "Banker to the Poor" explains in details the efforts and hard-work of Grameen Bank to bring a change in the lives of poor Bangladeshis.

Though Mohd. Yunus pioneered a way to use microfinance effectively but his model cannot be applied in the exact same manner everywhere due to varying traditions and mindsets of the people. However, with little improvisations to suit the region's need, it can be used to fight poverty. It is up to the government and resourceful individuals of a nation to take a step forward and contribute to microfinance which helps the poor and at the same time conserves their dignity and respect. The only thing to be borne in mind is "every good thing takes time and nothing good comes easy".

Bangalore, Boston and Beijing !!

This article is inspired by the readings from Thomas Friedman's "The World is Flat" where he discusses how over time, especially in the last decade the world has become a "level playing field". Specifically during the IT bubble era, massive investments were made to connect the whole world through broadband and undersea optic cables. Computers became cheaper and widespread, and there was advent of e-mail, IM clients which made communications amongst people in various parts of the world cheaper and convenient. Availability of information was made easier by search engines like Google and Yahoo!. Propriety softwares were engineered which could divide the work into logical pieces and distribute one part to Bangalore, one part to Boston and one part to Beijing where they would be developed simultaneously to be later assembled as a complete product.

There are uncountable benefits of such kind of a product development process. It not only makes the production cost come down but also adds a new dimension to the product. Production cost is reduced significantly as the parts of the job are assigned to the places where they can be done at the lowest cost. Moreover, people from various cultures, where the needs vary can add new dimensions to the product in order to make it globally usable, thereby increasing the market size for the product. Tens of thousands people at more than 30 companies on 3 continents worked together to make Apple's first iPhone possible. All in all, people with best possible skills come together to develop a product. But how do consumers benefit from this process?. Simple, they get high quality products at competitive prices.

There is no doubt that America is one nation driving this change in product development process. Be it Google or Yahoo! or Microsoft or Amazon, all are the creations of American nationals. It is due to the research going on in American universities that we have such high speed internet connectivity and companies can now do round table video conferences with their colleagues in other countries, discuss the prototype along with planning and distribution of tasks. But has USA really gained from it, from a long term perspective? Recently, there has been a lot of hue and cry over jobs being send overseas. People of America are for sure facing tough competition from their counterparts in Bangalore and Beijing. But that is the strength of our character; we are always at our best when challenged. Instead of wasting our time on putting up rallies on this issue, we should accept the fact and face it with wit and vigour. We should learn lessons of hard work from Indians and Chinese. And always remember one thing, be it good or bad, the time always changes for "Nothing but only change is permanent"

Tuesday, July 6, 2010

Declining birth rate: Good or bad??

Population has been a major concern in many countries, specifically in developing Asian countries. Countries such as India, China, Bangladesh and Pakistan have always struggled to feed their ever growing population. China and India combined have around 36% of the world's alive people. China on one hand has adopted "One child policy" and has been able to restrict the birth rate to a very low level, India on the other hand is still grappling with high-birth rate. Indian political and caste structure makes it difficult for the government to implement a policy like China's. Though supporting a huge population can be a nightmare for any government and economy, but is encouraging people not to reproduce, good from a long term perspective??.

There would be many advocates of the idea of declining population, but there are no less on the other side. There are many issues to be discussed here, particularly the increase in the number of aged people. Declining birth rate increases the dependency ratio i.e. there are more number of retired people than the number of people that constitutes active work force. Secondly, it results in higher taxes on the working people as the government needs to invest more in pension and health care services for the aged, hence in order to avoid a deficit, tax rates are raised. Thirdly and most importantly, there would be a shortage of labor which would lead to higher wages and firms would resist reinvestment into their business as their product's cost would not be competitive in the global markets.

No matter how much technology advances, human workforce has been and will remain the major ingredient of production process. Human resource is the most vital resource for any business. Youth's vibrant energy and creativity as well as aged's experience and understanding are required for the development of any economy. Realising this fact, many countries like Singapore with low birth rates are now providing financial incentives to their citizens to reproduce more, in addition to free education facitlies. Legally forcing people to reproduce less can no doubt yield positive results at first, but these demographic changes would be very difficult to reverse when needed, as a tradition is established over time. And people then are fearful to differ as they are worried whether they would be able to support a greater family.

Whether large population is a liability or an asset, it is up to the relevant countries to decide. India particularly is doing a tremendous job in this regard. They have no law regarding how many children a couple should have, rather they are focused on producing more jobs and providing education to the people. Their Prime Minister Mr. Manmohan Singh believes that their people are the most important asset and have contributed to the growth the country is currently experiencing. Many MNC's are compelled to set up their production units in India due to large scale availability of cheap and skilled labor. Now it would be interesting to see how China, which is being looked upon as the next "Superpower", solves the problem of aged population.

Monday, July 5, 2010

Interesting Economics of Prostitition !!

