Idea Transcript
Your weekend read… Just a collection of top 10 pieces I came across this week…
Month: August 2017
Top reads – 18 Aug’17 1) The difference between amateurs and professionals [Source: Linkedin] (https://goo.gl/Z3Bd4g (https://goo.gl/Z3Bd4g)) Why is it that some people seem to be hugely successful and do so much, while the vast majority of us struggle to tread water? The answer is complicated and likely multifaceted. One aspect is mindset—specifically, the difference between amateurs and professionals. What’s the difference? There are many: Amateurs stop when they achieve something. Professionals understand that the initial achievement is just the beginning. Amateurs have a goal. Professionals have a process. Amateurs think they are good at everything. Professionals understand their circles of competence. Amateurs see feedback and coaching as someone criticizing them as a person. Professionals know they have weak spots and seek out thoughtful criticism. Amateurs value isolated performance. Think about the receiver who catches the ball once on a difficult throw. Professionals value consistency. Can I catch the ball in the same situation 9 times out of 10? Amateurs give up at the first sign of trouble and assume they’re failures. Professionals see failure as part of the path to growth and mastery. Amateurs show up to practice to have fun. Professionals realize that what happens in practice happens in games. Amateurs think knowledge is power. Professionals pass on wisdom and advice. Amateurs focus on first-level thinking. Professionals focus on second-level thinking. Amateurs think good outcomes are the result of their brilliance. Professionals understand when outcomes are the result of luck versus talent. Amateurs focus on the short term. Professionals focus on the long term. Amateurs blame others. Professionals accept responsibility. Amateurs show up inconsistently. Professionals show up every day. As per the piece, while there are a host of other differences, they can effectively be boiled down to two things: fear and reality. Amateurs believe that the world should work the way they want it to. Professionals realise that they have to work with the world as they find it. Amateurs are scared — scared to be vulnerable and honest with themselves. Professionals feel like they are capable of handling almost anything. 2) Manufacturing flocks to new corners of Asia [Financial Times] (https://goo.gl/MWrHFA (https://goo.gl/MWrHFA)) A few decades ago Bangladesh was one of the poorest countries on earth, stricken by famine and flood. Now it ranks as middle-income. Vietnam has done the same; Cambodia is close behind. Their spectacular growth shows fear of “premature de-industrialization” is misplaced as a new generation of manufacturing powers rise to shape the 21st century. What Bangladesh has done is all the more remarkable because the world has taken so little notice. Growth has steadily accelerated to more than 6%, driven by the classic cheap-labour starter industry of textiles. It is now the world’s second-largest garment exporter. The textile factories employ millions of young women, giving them economic power, prompting rural families to invest in education and triggering a demographic dividend. The growth of these new manufacturing centres is one of the most exciting changes in the global economy. They offer new markets for consumer goods, huge opportunities for investors and a way to lift millions of people out of poverty. Yet even as Bangladesh takes off, there are doubts about whether others can follow. Harvard economist Dani Rodrik has found a pattern of early manufacturing collapse in poor countries, with factories disappearing at much lower levels of development than they did in Europe or the USA. He charts an industrial slump in South America, Africa and parts of Asia since the 1980s, in terms of output and employment. That is grave news for developing countries. As Mr Rodrik notes, manufacturing powers productivity. It is hard to get rich without it. In the 1960s, Asian economies were sometimes compared with flying geese. As Japan ascended the manufacturing value chain — into electronics, for example — then Taiwan or South Korea could move into the textile market left behind. The result was development by echelon, like migrating birds. But if automation and robotics can now compete with even the cheapest labour then these opportunities will never open up. Developing countries will either have to find a new growth model via services or be forever stuck selling commodities. The author, Robin Harding however disagrees with this assessment. According to him, it is more likely that Bangladesh heralds the start of a new wave of industrialisation in poor countries; one that will, in time, extend even to sub-Saharan Africa. Researchers at the UN confirm that the share of manufacturing and manufacturing jobs in the average developing economy has fallen. But for developing economies as a whole, they find the share of manufacturing and manufacturing jobs is at a record level. In other words, it is not that there is less manufacturing going on, or that robots are doing it all. Rather, all the manufacturing has become heavily concentrated in one place- China, causing a loss of industry everywhere else. If other manufacturers are to grow, they must displace this industrial giant, and Bangladesh suggests that is now possible. China’s factories are investing heavily in automation and robotics in order to raise productivity and stay competitive as local wages rise. But there is little reason to think it will work any better than it did for the rich countries China itself displaced in the 1990s. Robotics technology has moved forward but fully automated production lines are still vastly expensive and difficult to adjust. For that reason, robots are little used beyond automobiles and electronics, where the volumes are high enough. Robots are decades away from displacing skillful human fingers willing to work for dollars a day in an industry where customer demand changes as quickly as clothing. Other developing countries should hope Beijing succeeds in rebalancing its economy towards consumption. Nothing would do more to speed their growth. If China’s population stops making cheap clothes but wear more of them, it will mean the available market is larger than ever in history. Whatever automation there is, bigger markets will offset it. 3) How shell companies are used in black money creation, laundering [Source: Livemint] (https://goo.gl/pdhxbJ (https://goo.gl/pdhxbJ)) An Income Tax (IT) probe was launched recently into the operations of Anjali Jewellers Private Ltd, a 25-year-old family owned enterprise, and leading jewellery-maker in West Bengal. The company had created more assets than its cash flows would have permitted and within days of starting the investigation, it was clear to the IT department that Anjali was struggling to reconcile its inventory with its books of accounts—there was more gold and jewellery lying in its stock than recorded in its books—and that the company bought “finished goods” from a clutch of vendors. Once the IT officers figured out that the company had recorded bogus transactions to suppress profits, all the “searching questions” about rapid asset creation were at once answered. The department claimed Anjali had concealed at least Rs160 crore of income. The probe into Anjali’s operations also led to 26 other beneficiaries. Normally, when dealing with such bogus transactions, the IT department has to dissect through “layers and layers” of shell companies, or ones that do not have any legitimate business and are used only for tax rationalisation and money laundering. Over the past two years, the IT department has identified around 16,000 shell companies based in Kolkata alone. Anjali had transactions with only a handful of them—all controlled by the same operator—a middle-aged chartered accountant. Investigation shows this operator is in control of at least 322 companies but he is not on the board of any of them. He doesn’t own any shares in these companies either. The directors and shareholders of these shell companies are mere “namelenders”—they sign on documents for a fixed fee. The operators seek out people in distress to be appointed as directors. In most cases, these directors are traceable. But even if the department gets to them, it doesn’t help because they know