What the Indian Government can learn from Steve Jobs

Recently, stories surfaced that Steve Jobs had designed the iPad for the first time way back in 1999, and the first iPhone all the way back in 1983. If Ray Hammond, who wrote the world’s first guide to e-commerce “The Online Handbook” more than 2 decades ago, is to be believed, Jobs had already conceptualized the iPhone, iPad, even Siri, as early as in 1983. Such stories only make one wonder why were such brilliant innovations locked-up for so long? If Steve Jobs had already understood that the future was about combining computing with mobility, why did he wait for over a decade to launch it commercially?

In 1998, a year after re-joining the company he co-founded (he resigned after a power-struggle between him and CEO John Sculley in 1985), he famously said that he was “going to wait for the next big thing” when asked by Richard Rummelton about his future plans for Apple. The key here is not just patience; as important as it is, it is pointless without preparation. Upon his comeback, in addition to doing the textbook stuff such as reducing inventory and moving production offshore, he also discontinued several product lines (from 15 desktop models to just 1), eliminated peripherals, and fired many engineers. The goal was to save Apple from the brink of bankruptcy, and his way of doing it was to not insert itself into a market already saturated by IBM and Microsoft (desktop computing), but by dominating new markets altogether (iPods, iPhone, & iPad).

In his sunset years, Steve Jobs had become a global icon, inspiring everybody – CEOs, entrepreneurs, engineers, designers, consumers, and even students who weren’t sure yet. So much so that in November 2009, Fortune Magazine named him CEO of the Decade. So, what does the Indian government have to do with all this? Not much to be honest; but there are a few lessons that they can take-away; lessons of vision, opportunity, quality, control, patience and preparation. 

1. Vision – Steve Jobs’ vision needs no further testimony than the fact that the popularity of Apple products have made the consumer electronics giant one of the world’s largest public company with close to $100B in cash reserves alone (more than many national treasures). He knew the future was about the marriage of computing & mobility. So he envisioned tablets before anyone else. He was the first to obsolete the use of floppy disks in 1998. He was also single-handedly responsible for Adobe systems to discontinue Flash (the platform that most games, YouTube, Skype, etc. are based on) about 18 months after he publicly espoused HTML5 in an open letter in 2010, saying that it was faster and more efficient in memory consumption.
   
   
   
   
2. Opportunist – In an interview to Wired Magazine, Jobs once said “Creativity is just connecting things.” He did not create anything new; he did however synthesize things well. Macintosh, Apple’s popular personal computer was essentially Apple II (which by the way was single-handedly created by co-founder Steve Wozniak) plus a Graphical User Interface (created by Xerox) and a mouse. There were already numerous portable media players in the market before Apple launched iPod, and there were already several smartphones before the iPhone, and tablets before iPad. However, Jobs realized that it was time Apple, on the back of its product design competency, forayed into those markets. Soon after, Apple turned into the new benchmark in the consumer electronics sector, from just a niche computer seller before.
   
   
3. Quality– Jobs was well renowned to be an abrasive & ruthless manager. According to his biographer Walter Isaacson, his cruelty was a product of his quest for perfection in everything he did, be it building Apple computers, or a fence with his father. Furthermore, he wanted to be around only such people who also demanded perfection. He therefore took many products off the market when he rejoined Apple if he thought they were not up to his standards of product quality.
   
   
4. Control – For Apple products to be as revolutionary as they have been, compromising on product quality was not an option. To achieve that level of perfection in engineering and design, Steve Jobs tightly controlled everything at Apple from the top and had the final say on everything, be it manufacturing processes, design, logistics, or marketing. Such a structure is usually associated with start-ups, where the entrepreneur has to take charge of everything. But Jobs practiced it at Apple until the very end, and made Apple the largest Corporation in USA (surpassing Exxon Mobil) by market capitalization.
   
   
5. Patience – Results are a product of both, the concept and execution. Within the realm of execution, a very crucial element is that of timing. Wonderful ideas can fail because they’re ill-timed. So it was reasonable for Jobs to hold on to his idea until he felt the time to execute had arrived. His priority was not to be the first, but to be the best. The fact that high-growth economies of India, Indonesia, Africa, and China still haven’t impressed him enough to consider as serious markets (his focus remains on the developed countries) is another example of him showing immense patience.
   
