Sridhar Vembu’s Blog

I get the feeling that this is 2000 all over again, this time the housing market playing the role of dotcoms/telecoms that imploded. The root cause remains the same, namely Federal Reserve’s easy credit see-no-bubble policy, ably assisted by Asian central banks, including Japan, China and to a lesser extent, India. This policy has unleashed the inflationary beast world-wide. The housing bubble is global in scope. I notice it in California, and I notice it in Chennai - literally prices have doubled or tripled in the last 5-6 years in both places.

Inflation is really running strong in India, to the extent that the ruling Congress Party felt it politically expedient to warn the government headed by itself inflation. Indians, of course, hate inflation, and will severely punish the party in power when inflation goes up. Partly it comes from the affinity to gold - almost every Indian knows the prevailing gold price, so inflation is hard to hide. I believe this one single fact, more than anything else, keeps government power in some check in India.

But the end game from all this easy-credit is going to be misery. The only question is the depth, breadth and duration of the misery. Stock market around the world, as usual, sense that something bad is coming our way.

This one caught my eye from Market for Home Sales Slows

What do I know - I am not a professional economist … this must be some recent “innovation” in economics.

The sky is falling, the sky is falling - India is going to run out of engineers soon!

Here is a news item Projected shortage of engineering manpower rings alarm bells which is projecting forward the current boom in IT recruitment in India and raises concern that India will run out of engineers, particularly in non-IT industries.

And the proposed solution?

Yes, that will do it. We will invite wise men to sit around a table, and project the entire industry’s (no less!) manpower needs. Humble little people like me cannot even project a small team’s staffing needs over, say, the next 6 months, but of course, these worthies can project demand 10 years ahead for the entire industry. (Technical note: No, there is no law of large numbers that lets you get away with it here - the demand for staffing is at least partly scale invariant because a few large companies constitute so much of the demand, so you are adding very dissimilar random variables to get the total demand).

In the post-independence socialist era of India, an omniscient government ministry, ably assisted by the Planning Commission of India used to project demand and react ahead of time. And that kind of foresight led to … an awesome per capita GDP of somewhere around $300 by 1990 and the famed Hindu rate of growth.

Old habits die hard.

… spammers will take over the world.

From Wikipedia on Turing Test

The problem is that if a machine can successfully masquerade as a human, all spam filters will fail. No Turing Machine [i.e a computer program] will be able to detect spam. In fact it is worse - not even the human recipient of spam will be able to tell spam from genuine mail. Spammers will be able to craft an infinite variety of very original, moving stories in an automated fashion to impress the human to part with their money.

The only way to stop that would be some kind of human-authenticated and human-issued online passport, the use of which would be necessary if email is to be received by any human recipient. We are probably already moving towards that era.

Zoli Erdos asks the question Would You Rather Be First to Market or Better? in reference to the early history of Zoho, when we were attacked as copy-cats (OK, it was really one guy who raised a ruckus, a competitor, no link love for him!)

To be honest, we never thought of ourselves as fast followers. The history of Zoho dates back to the telecom/dotcom nuclear winter. In the late 1990’s AdventNet emerged as a key supplier to the telecom equipment industry, a position we proudly hold today. Along with that status came the pain during the downturn. Being a prudent company, we never were at risk of going out of business or anything like that, but it was definitely painful. And we found ourselves with a lot of free time too.

It was sometime in 2003 that a couple of engineers asked me “Why not do something different, like an online office suite?” I said “Come on guys, tell me something more obvious”. They were persistent. Finally I gave in, and we started a small project. We had some false starts, with yours truly implicated in some key technical decisions that proved, ahem, a bit unwieldy - never trust your CEO to make technical decisions - particularly if you want to ship a product. But our engineers being smart, they recovered, and we ended up shipping Zoho applications eventually.

Actually only one of the Zoho products, Zoho Planner was inspired by the competitor-I-won’t-name. It started out as a fun project, in response to the take-it-or-leave-it attidue they exhibit (to this day), and the explicit challenge “If you don’t like our attitude, go build your own”. We come from a different philosophical approach to business, where Customer-is-God, so we decided to build our own - that was the real story behind the copy-cat label. By the way, customers seem to love our alternative-without-the-attitude.

In hindsight, it is obvious that the idea of online office applications occurred to a lot of other people, and some of them even got to market ahead of us. That meant we did seem like fast followers, but I wish we could follow that fast!

About the copy-cat label? Initially I was a bit defensive about it, but later just developed a thick skin. If Zoho is a copy-cat, we are in some glorious company, as Zoli points out. What matters to customers is how good the overall product is and how it is priced. We are focused on delivering great products at affordable prices. Everything else will take care of itself.

Thanks, Zoli!

Unfortunately, we lost connectivity on our phone lines to our sales & support center today, second time in a week. Recently we moved our offices, and it seems our old request to move got activated now, and our service provider disconnected our circuit in preparation for the move (which already happened). We are scrambling to restore service now.

We apologize for the inconvenience. The two incidents this week mean we will get a back-up circuit in place soon.