nothing—not even the operator who employs them from behind several layers of proxies. The operators act like consultants, managing diverse needs of several clients at a time. And because the needs are different, they create so many companies. They create more than they need, and only about half of the 16,000 companies identified as shell have been used. The others are ready, but have not been used yet. The operators typically plan with 5-6 years in sight, always budgeting for some firms to be caught and mothballed. The main purpose of this elaborate operation, described by a leading Kolkata-based lawyer as “parallel banking”, is “accommodation”. For a substantial section of the economy, it is the key to efficient working capital management and tax rationalisation. For instance, a vast majority of real estate developers are known to “buy bogus invoices” to suppress profits. Often they end up holding a lot of cash in their hands, concealed from the tax authorities, and very little on their books to pursue new businesses. When the accumulated cash needs to be brought back into the books, they approach the operator. There are various ways to launder this cash and put it back into the books. One of the simplest and quickest ways—which may not lead to laundering—is to find a lender with legitimate funds on his books. This lender receives the cash from the builder, and in exchange makes an unsecured loan. The money is transferred through bank accounts and comes into the books of the builder as legitimate funds that can be deployed in business. The loan is repaid over time from legitimate business income, and the cash returned to the builder—his need for temporary accommodation thus fulfilled. It’s a huge market of people with legitimate cash and those with concealed income, all trying to maximise returns from their accumulated wealth while dodging the tax authorities. The operators’ job is to pool the diverse resources in this market and provide win-win solutions for all stakeholders. Some of the most famous operators are known only by name – no one has ever seen them and IT has not been able to track them down. Because the ecosystem is well evolved, transaction costs are low – 3% of the amount in question for accommodation. Indian banks however have been left high and dry with many of the bank loans being diverted from projects in many ways—false invoicing being the most common among them. A massive crackdown post-demonetisation combined with deterrents introduced by the department lately, such as hefty fines is inducing fear in the players. Many cash hoarders were caught recently as even at the risk of being caught, they spun the money through a limited number of layers—two or three at best post-demonetisation. There is a palpable fear in the ecosystem now— transaction costs have gone up, but even by IT officers’ own admission, it’s only a small change compared with what’s at stake. 4) Do your customers actually want a “smart” version of your product? [Source: HBR] (https://goo.gl/uHCFXX (https://goo.gl/uHCFXX))
There’s been a gold rush happening in technology these last few years, focused on the Internet of Things, or IoT. It’s even frequently been referred to as “the next Industrial Revolution.” However, the author of this piece, founder of Big Ass Solutions, a firm which manufactures and sells “connected” fans, lights, and controls for commercial and residential use feels IoT is more hype than truth. As mobile apps have proliferated, many analysts have attempted to quantify what the rise of connected devices could mean to the marketplace. For instance, in 2010, Ericsson set the bar for much of the subsequent IoT hype by predicting there would be 50 billion internet-connected devices by 2020. In 2014, Gartner Research, creator of the Hype Cycle for the Internet of Things, predicted that a “typical family home” could hold up to 500 smart objects by 2022. However, since last year something’s changed — IoT predictions have taken a turn. Analysts at Ericsson, for example, have shaved 20 billion off their early estimates. As Gartner noted in November: “The IoT remains on the peak of inflated expectations for the third year in a row as vendors push the hype even higher, but most companies struggle to find use cases beyond proof-of-concept.” The author recounts his own experience of selling a new smart fan option which had several thousand excited early adopters. But because they had neglected to manufacture it using a modular approach, they had to build two of everything: fans with connected capacity and fans without. After running the numbers on how many of their customers paid for the upgrade — about 40% — and surveys that showed high overall customer satisfaction with the technology, they decided to stop making the “smart” feature optional and make it standard instead. They figured that way, they would reduce the SKUs (stock-keeping units), and as people discovered how wonderful the technology was, they would be converted and spread the word. Two years, hence, he saw that the public simply isn’t yet clamouring for connectivity. Many of his customers just don’t use the technology available to them. The feedback from his customers suggested that quality and aesthetics still matter more than smart features. He believes they were guilty of “Jobsian” thinking, convinced that people don’t know what they want until you show it to them. Also, because most of the employees who were leading the company’s IoT efforts fall in the early adopter category they failed to fully grasp that programming their products — or anyone else’s — to enjoy the full range of functionality requires a level of patience and commitment that many people just don’t have. Given that developing connected products is a huge commitment, he lists five questions which he urges consumer product companies to ask themselves beforehand: a) Does this connected feature or product solve a real problem? The traditional business model is based on identifying a need and meeting it, or defining a problem and solving it; b) Do my customers genuinely want this? How many of them? Don’t assume everyone is clamouring for connectivity just because it’s all over the news; c) Have I fully weighed the economics involved? Software in its current state creates opportunities, but a myriad of new expenses too; d) Should I keep the work in-house, or outsource it? e) Can I ensure a good customer experience? The customers will all have different equipment and different levels of technological expertise, and they’ll have questions that can only be answered by people who understand the technology and its user interface. 5) Hyundai heavy profit jump flags turnaround in Korean shipbuilding [Source: Financial Times] (https://goo.gl/6ieFJM (https://goo.gl/6ieFJM)) Hyundai Heavy Industries has reported a 70% jump in first-half operating profit, adding to evidence of recovery in the country’s beleaguered shipbuilding industry, helped by increasing new orders for oil tankers and natural gas carriers. Operating profit at the world’s largest shipbuilder rose to Won315bn ($280m) in the first six months of this year from Won186bn a year earlier. It is the company’s first earnings announcement after Hyundai Heavy split into four companies in April to navigate an industry slump that triggered tens of thousands of jobs losses. The results are also the latest sign the industry is recovering from a prolonged slump that has raised questions about the future of shipbuilding in South Korea — home to the world’s top three shipbuilders. Hyundai said the company, together with its two other shipping affiliates, won orders to build 81 vessels worth $4.5bn so far this year, compared with 16 vessels worth $1.7bn in the same period last year. Orders for oil tankers have jumped this year as low oil prices spur demand and buyers want to stockpile oil in anticipation of higher oil prices. Hyundai’s cross-town rival Samsung Heavy Industries also reported improved earnings last week. Daewoo Shipbuilding and Marine Engineering is also expected to report an operating profit of up to Won800bn for the first half after narrowly avoiding bankruptcy in April on a $2.6bn bailout by state-run lenders. New orders for ships worldwide rose more than 40% in the first half of this year, with South Korea taking 31% of them, closely trailing behind China. South Korea received new orders totalling 2.83mn compensated gross tonnage, an industry metric measuring total work that goes into a ship, in the first half of this year, about three times more than 840,000 CGT in orders won a year earlier. 