Some good news for the industry...

Core sectors rebound to hit 6-mth high growth of 2.9%

Holiday Reforms In Japan

The government is considering holiday reform to increase tourism and relieve crowding problems that often accompany vacations. In addition to creating more three-day weekends by switching holiday dates, the government is considering staggering summer breaks at schools by region.
The Tokyo Metropolitan Government and Chiba Prefecture, among others, have already created special holidays, mainly for students at public elementary and junior high schools.
The central government is discussing ways to prompt employees to take more paid holidays. One idea is to change accounting standards so that companies are required to book reserve provisions for unused holidays as debt.
Japan ranks lowest in terms of use of paid holidays, with over 50% of the total going unused annually. The government estimates that using the full amount would create about 1.5 million jobs and generate economic benefits of about 12 trillion yen.
The government plans to work out the details of its plans with the relevant ministries and industries.
Source: The Nikkei

Three day weekends...longer summer breaks. I like the idea. At a time when people are concentrating on bringing a banking reform and designing a export strategy, Japan is going to a new level to boost demand. Obviously the flow through will not be 100%, but still this is a costless policy.

More on free market theory...

I have been seeing videos and reading articles of Milton Friedman. His theory/approach about free market sounds very convincing. People should be free to make decisions. No force (govt) should be applied on them. If selfish people serve their interests then the market will reach the equilibrium state.

I agree in principle. Freedom to choose/live/eat/sleep/consume/invest should be there. But there is something that I don't agree with- Extreme freedom. Some regulation has to be there.
Friedman's theory works under the assumption that every individual is well informed and quite able to make the right (right for him/her) decisions. Is that really true? I don't think so.
There are mainly three problems:
1. Not all people are educated. How many people today understand the tax structure or incentives such as lower interest rate? Unfortunately, not all (Not in India). 70% of the population stays in rural areas.
2. Not all people are fully informed. Do you know exactly how is the govt taxation structure going to affect you next year?
Unfortunately, mostly people are misinformed and need to be guided. If they are given extreme freedom, then their inability to take right decisions for themselves can severely hamper their quality of life.
3. All people are selfish but some are also immoral. Some people don't care about others at all. They just want to pursue their personal goals...not matter what the cost to the society.
For example- Friedman has often criticized democracy. He says that in a democracy people vote for those who want power. Hence, democracy only brings powerful (and selfish) people in the government. That doesn't sound good.
Ok. Back to the example- Today terrorism is a reality. There are a bunch of people who misguide others in the name of religion. Illiterate and poor people are chosen (or recruited) as terrorists. What would Mr Friedman say to that? People are free to choose what they want to do? But Mr Friedman...their choice is wrong...they are killing those who didn't choose death for themselves

Free market theory is a principle. It (in theory) should be applied to every aspect of life. Although, I do believe that people should be free to make a choice, but govts role in the whole system cannot be undermined. Govt is life a referee in a game. Whenever there is a foul, all players should look upto it for guidance and justice.

Problems with slashing salaries in your firm ?

In this uncertain economic environment, employers have been busy with slashing salaries. Sounds like an easy solution to tackle rising costs...right? But there are problems with slashing salaries:

1. There is a mismatch in the salary and the expectation of employees: Any employee would like to earn the maximum that its employer is willing to pay. However, every employer would always like to pay the minimum that the employee is willing to work for. This mismatch gets even more clearer/evident/realistic in such uncertain times. Employers sometimes by slashing salaries reduce the salaries to a level that is below the min expectation of the employees. Employees in such situations may/may not leave in the bad times but will certainly leave their employers when the times become better. Employers in a way will always risk loosing employees at the turn of the tide

2. Employee motivation/commitment goes down
Salary slashing always brings along with it motivation/commitment slashing. Not a difficult concept to understand right?

Here is one "courageous" solution for the employers-

a. Ask every employee to bid for his/her salary. Essentially, ask every employee to indicate a salary corridor that he/she expects from the firm in such uncertain times
b. Tell the employee that the company has already fixed his/her salary, but it will not reveal it.
Rules- If the employee indicates a salary that is 20% to 30% more than what the firm has fixed, then the employee should be asked to leave the firm. But, if the indicated salary corridor is less than or equal to the salary fixed by the firm, then he/she should be paid that much

This sounds like a simple solution, but it addresses the real challenges that the companies face-
1. It filters out people who have high expectations. Anyways, these people either would have left immediately after a salary cut or would have left later when the economy would have bounced back. Clearly, firm will get rid of people it thinks have high expectations
2. Due to fear of getting fired, employees will always be a bit conservative in their bids. This will not only lower the overall payroll bill, but will also make the employees feel that they are getting paid in-line with their expectations
3. No one will blame the firm for slashing any salaries. People will be in a way negotiating their own salaries. ( I am sure that Milton Friedman would have been very happy to hear of such a solution- A solution that gives the power to the people)

Friedman On Drugs

Friedman argues for legalization of drugs.
This is a moral issue. I really don't think that there should be any debate on this.
Drinking of alcohol is illegal for minors. Should we start thinking about legalizing it just because it will bring in more revenue for the manufacturers/retailers and also government (through sales/VAT tax collection)?

