The Inequality Compendium

In United States, inequality of income or inequality in general is a hot topic of discussion. I tried to prepare a list of good and relevant points around the inequality arguments.

1) Inequality in charts, more charts.

2) Inequality – rent seeking problem, in short the problem of monopolies

3) Inequality is not actually an issue

4) Inequality is inevitable and caused by increasing automation in industries

5) Details on Economic mobility

6) Who are the top earners? Detailed chart, research and blog post.

7) The racial twist.

7) Inequality of opportunity

8) All in one

Colonialism and Economy

In my earlier post I argued that colonialism has probably no long lasting economic effect on either of the colonizer or the colony. I got a couple of more points to display it. The first is that of Caribbean Island states. They got their independence in different times in the history but that has no effect on their economy. The first one to get independence was Haiti (1804) but they lag behind the all of other neighboring islands by much. The top-of-the-list Bahamas got their independence in 1973 and the second-in-list Puerto Rico is still a US Colony.

The second set of data is of Turkey and Balkans. Turkey had a lot of area (in Europe) under their occupation for a long time in the history. However, in the long term, there is nothing to suggest that Turkey has economically a better performer than the rest. Rather it is more evident that the other East European colonies are doing far better than Turkey. In fact, until recently (till 1980s), Turkish people were far worse of the entire East Europe they ruled for centuries.

Ottoman Turk Colonies and Turkey

Both of these also shows that colonialism has limited effect on a economy of a country in the long term. Of course there are some effects in the short-term, such as draining resources or dependency, but in the long economic history drainage of resources has similar effects to that of a war. A war has seldom made a country poorer – especially if we take recent examples of Germany or Japan.

Colonialism, or as of that the whole thing called imperialism has a different root. If I can see through the eyes of Adam Smith, the famous economist and father of modern Economics -

“No nation ever voluntarily gave up the dominion of any province, how troublesome soever it might be to govern it, and how small soever the revenue which it afforded might be in proportion to the expense which it occasioned. Such sacrifices, though they might frequently be agreeable to the interest, are always mortifying to the pride of every nation, and what is perhaps of still greater consequence, they are always contrary to the private interest of the governing part of it….”“

Well, all that imperialism boils down to the pride of nation. The notion of a colony is a positive pride for the mother country and negative shame for the colony itself. It may be beneficial to the mother country in the economic sense. It may not be as well.

Bangladesh vs Myanmar : The Maritime Arbitration

[Read the latest article on this topic.]

I went through six documents from Bangladesh and Myanmar at the ITLOS website to find out how the court cases are proceeding. There are four documents from Bangladesh – Memorial, Reply and two verbatim records of lawyers. There are a couple of documents from Myanmar – a Counter-memorial and a Rejoinder. Apart from the verbatim records, the other four documents are lengthy – so I had no choice but to glance them through and read the introduction, summary and conclusions only.

Before I go in details of how the arguments are made, I would like to mention a couple of important points. The first one is the fact that both Bangladesh and Myanmar has shifted from their traditional points of bargain in order to enhance their chances of winning the arbitration. This makes sense in the context of arbitration but I am skeptic about acceptance of this tactics in

Bangladesh and Myanmar’s Past and Present claims

domestic politics of these countries – especially in Bangladesh. In case of Myanmar, the traditional line of  claim has been the thin blue line, which is at around 243 degree azimuth. The bold line is at approx 230 azimuth, that approximates the new equidistant line claimed by them. Bangladesh’s traditional claim has been close to  180 degree azimuth line – depicted by bold red line, but the claim at the court has been made in favor of an angular bisector at 215 degree. My drawings are not perfect and I could not get any single image showing both claims properly in all those docs. So, the maps are not accurate. Bangladesh even went a step further and acknowledged that their earlier claims were based on 10 fathom territorial water claim in accordance to their 1974 law, but that has not been accepted in 1982 UNCLOS (Page 31-33). Hence, they are shifting from their claims made early. However a few ramifications from shift of stance are still evident -

1) Even though Bangladesh Govt changed their stance, they never discussed it in public or even in front of media. The Bangladesh media is still publishing articles in favor of 1974 law that wrongly shows the Bangladesh claim to be a vertical line in map. One latest example of such article can be found here. Earlier, I tried to refute claims of another article sometimes back.

