Archive for the ‘UK’ Category

Why some energy firms going bust in UK?

2021/09/22

In 2021, some small energy firms went bust in UK. Why did it happen?

These firms were re-sellers meaning they didn’t produce any gas or electric of their own. They bought wholesale gas/electricity from large producers and sold it to customers.

When customers signed up with them, these firms promised a price say £x. They used to buy energy at wholesale rate of £w (where x – w = their profit).

Since wholesale energy price went up suddenly, these firms had to buy energy at a rate W which is more than x, i.e. what customers paying them.

They can’t simply ask customers to pay more because they had contract with customers where customer would pay fixed price £x as previously agreed.

So these energy firms can no longer afford to purchase energy at cost W and in return get only x from their customers. So their business is no longer sustainable and hence they went bust.

What if people like the new normal?

2020/07/03

There is now a push everywhere to end the lock down arguing “lets get back to normal“.

But nobody is asking the question whether old normal is the best normal.

So what is the “normal”? Was commuting in packed trains a normal thing? Or getting stuck in rush hour traffic is normal? Rushing to school every morning is the normal?

There is no denying the fact that overall creativity of the population has flourished. I observed this empirically based on how many in friends and family circle started writing poems, stories, paintings, drama and much more.

I myself wrote an app for the masses (download link in the right hand side) of this blog.

All these could have been very difficult, if not impossible, during “old normal” way of working. By no means people are working less productively. In fact, productivity of people have increased because people are wasting less time in office (well they can’t as they are not travelling to offices).

Not all work can be done from home. True but there are plenty of works which can be done remotely.

Those who are advocating loss of productivity when working remotely, are actually fearful of few things:

  • Office based politics – often the perception of hard work is more important than actual metrics of the output. In a physical office, it is much easier to show off your input. This gives an extra advantage for extroverts. Whereas in lock down, introverts are in slightly better position as they can flourish their creativity (both work and personal life) without interruptions.
  • Lack of team building / socialisation with colleagues – yes, this is missing while WFH. But why the assumption is most people actually enjoyed it? After work socialisation is often enjoyed by younger crowed in large towns (e.g. London). There are plenty of online socialisation meetings happening. Though I admit not everyone enjoys online socialization.

Now we must tackle the big issue – the loss of jobs. Corona virus pandemic has led to unprecedented job losses around the world and worst is yet to come.  Some industry segments (like hospitality, travel etc.) are affected more than others.

When a big change happens, there are usually 2 ways to counter it – either adapt or resist. Most people are in resist mode and argue everything should go back to old normal mode.  But the winners would be who are ready to adapt and embed new normal culture.

Plenty of businesses have adapted very well. Most desk based jobs are already happening remotely. Many schools have started teaching remotely. While the experience is slightly different, there is no proof that it is worse than old normal.

If in real life people work from home, why not make it mandatory for schools to also teach remote at least 1-2 days per week after life goes back to old normal?

Why people who started to like the new normal should be forced to go back to old normal?

One big issue of accepting new normal is the way we measure well beings. It is roughly on money also known as GDP. But GDP is detached from human wellbeings. One can earn a lot and still be miserable. Many of the high earners actually discovered how they enjoyed being out of rat-race.

I appreciate this is a sensitive and somewhat controversial issue but Darwin said it is not the most intelligent who survives but the most adaptable create survives on the cycle of evolution.

So let us be realistic and assume that life will not fully go back to old normal and better not to force people to go back to old normal. Let us focus on rebuilding our economies and well beings be embracing the new normal.

Everyone should be given a choice of whether they want to go back to old normal or enjoy new normal (or even best of both worlds by mixing old and new normal).

All the best to humanity.

 

 

 

Covid19 – potential exit strategy

2020/04/24
Disclaimer:
Please note that things are changing very fast on Corona virus. Scientists are working hard to find a vaccine. Hence, the content of this blog could become out of date very soon. This blog is for information purpose only and does not constitute as medical advise. Always follow the advise from your doctor and relevant medical authority in your country.
How can lock down be lifted?
The key question for most part of the world is now how to end the lock down without a massive risk of life of citizens.

As of this writing, there is no known cure for Covid19.