One of our phone lines is down, and this outage has impacted both our toll-free 888 number as well as extensions in the 925-965-…. range. We are working to fix the problem. Our apologies …

India is occupied in one of its periodic convulsions, arising from our caste-ridden, deeply divided society. The issue is reservations [affirmative action, in American speak] for traditionally disadvantaged communities in educational institutions. The government has also made noises about reservation in private sector jobs, though that is probably going to be a subject of a future convulsion. Unlike the American situation, in India, the percentage of people involved are huge. The proper comparison is Malaysia, with its Bhumi Putra [literally “son of the soil”] policy, to discriminate in favor of a large segment of the population. Depending on whose numbers you believe, the “Other Backward Communities” that are the subject of the present convulsion constitute anywhere from 30 to 50+ percent of India’s population - a substantial number in any event.

The reservation battle in India is really about scarcity of seats in educational institutions, particularly in medicine, for specialized disciplines. No wonder it is medical students that are at the forefront of the protests sweeping cities like New Delhi. No matter how the seats are apportioned, there are a large number of otherwise perfectly qualified candidates that can’t get in. This leads to absurd situations like someone scoring 92.6% in those all important exams getting in while someone with 92.1% doesn’t. Access to higher education should not be like winning the gold medal in the olympics, but unfortunately it is in much of India.

This issue is starting to burn North India now, but it doesn’t have the same emotive impact in the South, particularly in the state of Tamil Nadu. I have outlined the reasons in my post A Not-so-Brief History of the IT Revolution in India. I believe that “MGR Solution” is the only way out. To summarize it one sentence: Combine reservations with a massive opening up of education to the private sector, so the scarcity goes away.

In Tamil Nadu, reservation quotas are much higher already that what is now proposed by the Indian goverment - nearly 70% of the seats in educational institutions are reserved in Tamil Nadu, compared to little less than 50% proposed by the Indian government. But there is a massive surplus in higher education in Tamil Nadu, due to opening up to the private sector, so really no one is denied a seat, effectively taking out the sting of the reservation policy. This has worked wonders in Tamil Nadu and has made the state the leader in IT, if you measure by the number of people who work in the IT industry in India and world-wide. The state constitutes less than 7% of Indian population, but probably contributes 25% of all IT professionals in/from India. I would trace the reason to the explosion of educational institutions in the late 1980’s, which was part of the MGR formula of compromise on the reservation issue.

Today, reservation has lost its emotive appeal in Tamil Nadu, because practically anyone who wants higher education can get it, regardless of caste. For those who can’t afford it, there are heavily subsidized government institutions, not to mention cheap loans from banks to attend private colleges.

I hope Prime Minister Manmohan Singh, a world-class economist, sees the issue for what it really is: artificial scarcity in higher education due to government control, not caste. If higher education is not opened up massively, reservation issue will divide India for a long time, poison politics and society, and make progress virtually impossible.

Check out our web-based application creation environment ZohoCreator - something I had a hand in. It was conceived over 3 years ago, and took shape slowly. At that time I wasn’t thinking about online application creation at all, really how to create a better rule engine. As I learnt more and more about rule engines, it struck me that what we are looking for is a programming environment where build time and runtime are substantially erased. After all, the purpose of rule engines is to allow flexibility at runtime, so rules that govern an application can be changed. That quest morphed into a web based application creation environment.

It is really a culmination of several years of my thinking about programming languages, databases and the like. Stay tuned for more posts on this.

Here is an excellent op-ed piece in the Wall Street Journal today In Gold We Trust by David Ranson and Penny Russell. Mainstream economists treat gold as a barbarous relic. But gold has provided crucial insurance against monetory disorder, and in times like these, with inflation rearing its ugly head, we surely need that insurance. The fact that this inflation is even a surprise to the Fed is testimony to the shocking state of mainstream economics and its progressive decoupling from reality using sophisticated mathematics.

Economists of the Austrian School have been warning of exactly this outcome ever since the Greenspan-Bernanke Federal Reserve decided to print its way out of the recession caused by the last stock market bubble. That policy led to an even more dangerous real estate bubble, and skyrocketing commodities. As the Austrian-school inspired newsletter Daily Reckoning advised several years ago, “Sell the Dow, Buy Gold” as their trade of the decade - a trade that has done remarkably well (though I wish I were smart enough to have taken that advice ;-))

As the WSJ article concludes

The chickens are now coming home to roost, in the form of higher inflation. Even the government’s own massaged and adjusted inflation numbers can no longer hide this inflation, though it has been obvious for some time to anyone in the real world [i.e except ivory-tower economists like Bernanke]. It would be interesting to see if Bernanke will risk stoking even higher inflation by liberally supplying credit or risk causing a severe recession by fighting the inflationary beast he and Greenspan unleashed.

Bernanke’s academic history indicates he may err on the side of inflation, because he has long believed the nonsense that the best way to fight a depression is by printing money, in spite of the stagflationary evidence of the 1970s. And inflation is also damn convenient for a highly indebted government.

The only silver-lining (pardon the pun!) is that Keynesianism and the neo- variety of Krugman and his ilk will be thoroughly discredited in the coming global downturn.

It is poetic justice that a leading member of the ivy-league academia is in charge to take the fall when things go to hell. Good luck, Professor Bernanke. I hope you are smart enough not to take the entire blame yourself, but make sure to give “credit” where it is due, and link Greenspan to the coming mess. That is one issuance of credit this blogger will highly approve.