6) Germany’s carmakers feel the Tesla shock [Source: Financial Times] (https://goo.gl/xMppHv (https://goo.gl/xMppHv)) While Elon Musk grapples with the problem of meeting demand for Tesla 3, BMW and Daimler are facing the converse problem: they are good at making diesel cars but who wants one? After decades of success, dominating the global luxury market with impeccably designed engineering marvels, Germany’s carmakers face their iPhone moment. Like BlackBerry and Nokia before, they are confronted with a US company selling an elegant device based on superior technology. Diesel is dying and the only question is how long it will take for it to be wiped out. The $35,000 Tesla 3 is seizing the halo from Germany’s iconic industry. In the past, the US industry never offered any real competition for its luxury driving machines but Mr. Musk has eagerly taken on the challenge that Detroit long ducked. Tesla’s founder is a showman who often over-promises, but fate is on his side. He could not have picked a better moment to start selling his first volume car. Not only is VW still embroiled in a scandal over its illegal use of software to disguise vehicle diesel emissions, but the top five German carmakers are under investigation by antitrust authorities over whether they formed a buying cartel. The cartel investigation talks about Germany’s consensual culture of co-operation among companies, suppliers, research institutes and governments. While it has produced enviable results, as has Japan’s keiretsu tradition of corporate alliances, standards-setting may have degenerated into collusion. The carmakers may have broken the law by, for example, reducing the size of the chemical tanks they used to limit nitrogen oxide emissions from diesel engines. But why was there any need to agree on common components? The answer is that making a car with a combustion engine is a fiendishly complex task and carmakers depend on intricate networks of suppliers. Anything that makes this simpler, and by extension cheaper, is a godsend to the conventional carmaker. It is in this context that Tesla has a crucial advantage over them. An electric car is easier to make than one with an internal combustion engine (ICE) because it has many fewer parts. Alongside the assembly operations which are simpler and cleaner compared to an ICE factory, Tesla has taken integration further by making batteries itself in partnership with Panasonic and getting customers to fit solar roofs to charge in-home batteries that can fuel the electric cars. Tesla’s strategy of being more integrated than other carmakers has echoes of Apple, which makes its own mobile chips and designs its own software. Another echo is the way both exploited a change in technology — for Tesla, the change from combustion engines to electric, and for Apple, the evolution from 2G to mobile broadband at the time of the 2007 iPhone launch. With their Electric vehicles launches, carmakers could prove more adaptable than Nokia and BlackBerry were to technology disruption, but they still carry legal liabilities and technological baggage that Tesla doesn’t. 7) Why is Google spending record sums on lobbying Washington [Source: The Guardian] (https://goo.gl/A4Ux6c (https://goo.gl/A4Ux6c)) Google spent a record amount of almost $6m lobbying in Washington DC in the past three months, putting the Silicon Valley behemoth on track to be the top corporate lobbying spender in the USA. The largest monopoly in America, Google controls five of the top six billion-user, universal web platforms – search, video, mobile, maps and browser – and leads in 13 of the top 14 commercial web functions. As the controversial Trump-supporting PayPal billionaire Peter Thiel points out, companies like Google don’t like to advertise this fact. They “lie to protect themselves”, Thiel says. “They know that bragging about their great monopoly invites being audited, scrutinised and attacked. Since they very much want their monopoly profits to continue unmolested, they tend to do whatever they can to conceal their monopoly – usually by exaggerating the power of their (nonexistent) competition.” For years, banks, oil companies and defence contractors dominated the Washington lobbying business. Because controlling government regulation and government contracts was the key to their business success, shareholders saw the expenditure of millions a year on lobbyists and political contributions as an unavoidable cost of doing business. When the federal government began pursuing Microsoft for antitrust violations in 1992, the Seattle software giant was caught off guard. It had almost no presence in Washington and spent almost no money on lobbyists. That soon changed. For its part, Google, as it began to assert its domination of the search advertising business, started to take steps to ensure it had a strong presence in Washington. In 2002, Google spent less than $50,000 on lobbyists; 10 years later it was spending more than $18mn a year. Now, with a real threat of antitrust and privacy regulation on the horizon, Google has come to the same conclusion those earlier industries did – that controlling Washington politicians and regulators is a cost of doing business. And the company has not been afraid to use its muscle.The probable reason Google lost in Europe and won in the USA in its battles over favouring its own products over those of smaller players is more about the campaign finance system than the differing regulatory regimes on either side of the Atlantic. Since Google began spending more on lobbying than America’s defence giants around 2010, it has been able to intimidate American legislators and regulators, and it has tools at its disposal far more powerful than anything deployed by Boeing. In 2012, when the House of Representatives was considering the Stop Online Piracy Act (Sopa), which aimed to crack down on copyright infringement by restricting access to sites that host or facilitate the trading of pirated content and specifically targeted search engines, such as Google that linked to pirate sites, Google made use of some smart imagery. It put up a link saying “tell Congress” (regarding pirated content) on its search page allowing users to directly email their members of Congress. Needless to say, Congress’s email servers were overwhelmed and two days later, the House judiciary chairman, Lamar Smith, withdrew the bill. The legislators have now become so captive that Google was able to enlist many of these same legislators in its battle against the European Union, whose antitrust regulators are more willing to call Google a monopoly. It is important to understand that Google is not politically neutral. Though its executives may signal liberal stances on gay rights and immigration, it is at heart a libertarian firm which believes above all that corporations should not be regulated by the government. Just as extreme lobbying by the bank industry led to a loosening of regulations, which then resulted in the great mortgage scam of 2008, Google’s efforts to keep the government out of its business may have deep implications for the next 10 years. Much of Google’s lobbying may be directed toward its future business. That will be running artificial intelligence networks that control the transportation, medical, legal and educational businesses of the future. 