   
6. Preparation – Waiting for the right time does not mean one just sits back and malingers, especially when perfection is desired from the final result. So one has to be prepared. Newton was Apple’s first handheld device (PDA) in 1993. But despite groundbreaking design, touchscreen with handwriting-recognition, it was discontinued by Apple (upon Jobs’ return in 1997) as it was (a) ahead of its time, and (b) not perfect. But until the right time came, Apple continued developing the device further (both hardware and software) and when it launched the iPad, it changed the way people consumed digital information or entertainment. Behind this digital revolution, just like any revolution, was years of preparation.

These 6 ingredients were crucial for Apple’s success, and Steve Jobs ensured that he led from the front. This is the lesson that the Indian government needs to learn. While there is no shortage of visionaries among the bureaucrats, the execution and implementation of their farsighted plan remains poor. India’s biggest advantage going forward would be the size of its workforce, and domestic consumer market. However, what many commentators are calling Demographic Dividend can easily turn into a Demographic Disaster if critical issues like Malnutrition, Poor Education, Infrastructure, Healthcare, Employment, and Disciplined Policymaking are not addressed.

As far as Opportunity is concerned, India’s got its fair share. Not too long ago, the Commonwealth Games presented one such opportunity to show the world a promising new India. What it showed instead was how mismanaged and corrupt India was. How the quality of infrastructure was still grossly inadequate, and how poor the quality of planning and execution of this major event had been. Opportunities came again; with the West grappled with a severe economic slump, capital looked to flow to Emerging Markets, and India was once again in the spotlight. This time, it was partisan politics and policy paralysis that was plaguing the country. 

I admit it would not be fair to demand perfection from any government, regardless of their economic might or political ideology. However, what ought to be expected from the Indian government is to show leadership, and responsibility. The economic policies should pro-business rather than welfare-based; giving away freebies and waiving off loans among the poor during the election periods offer no long-term solutions nor do they improve sustained living standards. By developing an entrepreneurial ecosystem, giving tax-incentives, offering legal and bureaucratic assistance, promoting new businesses, allowing them to fail, and start-afresh (does this ring any bells?), the government will be able to not only improve living standards sustainability, but also see India rise in the global value chain, not to mention the other benefits (such as improved capital inflows, tourism, robust economic activity, etc.) that the nation will gain from. Like I said, perfection is not expected, but even small steps in the right direction would do wonders too.

For a nation like India – large, diverse, democratic, but corrupt and underdeveloped – the need for exceptional leadership from its government is even greater. By no means am I suggesting a Socialist system; if anything, I encourage the Free Markets with Minimal Government Interference. However, it would it would be very inefficient to adopt the same top-down control like Steve Jobs. So the government’s role should be that of an administrator and supervisor. Paradoxical as it sounds, the Government needs to play regulator, and yet, moderate regulations at the same time as over-regulation would be counterproductive and slow down economic activity. One way to achieve this is shrewd decentralization (more on this topic in future posts).

This brings us to patience and preparation. After having gone through the “Hindu Rate of Growth” for decades until economic liberation in 1991, our political top brass already has patience aplenty. The youth, in contrast, born in an age of instant gratification, are understandably impatient. Over time, several opportunities will come and go, but the need of the hour is for the two generations can work together and build the nation’s physical and social infrastructure. Without such intense preparation, opportunities like Commonwealth Games will bring more scams instead of praise, and insufficient nutrition and inadequate education make the Government's job of turning India from a welfare-dependent state to empowered nation an unattainable ambition. 

Food-O-nomics

For India, one of the crucial talking points of the year 2011 has been the sharp rise in food prices. So it’s only fair that I do a piece on this topic as well. However, through this piece, I would like to go to the basics, (ignore political bias and pragmatic difficulties) and look at the demand-supply dynamics in the food economy. So without further ado, let’s look at the situation we have at hand.

Since the demand and supply of food (or any other good/service for that matter) is dependent on its Price (P) and quantity available (Q), we plot a graph using P & Q, and proceed from there. Let’s say that the national demand for food is represented by the Demand Curve (D) while the national supply of food is represented by the Supply Curve (S). As we can see, D & S meet at point O, which is called the Equilibrium Point, at which the demand for food is matched by supply, and hence at quantity Q, its price is P.