2) Even if Bangladesh wins the arbitration, they have to give up claims on significant amount of EEZ as perceived earlier. One of the consequences would be a few gas blocks, as published in maps, may have to be sacrificed. Based on my eye estimation and assuming this map is correct, I believe the blocks 23,27,28 will not exist even after Bangladesh wins the arbitration. Subsequently, Bangladesh may have to amend its laws and/or constitution to reflect it.

3) The dispute became less significant as the area under dispute has gone lower than estimated earlier ( as perceived by Bangladesh media).

Now the second point – South Talpatty Island. This is for the first time (probably) Bangladesh has officially acknowledged that this island does not exist. Sounds bad? It’s actually worse. From the document (page 15, Bangladesh Memorial), it is evident that Bangladesh has this information back in 1989-90, but this island has been mentioned in domestic politics almost a million times in next 20 years. In last 20 years, both BNP and AL Govt did not try to establish the facts in front of common people. The media widely reported the case of disappearance of the same island when a Bengali researcher from Kolkata, Sugata Hazra reported it as a part of his analysis of Global Warming.

The court proceedings are meanwhile going on. After all document exchanges, the court will have verbal arguments. One can read daily minutes and/or live streaming of the sessions at ITLOS website.

Territorial waters dispute

The case is basically divided in three general categories. The first part deals with Territorial waters – that’s within 12 NM of coastal boundary. The second part deals with next 200 NM (nautical miles) – that’s the EEZ boundary. The third one is beyond these two, that is called Continental Shelf.

One Territorial waters, Bangladesh is citing 1974 minutes of meeting to argue in favor of them. Myanmar is counter-arguing that the minutes of meeting doesn’t have any legal validity and they have a different map for territorial waters.

On EEZ, the issue has been so far divided in the issue of equidistant vs equity. The Bangladesh team proposed an angular bisector method to resolve Bangladesh’s issue of concavity and access to international waters. Myanmar insists that the equidistant line itself provides equitable results and court can not “refashion nature”. The Bangladesh argument looks stronger on paper on this so far. However, they have to justify the angular bisector at the first place. The concavity arguments from Bangladesh is reasonable, but they still fail to quantify the magnitude of loss due to concavity. The ratio of coastal length and EEZ area is still may not be quite bad to trigger an adjustment.

Continental Shelf Dispute at CCLS

The last part, on continental shelf, Bangladesh wrote a lengthy piece on Bengal fan to prove how the Bay of Bengal can be geographically considered as a natural prolongation of Bangladesh mainland. Myanmar pinned their arguments on geometric features and other examples where the court has awarded continental shelf beyond the plate boundary. At the same time, Myanmar also argues that the court does not have jurisdiction over continental shelf (which is probably true), but they don’t point out why it should not affect other judgements (such as one on EEZs).

Overall, both parties placed their arguments quite vigorously. Even though Bangladesh arguments look better on paper, I should remind the reader that Bangladesh is a plaintiff in this lawsuit, i.e. the burden of proof is on Bangladesh’s shoulder. Unless they can convince the jury of something else, Myanmar might win it.

There are a couple of takeaways for the other case Bangladesh is fighting – with India. First is that the claim from Bangladesh will be less in that case too, i.e. the overlapping  aka disputed area would be even less. The second is that in case Bangladesh wins this case against Myanmar, they will lose their arguments that they don’t have access to international waters or they are disadvantaged by concavity. An award in favor of Bangladesh would remove both constraints.

Govt sizing – too little or too large?

I came across the quantitative measurement of a country’s economic freedom in a report presented by Economic Freedom of the World. The report concludes that “Countries with more economic freedom have substantially higher per-capita incomes”, with their chart at page 17.

This shows that the least free countries also lags in per capita income and the most free ones have high income.

To derive to a Economic Freedom index, the Journal of Economic Survey assigned numerical marks to each country in each of the categories. There are four basic categories they classify their numbering into – Size of Govt, Legal Structures, Access to money, Freedom to trade, Regulations (Credit, Labor and Business). The one I am going to discuss now, is basically the first one, i.e. Size of Government: Expenditures, Taxes, and Enterprises.