Prostitution is one of the oldest profession in the world and functions like any other business. Like any other profession, economics of demand and supply can be applied in this profession also. All economic entities viz product, the supplier and the consumer exist in prostitution as well. However their interaction is not worth mentioning here. But what would be interesting to discuss here would be the economics of prostitution. If people have been selling sexual favors, what sort of economic condition exist for it?. Is it the need to support themselves financially that coax people to take up such jobs or is it the lucrativeness of this industry, as the people in this profession are highly paid. Both men and women are prostitutes, however major customers are males only. There are loads of economic puzzles involved in prostitution such as prostitutes are very low skilled workers yet they are highly paid and they don't have to make any significant investment to start their business apart from a few micro-miniskirts and stiletto heels.

Another puzzle that comes into mind is why prostitution is more common in poor and backward countries as compared to that in more developed countries? One obvious explanation is that prostitution falls as women's income and opportunity cost increases. What’s less obvious is that prostitution falls as men’s income rises, too. Because to some extent wives and prostitutes are substitutes, with prostitutes being what economists call an “inferior good”. As income rises men prefer stable marriages over occasional hookers. Stable marriages lead to children and studies have suggested that men carry a greater sense of responsibility once they have children which certainly reduces the intensity of visits to prostitutes. And this has policy implications too: the best way to reduce prostitution may be making both women and men richer, rather than legal penalties and informational campaigns. But is this economically feasible? Specially in poor countries where prostitution is more widespread.

Despite the ugliness of this profession and many legal bans by governments of various countries, prostitution has stayed the course. And now this industry contributes so much to the GDP that some governments just can't afford to loose the income earned from the taxes and thus have been forced to legalize it. Porn and sex are the most searched keywords on the internet. There may be any number of protests or rallies to put an end to prostitution, it will continue to exist and prosper as long as people realise the ethical implications of prostitution and return clean to their families. If we talk in terms of economics, a business will survive and prosper as long as the demand for its product sustains.

Pay your kids to perform better !!

Yes it works. According to a study conducted by the Harvard professor Roland G. Fryer financial incentives to students can lead to higher test scores and an enhancement in their positive behavior. From the abstract:
"Our results suggest that student incentives increase achievement when the rewards are given for inputs to the educational production function, but incentives tied to output are not effective. Relative to popular education reforms of the past few decades, student incentives based on inputs produce similar gains in achievement at lower costs."
This means that incentivising studies will bear results only if students are paid to complete their assignments and for putting extra hours of study rather than promising a pay after final results i.e. on the basis of grades. When you are paid to do something you may not know exactly how to accomplish, it’s not clear how you respond. But if you are being offered money to do something very concrete, then that might be easier to respond to. Likewise paying students to perform better works because they know exactly how to get the results, they don't have to apply a new science from some parallel universe to accomplish this task.
Now as expected, there are many critics who strictly dislikes this theory. They suggest that providing financial incentives can lead to a decline in the level of intrinsic interest in learning. They further say that rather than giving such incentives, education should be made an adventurous experience, making use of new technologies and adapting to the skills and mastery of individual kids. And the experiments also give no clue on what happens when the incentives are discontinued. Whether students acquire and retain their interest in studies or will they study, only when paid.
This study surely raises a series of questions on whether it is justifiable to pay kids to study hard or it be left for them to decide how they want to play with their future.

Sunday, July 4, 2010

WALMART - The high cost of low price !!

I was compelled to write this article after watching the documentary "Walmart - The high cost of low price" directed by Robert Greenwald. I believe you must have come across Walmart stories a couple of times before, but it needs to be told yet again. So here you go.

It starts with the then CEO of the company Lee Scott praising the company at a large employee convention. Following is an excerpt from his speech:

"It would be a pleasure for anybody to be the CEO of this company because when you come to this meeting year after year, you get to say we had record sales, we had record earnings, we had record reinvestment back into our company. You know i say all that, but let me tell you my friends, you better be ready to be better because today for whatever reason, whether it's our success or size Wal-mart has created fear if not envy in some circles. And that makes it all the more important that we focus on the right thing and on doing things right, every time. There are two things that we should do. Number one is tell the Wal-Mart story, get the message out and the second thing is stay the course. Wal-Mart is too important to individual families who are stretching the budget, too important to the suppliers who employ millions of people, we are too important to the associates whom we value so much and your company will continue to demonstrate our citizenship as a good employer and the member of the community that we serve so well around this world. Ladies and gentlemen I promise this, we are gonna stay the course and this company will continue to grow"

No one can doubt the success story of Wal-Mart. Founded in 1962 by Sam Walton this company has grown in leaps and bounds to become one of the most valuable American company. Wal-mart's revenues crossed 400 billion dollars in 2009, most by any company around the world. Consumers were never so delighted. They can purchase whatever they need at the lowest possible price from the Wal-Mart stores. Be it grocery items, hardware items, durables and non-durables, it has diversified into all the necessities of human lives. Like you can search on google for any information, you can go to Wal-Mart to buy anything you need. That scale is hard to absorb. But yes this company has proved that "Nothing is Impossible, it's I am possible". And it employs as many as 2.1 million people, largest by any firm in the world. But is Wal-Mart a success for America? Any company is a boon for its nation if it helps improve the overall quality of living of its people. Has Wal-Mart been able to do that?

