Lesson 2: India and X-efficiency
“You want to know the problem with Toyota?”
In the late 1990s I studied at University in Japan when the world was fascinated by Toyota’s low car defect rates compared to every other brand on the market. It drove the proud American, car hungry consumer insane! Their efficiency and reliability was so inexplicable, intoxicating, and seemingly unobtainably magical, they termed it ‘X-efficiency’ and people came from the world over to study this new manufacturing witchcraft.
What does this have to do with India? One evening I sat in the Sport Bar at the Madras Club, and the conversation turned to cars as it often does. One member lamented his family had six Range Rovers and they were so unreliable that at any given time at least two were with the mechanic. The conversation meandered around different makes and models, and their respective dependability. I was sitting next to a gentleman from the automotive industry who, importantly for this point, did not include Toyota in his repertoire.
“You want to know the problem with Toyota?” he asked, his face theatrically screwed up in disgust. “Boringly reliable!”
Things are not supposed to work in India
I laughed so hard! At first he looked at me shocked, but then I saw a little grin appear. You see, things are not supposed to work in India. In fact, India works BECAUSE things don’t work in a way I am not sure they could in any other place.
If you have seen an aerial view of any traffic flow in India, you will see a plethora of cars, trucks, buses, autos, cows, donkeys, goats, and people. You will see motorbikes behaving like trucks and buses stacked with any number of passengers and/or produce. They all cruise along happily despite:
- any of the former pulling out suddenly or driving the wrong way down the road or freeway,
- such high volumes of traffic on precariously maintained roads, and
- even during monsoons, these same roads will convert into rivers, which STILL does not stop the traffic.
You might even say the inefficiency and unreliability is so inexplicable, intoxicating, and seemingly unobtainably magical, that it even flows at all, can only be attributed to witchcraft… Hence the Indian connection with a slightly different kind of X-efficiency. You may be tempted to coin the term X-INefficiency for India, but the fact is, somehow it actually works!
How is it that each of these economies grow and continue to power along over decades despite their vastly different and yet effective X-efficiency drivers? In Japan the efficiencies come from eliminating bottlenecks and breakdowns before they can happen. In India, bottlenecks and breakdowns are expected, sometimes helped along a bit, and there is an incredibly lucrative economy based on ingenuity and contingencies for everything. Everything has a contingency.
Everything has a contingency
After some floods devastated Chennai a few years ago, that same automotive industry doyen suggested to a luxury car company they should custom build their cars for India, one of their highest selling markets. The issue was their electronics are on the bottom half of the car, so when flooding occurs, they cannot drive through those rivers that were once roads. The reps from the car company were reportedly flabbergasted at this request, and lamented the cars were not designed to be driven through such high levels of water. So as contingencies, many who own luxury cars also keep an old Jeep or Ambassador (neither of which is still in production) so in an emergency, they are not stranded with their extremely expensive, and yet highly useless luxury cars…
X-efficiency is not absolute
The truth, however, does not lie in these extremes. Before I lived in Japan I had this idea they were a super-efficient, clockwork utopia of perfection. I soon realized this was absolutely and spectacularly not true. Sure the trains run on time and their cars don’t break down, but try to open a bank account, get your alien registration card, or go to see a doctor and just WOW!! You will be messed with in so many ways by inefficiency you will not be able to wrap your mind around it.
Then on the Indian side, there are many phenomenally well run, hyper efficient, and highly innovative global powerhouse companies leading the world in their fields. But all of their workers and executives still drive on the chaotic, cow lined streets to get there. Such is the rich tapestry of the world we live in.
The war on cash
In November 2016, India’s Modi government spectacularly disrupted the entire economy and its citizen’s day to day life and kicked India’s contingency X-efficiency into overdrive. Demonitization, or the sudden voiding of the country’s two largest bank note denominations Rs1,000 (US$13.36) and Rs500 (US$6.70), left the largest cash denomination remaining of Rs100 (US$1.33). The old notes were eventually to be replaced by new Rs500 and Rs2,000 notes. I could never get change for Rs500 so what the heck was anyone going to do with a Rs2,000 note?