As per their description, this category has four further sub-categories -

• General government consumption spending as a percentage of total consumption
• Transfers and subsidies as a percentage of GDP
• Government enterprises and investment
• Top marginal tax rate

Their basic argument goes like this (quoted from the report) -

“When government spending increases relative to spending by individuals, households and businesses, government decision-making is substituted for personal choice and economic freedom is reduced. … When government consumption is a larger share of the total, political choice is substituted for personal choice. Similarly, when governments tax some people in order to provide transfers to others, they reduce the freedom of individuals to keep what they earn. … They (Govt Capital) often operate in protected markets. Thus, economic freedom is reduced as government enterprises produce a larger share of total output. … Such rates (High income tax rates) deny individuals the fruits of their labor. Thus, countries with high marginal tax rates and low income thresholds are rated lower. …  countries with low levels of government spending as a share of the total, a smaller government enterprise sector, and lower marginal tax rates earn the highest ratings in this area.”

But does it translate to prosperity? Does it at all contribute towards higher per capita income? Surprisingly, the statistics shows a negative correlation between Govt size and Per capita income. I tried to come up with a chart where I list out 20 countries with highest rating in Govt. size and their rank in World Bank per capita income list.

Per Capita GNI rank vs Govt Size rank

So, we’ve got an interesting list. Most of these countries are poor, except for tax havens and Singapore. Besides, the top ranked Hong Kong’s Military and Foreign relations are managed by Mainland China that scores poorly in the Govt size index.

Now let’s see how it looks like for the countries who are rated poorly. The bottom 20 of Govt size countries are -

Per Capita GNI rank vs Govt Size rank

So that becomes interesting, the list includes countries such as Scandinavian ones, Benelux members – countries those offer highest freedom to their population. And more interestingly, on an average, the average rank of these 20 countries is 99.5 in the per capita GNI compared to that of 123.85 for top 20 countries.

So, the end chart of top-10 vs bottom-10 looks like this -

Top 10 vs Bottom 10

FYI, the Top 10 avg drops to 12,502 if we keep Hong Kong out of the list.

Now let’s revisit the facts and hypothesis. Fact one – more Govt intervention/size is correlated to higher per capita GNI. Fact two – more economic freedom is correlated to higher per capita income. However, the hypothesis, as per the report, is that less govt intervention/size should contribute towards higher economic freedom!! How good is the hypothesis then? Doesn’t it falsify the conventional wisdom of higher Govt intervention implies less prosperity? In other words, doesn’t it falsify the neo-liberal economists and World Bank/IMF dogmas?

GNI Per Capita incomes are collected from World Bank Website.

The data about Economic Freedom Index are collected from Free the World website.

Revisiting Regional Cooperation

After I wrote about Bhutan to become electricity exporter and the Tipaimukh controversy, the flow of events didn’t stop. One of the major initiatives in Bangladesh of late, is the effort for more regional connectivity with neighbors. It’s not only a good sign for Bangladesh, but also could usher in a new era of cooperation among South Asian nations in general.

Take example of Sheikh Hasina’s visit of Bhutan. She started negotiations with Bhutan to use Bangladesh road and ports and to import power from the same. The first one would mean a transit facility from India. And the second one is a bit more complex, import of Hydroelectricity. Both the issues are highly sensitive in Bangladesh and could anytime snowball into a topic of mass debate.

The debate on transit and the Asian Highway is a long-standing one. If Bangladesh gets transit into Bhutan (and subsequently Nepal), almost no rational reason remains from their side not to grant the same to India. The transit facility through India should be reciprocal in nature. As a limited time activity, Bangladesh also has agreed to allow India to import all heavy equipments for proposed thermal power plant in Tripura through Ashuganj port. Sooner or later, there would be a pressure to get other parts open too. Interestingly, this Tripura power plant is proposed to be a joint venture between India and Bangladesh (first of its kind). Bangladesh would invest in it and subsequently would receive a share of its electricity. If the reports of Shamokal is true, then Bangladesh is going to talk to India about sharing electricity from Nepal’s mega hydro-electricity plans – reportedly 5000 MWs out of 46000MW proposed with matching investments upfront.

