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Business News/ Opinion / Online-views/  Kakonomics and the elephant

Kakonomics and the elephant

Kakonomics and the elephant



Among books I have read recently, I must recommend—for those interested in the history or unique facets of Indian business—Kshama V. Kaushik and Kaushik Dutta’s India Means Business: How the Elephant Earned its Stripes (Oxford University Press). The authors have not allowed their clearly enormous research to bog down a narrative that begins from a Mauryan financial instrument called adesha (the progenitor of the hundi) to the present day, as Indian companies seek to become multinational corporations in the true sense.


Much of this may be well-known or already extensively documented, but the authors have managed to paint a tight yet comprehensive picture in language that never turns academic (despite a 15-page bibliography). I would think that anyone considering investing in India would get the outlines of all that he needs to know from this one source. Kaushik and Dutta have also packed their book with case studies, from the venerable ICI (now Akzo Nobel India) to the astonishing story of Sunil Bharti Mittal, from cycle shop owner to telecom monarch.

But for readers who worry about the Indian economy, the authors pose some important questions. Why is India a laggard in innovation? Could our IT-ITeS bonanza turn out to be a bubble? Can India make the transition from labour-cost arbitrage to idea and thought arbitrage? And, finally, is India a sustainable dream?

I believe any attempt to credibly answer these doubts must consider a way of life that we are all familiar with, but didn’t have a term till now to describe it. This much-needed term, coined by Gloria Origgi, Italian philosopher of the mind, is “kakonomics" (the best translation of the Greek word “kako" is, well, “screwed up")—the apparently strange preference for low-quality outcomes. Simply put, in a kakonomic transaction, both parties implicitly agree that both the product delivered and the pay-off will be low quality.

Rationality—and game theory—suggests that in any exchange, people want to receive high quality pay-offs. In fact, even a man offering a low-quality product would prefer a high-quality pay-off— that’s what hucksters are about. But kakonomics is the triumph of mediocrity—low-expectation exchanges about which no one complains.

Suppose a newspaper asks me to write a 1,000-word article but will pay me only 1,000 for it. If I agree to this ( 1,000, being far less than I think I should be paid, is a low-quality pay-off), I’ll quite likely pick up chunks from articles I wrote years ago, string them together and knock the whole thing off in half an hour. So I provide a low-quality product, assuming that the newspaper would also not expect me to wrack my brains and spend six hours over the piece. In most cases, my assumption would be correct, and it would be a classic kakonomic transaction. We would have connived on a mutually advantageous low outcome.

But what if my piece goes to a conscientious editor who is unaware of the tacit agreement? She points out errors and requests a rewrite. I would see this as a breach of trust and refuse. She, being conscientious, may then offer to work on the piece herself and improve its quality. But I would still feel betrayed. For, I would now have to see the piece again in its final shape—after she has made her changes—and will possibly need to make some further changes from my side. Our well-meaning busybody is threatening the soothing mediocrity equilibrium that kakonomics provides.

For, kakonomics—cooperation for the bad—dispenses peace and stability for all concerned in the short term. It’s also equally obvious that in the long term, the outcome can only be bad. As Origgi puts it: “each low-quality exchange is a local equilibrium in which both parties are satisfied, but each of these exchanges erodes the overall system in the long run."

We are proud of our indigenous ability of jugaad, but we should also see it in terms of kakonomics. Surely, kakonomics significantly affects almost everything around us. From our electoral politics to our business philosophies, from important life decisions to the most mundane of economic transactions, we constantly sign kakonomic contracts, faithfully maintain a chalta hai harmony, and resent anyone who tries to rock the boat as disruptive and irrational.

It is essential that many of the big questions about India’s economic future are examined through a kakonomic prism.

Sandipan Deb is a senior journalist and editor who is interested in puzzles of all forms

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Updated: 22 Mar 2012, 09:15 PM IST
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