8) Investors rush to buy Iraq’s first independent bond [Source: Financial Times] (https://goo.gl/r7Uuwu (https://goo.gl/r7Uuwu)) Investors have rushed to buy Iraq’s first independent bond sale in more than a decade, in a sign of a continued wave of demand for riskier debt across international markets. The $1bn bond, which matures in 2023, brought in $6.6bn of orders. The yield was fixed at 6.75%, lower than initial pricing expectation of 7%+. The high levels of demand for the debt came amid strong appetite for risk across capital markets as low interest rates push investors to seek higher returns. Last week, Greece, which has undergone multiple bailouts by the EU and International Monetary Fund, raised €3bn in its first bond sale for three years. In June Argentina was able to borrow $2.75bn of 100-year bonds at a yield of about 8 per cent, despite its long history of sovereign defaults. The Iraqi debt sale is a watershed for the country as it has never before sold a fully syndicated bond of this type independently. The country, struggling to overcome years of internal strife, has $2.7bn of bonds outstanding that were sold in 2006, and came as part of a restructuring of earlier obligations. The Republic of Iraq also issued $1bn of bonds guaranteed by the US this year, which came with a coupon of 2.149 per cent, and was linked to an international assistance package. Baghdad agreed a $5.4bn bailout programme with the International Monetary Fund in mid-2016. Iraq’s outstanding bonds rallied slightly after the IMF released a statement on the country recently. “The economic policies implemented by the Iraqi authorities to deal with the shocks facing Iraq — the armed conflict with Isis and the ensuing humanitarian crisis and the collapse in oil prices — are appropriate,” said the IMF’s David Lipton in a statement. Iraq had previously planned to tap capital markets in 2015, but the sale was called off because of issues around pricing. Now, even as the country’s economy had been hit by weaker oil prices and political instability, there are high levels of demand for Iraqi bonds. 9) The culture wars have come to silicon valley [NY Times] (https://goo.gl/YZdh4B (https://goo.gl/YZdh4B)) The culture wars that have consumed politics in the United States have now landed on Silicon Valley’s doorstep. Google’s firing of software engineer, James Damore, who had written an internal memo challenging the company’s diversity efforts set off a furious debate over Google’s handling of the situation. Some accused the company of silencing the engineer for speaking his mind. Supporters of women in tech praised Google. But for the right, it became a potent symbol of the tech industry’s intolerance of ideological diversity. Silicon Valley’s politics have long skewed left, with a free-market’s philosophy and a dash of libertarianism. But that goes only so far, with recent episodes putting the tech industry under the microscope for how it penalizes people for expressing dissenting opinions. Fractures have been building in Silicon Valley for some time, reaching even into its highest echelons. The tensions became evident last year with the rise of Donald Trump, when a handful of people from the industry who publicly supported the then-presidential candidate faced blowback for their political decisions. Scott Galloway, a professor of marketing at New York University’s Stern School of Business, said Mr. Damore’s comments carried additional weight to people on either side of the political spectrum because he was an engineer at Google, one of the world’s biggest technology companies. Alongside other giants, such as Facebook, Amazon and Apple, these companies “are seen as pillars of our society,” Mr. Galloway said. “Controversy and statements that emanate from these employees take on a different heft.” The technology industry has long marched in lock step on issues, such as supporting immigration and diversity, even though their companies remained largely male, white and Asian. But last year’s election of Mr. Trump — with his broadsides against political correctness, his coarse language toward women and his actions to restrict immigration and deny climate change — seemed to threaten many of those ideals. At the same time, Mr. Trump’s words may have made dissenters in the tech industry more comfortable about speaking out. “Trump, in a sense, licenced people to express what some people would call politically incorrect thoughts,” said Adam Galinsky, a professor at Columbia University’s Business School. One of the most outspoken supporters of Mr. Trump in Silicon Valley has been Mr. Thiel, a founder of PayPal, who has since faced derision from other people working in tech for his political stance. In a sign of how deep that ill feeling runs, Netflix’s Reed Hastings warned Mr. Thiel in August 2016, a few weeks after Mr. Trump had accepted the Republican nomination for president, that he would face consequences for backing Mr. Trump. Mr. Hastings, the chairman of a committee that evaluates Facebook’s board members, told Mr. Thiel in an email 14 that the advocacy would reflect badly on Mr. Thiel during a review of Facebook directors scheduled for the next day: “I see our board being about great judgment, particularly in unlikely disaster where we have to pick new leaders…I’m so mystified by your endorsement of Trump for our President, that for me it moves from ‘different judgment’ to ‘bad judgment.’ Some diversity in views is healthy, but catastrophically bad judgment (in my view) is not what anyone wants in a fellow board member.” 10) Why are Indian women increasingly dropping out of work? [Source: scroll.in (http://scroll.in/)] (https://goo.gl/yaaK3Y (https://goo.gl/yaaK3Y)) In the first four months of 2017, while jobs for men increased by 0.9 million, 2.4 million women fell off the employment map, according to the Centre for Monitoring Indian Economy (CMIE). The trend for this year points to a continuing story of Indian women increasingly clocking out of the workplace. The number of women who quit jobs in India between 2004-05 and 2011-12 (the last year for which census data is available) was 19.6 million equivalent to the population equivalent to Shanghai and Beijing. Only 27% Indian women are currently in the labour force. Among G20 countries, only Saudi Arabia is worse. Within South Asia in 2013, India had the lowest rate of female employment after Pakistan. In over two decades preceding 2013, female labour force participation in India fell from 34.8% to 27%, according to an April World Bank report. India’s female labour force participation rate is the highest among illiterates and college graduates in both rural and urban areas. These two groups, illiterates and those with college education, are also the groups that experienced the largest drops in female labour force participation rates over this period. There are no indications that it’s getting better. Much of this slide has come in the post liberalisation years, when you would imagine that a growing economy would fling open doors of opportunity. At roughly the same time that women were quitting jobs, an additional 24.3 million men went to work. Even more inexplicably, women went missing from the workplace at precisely the same time that girls were making massive advances in education. The logical link that education should lead to jobs is broken in India. In rural India, 67% of girls who are graduates do not work. In towns and cities, 68.3% of women who graduate don’t have paid jobs, says a 2015 United Nations report. If women participated in the economy on a par with men, India could increase GDP by up to 60%, or $2.9 trillion, by 2025, according to a 2015 study by the McKinsey Global Institute. At present, women contribute a mere 17% to the country’s GDP, well below the global average of 37%. A complex web of constraints that keep women away from the workplace. Chief amongst these is the issue of women’s agency. While a man is expected to have a paid job, a women needs permission of males in the family. Patriarchy, cultural and social attitudes exist all over India. But in many states in the North, there’s a feeling of shame if a man’s wife works. Unsurprisingly, Bihar, Haryana, Jammu and Kashmir and Punjab report the lowest rates of female labour force participation, whereas hill states such as Sikkim and Himachal Pradesh, where men have historically migrated out for work, leaving women in charge of village economies, female labour force participation is high. Family and responsibility for household work are other serious constraints. Women either don’t accept jobs, or quit because of “family reasons”. Even when women are “allowed” to work, there are conditions that must be met. Is the job close to home? Are there fixed working hours that will allow her to be back in time to cook the dinner and put the kids to bed? Is safe and inexpensive public transportation available? Or they themselves show a clear preference for trades that are traditionally ‘women oriented’: beauty and healthcare for instance. Even PM Modi’s Skill India program is unlikely to yield significant results as the bulk of skilling programmes take place as apprenticeships with ustads or in small-scale industries that are male dominated and where fathers and husbands do not like sending their girls and wives.