Relating to one recent controversies, the steps taken by Bangladesh Govt. definitely weaken the hard-line stance suggested by some politicians in the Tipaimukh controversy. The Tipaimukh dam would have generated electricity and controlled flood to some extent but also would have damaged environment. Now, Bangladesh is getting engaged into a joint venture in the same North-Eastern grid to import power. The other power import agreement with Bhutan and plans for the same with Nepal is definitely a tacit approval of Hydro-electricity.

It can be remembered, like all manipulations of natural resources, hydro-electricity also has it’s down-side on riparian population and environment. A lot of developed nations has already expressed opinions against it. During Tipaimukh controversy, people against it pointed to the environmental hazards due to it. However, the same is true about hydro-power in Bhutan and Nepal too. If hydro-power import starts, it will weaken the stance that they will stand against environmental damage at any cost. Rather this places Bangladesh in the developing world league, who views development as a must-have, even if it comes at the cost of environment. Interestingly, some people, who argued against Tipaimukh are welcoming the import of electricity. They should soon choose one of the paths in order to maintain consistency.  Or, they should mention clearly that the problem is due to in project location (India) and they won’t be worried about similar developments in Bhutan or Nepal.

So, how close are the dams in Bhutan and Nepal compared to Tipaimukh? The Torsa river flows 100km inside India (the land distance of 50km only) from Bhutan before it reaches Bangladesh, compared to 200 km distance of Tipaimukh and Bangladesh border. The 336 MW Chukha and 1020 MW Tala Hydropwer projects are in this region. As per reports, there are no Environmental impact assessment at all for these projects. Under the mega plans of Hydro-power generation, Nepal has economically exploitable 42,000 MW power resource out of which 10,180 MW is in Koshi river basin. The proposed high dam on Koshi river would be built approximately 300-350 km away from Bangladesh border. Besides, all major tributaries of the Ganges are from Nepal. A massive scale hydro-power drive in Nepal would alter seasonal flows in the Ganges and could have major environmental side-effects in downstream Bangladesh, especially in Baor area. So, the effects that were expected in Tipaimukh, are also to a major extent true for these projects.

The steps taken by Sheikh Hasina shows what cooperation can kick off. The enthusiasm she has injected into the moribund co-operation agenda of India-Bangladesh-Bhutan-Nepal, should be matched equally with the other side of the border. The pro-development choice is common and normal in a region plagued by poverty and the cooperation is in the right direction to get rid of that.

Asian Highway in Bangladesh and India Revisited

I remember writing about Asian Highway issues long back. The situation has changed quite dramatically from then. Bangladesh has joined AH Network despite the little benefit has been promised. A lot of experts has mentioned that Bangladesh won’t get anything from this highway. It is partially true. Bangladesh could have had more to gain if the route through Chittagong to Yangoon was approved.

I came across a nice article in the Daily Star today that discusses highs and lows of Bangladesh decision to get out of the project and then reconsidering it. There are a couple of places Bangladesh could ask for alternative routes – first one is to avoid Tamabil and to join the route through Karimganj-Silchar.

Asian Highway in North East India

The blue line is what the Asian Highway would look like right now. The red line was what was proposed initially by India and the UNESCAP. The Bangladeshi expert, who was interviewed by the Daily Star mentioned that Bangladesh actually chose the blue line as AH route among the alternatives. From any common sense, that defeats the purpose. The red line mostly goes through plains and the blue one through hills. The road length, as obvious from the map, is 400km longer through the blue line.

The interesting comment in the interview was the reason behind such a decision. Mr. Rahamatullah (ex-Director of UNESCAP) says -

“I heard some communications ministry top policymaker saying: “Since India has offered this route, it must have some deep interest in it, so we can’t go for it.”"

On Dhaka-Chittagong-Gundum-Myanmar route (roughly shown here, wrote about it before), he noted that in future if Bangladesh can convince Myanmar, it could be included in AH route. It is unlikely that it would be treated as AH1, since Myanmar does not have interest in it. India is almost 10 times bigger business partner of Myanmar and it is reasonable for them to look for faster access to India. He also told that Myanmar already have good roads in that direction since the second largest city of Myanmar (Mandalay) is connected through it. However, for a country like Thailand, the proposal of Bangladesh should be more suitable.

