My dear Sir Arvind Kejriwal,
Hope you are doing well.
My name is Alok Kejriwal, and I am a humble digital entrepreneur based out of Mumbai.
Sir, I have been struggling for the past 13 years to make a mark for myself in my industry and while I have certainly not achieved the size and scale of success and fame that you have, I do enjoy my own small universe of friends and supporters.
This mail is not to obviously compare my popularity vs yours' (silly comparison) BUT to ASK you a question about your philosophy of creating such amazing and effective agitation against CORRUPTION.
My Question - Instead of fighting tooth and nail (and losing yesterday's battle) against corruption, have you Dear Sir considered fighting and agitating for INCREASED GDP??
Sir, allow me to explain...
In my Company, let's assume I do a business turnover of Rs 100.00
Also let's assume that my profit margin is 10%
Therefore, I SPEND Rs 90.00 in generating my business turnover.
Obviously this expenditure of Rs 90 is towards salaries, cost of buying services, electricity, rent etc paid to OTHER Indian companies and individuals.
Since you are a very smart man, you will quickly understand that IF a man starts a business of Rs 100 in India, then this is what happens when the people who receive my Rs 90.00 further retain 10% margin and SPEND the rest in making THEIR business run:
Sir, if you notice, the TRICKLE DOWN EFFECT of starting a business with Rs 100.00 turnover results in Rs 875.00 turnover generated by other people down the value chain as they run their business/service.
NOW, coming to a topic closer to you:
LET'S ASSUME THAT THE PERCENTAGE of BRIBE IN EACH BUSINESS TRANSACTION IS 10%
So, of the first Rs 90 I spend, I will have spent Rs 9 in bribes.
In the Rs 875.00 turnover achieved above, the other players in the VALUE chain will also have spent 10% of 875.00 or Rs 87.50 AS BRIBES.
In short, Rs 100.00 turnover GENERATES Rs 875 more turnover, with Rs 87.50 being spent as bribes.
MY QUESTION TO YOU IS - what is MORE IMPORTANT?
Encouraging me to START A BUSINESS of Rs 100.00 that GENERATES further business of Rs 875.00 OR SAVING Rs 9.00 ????
Bear with me for one more minute:
Let's ask ourselves, what stops people from starting businesses (that grows GDP) in India in the first place??
It's the lack of EDUCATION.
So, let's take the case of my Driver.
His son is studying in an English medium school and is quite a bright guy.
I hope that one day he will NOT become another driver BUT someone, like say, an Auto Parts Dealer with a SHOP that sells parts and runs a BUSINESS.
NOW COMES THE QUESTION:
If he HAS TO PAY A SMALL BRIBE TO START HIS SHOP - ISN'T THAT OK - CONSIDERING THAT HE WILL CREATE 8.75 TIMES MORE BUSINESS FOR THE COUNTRY EACH YEAR???
BRIBES ARE PAID ONCE. BUSINESSES RUN FOR EVER!
If my driver asks me for a LOAN to help start his son's business - should I NOT GIVE IT - KNOWING that Rs 9.00 WILL GO IN BRIBES, BUT EACH year he will generate a 8.75 MULTIPLE effect for the country??
Sir, I am businessman, and just using elementary math, note THAT RS 875.00 is BIGGER than Rs 87.50!!
My plea with you is:
Agitate to get more people to START businesses.
TO INCREASE THE GDP OF INDIA
TO CREATE ENTERPRISES
TO CREATE AN ARMY OF ENTREPRENEURS
TO NOT JAIL BHARO
BANK BHARO WITH ENTREPRENEURS!!!
I have tears in my eyes as I write this Sir.
Simply because the biggest and most powerful agitators ever born in this great country... which would be you and Shri Annaji... seem to have MISSED THE REALLY, REALLY, BIG PICTURE.
Ps - special thanks to Asha for her speed editing of this one!
This comment exchange between me and a fellow rodinhooder (part of comments) may also help understand my article:
Comment by Darshan Mujumdar
First of all, very creative attempt to solve the problem at hand than keep beating around the bush. I, however, see a fundamental flaw in your argument. The number Rs. 875 is a notional number, as you are summing the "revenues" while you move down the value chain of your product/service. In effect your model is proving that if our country's earning is Rs. 100 (the revenue generated in your example), then Rs. 87.5 goes in bribe. Note that at each level in the value chain, the REAL earnings are only 10% of the service/product that you sell, so effectively your model depicts that at each level of the value chain, as the money trickles down, 90% goes in the form of bribe, while 10% of the profit or 1% of the revenue remains with the actual producer of the service or goods.
You really need some basic tutoring in economics.
Let me contribute:
- Lets assume I run a Paav Bhaji stall in Mumbai.
I SELL Rs 100 worth of paav bahji to customers PER DAY
FIRST - who pays me? Nearby employees of office buildings etc - who have EARNED SALARY and spend small moneys to eat every day. So that is where I get Rs. 100 from. ( not important in this discussion).
Now, from the Rs 100 I earn, I SPEND RS 90 per day.
Where does the Rs 90 get spent per day?
- Vegetables & Food vendors - Rs 70
- Helper - Plates, disposables etc - Rs 11
- HAFTA - BRIBE TO POLICE WALA - Rs 9 (10%)
- TOTAL = Rs 90
- Profit retained = Rs 10
GROSS TOTAL = Rs 100 = Original sales.
Now, lets look at ONE OF THE ELEMENTS of my Rs 90 spent - the Rs 70 spent on the vegetable and food vendor.