People could take their ‘old’ notes to banks to change them for a certain period of time, so this wouldn’t be an issue, right? There was the small small issue they didn’t print or distribute enough cash to the banks to replace what was taken out. Oh, and the bank notes were a different size and would not fit in the ATMs, so the Rs100 notes, which were the only ones that fit, ran out almost as soon as they were topped up. Also, in order to exchange your money, you had to have or open a bank account. A large portion of India’s 1.3 billion people did not have bank accounts or lived prohibitive distances away from banks. Can you imagine the abuse that went on there?
One of my friends has a large company employing a lot of people in Chennai and throughout India. Because if her relationship with the bank, she was still able to get enough cash to continue paying her employees in cash, but instructed them to go and open bank accounts. One of her employees went directly to the same bank the company was with, but a different branch, and tried to open an account and deposit his wages. They saw on his identification documents he was from Orissa, which is typically known as being a poorer, more uneducated state.
The bank teller told him he was bringing them counterfeit money and they would call the police. They expected him to just leave the money and run away scared. But he knew they were lying as he literally just took the money straight from his trusted company who got it from that very bank. He grabbed the money, ran out of the bank, and went back to the company for help. On hearing this, the boss called the bank, blasted them, then arranged for all of her employees who did not yet have a bank account to visit that branch and set them up.
When the banks are blatant about their theft
Other friends told me their housekeepers went to a bank to try and open accounts and change their money, but were turned away as they didn’t have enough money for the tellers to bother. This was contrary to the directives of the Modi government and law at the time. Did these banks even deserve the incredible influx of business Modi gave them? There were too many reports of abuse of this power.
Because of the shortage of cash, people were allowed to deposit as much money as they could justify for taxation purposes, but were limited to how much cash they could take out. For a predominantly cash based society, this was a disaster. Factories couldn’t pay their workers because they couldn’t get cash and/or their staff couldn’t get bank accounts.
A new ‘industry’ formed around lining up at banks. People paid others to endure the hours of waiting, then call them when they were close to being served. The people who always had a lot of old cash, somehow miraculously also seemed to have a lot of new cash. I was fortunate enough to know people through the Madras Club in this category who helped me with some throw around cash, but I was relatively unaffected as a lot of my transactions for my living expenses were mercifully digital. I don’t know what other travelers did, although I know there were some options to change limited money at airports, but with no cash in ATMs and no chance of getting into a bank, it must have been a nightmare.
Back in black
What was the big-ticket goal here? To legitimize the economy apparently. You see, a part of India’s X-efficiency exists between black and white money. Most property sales incur a portion of each, and lots of jewelry and gold is purchased with black, or undeclared and untaxed money. Although there were reports of people literally dumping truckloads of old cash into rivers, and raids uncovering warehouses full of it, it is widely regarded as an unsuccessful exercise for eradicating black money. It turned out property and gold accounted for larger amounts of this hidden economy than previously expected. Also, we already saw what the bank tellers were willing to do to screw over the poor people in trouble, imagine how pliable to assisting the nation’s wealthiest and dodgiest they may have been?
On the day of the announcement there was understandably a complete frenzy. Car dealerships and designer clothing stores experienced a run on cash sales, and Prada in Chennai reportedly sold out completely of handbags. Many establishments backdated payments for big ticket items so they could move the old money ‘legitimately’ through the system. Many such establishments were visited later by the taxation office who went forensic on the black money trail…
One way rumoured to be popular to legitimize cash, was to go to rural communities, and have large numbers of people to open accounts and make deposits for a small fee. The collection would come later when the heat was off.
Hundreds of thousands of trucks stopped on the side of the road because the toll booths wouldn’t accept the old money. 1.5 million people lost their jobs in factories. People died waiting in line to get to banks in all kinds of conditions across India, and others couldn’t get medical help as hospitals wouldn’t accept old notes. I could go on and on (I know, too late!).