But I disagree with him where he says joining AH Network does not mean allowing transit to India. While he is legally correct, it’s understandable that India won’t allow foreign traffic to Bangladesh till it reciprocates with a transit deal. Hence, sans transit deal the Asian Highway would be a mere domestic route for Bangladesh. There is a bigger problem to convince other member states why Bangladesh doesn’t allow transit to India. Bangladesh is a signatory of WTO. WTO treaty clearly mentions mutual transit for each of its member states.

The Article V of WTO treaty states (paragraph 2) that -

“There shall be freedom of transit through the territory of each contracting party, via the routes most convenient for international transit, for traffic in transit to or from the territory of other contracting parties. No distinction shall be made which is based on the flag of vessels, the place of
origin, departure, entry, exit or destination, or on any circumstances relating to the ownership of goods, of vessels or of other means of transport.”

To clarify what transit means, the Havana charter of WTO negotiations states that -

“”a movement between two points in the same country passing through another country was clearly ‘in transit’ through the other country within the meaning of paragraph 1.”"

India-Bangladesh transit is merely the same as the above, it connects two points in India via a route through Bangladesh. As a least developed country (LDC), Bangladesh gets sufficient time to fulfill its commitments towards WTO. Currently, Bangladesh ministers “officially” say that their roads are not good enough to handle the additional volume of trade. Once the Asian Highway is operational, this logic would hardly work. Interestingly, Bangladesh joined WTO in 1995 when BNP led alliance was in power. Ironically, the same BNP led alliance is against the transit deal till date. I doubt they overlooked this article.

Mizoram to Sittwe proposed route

For India, the AH1 is a mixed basket. In the North East region, the circuitous AH proposal should help India to improve the quality of roads as most of important regional Indian cities (Imphal, Kohima, Dimapur, Guwahati and Shilong) are connected to it. The former proposal could only have touched Silchar and Imphal. However, in it’s own interest, India should prepare the latter route also. At the same time, no route is suggested for connecting Mizoram to Sittwe – a proposed trade port to be used by India in near future. Sittwe has been developed as a port to be used by North East India at a cost of 100 million US Dollar. In next 4 years, it should be ready to use. India also did not get Myanmar to agree to Indian proposal to upgrade Stillwell road (also known as the Ledo Road), that connects India to China directly. Both India and China are quite eager for it and completed the respective section of work. Now the connector between India and China would be the Asian Highway 3, which goes through Myanmar to Kunming, China. The other important miss would be the development of Siliguri corridor, which India could have got if Bangladesh stayed out of Asian Highway. However, from international transport point of view, it would have been a disaster. Hopefully, India would get all these to be included as minor Asian Highways at a later point of time.

One nice thing about this stretch of Asian Highway is that it goes through a lot of National Parks in India. A better quality road should make way for a higher tourism revenue in North East Indian states. Not only that, they could now easily get connected to prosperous South East Asia to latch onto economic boom. In next few decades, the North East India, riding on high literacy, could turn out to be a major outsourcing destination for South East Asian Nations.

Post Mumbai Attacks : Iran-India Pipeline is Dead

I read an excellent article in the Times of India by Swaminathan Aiyar on Iran-Pakistan-India pipeline. He argued why the project is dead now.

The problem is the denial. Post-Mumbai attacks, we’ve seen so many flip-flops from the ministers and officials of Pakistan that we can expect in the pipeline also.

The problem in the current plan is that there is a section of pipeline that is dedicated to India (See the Red dotted line on the map) but it is coming from Pakistan. If some militants (read LeT for the time being) blow it up, Pakistan government would put the blame on “non-state” actors and they could set up a “joint investigation council” to investigate it. They will argue that Baloch (Balochistan is the shaded region in the map of Pakistan) separatists indeed bomb their own pipelines, so they are also a victim of similar terrorist attacks. Furthermore, it could ask for “credible evidences” to find out non-state actors even if everybody knows who did it.

This possibility would skyrocket the insurance premium and that would damage the viability of the project. It is possible that we could get cheaper gas with a lower insurance premium if we get a pipeline undersea. The undersea pipeline, again, has a higher cost to build and maintain.