If nothing is done, entire population will eventually catch the virus and around 1% of them will die.

If we could confirm who are immune to the virus then we can easily identify the vulnerable and ask everyone else to carry on with life as usual. However, the problem is, other than identifying aged people (e.g. those with 65 years and above) and those with existing health conditions (e.g. obesity, cardiac issues, diabetes etc.) there is no finer way to identify the risk group. Even them, some young and healthy people are randomly affected in a serious manner, even resulting to death!

Millions of people around the world have got infected with Covid19. Some have suffered no or mild symptoms only. However, due to very little testing carried out, majority of people who think they have got Covid19 and recovered, have no way to confirm that that is actually the case!

The crux of the problem here is how to identify people who got Covid19, then recovered and thus assumed immune to it. These people can then come out of lock down and start leading a pre-Covid19 life.

So how do you confirm this? This is where the difficulty lies.

Presence of the virus can be confirmed in 2 ways – swab test and antibody test.

The swab test shows if the virus is present at the point in time (when patient is tested).

WhatsApp Image 2020-04-24 at 12.08.57
The antibody test can detect patients who suffered and recovered but up to a certain period of time. The big unknowns are [1] how long antibody will remain in the body [2] whether the antibody is due to Covid19 only or for some other viruses.

Although there are cases for person being affected again after recovery, but in this writing we are assuming subsequent infection would not be fatal .

Now if we take a person A, who got infected by Covid19 but suffered only mild symptoms and recovered after 21 days, then the question remains how to prove it? He can be tested for antibody and if IgG antibody is found, a reasonable conclusion can be drawn that person A is immune from Covid19 going forward.

But this approach has a major hurdle. Firstly, antibody test is not yet available to everyone. Secondly, by the time antibody test is available to everyone, the concerned person may have lost the antibody from his blood stream. In this case, it is back to square one!

WhatsApp Image 2020-04-24 at 12.12.16
This person is now in same position like one who has never caught Covid19 before (say person B).

To the public, person A is having same risk of person B. But in reality person A is possibly immune and carry far less risk than person B. But there is no way to prove it.

For person B, there is a risk that he could suffer mild symptom or sever symptom and could even die.

If the immunity can be proved beyond doubt, then it is a valid exit strategy.

Without proper tests, we have to adopt any of following situations.

[1] Lives saved but economy damaged

Continue lock down indefinitely. If everyone remains isolated, no one will get infected, hence no one is contagious and no new person gets infected. But this will destroy the economy and livelihood of billions of people. This is not acceptable solution to public – even though this is actually best solution for saving maximum amount of lives. After sometime public may revolt and might just start their normal life anyway.

[2] Economy survives but high number of casualties

Allow people to carry on as usual and achieve so called herd immunity. This means allowing everyone to catch the virus and accept 1% death of overall population. Effectively a situation a very large number of random people will die. This scenario does not try to prevent infection, rather relies entirely on individual’s body immunity to tackle the virus.

What is the future then? Well, only time will tell.

Thanks to Dr Somnath Mukherjee and Dr Shyam Das for their inputs.

Post pandemic economic recovery

2020/03/26

1. The Problem – micro view

1.1. Theory

Let us explain very basic economic theory first. Below is Cost Volume Profit graph.

Pandemic1

Figure 1

Every business has cost, with 2 main components – fixed cost and variable cost. Fixed cost includes things like cost of machinery, premises, staff salary etc. Crucially, it also includes interest payment on loan – assuming all businesses have some debt which is loan taken from bank and/or investors to raise the capital. The variable cost is often proportional to revenue or sales.

Here we shall use the term sales and revenue interchangeably, to denote earning of the business.

If a business procures more number of product units, higher quantity raw material needs to be purchased – so this is how it linked with revenue. So this is the variable part of the cost.

The earning is shown by blue line. The expense is shown by red line the above graph.

We know the simple formula, Profit = Revenue – Cost

If profit is negative, then it becomes loss. This is same as saying, Savings = Income – Expense.

A business needs to pay tax on profit – so tax is also a cost. But for simplicity, we leave tax out of our discussion.

The point, where revenue becomes more than cost, is known as breakeven point. Until the business reaches this point, it is loss making. Once business is way past breakeven point on the right, it is profitable. In fact, all business tries to move as much right as possible for sustained growth and profit.