The giant retailer's low prices often come with a very high cost. Wal-Mart's relentless pressure has crushed the companies it does business with and has forced them to send jobs overseas and the result is unemployment. Not to mention, this giant whale has not only bitten but killed several small fishes, owing to its extremely low prices. The small grocery and hardware stores simply couldn't survive the competition. And thus had to shut their stores down. Family businesses which had been running successfully for over half a century have come to a halt and the people are left unemployed and helpless. All this at the cost of one company. What adds to the agony of these people is that the majority of Wal-mart's products are not even produced in America. They are all imported from China.

Wal-Mart wields its power for just one purpose: to bring the lowest possible prices to its customers. At Wal-Mart, the goal is never reached. The retailer has a clear policy for suppliers: On basic products that don't change, the price Wal-Mart will pay, and will charge shoppers, must drop year after year. But what almost no one outside the world of Wal-Mart and its numerous suppliers knows is the high cost of those low prices. Wal-Mart has the power to squeeze profit-killing concessions from vendors. To survive in the face of its pricing demands, makers of everything from bras to bicycles to blue jeans have had to lay off employees and close U.S. plants in favor of outsourcing products from overseas.

Neither the suppliers nor the Wal-Mart associates are happy with the companies policy. Despite being one of the richest companies they have been frugal while giving it back to their employees. Its expensive health insurance package against low wages has added to the pain of the employees who work really hard and take pride in working for Wal-Mart. And their efforts to form unions to negotiate the wages and insurance policy of the company have been suppressed. Many associates are not happy with what they are getting in return for their arduous work but they have no choice as they need a job to support their family.

This company is shutting down "The Great American Dream" of children earning more than their parents. Is this what Sam Walton visioned when he founded the company in 1962 ?

Friday, July 2, 2010

Deflation: A serious concern for Europe !!

You must have come across the news of countries going bankrupt as a result of hyperinflation, for example Zimbabwe which suffered from a 24000% inflation and it's currency became almost valueless, even less than the value of paper. Deflation can be equally killing. Deflation has a unique spiral effect. It occurs when there is a shortage of money supply in the market. Thus people have less disposable income to spend and there is a decline in the demand for products which in turn results in unemployment and further reduction in incomes and so on. It has the potential of bringing an economy to a halt. Japan is a good example of a country under deflation since many years which has resulted in a fall in the GDP of Japan and we see many countries surpassing Japan in terms of output growth.
European Central bank has a primary responsibility of keeping inflation under control. But it has become so obsessed with this task that it is ignoring a greater threat at it's disposal: DEFLATION. Economists regard deflation to be more serious than inflation. It is also bad for countries like Greece and Portugal which are under debt pressure to repay as deflation makes the currency more valuable. Most countries argue that they need to cut the money supply in order to reduce their deficits but what is the need of the hour?.The real challenge for policy makers will occur in the coming months and years as Spain, Greece and Portugal struggle to regain their competitiveness on international markets. Without their own currencies to devalue, they have little choice but to cut wages and keep them well below those in countries like Germany and France. Pay cuts and lower government spending will put downward pressure on prices. Spanish core inflation already turned negative in April. A mild decline in prices in a few euro zone countries can be managed, economists say, but it will add to the risks of deflation.And the central bank will face more difficulty than usual in devising a monetary policy that fits both the ailing countries and the faster-growing economies like Germany and France.

Thursday, July 1, 2010

Economics of Porn Industry !!

If you really want to get to the bottom of a particular subculture, you've really got to immerse yourself in it. With this in mind, then, a group of five security "researchers" studying the online porn industry recently decided to bite the bullet, and create their very own adult site.

In their paper, which will be presented at The Ninth Workshop on the Economics of Information Security at Harvard, the professors discovered that 43-percent of all the clicks they received on their homemade site were from browsers that were vulnerable to malware targeting Adobe Flash, Microsoft Office, or Adobe PDF documents. They also realized they could've turned a handsome profit if they'd agreed to use their site as a vehicle for a so-called Pay-Per-Install program, which would've offered them money in exchange for installing malware on targeted computers.
The research team, led by Glibert Wondracek, also built a web-crawler to analyze the content of almost half a million different adult URLs. They discovered that a full 3.23-percent of the pages studied "were found to trigger malicious behavior such as code execution, registry changes, or executable downloads." Three-percent might not seem like a lot, but that's about five times the average found by previous studies, and that number quickly mushrooms when you consider how many people access porn online, and the frequency with which they do it.

According to Wondracek and his study partners, the prevalence of X-rated malware is largely due to a lack of oversight. With nine out of every ten adult sites now free, most site owners make money through directing users to pay sites. So-called traffic brokers, meanwhile, are concerned solely with selling traffic to sites in their networks, and typically don't even bother inspecting their affiliated sites.

Ultimately, as Technology Review says, it's an economy built entirely upon "clicks and pennies." But it's probably not a model that could be implemented in other online media, simply because most other media isn't porn. As long as consumer demand remains so uniquely consistent, and as long as users continue to click away in the tireless pursuit of arousal, the system -- and its malware -- will continue to thrive. [From: TechnologyReview]