India-Pakistan-Iran Pipeline

What he proposes is quite interesting. We need to go for a design where a destruction of the pipeline would damage both India and Pakistan equally. To ensure that, the pipeline must come to a point where both India and Pakistan has equal stake. As per him, a point at Kutch, at India-Pakistan border, we could split the pipeline into two – one towards Pakistan and the other to India (See the Grey line on the map). This would increase the length of the pipeline but would make the project viable. Because, this design follows MAD or Mutual Assured Destruction. If the pipeline is sabotaged, both sides will suffer equally. This will make both parties equally careful about the pipeline. Once this is ensured, the insurance premium will go lower. However, he did not propose any solution for the TAP (Turkmenistan-Afghanistan-Pakistan -> India) gas pipeline (See Green dotted lines on the Map). If we go by him, that project is also gone out of hand. it would pass through the uncontrolled Afghanistan and NWFP where these “non-state actors” reign.

Of late Pakistan has proposed Iran to buy India’s share of gas from the IPI Pipeline. It is because they understand that India would probably not participate in that in forseeable future. They’ll probably put pressure on Iran to get the price of gas reduced. It’s a tactical ploy which may or may not produce fruitful result.

Picture Courtesy

Economics : Blasts in Delhi

Another blast rocked Delhi. Well, don’t be surprised by that, I guess Indians need to acclimate themselves with these seasonal blasts. I believe there will be occassional blasts in different parts of India for next three to four years. Are you afraid of that? Learn to live with this new phenomenon and hope that none of your friends and relatives are lost.

There are some factors other than the religion also need to be considered in this context.
The high growth in last ten years has brought a couple of things that are related to this blasts. First, it has created a sense of deprivation among a set of people. On the other hand, it has made a lot of people losing their high/equal status with their counterparts. For example, people who were in traditional business do feel deprived when they compare themselves with the common employees of knowledge industry. I feel the entire gang of people involved in the blasts are from this ‘deprived’ set. I can see most of these people are actually from traditional ‘well-to-do’ families.

The fact is, the partity is not going to be restored in near future. They have to live with that. A few blasts won’t be able to change anything in India. The miscreants are hoping for a split in the line of religion. They expect BJP to come to power and adopt some hard-line strategies which can widen the gap. However, I felt that Indians are not going to get to that trap. Indians have learnt to stay away from the politics and concentrate on the economy. That is why, the economic policies of Congress and BJP are basically the same. Hence, the saviour may once more be the economy that offers so many options that people may not even look back at a few blasts. They would rather restore normalcy and resume their run behind the money. And the game will continue, nothing will change.

On the other hand, none of the real culprits will get arrested soon. I feel they may even go into a voluntary moratorium on these blasts and even then Police won’t be able to find them. The international terror network is so strong in these days that Indian Intelligence is bound to fail with their tiny muscle power. However, they have improved upon one major area. They have stopped blaming Pakistan, Nepal and Bangladesh. They are now at least have accepted that these are carried out solely by Indians with or without having any major helps from the other side of the border.

While talking about religion, I would also like to point out an important series of events going on thoughout the country. The attacks on the Churches and missionaries have culminated this year. So, ten years later, if another series of blasts take place, won’t we be looking at a larger set of people to pick the culprits from? Think about it.

What happens if a series of bomb blasts in Kolkata during Puja? Bombs of low intensity would be good enough to cause a significant damage. And there will be a series of reports coming up on the TV channels, a few dull statements and blame game from Ministers, messages to keep harmony, release of drawn pictures of the suspects and … it’ll go on. A repeat is expected. But Kolkata may have been spared till date since it is not doing much in terms of economy. So the mentioned ‘sense of deprivation’ is absent in Kolkata (or it’s among all sections). There is an advantage to being backward. Kolkata probably can rest on that, for now.

Are Online Advertisements going to die?

Patrick Dixon is a famous futurist who is basically a technical consultant also. He has focused onto online advertisements on his video uploaded in his youtube home.

The claim that he has put is quite astonishing. He says that online advertisements does not have market and Advertisement as a whole will be jolted by a new phenomenon called web 2.0. The Web 2.0 boom is nothing but the omnipresence of social networking sites in all possible arenas of our society. As it spreads like a virus and ‘infect’s a bunch of people whom a particular customer know of, it will very soon penetrate almost all the Internet users. That implies, each of the Internet users will have two choices – get the information from the official site or from the social networking sites.