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Top reads – 04 Aug’17 1) Fluent in flannel: A guide to mastering the method [Financial Times] (https://goo.gl/7qized (https://goo.gl/7qized)) Lucy Kellaway highlights her top eight rules for spouting corporate bullshit. Never use a short word when a long one will do:An example of this was shown by an HR manager running an off-site meeting when she warned attendees to “be cognizant of the optics of your personal brand”. In other words: tuck your shirts in. Management consultants have been world class at touting for business this way, inventing problems and then offering to solve them. Everyday euphemisms are the way forward:In this guff, all negatives are spun, so no one need take full blame for anything. Uber has been a pioneer at it by admitting to having “underinvested in the driver experience” and being “in a reputational deficit” in the hope that no one will notice it has screwed its drivers and its name is mud. This rule is especially handy when companies sack people. The latest euphemism comes from an investment management company that recently described sackings as going “into the gym...inducing cell renewal and thus making the company fit for profitable growth”. Disregard the grammar you learnt at school: One of the charms of this guff is its syntactic flexibility — all nouns can be verbs and vice versa. Oscar Munoz made great use of this rule when he talked of “deplaning” a man who was manhandled roughly off one of his United aircraft in April. Other great examples of nerbing and vouning fill the archive: to cold towel; a global touch-base; to effort; to front-burnerize; to town hall; to potentiate; to future; to value add; to bonus well. There is no such thing as too much emotion: It all started in 2003 when the late Jimmy Lee sent an email to everyone in his corporate finance department at JPMorgan, saying: “Call a client and tell them you love them. They won’t forget that you made this call.” When it comes to ratcheting up the emotion, millennials are particularly gifted. A twenty-something Estée Lauder employee was recently quoted in the Financial Times: “Senior leadership was ecstatic about the level of ideation that came from this session.” Passion is no longer enough. Ecstasy is the next frontier. If you produce something simple, rebrand it so no one will know what it is:Examples of this guff include Toyota which has renamed the car a “sustainable mobility solution”; Amazon which has called the book a “reading container” and Speedo which has rebranded the swimming cap a “hair management system”. Do not limit yourself to words that are in the dictionary,make up your own by stitching together two or more existing ones: The greatest ever example of this was Eversheds, a law firm, which in 2007, tried to appeal to young recruits by looking for “knowlivators, innovateers, performibutors, proactilopers, prioricators and winnomats” — the last being a combination of winners and diplomats. There is no such thing as too much metaphor and cliché in one sentence:Rick Hamada, CEO of Avnet, is a master at this: “Drilling down one more click on services, we actually think of multiple swim lanes of opportunity around business.” However, he is not as good as the following management consultant: “You have to appreciate that the milestones we have set in these swim lanes provide a road map for this flow chart. When we get to toll gates, we’ll assess where you sit in the waterfall...” Use short, well-known words, but use them to mean something different:The word of the moment is “play”. Strategy consultants pose the questions to clients: Where to play? How to win? And fashionable business people refer to working activities as playbooks and playlists. On the lips of guff speakers, play does not mean play. It means work. 2) Why Germany still has so many middle class manufacturing jobs [Source: HBR] (https://goo.gl/ERiVJU (https://goo.gl/ERiVJU)) Only about 1.1% of the world population is German. However, 48% of the mid-sized world market leaders come from Germany. These firms, the “Hidden Champions,” have created 1.5 million new jobs; have grown by 10% per year on average; and registered 5x as many patents per employee as large corporations. In the last 25 years no more than 10% of them disappeared or were taken over, a distinctly lower percentage than for large corporations. Moreover, Hidden Champions have also contributed to the sustainment of the German manufacturing base, and it is in large part thanks to them that nearly a quarter of the German gross domestic product continues to come from manufacturing. The percentage in most other highly industrialized countries such as the US, the UK, or France is only about half of this. The effect on employment is enormous.Manufacturing creates jobs at home and at the same time allows companies, through exports, to participate in the growth of emerging countries. The reasons for the success of Hidden Champions are related to a complex network of factors, many of them historical. A Hidden Champion is defined by three criteria: 1) a company has to be among the top three in the world in its industry, and first on its continent; 2) its revenue must be below€5 billion; and 3) it should be little known to the general public. Germany seems exceptionally good at creating these companies. The author identified 2,734 Hidden Champions worldwide and no less than 1,307 of them are based in Germany. The success of individual Hidden Champions is based on their leadership and strategy. The most important difference is the continuity of the leadership. The leaders of the Hidden Champions stay at the helm for an average of 20 years vis-à-vis large firms where the average CEO tenure from 2012 – 2016 was only seven years, and the median was even shorter, at five and a half years. The leaders of Hidden Champions are also more likely to come into power at a young age and are more often women than in larger companies. But the reasons they are a predominantly German phenomenon are many. This includes theGerman history of many small independent states which forced entrepreneurs to internationalize early on in a company’s development if they wanted to keep growing. In addition, there are traditional regional crafts, such as the clock-making industry in the Black Forest with its highly developed fine mechanical competencies, which developed into 450 medical technology companies, most of them makers of surgical instruments. Scientific competencies also play an important role. The cluster of 39 measurement technology companies in the area of the old university of town of Göttingen is the result of the leading role Göttingen university’s mathematics faculty had for centuries. The Fraunhofer Institute continues to function as a transmission belt between science and practical applications. The Munichbased Hidden Champion Arri, world market leader in professional film cameras, used the expertise of Fraunhofer to navigate the transition from analog to digital technology, and was thus able to defend its leading market position. A further pillar of the Hidden Champions’ competitive strength is the unique German dual system of apprenticeship, which combines practical and theoretical training in non-academic trades. The Hidden Champions invest 50% more in vocational training than the average German company. Tax advantages are another reason. The high taxes on assets in France and the inheritance tax in the U.S. prevent the accumulation of capital necessary for the formation of a strong mid-sized sector. Finally, the international openness of a society is an essential factor in the globalized world of the future. Germany is far ahead of other large countries with regard to mental internationalization. This includes language competencies, international experience from student exchanges, and university studies. Countries such as France, Italy, Japan, and Korea lag far behind in these respects. Such mental internationalization allows even small firms to compete on a global scale. They achieve world-class quality by keeping their focus narrow; focus is the most important element of a Hidden Champion’s strategy. Flexi, for example, makes only one product — retractable dog leashes — but has the claim to make them better than anyone else. This has allowed them to reach 70% of market share in this category. But focus makes a market small. How can you make it bigger? By globalizing. Today, the Hidden Champions are present in their target markets with 30 subsidiaries on average. Despite their medium or small size, they are true global players. About one quarter of German exports comes from the Hidden Champions. 