The Rs 70 I SPEND is EARNED by Wholesale vegetable guys who have small shops that BUY from the Village market suppliers etc. So get this right - My Rs 70 spend is Rs 70 Sales for this guy.
This person in turns spend Rs 63 (90% of his cost) daily on:
Lets assume - Rs 50 - paid to village agent who gets him vegetables, Rs 7 to a Hamaal (coolie) who carries the goods for him and Rs 6 (10%) BRIBES - to the police wala who lets the vegetable seller conduct his business.
As per the economic model I have maintained, the Vegetable vendor keeps 10% of his sale or Rs 7 as profit for himself.
Now, lets do totals for JUST ALOK and Vegetable Vendor
Alok's sales - Rs 100, Bribe paid - Rs 9
Vegetable sales wala - Sales - Rs 70 - bribe paid - Rs 7
(The same could be calculate for plate supplier, hamaal etc)
TOTAL SALES just between 2 people = Rs 100+ Rs 70 = Rs 170
BRIBES PAID - Rs 9 + Rs 6 = Rs 15 ( less than 10% here)
Therefore, as the Original 100 trickles down, it creates momentum value since what I spend is someone's earning etc etc
IF I REFUSE TO SPEND RS 9 on the first Bribe - I DONT SELL Rs 100 of Paav Bhaji, the Vegetable Vendor doesn't get Rs 70 etc etc etc....
DOES THIS MAKE SENSE???
Now comes the FUN!!
The 2 police walas who take bribes - Rs 9 and Rs 6 = Rs 15 ACTUALLY FURTHER SPEND MONEY ON EATING PAAV BHAJI FROM MY NEIGHBOR, thereby again increasing the cash circulation!!! (source of money which I did not care to cover because if I ever said that bribes are good for the economy, then I would be killed).
I would like you to look up a famous man called Keynes and what he said about 'digging holes in the ground'.... that will really strike a point.
Your friendly, neighborhood economist:
Update - 30-8-2012
I just cant help smiling to myself.
In the post above, just below the maths, this is what I had written:
"Sir, if you notice, the TRICKLE DOWN EFFECT of starting a business with Rs 100.00 turnover results in Rs 875.00 turnover generated by other people down the value chain as they run their business/service. "
Just read this in the Times of India Today:
Some blessings from a Senior Economist!
Prof. Pinaki was not quoted by me 'randomly' - he was quoted by me to prove that corruption INDEED DECREASES AUTOMATICALLY when GDP increases - something that i been screaming in my post.
Check the PPT and Prof. Pinaki's graph as under:
U can agree to a wrong formula! that's ok by me!
think of a table of rows and columns.
if u add subtotals, or gross totals, it has to be of the SAME NUMBER OF COLUMNS AND ROWS!!
making sense ?!
Nope. U modeled just the first turnover of Rs 100 - in that the bribe was Rs 9.
If you move to the next cycle and add the 7 then you have to add the second consumers spend of 70 also
so, 170 turnover, bribe = 9+7 = 16
(dunno where your Rs 1 came from).
Each row has to be added in entirety ! not columns for one section and only one row selectively :-)
sorry to spoil your point :-)
:) Rs. 1 was from the platewala's Rs 11. (10% of it went into bribes.)
I maybe wrong, but if seen from the view of the person buying the split somewhat looks like:
10(vendor margin) + 9(vendors' bribe) + 63 (vegetable guy's money) + 7 (vegetable guy paid bribe) + 10 (plate guy's money) + 1 (plate guy paid bribe.) = Rs. 100/-
Nope. Coz u are isolating just the bribes from the other people's transactions.
let me explain:
you have treated just 100 as 1 person earning (paav bhaji vendor)
but the bribes you have included in this are of 3 people = vendor + Veg guy + Plate guy
If you add 3 people's bribes, then you need to add their earnings also in the equation :-)
Got it :)
Please excuse me if this starts feeling like you are having to give a economics 101 class.. but I got confused again..
Lets see the numbers from bottom up, rather than top down..
Vegetable guy: spends 57, bribes 6, earns 7 = total 70
plate guy: spends 9, bribes 1, earns 1 = total 11
Pav bhaji guy gets from these people: spends 81, bribes 9, earns 10 = total 100.
Now, lets say bribes did not exist in this country:
Vegetable guy: spends 57, earns 6 = total 63
plate guy: spends 9, earns 1 = total 10
Pav bhaji guy gets from these people: spends 73, earns 8 = total 81.
nope its not.
that was the central part of my argument that u missed.
kejriwal and anna say - dont accept corruption.
that means dont sell pav bhaaji or grow vegetables = either way.
that's why the soviet union etc died - they lived in idealistic ideology.
i say, corruption is bad - low gdp is worse.
grow gdp, corruption will move from low lying areas to higher more invisible areas. thats all.
Still, I guess my point about arbitrariness stands.
I thought Rs. 9 was just the bribe paid by the pav bhaji vendor.. if it is the total money that has gone out of Rs.100/- as bribes.. then yeah my numbers are wrong.
subjectively, anything can be inferred.
people here say that bribes went out. i say they went into the economy.
this was a numeric economic model i was purporting :-)
But isn't it an unwanted business expenditure? A nuisance?
I would bribe any day than shutdown my business.
Ultimately it is money within economic system, but is there a positive to bribes? Can one say bribes are helpful than harmful?
Asking, just to get more of your thoughts :)