To put the same words with the help of an example, let me take ITC Sonar Bangla in Kolkata. It is by far the best hotel in Kolkata, at least for the last few years. Now, a person who’s interested to stay in Kolkata for a week or so, would definitely look for a good hotel in the city. Once he searches for hotels from Kolkata, he’d obviously get a few more links than the official sites of the hotels. Along with them, the social networking sites will prompt a few discussions on the experience in the same hotel. As an user, you would always be attracted to know the experiences of other people. So, a huge banner on top of the official site having a poster of a cricketing icon will not get the hotel much business if the social networking sites discuss customer discomforts at the hotels. As a matter of change, the official sites will only hold information – i.e. the rates, the discounts and the check-in times. On the other hand, the king-maker would be the social networking sites since people will check for the feedback. That’s what at least he predicts.

I personally both agree and disagree with him. The big posters with flash pop-ups will be gone. But more and more of the online advertisement will go to the technology and intelligence of the advertisement. One of the most important value propositions the online advertisement world is offering is the “reminder service” – i.e. remind us of the advertiser each and every time we surf them. And, reminder does matter if you can be at the right place at the right time. That is why search matters. When a person searches for a hotel in Kolkata, it is so important to remind them of the advertiser and to create at least a place in his mind.

Not only that, as the business like hotel and airlines are getting congested with more and more brands, to start up and create a new brand also requires to be at the right place at the right time. To provide quality service is always essential, and would probably be more essential than it was before, but the quality of service hits a plateau very soon. Then the other value propositions come into effect – like the advertisement.

Getting back to the example we started with, let’s imagine the virtual user looking at the bad experiences about tens of ex-customers of the hotel. What happens if he sees a competitor hotel advertisement at the corner of the same virtual discussion board? He will certainly look around at that option, even if it is a much less known Hotel than the ITC and its competitors. If the customer feedback is good enough, he can settle for the less known one rather than joining the league of much overvalued ones. Doesn’t it matter to be at the right place at the right time?

The technology that I want to point out is what we call “contextual advertising”. It has a huge market and will have even bigger one beyond the space of Internet. Interestingly, I believe this concept of contextual advertising strategy is as old as the human civilization itself. I can see all the sadhus, gurus and the religious campaigners gather around the temples as they expect some religious people to come to the area. All the sports equipments are advertised near the stadiums. Still, they seldom can be at the right place at the right time as an advertisement placed by Google once you search for something. That is why “contextual advertisement” is so interesting space to work on in the Internet. I believe, the true strength online advertisement industry is yet to be revealed – it will be there along with the new era of Artificial Intelligence.

Steven Levitt says why fat salary doesn’t work …

Levitt Says (gist)

I think Financial incentives are far overrated. The problem is that the people acclimate with them almost immediately. My friend works at a dogfood manufacturer in Boston. A lot of poor migrants work for the factory, they make very poor wages. As perk, she once organized that all of them would get a turkey for Christmas. The first year they were very happy. They were so elated that the company is providing them with some benefits and the morale went high. The next year they again gave a turkey and nothing really happened. Within a year the workers were decided that it is their God given right to get a turkey from the company. The third year they were furious. They complained that the turkey this year is not as big as the turkey last year. This is true for any kind of financial incentives – as soon as you give it once, people just expect to get it over and over.

I think the real answer is to cajole or trick your employees into thinking that what they are doing is important. That’s far more effective in the long run than giving the money. People who love what they do, think what they do makes the difference, are much better employees. For example, I spent a lot of time in Google. And Google is more cult-like than any other organization is. People who work for Google love Google, they think Google is incredibly important. That’s how Google is able to keep their employees happy.

And I add -

The other side of the coin is equally important. An employee should not commit to a company only by looking at the financial incentives. Because, very soon he’ll get used to it. Employees should look for a place where they can make the difference, or they can add important values to the company. That may not convert to a short term financial gain, but in the long run, it will worth more than mere money.

(Inspired by Steven Levitt’s talk. Steven Levitt is a famous Economist and author of the book Freakonomics.)