While you’re down there…
All of this had a profoundly negative effect on the economy, but that wasn’t enough for the Modi government. A mere eight months later they introduced a goods and services tax (GST) the country was similarly not ready for. And just for fun, it was so complex and there were so many different obscure rates for different things, many businesses couldn’t work out what they were supposed to charge, let alone how it was all going to work. More panic, chaos, and disorder causing instability in the economy.
The coronavirus X-factor
You are now getting a picture of how India is used to adapting when the entire country thrown into disarray for political whims and natural disasters, so perhaps it shouldn’t be a surprise they have so far fared better than expected with the coronavirus. Japan is another country who, like India, has a high-density population and early success in containing the virus, but with a vastly different approach.
In true X-efficiency form, Japan has prepared for this pandemic since the 1919 flu pandemic when they all started wearing masks and never stopped. It is very common to see people wearing masks on trains and around the streets if they are unwell or if it is the flu season. Japan also has the lowest rates of coronary heart disease and obesity in the developed world which have reportedly been contributing factors to death from COVID19. They are also not big huggers or kissers, so despite their high-density living, they have some cultural social distancing built in.
Whether or not Japanese people really are of “superior quality” to the rest of us as their deputy prime minister Taro Aso would have us believe, they do do as they are told. The government did not shut them down, rather told them to avoid the three Cs:
- closed spaces with poor ventilation,
- crowded places with groups of people, and
- close-contact settings like one-on-one conversations.
India did go into lockdown hard and early in order to protect its citizens, but unlike the Japanese, Indians are not so good at doing as they are told. Stop weddings planned for years, or large religious gatherings? I don’t think so! And shutting down factories again mean daily wage workers were forced to travel out of the cities and back to their hometowns. This mass exodus was a sure breading ground for rapid transmission.
I made it out of India on the last Singapore Airlines flight out of Chennai before all international airlines were grounded. From the time I left to the end of my two weeks quarantine, my Madras Club friends sprang into action and into the market. One’s company redirected some manufacturing resources to design and build respirators (nowhere near their core business), and another in the environmental space started a new arm for sanitizers and collaborated with a fashion label friend to make personal protective equipment (PPE) like masks and gloves. Like lightening these guys reacted and adapted to the global emergency when Donald Trump was still denying it was even happening and you couldn’t even get tested there.
Even one of India’s most crowded slums in Maharashtra sprang into action by conducting door to door testing, quickly quarantining those testing positive, and ramping up cleaning and sanitizing the shared toilet facilities to multiple times per day. They set up makeshift treatment centres but many closed due to lack of demand as their pre-emptive measures have so far been effective.
Japan has prepared for at least the last hundred years, and India redirects resources and is on top of things within two weeks. Both of these countries are now seeing numbers of infected people increasing exponentially so it will be interesting to see how each’s brand of X-efficiency plays out.
What is the real lesson here? In India, the ground often suddenly and very quickly moves from beneath your feet, but there will always be some inexplicable, intoxicating, and seemingly unobtainably magical form of witchcraft that will pick you up, dust you off, and get you back in the groove. And it will likely make someone an awful lot of money…
Want more Lessons from the Madras Club?
The next topics I planned to cover in the Lessons from the Madras Club might be a little too hot for the internet so I am switching to new content.
But if you want more, there is plenty I have left to say!
If 100 people to sign up, I will send you exclusive NEW Lessons including on:
- Politics and leadership
- Sex and fidelity
- The trials of extreme wealth
I want more Lessons from the Madras Club!
 Indlish Translation – Auto – a three wheeled open air motorised rickshaw mobile exactly like its not too distant cousin, the Thai tuk tuk.
 Indlish Translation – Small, small things – a term that is often used sarcastically to describe some major problem or issue. E.g. “Why won’t I fly Air India? Last time I flew there was a crack in the windscreen. You know, small, small things.”
 https://en.wikipedia.org/wiki/2016_Indian_banknote_demonetisation accessed 14 August 2020
To be continued…
Until next time!