Last updated on: March 25, 2008 at 5:45 am
By
jessicafick
This is the second part of Mr. Lobo's essays on economy. The first one can be read here. Please do share your thoughts and comments in the section below. by Mr. Francis Lobo Mr. Francis Leonard Lobo is a Mechanical Engineer from the University of Poona. His education has been in prestigious institutions in Poona like St. Vincents High School, Ferguson College & College of Engineering. He is also a Life Fellow of Indian Institution of Industrial Engineering & a Member of All India Management Association. He has over 50 years of industry & business experience as a planning engineer, company executive, in-company counselor, company director, mentor, consultant, trainer, & CEO. He has written several books like "Getting Things Done --- Strategies for Success"; "Strategies & Techniques for Successful Selling --- The Sales Mission" etc. The Free Market vs Regulation and Control The present market conditions of a struggling credit situation, bank failures, slumping stocks, sliding dollar, rising prices, especially of energy, are the result of those qualified in finance, economics and management advocating the loosening or complete withdrawal of regulations and giving a free hand to the market. Yet the common man, who constitutes the free market, is being kept out of determining the corrective action immediately necessary and the financial market re-structuring that is required --- These are the subjects reserved for the specialists, who should have seen the tsunami coming, raised early warning signals and avoided the crash! What are required are Rational Thinking, Public Debate, Dialogue and People Participation. As a common man I find that there are just a few basic principles which are being ignored. These are: - The Power of Compounding - Money flows upwards to where the returns are highest. - The availability of finance grows faster than GDP - The Power of Education - The Compounding Effects of Corruption The Power of Compounding Steady growth can suddenly reach the point where the balloon bursts. If we start at a low level of say 10 with a 10 % / year growth it will take more that 16 years to reach 50. But, to go from 50 -100 will be done in less than half the time i.e. in a little more than 7 years. It has come as a surprise that global financial assets in the form of bank deposits, government and corporate debt securities, equity should have jumped to $ 167 trillion in 2006 from less than half this figure just 10 years ago. Normal growth has been interpreted as a surge in the emerging markets like the adult failing to appreciate that the young boy of yesterday has been steadily growing and is now suddenly emerging as a grown man. The demands of compounding are a doctrine to be obeyed in the corporate world where quarter-on-quarter, year-on-year profit growth is expected. It is also seen in inflation where increase in prices, on an on-going basis, is considered a natural phenomenon where nothing can be done. The power of compounding is seen in the salaries being paid today. As salaries increase the growth is also accelerated. A 10 % increase in a monthly salary of Rs. one lakh is Rs. 10,000, which was the total monthly salary for that position not so very long ago. Unfortunately, this compounding doesn't apply to the unorganized, unstructured world, where most of humanity resides. The earning levels are static while costs rise. Even executives, who get year-on-year increases don't think it necessary to give similar raises to their domestic help. The net result is that the rich are getting richer while the poor are getting poorer and more into debt. Read more