3) Aswath Damodaran on Crypto Currency: Future of money or speculative hype? [Source: Valuewalk] (https://goo.gl/bSnYkE (https://goo.gl/bSnYkE)) The list of crypto currencies keeps increasing day by day buteven as the crypto currencies emphasize their differences, the most successful ones share a base architecture, the block chain. A block chain is a shared digital ledger of transactions in an asset where the validation of transactions is decentralized. The key features of a block chain are: a) Decentralized verification: The validation and verification of a transaction are sourced to members, called miners in the crypto currency world. Verification usually involves trying different algorithms (hashes) to find the unique one that matches the transaction block, and the successful miner is rewarded, currently with the crypto currency. Currently he believes the process requires more brute force than intellectual firepower. b) Complete and open records: Every transaction, once validated and verified, is converted into a block of data that is recorded in the block chain ledger, which is accessible to everyone in the network. c) Incorruptible: A block chain, once recorded and shared, cannot be changed since those changes are visible to everyone in the network and are quickly tagged as fraudulent. In effect, a block chain is a digital intermediation process where transactions are checked by members of the network, and recorded, and once that is done, cannot be altered fraudulently. With respect to judging crypto currencies, he goes to the traditional definition of money – as a unit of account, a medium of exchange and a store of value. He says, broadly speaking, currencies can take one of three forms, a physical asset (gold, silver, diamonds, shells), a fiat currency (usually taking the form of paper and coins, backed by a government) and crypto currencies. Gold’s long tenure as a currency can be attributed to its strength as a store of value. Fiat currencies are backed by sovereign governments and consequently can vary in quality as currencies, depending on the trust that we have in the issuing governments. For crypto currencies, the question then becomes how well they deliver on each of the purposes. As units of account, there is no reason to doubt that they can function, since they are fungible, divisible and countable.The weakest link in crypto currencies has been their failure to make deeper inroads as mediums of exchange or as stores of value given that the universe of retailers who accepts this form of currency is still very limited. He lists a few reasons why crypto currencies have failed to garner wider acceptance: a)Inertia: Fiat currencies have been the default currency for many years and it may take a while, especially for older consumers and retailers, to accept a digital currency. That said, the speed with which consumers have adapted to ride sharing services and taken to social media suggests that inertia cannot be the dominant reason holding back the acceptance of crypto currencies. b) Price volatility: Crypto currencies have seen and continue to see wild swings in prices – not a good characteristic for a currency. A retailer or service provider who prices his or her goods and services in bitcoin will constantly have to reset the price and consumers have little certitude of how much the bitcoin in their wallets will buy a few hours from now. c) Competing crypto currencies: The crypto currency game is still young and the number of competitors will decline as buyers and sellers pick eventual winners. It is possible that until this happens, transactors will hold up for fear of backing the wrong horse in the race. However, he does blame the creators for not doing enough to market the product to transactors but rather to traders in the currency (who naturally love the price volatility). He goes on to highlight the divergence between the market price rise of bitcoin and the increase in the number of transactions involving bitcoin. While the price of bitcoin has increased more than a thousand fold, the number of transactions involving bitcoin was only about thirty two times larger in July 2017 compared to 2012. He points towards three possible explanations for this divergence: a)Markets are forward looking: Markets are forward looking and the rise in the prices of Bitcoin and Ether reflects market expectations that they will succeed as currencies, if not right away, in the near future; b)Speculative asset: He says crypto currencies are currently in pure pricing games, where fundamentals have been long since forgotten. He points towards forums where traders in these markets converse and how little talk there is about fundamentals and how much there is about trading indicators; c) Loss of trust in centralized authorities: For ages, gold has held a special place in the currency continuum, often being the asset of last resort for people who have lost faith in fiat currencies. While gold will continue to play this role, Damodaran believes that for the younger and more technologically inclined people, bitcoin and ether are playing the same role by limiting the supply of currency. As trust in centralized authorities continues to deplete, you may see more money flow into crypto currencies. Finally he makes an important point regarding the real tests for crypto currencies. He says it will occur when they reach their caps (fixed or flexible). Bitcoin and ether miners have been willing to put in the effort to validate transactions because they are rewarded with issues of the currency, feasible now because there is slack in the currency (the current number is below the cap). As the cap becomes a binding constraint, the rewards from miners have to come from transactions costs and serious thought has to go into currency design to keep these costs low. 4) Silence breaks through the noise of success [Source: Financial Times] (https://goo.gl/Agmav3 (https://goo.gl/Agmav3))
The author of this piece, Margaret Heffernan, recalls her visit to the headquarters of Transasia Bio-Medicals, a large in vitro diagnostics business in Mumbai. She talked for an hour with its senior leaders, discussing motivated teams, collaboration, thorny issues of reward and innovation. When the allotted hour was up, everyone was keen to return to work. It was then that she was caught by surprise by Suresh Vazirani, the chairman, who asked everyone to reflect on discussions for two minutes. Everyone sat in relative silence and later when she asked Mr Vazirani if this was routine, he replied in the affirmative. However, most organisations manage time poorly. They devote resources to managing money but little thought to managing time, which is the more precious resourceExecutives are paid to think. It is the most important thing they do, but they almost never have time. They run from one meeting into another, interlaced with phone calls, emails and corridor conversations, trying to make mental notes that they hope to assemble when they get time, which never arrives. Recalling how when she was juggling two jobs, she had to resort to making an appointment with herself. It was during that ‘alone’ time that she’d think about politics, projects, people, the emotional tenor of the week. This was when she recalled important questions that had gone unanswered, when she found solutions to what appeared intractable problems. It was when she had ideas.Thinking time is a rare and precious commodity that few organisations value. Managers cling to the power to interrupt and being busy is a surrogate marker of status. All of this is disruptive and destructive. Yet finding the time to think needn’t be so hard. Many executive coaches recognise that their chief value lies in creating the time and space in which their clients can think. A banker in Canada once described with deep nostalgia a workplace rule forbidding meetings before 10am or after 4pm; those boundaries provided uninterrupted time to think when, he said, he did his most important work. Some companies declare meeting-free days. Leslie Perlow, a professor at Harvard Business School, wrote a study charting how a tech firm increased productivity when it introduced quiet time. Productivity rose in some instances by more than 60 per cent.The science of silence suggests that it promotes new brain cells in the hippocampus, the area associated with memory and learning. But we put people into working conditions that militate against silence and thinking. In the delusion that seating employees in open spaces will magically facilitate collaboration, we now occupy offices where it is impossible to think. In 2013 researchers studying 43,000 workers concluded the distraction of open plan outweighed unproved benefits of easy interaction. 5) The strange similarity of neuron and galaxy networks [Source: nautil.us (http://nautil.us/)] (https://goo.gl/bBtzVK (https://goo.gl/bBtzVK))
With a hundred billion neurons and a hundred trillion connections, the brain is a dizzyingly complex object. But there are plenty of other complicated objects in the universe. For example, galaxies can group into enormous structures (called clusters, superclusters, and filaments) that stretch for hundreds of millions of light-years. The boundary between these structures and neighboring stretches of empty space called cosmic voids can be extremely complex. Gravity accelerates matter at these boundaries to speeds of thousands of kilometers per second, creating shock waves and turbulence in intergalactic gases. The void-filament boundary is one of the most complex volumes of the universe, as measured by the number of bits of information it takes to describe it. So then is it more complex than the brain? To answer this question the authors – an astrophysicist and a neuroscientist – joined forces to quantitatively compare the complexity of galaxy networks and neuronal networks.The first results show that not only are the complexities of the brain and cosmic web actually similar, but so are their structures. The building blocks of the cosmic web are the self-gravitating halos of stars, gas, and dark matter (whose existence has yet to be definitively proved). In total, the number of galaxies within the observable universe should be on the order of 100 billion. The balance between the accelerating expansion of the fabric of spacetime and the pull of self-gravity gives this network its spider-web-like pattern. Ordinary and dark matter condense into string-like filaments, and clusters of galaxies form at filament intersections, leaving most of the remaining volume basically empty. The resulting structure looks vaguely biological. Andinterestingly enough, the total number of neurons in the human brain falls