For those who are already confused, let me give you a simplistic example. Assume that the demand & supply curves for Apples meet at point O, where the quantity of apples produced is 100 dozens and the price per dozen is only Rs. 20. Therefore, we can say that in the market of apples, equilibrium is at :

Q = 100 dozen      &        P = Rs. 20 / dozen 

Now using this framework, let us now see how different external events affect the prices that we as consumers have to pay for food.  

1. Government implements a rural job guarantee scheme (NREGA) which promises 100 days of employment every year to adults in rural households at Rs. 120 per day. 

Since agricultural labor prices were traditionally determined by market forces (i.e. supply and demand), they were lower than what they are now. Hence, schemes like the NREGA have artificially inflated the labor prices, which the farmers have to pay. Since the farmer only has limited funds, he has to lower other costs to accommodate the rise in labor costs, or scale down his output. Since most of the other costs cannot be lowered much further, the only alternative that remains is to lower output.

2. Poor infrastructure, & the government lacking willingness (or ability) to reform has led to severe wastage of farm output. 

Shoddy logistics, inadequate supply-chain mechanisms and substandard storage facilities have resulted in more than 30% the fruits and vegetable produce to rot before they even reach the market. All the while, the government eagerly spending Rs. 40,000 Crore (US$ 8.1 billion) on the NREGA scheme alone, and another 80,000 crore (US$ 16.2 billion) on fertilizer subsidies, but has failed to develop agricultural infrastructure. Instead of "spending" in that space, it is asking private companies to "invest" in such infrastructure. Can anyone else also see the absurdity in this scenario? At the end of the day, the implication here is simple - Loss of Output. 

Both the scenarios mentioned above have one common element. There is a fall in output because of either government action, or government inaction (don't you love such irony). Or in other words, there is a decline in the Supply of output. On the graph, this is represented by a shift of the supply curve to the left (inward shift). As you can see, with demand holing up, a fall in supply causes prices to rise. 

You can see that as the supply curve S shifts to S2, a new equilibrium point (O2) is formed where the quantity of output declines to Q2, and prices rise to P2.

I have only mentioned two examples, but there are many more issues that cause the output to fall, and a decline in supply. For instance, the Food Security Act (FSA) mandates the government to procure most of the annual grain output (and then import some more), to sell at subsidized rates. The prices are set using what's come to known as the 3-2-1 Model, where each family will pay Rs. 3/Kg for Rice, Rs. 2/kg for Wheat & Re. 1/Kg for Coarse Grain. At an estimated cost of close to Rs. 1.2 Trillion, experts are warning that the program can impact prices not just in India but the whole world. But the most imperative question at this point however is that how is the program going to be paid for and what impact is this going to have on India's fiscal deficit? 

However, what I have said so far is only a 1-dimensional view of the food market i.e.  only Supply side issues. For a diligent view, it is crucial to look at the demand side of the equation too. So let's go back to the NREGA; one consequence of this scheme has been that the rural incomes have risen leaving them with more money, which they can use to buy, among other things, more food (or some more tobacco to chew) for the household. This would increase the overall demand for food. Bear in mind that the government's Food Security Act only covers rice, what & coarse grains, and not fruits, vegetables or any meat/poultry. Hence despite FSA's exhaustive efforts, rural households will still have to pay market prices for the other food items. On the graph, this situation would be illustrated by a shift of the demand curve to the right (outward shift).

And somewhat like the last graph, observe that as the demand curve D shifts to D2, the new equilibrium point (O2) is formed where the quantity of output rises to Q2, and prices rise to P2.

I don't like repeating myself, but I have no choice except stating the obvious conclusion - government actions yet again have caused food prices to rise. Rising rural incomes may undeniably be a positive outcome, but its consequences are not. While the average GDP growth over the last 5 years has been 8.6% & the average population growth has been 1.3% (read: demand growth), the average annual growth in the agricultural sector has been a measly 3.1% (read: inadequate supply growth). An economic survey shows that post liberalization in 1991, annual per-capita production of food grains has declined 11% from 208 kg in 1996-97 to 186 kg in 2009-10.  

In my next post, I will take this discussion further and show you the solution to this predicament, and talk about measures that the government should take if it seriously wants to lower food prices in a sustainable manner.