Oh, What a feeling!

Oh, What a feeling! ...a famous Toyota tag line in the 1980s Toyota commercials.

Toyota reported today that it expects a net loss of 350 billion yen ($3.85 billion) for the fiscal year through March -- a stunning reversal from the record 1.72 trillion yen profit it posted the previous year. (AP)

Sharp, one of Japan’s largest electronics companies, said it will make its first operating loss as a listed company in the year to March.The company cut its forecast from an operating profit of Y130bn to an operating loss of Y30bn, and also expects a net loss of Y100bn.The forecast figures highlight the depth of the downturn that has hit Japan’s electronics companies. Sony, Panasonic, Toshiba, NEC and Hitachi have all said that they will lose hundreds of billions of yen this fiscal year.

Key sectors of the Indian economy shed half a million jobs in the final three months of last year as the global slowdown took its toll on one of the world’s fastest growing big economies.A survey of employment across seven sectors by the Ministry of Labour showed job losses in mining, textiles, carmaking, transport, metals, gems and jewellery and back office process outsourcing. Employment of contract workers in the motor industry alone fell 12.5 per cent during the period as demand slowed and the liquidity crisis shortcircuited demand in the global economy. But the report showed that the gems and jewellery sector, a usually strong export performer, was the hardest hit with a total fall of 9 per cent.Many additional jobs among contract and temporary staff, particularly in textiles, are likely to have gone unrecorded. Workers in many industries are being encouraged to take pay cuts and work longer hours to save their jobs.

More than 20m rural migrant workers in China have lost their jobs and returned to their home villages or towns as a result of the global economic crisis, government figures revealed on Monday.By the start of the Chinese new year festival on January 25, 15.3 per cent of China’s 130m migrant workers had lost their jobs and left coastal manufacturing centres to return home, said officials quoting a survey from the agriculture ministry.The job losses were a direct result of the global economic crisis and its impact on export-oriented manufacturers, said Chen Xiwen, director of the Office of Central Rural Work Leading Group. He warned that the flood of unemployed migrants would pose challenges to social stability in the countryside.The figure of 20m unemployed migrants does not include those who have stayed in cities to look for work after being made redundant and is substantially higher than the figure of 12m that Wen Jiabao, premier, gave to the Financial Times in an interview on Sunday. Speaking on a visit to the UK on Monday, Mr Wen said there had been signs at the end of last year the Chinese economy might be starting to recover.

Moral of the story: When irresponsible behavior spreads like a contagion, and the sane people do not protest, everyone suffers.

India through students' lenses

* Thanks again for everything! The trip was amazing!
* Thanks for all that you did for us on the trip!
* Thanks for a fan-tabulous January!
* Thanks again for everything.  It was a great trip and an
experience I will never forget!

**From LM**
Flipping over to how globalization has impacted India's economy you can
visually see how it has helped,and hurt them. Globalization has created
job opportunities for many educated Indians. However, it is not
possible for everyone to get an education. We found out that parents
send their kids to school and pay for it. Public education is free,
but you have to pay to go to college. So, those with money get educated.
Even with free public education parents don't send children to school
because the schools are either too far away, or the child helps bring
money in to the family and they lose that source of income with the child
at school. So, on one hand India benefits from the jobs made available
to them by companies who decide to outsource there, but on the other hand
many Indians do not have the education that will allow them to apply
for or succeed in these jobs. Globalization leaves the poor class poorer
and the rich class richer.
   I believe that globalization might more effectively help the Indian economy
if the whole “trickle down economics” phenomena was actually applied. I am a
very big skeptic of trickle down economics because you rely on the morals of
company owners. Indian companies have to make a conscience effort to put money
back into the economy around them, but it's hard especially because the money
goes back to the parent country. I did not see much of an effort from the
local companies to put that money back into the area around them and
I am not sure they have much control over that. 3i said that they were helping
the economy because the government was bringing electricity to them, and
therefore the area surrounding them. It did not sound a lot like they were
doing anything consciously to help those around them though. Not to say
that all those who own companies are morally corrupt. Infosys definitely
helps those around them, but the company began in India so they're investing
in their parent country.
India is on the turnaround with all of the foreign investment they are
receiving, but we have yet to see an effort from these foreign companies to
help all of India really improve itself. I believe that when companies
begin to feel more responsible for the impact that they are making, that
India will have a better chance at becoming a developed nation. There is
a rich culture and a long history of tradition that needs to be accounted for when
looking at that impact. When these big companies outsource to India or any
other country, they need to look at the background and traditions of that
country to understand how they are helping and hurting not only the
economy but the foundation of that country's beliefs.**

**From PM**
India is a place of great imagination, entrepreneurship, and contrast. It was exciting to be able to visit India at this exciting time during its development. There were so things that I was exposed to during the three weeks we traveled. One thing that particularly struck me was India's position on the evironment. The country seemed to be dirty with trash collection a difficult matter, and recycling almost impossible. 