Increase in South-South trade

Australia for expanding ties with India
Besides mining, agriculture, education and services, which were some of the core areas of bilateral trade and investment between India and Australia at present, Australia was keen to focus on other potential areas of business like food and beverages business, automotive sector, aerospace industry etc, informed Micheal Carter, Counsellor Commercial, Australian Trade Commission.
“India happens to be the fourth largest export destination for Australia, it is a very important strategic partner for trade, but the current export import activity between the two countries is largely confined to mining and mining resources, education, services, agriculture, and more of a resource-based relationship which can be widened. There is a lot of scope for business and possible collaboration in the areas of food and beverages particularly wine, travel and tourism,” he said.

Australia's exports to India was worth around 12 billion Australian dollars last fiscal.

With a fall in demand from the developed countries like USA, Germany, and the UK, a number of countries are beginning to look for new key trade partners. Although, India is the 4th largest destination for India, Australia is trying to expand trade. This is very critical for countries (like India and Australia) that have a robust banking system in place. For such countries, demand will either come from within (i.e., domestic consumption) or from external sources (i.e., non USA, UK type countries)
Expect to see more trade agreements in the future.

Split or Steal?

http://www.youtube.com/watch?v=p3Uos2fzIJ0

The above is a link to a video of a game show- Golden balls
I saw this video on Greg Mankiw's blog

Great video!! There are three key components- 2 participants and one large bag of money. Each player has to choose one option- Either 'Steal' or 'Split'. The owner of the money is determined based on the choices that these participants make.

Here are the rules:
1. If both the players choose steal then no one wins anything from the prize money
2. If both the players choose split then the money gets split between the two
3. If one chooses steal and the other split, then the full amount goes to the former

Sounds similiar to the prisoner's dilemna problem?

Not exactly. There is a slight difference here. In the actual prisoner's dilemna problem the two individuals are not allowed to talk to eachother. So decision making is very difficult. One has to assume what the other person will do and then take a decision based on it.
However, in this game show the participants are allowed to talk to eachother before making a choice. This does not make one's job easier but it certainly gives a chance to an individual to convince the other person to choose something (in this case 'split'). For example, if you and I are in the game, then I can convince you to split the money with me by choosing 'split'

Obviously 'split'-'split' is one option. But again this means that both the participants will have to trust eachother. You can never be sure about anything here.

In all the different videos that I have seen, i noticed, a typical style of people was to convince the other person to choose 'split'. Then, the smarter (and evil) ones, after convincing his/her opponent to choose 'split', would choose 'Steal' themselves. This is how most of the people (if not all) approach this situation. Effectively, the winner betrays the other person. I didn't see any winner enjoy his/her victory. After all adopting this strategy will mean betraying someone on the NATIONAL TELEVISION. I wouldn't like to show people that I can betray others for some money.

I can think of another strategy. Let us assume that there are 2 players in the game 'A' and 'B'. Our objective is to make A win more than 50% of the prize money (i.e., by not splitting the money).

When 'B' tries to convince 'A' to choose 'split', 'A' tells 'B' that he/she will choose 'steal' and is ready to give a share of your prize money to 'B'. How do you think will 'B' react? He/she will have two options-

1. Choose 'steal'- 99% of the people will not choose this. 'A' has already made it clear that he/she will choose 'Steal'. Now if 'B' chooses 'steal' then obviously no one will win anything...and this will also make 'B' look like an idiot on national television. Why will anyone choose 'steal' when he/she knows that the other person will also be choosing 'steal'
2. Choose 'Split'- All the Bs of the world will prefer choosing this. Obviously 'A' has made it clear that it will share a certain percentage of the prize money. B' will have no other option but to trust 'A'

Why is this approach better? This approach will make things predictable for both the parties. There is no ambiquity. Obviously player 'B' can also choose 'steal' and make sure that no one wins anything. But I don't think that anyone would do that (not on national television)
This will not make 'A' feel guilty about winning. After all it was a deal!!

Update: My friend Pooja very rightly pointed out that the game show organizers may not allow people to negotiate like that. Such an agreement between all the A's and B's of the world will reduce the game show organizer's probability to retain the prize money from 1/4 to zero