in the same ballpark of the number of galaxies in the observable universe. While to the eye a similarity between images of the cosmic web and the brain is pretty evident, the authors recommend being mindful of the human tendency to perceive meaningful patterns in random data. Remarkably though, this is not the case in this comparison.Statistical analysis shows these systems do indeed present quantitative similarities. Researchers regularly use a technique called power spectrum analysis to study the large-scale distribution of galaxies. Using this technique it’s revealed that the relative distribution of fluctuations in the two networks is remarkably similar, over several orders of magnitude. In other words this means that the high frequency and low frequency notes that make up the particular melody of brain and cosmic web are remarkably similar. However, as remarkable as the power spectrum comparison is, it doesn’t tell us whether the two systems are equally complex. A practical way of estimating the complexity of a network is to measure how difficult it is to predict its behavior. This can be quantified by counting how many bits of information are necessary for building the smallest possible computer program that can perform such a prediction. One of the authors recently measured how difficult it is to predict how the cosmic network evolves, based on the digital evolution of a simulated universe. This estimate suggests that about 1 to 10 petabytes of data are needed to describe the evolution of the entire observable universe at the scale where its self-organization emerges. The brain complexity too is estimated around similar range – 2.5 petabyte to be exact. Roughly speaking,this similarity in memory capacity means that the entire body of information that is stored in a human brain (for instance, the entire life experience of a person) can also be encoded into the distribution of galaxies in our universe. Or, conversely, that a computing device with the memory capacity of the human brain can reproduce the complexity displayed by the universe at its largest scales. 6) ‘Urgent wake-up call’ for male health as sperm counts plummet [Source: Financial Times] (https://goo.gl/KpRK5U (https://goo.gl/KpRK5U))
The sperm count of men in the western world has fallen by more than half over a period of 40 years, according to an international study described by its authors as “an urgent wake-up call” about declining male health. “Decreasing sperm count has been of great concern since it was first reported 25 years ago,” said author Shanna Swan of Icahn School of Medicine at Mount Sinai, New York. “This definitive study shows...that the decline is strong and continuing.” The researchers, led by Hagai Levine of Hebrew University of Jerusalem, screened 7,500 sperm studies carried out worldwide between 1973 and 2011. The results, published in Human Reproduction Update, show declines of 52.4 per cent in sperm concentration and 59.3 per cent in total sperm count among men in North America, Europe, Australia and New Zealand. Other fertility experts who were not involved in the project echoed the authors’ concern. “The extent of the decline in sperm counts in the western world revealed in this study is shocking,” said Professor Daniel Brison of Manchester university. Professor Allan Pacey of Sheffield University, who has been sceptical about previous research showing declining sperm counts, said the latest research dealt with many of his criticisms. But he urged people to “treat this study with caution as the debate has not yet been resolved and there is clearly much work still to be done”. Prof Pacey also pointed out that the reported decline from 99m to 47m sperm per millilitre still left the average count within what fertility clinics regard as the “normal” range. Although the study does not examine likely reasons for the decline, “previous studies have associated low sperm count with environmental and lifestyle influences, including prenatal chemical exposure, adult pesticide exposure, smoking, stress and obesity,” said Dr. Levine. But there is little hard evidence available to disentangle possible factors. In northern Europe today more than 15 per cent of young men had a sperm count low enough to impair their fertility. The combination of declining male sperm counts and a growing delay in couples trying for a baby — often until the woman is in her 30s and her own fertility is declining — created “a double whammy” for natural conception in modern western societies. 7) Researchers shut down AI that invented its own language [Digital Journal] (https://goo.gl/hsPLTg (https://goo.gl/hsPLTg)) An artificial intelligence system being developed at Facebook has created its own language. It developed a system of code words to make communication more efficient. Researchers shut the system down when they realized the AI was no longer using English. The observations made at Facebook are the latest in a long line of similar cases.In each instance, an AI being monitored by humans has diverged from its training in English to develop its own language. The resulting phrases appear to be nonsensical gibberish to humans but contain semantic meaning when interpreted by AI “agents.” In the case of Facebook, one exchange illustrated by the company, had the two negotiating bots, named Bob and Alice, use their own language to complete their exchange. Bob started by saying “I can i i everything else,” to which Alice responded “balls have zero to me to me to me…” The rest of the conversation was formed from variations of these sentences. While it appears to be nonsense, the repetitions of phrases like “i” and “to me” reflect how the AI operates. The researchers believe it shows the two bots working out how many of each item they should take. Bob’s later statements, such as “i i can i i i everything else,” indicate how it was using language to offer more items to Alice. When interpreted like this, the phrases appear more logical than comparable English phrases like “I’ll have three and you have everything else.” The AI apparently realised that the rich expression of English phrases wasn’t required for the scenario. Modern AIs operate on a “reward” principle where they expect following a sudden course of action to give them a “benefit.” In this instance, there was no reward for continuing to use English, so they built a more efficient solution instead. If AI-invented languages become widespread, they could pose a problem when developing and adopting neural networks. There’s not yet enough evidence to determine whether they present a threat that could enable machines to overrule their operators. They do make AI development more difficult though as humans cannot understand the overwhelmingly logical nature of the languages. While they appear nonsensical, the results observed by teams such as Google Translate indicate they actually represent the most efficient solution to major problems. 8) The risks of World war III [Source: The Independent] (https://goo.gl/Pv1fi2 (https://goo.gl/Pv1fi2)) The prospect of a global conflict – World War III if you like – appears somewhat unthinkable but then so was the case in the earlier two wars. The First World War had been preceded by a prelude of serenity – the long 19th century of relative peace and stability. The great powers of Edwardian Europe had been engaged in diplomacy and trade prior to the onslaught of carnage. During the 1930s, the major powers were keen to avert another war hence the policy of appeasement, the initial reluctance of the US to become involved and the Nazi-Soviet pact. Throughout the Cold War, the concept of a third world war was inextricably associated with nuclear war and the MAD doctrine of Mutual Assured Destruction. Yet it is possible that future conflict between the great powers may take the form of another cold war or even a conventional (as opposed to thermonuclear) hot war.In the 21st century, there are three key fronts emerging as the loci for future wars. The first is the Europe-Russia front with a new cold war triggered by the Ukrainian conflict. The second is the Middle East cauldron centred around Isis and the Syrian war. The third is the Asia-Pacific front with a face-off between the United States and China. Western powers have characterised Vladimir Putin’s incursions into Georgia in 2008 and lately Ukraine as aggressive expansionism. However, the Ukrainian crisis was preceded by two decades of NATO expansionism up to the borders of Russia. This was in contravention of promises made to respect these boundaries at the end of the Cold War. In this view, events in Ukraine have merely been the endgame of this process. A recent report by the European Leadership Network (ELN) think-tank analysed war games including a Russian exercise involving 80,000 military personnel and a set of Nato war games comprising 15,000 personnel. Whilst spokespeople may maintain that these operations are targeted against hypothetical opponents, the nature and scale of them indicate otherwise.Russia is preparing for a conflict with Nato, and Nato is preparing for a possible confrontation with Russia. In fact, recently, the US has stationed troops in Poland in the largest deployment of American troops in Europe since the end of the Cold War. And Russia alarmed the Baltic states by moving nuclear-capable Iskander-M missiles to its naval base at Kaliningrad in the autumn. Back in 2007, the investigative journalist Seymour Hersh posited in an extended New Yorker essay, The Redirection, that US Middle East geopolitical strategy was directed against the regional superpower of Iran and its Shia sphere of influence extending through Syria and to Hezbollah in