On one side India seemed dirty and polluted by the people who would then use the same water for drinking, yet there was much more than could be seem by the common eye. The trash that was piled up along the streets to be collected by the government was not just sitting to be collected for the landfill. At a closer look, people would come to rummage throught the piles and find things that could be reused. The cans and jars would be washed out and then sold to a shopkeeper for a few ruppees. While exploring India, we encountered such stores that would seem crazy to America's consumerism, however they were actually quite resourceful and creative.

Cans were not the only thing recycled, newspaper was also used in a very special way. It was collected and then sold to store owners for a variety of uses. Many times street venders would turn the paper into an icecream cone shape so that it could be used for corn, popcorn, or other vegitable mixtures. It was one of the most disorganized yet efficent ways of recycling. There was no centralized system of recycling, only people who would themselves recycle and reuse. It was truely one of the most facinating things that i have seen.

In a country so poor, it was such a contrast to see how environmentally friendly and conscience the people were. In hotel rooms, signs were posted to remind international guests, who were treated like kings, to turn their lights off before they left their rooms. However, very geniously guests required to keep the key in the slot to keep the lights turned on. The inconvience for guests charging electrical equipment while out of their rooms was much small than the amount of electricity saved. It was not just hotels that were trying to save electricity, but the entire country. During our visit to Visteon, I noticed that the company had cleaverly created slots in the ceiling so that light would come into the factory naturally. There were not lights on at all. The use of skylights is someting that even developed countries could learn from India. It was even better than solar or wind energy.

The country does have a plan for its energy problems and shortages. It is planning a mix of nuclear, solar, and wind power. In the future, clean energy should replace dirtier methods. The only thing stopping India from developing clean is capital. It still doesn't yet have the money to use much green energy, but its goals are working towards that. In India, it is hard to forget about the impact one person makes on the globe because of the sheer number of people there are, and because of the amont of trash visible everywhere. I am excited to see India's growth. Because India is developing in the 21st century, it might well surpass America in ecofriendlyness one day.

Ever-widening circle: of Greed, Corruption, and Devasation

A few days ago, I met some bright MBA students at a highly regarded graduate school in India. These students used the word "recession" in describing the Indian economy- they were quite apprehensive about the job market when they graduate in a year. Their attitude was quite downbeat, considering that India's GDP is estimated to grow in excess of 5% this year. In addition to the global macro factors, domestic spending seems to be curtailed, and corporate scams like the one involving Satyam are being feared. This was also reinforced during my discussions with academics and business leaders in India.

This experience ties in very well with the U.S. storyline. Some of my students who were promised internships for the upcoming summer are being informed that the offers are being withdrawn. Large firms like Starbucks and Boeing are doing RIFs (Reduction in Force). In addition, companies like IBM are stealthily doing layoffs. Microsoft, Intel and others have added to significant layoffs announced this month.

The root cause of these ailments to be addressed, rather than propping up the patient through infected band-aids. Highly corrupt, immoral leadership at the top of organizations-both in the private sector and in the government, is the source of these problems. For instance, rather than working on serious plans to educate and develop the workforce, Obama's team is working on creating a bank to take on the bad assets of other banks- effectively telling shareholders of Wall Street that their noble actions are to be blessed. Obama's actions thus far have been disappointing on this front, adding to the notion that his administration, like others, is morally defunct. More news is filtering out that managers of AIG, BoA//Merrill and others have fattened their wallets through the largesse of the government and the public taxpayers. One of the exports from the U.S. to other countries has been this type of greed and corruption.

The road to recovery, as reflected in the infrastructure of the U.S. and India, is tortuous and filled with huge potholes that can crater even a good vehicle.

A study in contrasts- Israel and India

After a week of aerial bombardment of Gaza, Israel has launched a ground attack against Hamas. This came after the ceasefire expired and rockets were launched into Israel. According to the NYT, "After her visit to Paris on Thursday to explain to French authorities why she thought this was not the time for a quick cease-fire, Foreign Minister Tzipi Livni of Israel said, “There is no doubt that as long as Hamas controls Gaza, it is a problem for Israel, a problem for the Palestinians and a problem for the entire region.”"

Islamic separatists and militants, aided and abetted by the Pakistani military (which was humiliated in the 1971 war) , have been launching attacks against Indians for more than thirty years now, and many thousands of Indians have been killed. Yet the Indian government turns a blind eye and treats the situation passively. The pressure exerted by businesses and the U.S. on the Indian government means that this situation is going to continue for a long time.

Condi Rice and George Bush support Israeli action and blame Hamas. According to the NYT, "the Bush administration said it was working toward a new cease-fire, but rather than calling for a halt to military action urged Israel to “be mindful of the potential consequences to civilians.”" But Condi and George both urge India not to use force and to show restraint.

In the world where lives are in the balance, people at the top are playing games.

Education

The Indian Institutes of Technology, a.k.a. the IITs, are well-known for their entrance exams, the famous JEE, the Joint Entrance Exam. I ranked #524 (I think) back in 1978, when the questions were essay-type. I remember having to solve detailed problems in math. physics and chemistry. Now, even the IITs have gone to a multiple-choice exam format.

