Recession is the buzzword and if you don’t really know what it really means, don’t bother, you have lot of company 😉 In the last 4-6 months, clients and prospects I have met have invariably spoken about the cloud of uncertainty around their jobs. Those hanging in ‘there’ feel grateful that they still have their jobs. I smile because I know the feeling. Recession has struck and is growing to monstrous proportions. In these times, the big bosses pep you up with talks of staying focused and you keep hoping that you get new threads of hope to latch on to and start trying to convert the threads to opportunities and save your job. Recession is to ignore how much you actually have in your pocket but line up to eat at Taco Bell or a roadside eatery (I loved doing that in the 90s in India for the sheer pleasure but today more and more people are under economic pressure to do so, how ironic!). Maximize savings and minimize spending as much as possible.
So here I am at Charlotte, catching up on business contacts and friends and obviously nodding my head in simple harmonic motion and agreeing or commenting about recession. At times, the use of the term recession gets to your nerves and you use synonyms like downturn, economic slowdown, market bloodbath, economic depression, adjustment, return to normalcy (no one knows what was economically normal though) and when you talk to friends, you hear expressions like market screw up, screwed economy and more and more flowery terms that help you get the desperation out of your system.
My mind wanders off to Chennai and wonders if the auto rickshaw guys will start citing recession as a primary reason for their exorbitant demands (that are usually accompanied by rising gas prices and no demand for return journeys). When I availed a cab to reach the airport at Pittsburgh in the wee hours of the morning a couple of days ago, the cab driver was politely and firmly pushing me. He was citing lower demands due to the bad financial conditions caused by a credit crisis to ask for a higher than usual tip. I was only happy to give him a generous tip because I wasn’t sure how he could see through the violent pounding of snow on his windshield throughout our 15 mile drive and felt grateful for safely depositing me at the airport.
As always, I am going around in circles and the reason I started scribbling was that I had some time and nothing to do at the noisy Douglas International airport but to think. My thought process right now is like a traffic jam with several thoughts sticking out from various parts of my small brain like different cars, trucks and autos but I am trying to focus on one particular car and drive through this noisy place. I want to explain recession in a simple manner that everybody can understand what the hell this is all about. Flashback time!
In Kolkata where I lived as a kid, my apartment had 32 flats and these houses employed servants or domestic helps. The supply of the domestic helps was a constant pool of 5 women. There were 2 men too in supply but they were dedicated on a full time basis to 2 of these 32 families. So, let us assume that on an average, 1 of these women, Parul, worked at 5 homes. (Just assume, I know it should be 6 homes each!) The employers are Asha Bhabhi, Beena Aunty, Chitra maami, Dolly Chechi and Esha Ben – for convenience sake, call them A, B, C, D and E. For simplicity sake, let us assume that all these women were housewives, had 2 children each and their husbands earned Rs. 1000 per month each. Salary for outsourcing homework to Parul di was Rs. 100, say.
Before I bring more numbers into the picture, let me talk about the traits of Parul and her competitors, Kavitha, Leena, Madhuri, Nita and Oorja (K, L, M, N and O). After the first 15 days of employment, performance parameters including absenteeism, punctuality, quality of work like shine and dirt indices on floors, soap index on washed vessels, water index on washed clothes would start getting affected negatively. The employers would find it frustrating to wait for P to show up at work and every now and then, end up with a heap of vessels to wash and do the work themselves. At times, respective hubbies and kids would pitch in and take pending activities to closure. This surprisingly led to increased competition among the employers to offer additional benefits and fight for P’s attention. The most important benefit was credit! Parul would demand additional money for various reasons like school fees for kid, distant cousin’s operation, travel to rural Bengal to see mother, fix roof leak at home during the rains, sister’s daughter’s marriage, bus pass and bail for husband!! So, apart from 100 bucks salary, say, 50 rupees were offered as credit to be adjusted in the next month. However, all terms and conditions regarding casual and medical leaves would be forgotten and the salary would be handed out in full the next month and the next and so on and so forth. The main reason for this was the fear factor among A, B, C, D and E. If B and C adjusted salary against credit, then P would be absent for more days at their homes vis-à-vis A, D and E. This Domestic Help Strategic Game Theory move helped to increase P’s earnings by 50% apart from enabling her to continue working at lesser productivity levels. 4-5 days of leave in a month would still be ok to hang on to her job. Extreme frustration levels would sometimes cause P to get replaced by L, M, N or O. However, all employers and employees were similar and it really didn’t matter which employee worked at which 5 of the 30 available employers. The hiring and firing process continued amongst all the 30 houses & 5 helpers and all permutations and combinations were tried out over the years. Every year, during Durga Puja, P also got a new set of clothes, bonus and all bad debts would get written off – so, in effect the pay was not 100 but somewhere close to 180 rupees a month. Understood?
The employers began to feel helpless, exploited and devised a cunning strategy to control the credit process. One day, Esha Ben caught P depositing 150 rupees in a monthly scheme in a jewelry shop. This news spread in the housing complex and the new rule was collateral based lending, where P would give up a small gold coin or something else before credit was possible. Since all employers began to follow this policy, it became part of the Kalyan Apartment Complex Constitution.
P had pawned her baby’s gold ring and received Rs. 500 loan from C. Over the next 10 months, she would receive 50 bucks as salary instead of 100. However, after month 3, P had to ask for more money. C decided to sell P’s ring to A, B, D and E using an auction sale method. However, price and demand had gone down. Savings of A, B, C, D and E had eroded over the years because they had paid 180 instead of 100 bucks to P and they did not want to buy the ring. They themselves had similar objects like the baby’s ring based on which they had given 500 rupees each to P. With no or reducing demand, the value of each of the collateral became close to 250 rupees only. With this, P was not able to return the monies owned to her employers. The employers were not rich enough to write off the bad debts and there was chaos. Employers began to stop outsourcing or outsourced only part of the daily chores, P and her peers began to work harder and harder for lesser and lesser money. Performance was great too.
Upon investigating further, we came to know that A, B, C, D and E’s husbands formed a set of resources available for work at Karodimal Seth’s factory. As A, B … needed money to pay P; their husbands took loan from their employer. Karodimal Seth Factory is one of the suppliers of auto parts to General Motors and Ford. As GM in Detroit is waiting for bailout money from Obama, even Parul is giving gyan on recession to Leena and Madhuri on how Asha, Beena, Chitra, Dolly and Esha indulged in sub-prime lending and how all of them have contributed to the buzzword, RECESSION!