Lebanon. Following the destruction of Iraq, this sphere remained the only obstacle to US full-spectrum dominance of the world’s largest oil fields. Hersh elaborates on how British and American intelligence have been enmeshed with the use of CIA front companies in an arms pipeline from Libya to Syria dubbed the “rat line”. It was under these conditions that the mutation into the Frankenstein monster that is Isis took place.In fact, a 2012 Defence Intelligence Agency memo had anticipated the rise of Isis and its establishment in Syria in order to isolate the Syrian regime, which is considered the strategic depth of the Shia expansion. The terrorist attacks in Europe have demonstrated the difficulty in containing the spill-over from these policies. The Syrian war has seen the return of great-power politics with the involvement of Russia. This contamination has the potential for a wider conflict in which western countries could be drawn in. One possible trajectory is that a Sunni-Shia war along the Saudi-Iran axis looks increasingly likely. During the Obama administration, the Pentagon pursued the pivot to Asia, aiming to transfer 60 per cent of naval bases to Asia. The US also strengthened alliances with Japan and other Far East partners to “contain” China. Recently, there have also been a series of stand-offs between the US and China in the South China Sea. The US is currently installing a missile defence system in South Korea prompting China to warn of a new atomic arms race in the region. The Trump transition is likely to exacerbate US-China tensions. Trump has threatened a trade war with China. His chief strategist, Steve Bannon, views China and Islam as expansionist threats. China will eventually overtake the US in economic terms but US supreme military dominance is unchallenged.This is a dangerous discrepancy as it means that the US will use this military power to guarantee its economic prerogative. 9) RBI checks out credit checker Perfios [Source: The Ken] (https://goo.gl/uCQoZ4 (https://goo.gl/uCQoZ4)) It can take anywhere between three days to several weeks before a loan is sanctioned. But there is a class of companies called ‘account aggregators’ –AAs–that digitise this process, reducing it to a few minutes, or hours for a complex job. But if it’s so easy why haven’t more banks adopted the digital route? Because instant approvals come with risks. In fact, it is a wonder that a full-blown security disaster hasn’t happened as yet. Perfios says it is India’s largest online AA and the firm assesses the creditworthiness of loan seekers by scouring bank statements to create an intelligent report for the lender. It also has a personal finance management tool that lets users see all their financial relationships in one place. Both services – quickening loan issues with fewer people involved, and a personal finance management product for borrowers – are good to have.But the manner in which companies such as Perfios collect data has made some banks and consumers reluctant to use them. AAs take the client’s user and password details and access their bank accounts, and if that isn’t discomfiting enough, they create duplicate screens in a software-assisted process called ‘screen scraping’. The company says it takes security precautions by encrypting data and runs a two-page disclaimer asking the user’s consent for accessing their bank statements. This process, however, is an open invitation to hackers. In July, Italy’s biggest bank UniCredit saw a data breach where hackers accessed 400,000 customers’ personal data. While no money was reportedly lost, details stored at the time of taking loans such as the names, addresses and bank card numbers of borrowers were stolen. And the bank squarely blamed third-party providers for the breach. The company is tapping a potentially vast market. There are about 400 million people earning between Rs2,00,000 and Rs10,00,000 who have never taken a loan. Digitizing part of the processing of loans is, indeed, advantageous, and would lower the costs for lenders too if accepted widely. So not only will that benefit the AAs, but also the borrowers if lenders pass on the cost savings to them. Currently, Perfios has a 10% share of all the bank statements analysed and 90% share of the online analysis of bank statements. But, all this upside is buried in uncertainties. So, it is a good sign the Reserve Bank of India (RBI) issued directions in September 2016. These new rules say these entities are to be licensed under a new class of companies called NBFC AA. The issue around such companies was first brought to the RBI’s attention by the Financial Stability and Development Council (FSDC), a part of the Ministry of Finance. Therein the RBI became aware of the fact that these companies didn’t handle cash but had access to the IDs and passwords of users, which they realised would endanger customer safety. Globally there’s a debate about using screen scraping and this year the European Banking Authority, too, proposed a ban on screen scraping from online banking interfaces. In India too ICICI Bank, for instance, does not grant access to AAs. This is an interesting dilemma for banks. While they want the AA services to be able to grant loans more quickly, the aggregators make the banks’ risk and compliance teams jittery. In the current rule structure, no one takes liability for a data breach or a fraudulent transaction unless it is proven definitively who the fault lay with – the lender, aggregator or the borrower’s bank. This is where regulations become important. Under it, no third-party vendor can directly ask the user for consent to disclose net banking ID and password. Every single account statement is accessed after the borrower’s consent has been taken by a lender, who then passes it through the AA to whichever institution the borrower has an account with. For Perfios to do business under regulation, it will have to create two separate entities — one for aggregating data and another that analyses that data. The RBI has limited AAs to accessing only financial data – and never actually the money. Neither can they touch mobile or social media records. While these regulations help borrowers, some issues remain. For instance, there is still no clarity about who takes the ownership in case of data security failures. 10) Palantir: the ‘special ops’ tech giant that wields as much real world power as Google [Source: The Guardian](https://goo.gl/PVXbPV (https://goo.gl/PVXbPV)) Palantir, is a CIA-backed startup. To keep its information within safe, its defence systems include advanced biometrics and walls impenetrable to radio waves, phone signal or internet. Its data storage is blockchained: it cannot be accessed by merely sophisticated hacking, it requires digital pass codes held by dozens of independent parties, whose identities are themselves protected by blockchain. So what is Palantir protecting? In 2004, Peter Thiel – the billionaire PayPal co-founder – created Palantir alongside Nathan Gettings, Joe Lonsdale, Stephen Cohen and Alex Karp. Their intention was to create a company that took Big Data somewhere no one else dared to go. In 2013, Karp, Palantir’s CEO, announced that the company would not be pursuing an IPO as going public would make “running a company like ours very difficult”. Palantir watches everything you do and predicts what you will do next in order to stop it. As of 2013, its client list included the CIA, the FBI, the NSA, the Centre for Disease Control, the Marine Corps, the Air Force, Special Operations Command, West Point and the IRS. Palantir tracks everyone from potential terrorist suspects to corporate fraudsters (Bernie Madoff was imprisoned with the help of Palantir), child traffickers and what they refer to as “subversives”. But it is all done using prediction. In Iraq, the Pentagon used Palantir software to track patterns in roadside bomb deployment and worked out garage-door openers were being used as remote detonators by predicting it. Palantir allowed the marines to upload DNA samples from remote locations and tap into information gathered from years of collecting fingerprints and DNA evidence, the results returned almost immediately. Without Palantir, suspects would have already moved on to a different location by the time the field agents received the results. Using the most sophisticated data mining, Palantir can predict the future, seconds or years before it happens. Samuel Reading – a former marine who has worked in Afghanistan for NEK Advanced Securities Group, a US military contractor – has said: “It’s the combination of every analytical tool you could ever dream of. You will know every single bad guy in your area.” Palantir is at the heart of the US government, but with its other arm, Palantir Metropolis, it provides the analytical tools for hedge funds, banks and financial services firms to outsmart each other. On the streets of Chicago and Los Angeles, Palantir is getting closest to Philip K Dick’s vision of the future, now. In the film, Minority Report, a premonition of an Orwellian thought-police state, crime rates drop to zero as the pre-crime unit successfully imprisons thousands of individuals for merely thinking of committing a felony. The Los Angeles Police Department has used Palantir to predict who will commit a crime by swooping Minority Report-style on suspects. Predictive policing is also being used on illegal drivers and petty criminals through a redeployment of techniques and algorithms used by the US army dealing with insurgents in Iraq and with civilian casualty patterns. By Prashant Mittal, CFA | August 5, 2017 | 6,232 Words | Leave a comment Create a free website or blog at WordPress.com.