Today, the WSJ has an interesting article titled "India's Colleges Battle a Thicket of Red Tape" in which describes the labyrinth of Indian regulations. What the article does not describe is the scale of corruption in Indian Education. One of my friends was closely involved with the JEE and also the oversight of other Indian engineering schools and expressed his great frustration at the sheer scale of corruption involved.

On a different note, WSJ had an interesting article on the South Korean Entrance Exam- On College-Entrance Exam Day, All of South Korea Is Put to the Test. This exam determines which university a student can get admitted to.
Video-clip from WSJ.

These stories come on the heels of my recent harrowing experience- grading project reports of my students.

Budget Deficits Justified by Intellectual Deficits

Today's news brought a couple of contrasting headlines.

First, AP reported that "US deficit soaring to record half-trillion dollars as Bush leaves; sagging economy blamed." Apparently, "government's budget deficit will hit $482 billion in the 2009 budget year that will be inherited by Democrat Barack Obama or Republican John McCain, the White House estimated Monday. That figure is sure to rise after adding the tens of billions of dollars in additional Iraq war funding it doesn't include, and the total could be higher yet if the economy fails to recover as the administration predicts." Then the article repeats the White House view that this budget deficit would be around 3% of the GDP.
In FY 2007, the total interest expense paid by the U.S. Government was nearly $430 BILLION,on an average debt of 8,778 BILLION - an approximate interest rate of 4.9%.

A 2009 deficit of $550 billion (a conservative $68B for the war funding) will increase outstanding debt by more than 6%, and will increase the interest expense by $27 Billion per year at the 4.9% interest rate.

The total Receipts or Revenues for FY 2007 were $2,568 Billion dollars. The Receipts for FY 2008 are projected to be lower, at $2,521 Billion dollars. The OMB projects receipts to rise in FY 2009 to nearly $2,700 Billion. Even if we give this optimistic (foolish) forecast credibility, the total Interest Expense of approximately $450 Billion in FY2009 will account for 16.7% of receipts.

Would any fiscally responsible bank lend money to a person who is already paying more than 16% of his or her income in interest on existing debt? Whose debt level is more than 3 times his or her annual income? And the debt is 'unsecured?' Banks lending money without looking at these metrics is the primary reason behind the current financial crisis.

Sen. McCain, in his supposed 'straight talk,' says that he will balance the budget upon taking office by

• cutting pork - something he never truly cut in his twenty five years plus in Congress because he actually loves 'pork'
  
• cuting taxes for wealthy individuals and businesses- the' supply side economics' actions that GWB and Ronald Reagan have embraced and saddled us with the current big deficit problem
• Committing to keeping troops in Iraq for 'as long as it takes, even hundred years'- though how this reduces the deficit is yet to be explained

Mr. Obama wants to achieve deficit reduction by

• Selectively repealing Bush tax cuts
• Increasing tax cuts for the lower income people
• Reducing troop levels in Iraq but increasing them in Afghanistan
• Increasing public spending.

Again, what is implicit is that Mr. Obama waves a magic wand and the deficits disappear.

Debt as a % of GDP is misleading and simply fools people. What is fundamentally important is the revenue picture and the interest payments as a % of revenue. No one looks at a company's financial statements and looks at interest payments as a % of GDP.

Story # 2:
WSJ reported today that "India's Swelling Deficit Has Potential to Set Off Cascading Economic Trouble. "The writers criticize the Indian Government for running up a deficit "that could hurt much-needed investment in India's ramshackle infrastructure, boost inflation and undermine growth." It deplores a proposed once-a-decade salary increase that Standard & Poor's estimates could mean pay increases of as much as 40% for 2.9 million central government employees.
The money is going to government servants who have been historically underpaid and have had to deal with the skyrocketing inflation.

Both these articles show the partisan nature of the business news media, with little care of intellectual honesty. The politicians have a vested incentive to prevent the public from 'getting educated' and 'thinking about the problems.' The major mass media support the politicians because they have a vested interest in exploiting the gullible public.

UnHealthy Fare for Health Care

* Update*
An interesting story in the WSJ on cancer drugs and how oncologists are having to make tough decisions regarding the use of these drugs which can cost many thousands of dollars per patient.
Pricey Drugs Put Squeeze on Doctors
One of my very good friends went through these treatments for a maligant form of cancer and I have a good understanding of the costs and risks.
The escalating cost of drugs and health care in general, and investors and managers putting larger profits before lives is cancerous- the system would rather stand by and watch than try to prevent death.


Interesting stories on health care including maternity leave/care keep on coming every day. Some are posted below.

More Americans Delay Health Care

In sickness and no wealth: costs hurt the middle class


I will update this list on a periodic basis.

A Hip Story:
A couple of months ago, a young lady came into my office. She was a reseller of books and I wanted to give her some books I had. During our conversation she told me that she was going to Chennai, India, shortly to get a "hip resurfacing." She did not have health insurance in the U.S., and the procedure, if done in India, would cost her 20% of the medical bill in the U.S.. This is including airfare and hotel charges in the Indian medical bill. Finally, she said that Indian doctors were far more experienced in this procedure than U.S. surgeons- the latter do more hip replacements rather than resurfacing.