A business can borrow more (cost goes up as interest payment) to increase revenue (more sales), resulting in more profit. Now, how much a business needs to borrow in order to increase profit is a complex calculation which depends on type of industry, business strategy, market condition and many other factors.

At normal time, all businesses operate in an equilibrium. Business pays interest to bank, buys the raw materials from suppliers, manufacturers product in factory, pays salary to employees and sells products to customers who pay the price and so on. For a service based business, the theory is still the same. Here, instead of producing items in factory, the company sells intellectual expertise of their employees.

1.2. Recession

Let us see what happens in a recession. The pandemic has led to people being fearful and cities have been locked down to encourage social distancing. As a consequence, all sales have gone down (except very few like supermarket shopping where people are stockpiling for the Armageddon).

Due to very low (or nothing at all) sales, the revenue curve will flat out. However, the fixed cost component will remain mostly the same. This means, for a long time, the business will not make any profit.

Pandemic2

Figure 2

This is shown in above figure. Note that we are now showing time on horizontal axis.

While cost of the business also falls due to less sales, the revenue falls rapidly as people are scared away from purchasing. This will drive down the businesses into further loss.

How quickly a business comes to grinding halt, again depends on industry, geography, mitigation factors etc. For example, airline industry, which has a high fixed cost (as the cost of flying a plane with one passenger vs 300 passengers almost the same) are already near bankruptcy.

For a person, disaster does not strike as soon as he or she loses job (i.e. salary stops coming). This is because the person can still sail thru troubled times using own savings. Here savings is the money in bank saved during good time.

However, a person becomes bankrupt when his/her savings become zero and cannot pay for anything anymore.

Similarly, a business does not go bust just because it is making loss. A lot of businesses, especially those like start-ups, make losses during initial years. However, they carry on as long as investors pump out money to them. This is cash flow.

A business goes bust only when it runs out of cash.

In normal time, a business can increase their cash reserve by adding the profit to their cash reserve.  Every business has a finite amount of cash reserve. The amount again depends on industry, strategy, demand etc.

Also as the demand falls during recession, the supplies must also go down as more competitors now try to get a slice of same shrinking market. This further drives many businesses into downward spiral of lower sales thus more losses.

As businesses go into losses, they start laying off employees, which collectively reduces further demand on the market, leading to panic and mayhem.

2. The cause – macro view

2.1. Pre-pandemic

Here we shall take a step back and discuss how the world economy (mostly capitalism or market driven economic model) works.

Our economy is underpinned by the banks and the government. The depositors (i.e. common people) deposit money in the bank. Let us say a bank collected £1000 from depositors. The bank will pay a tiny interest to the savers. Bank will earn money by lending money to borrowers (for starting business, buying house etc.) at a higher interest. The different between interest earned and interest paid (from bank’s point of view) is the profit for the bank.

But the twist is fractional reserve. This is adopted almost universally worldwide. Under this model, if a bank has only £1000 deposit it can create more money out of thin air, while lending. So basically the banks are allowed to lend more than the actual money they have. In our example, a bank can lend £10000 to borrowers! This means, the bank has created 9 times more money (1000 + 9000) than the real deposit amount. This fictitious money is then lent to people and businesses. This fictitious money is the debt.

Our economy is debt driven economy.

In olden days, when gold was used as currency, fictitious money was not possible. Once the banks introduced fiat currency, by abandoning gold standard, banks got the freedom of create fictional money and debt.

The fiat currency is what our bank notes are. These have no intrinsic value (unlike gold etc.) but people use it as if it has purchasing power purely driven by trust as guaranteed by the government.

Creating this fictional money is not necessarily evil per se. Had the bank not created fictional money, it could have lent only £1000 (in our example) to people who wanted to buy houses or start businesses. However, by creating fictional money of £9000 more, bank is able to lend to more people, enabling more people to buy their dream houses or fund their own businesses. In theory, it actually elevates more people into better life. When we say better life, this is by more consumption of goods and services. With more transactions, nation’s GDP goes up.

As long as continuous growth is happening, everyone is happy in this model. This is why all politicians and big businesses love growth. It makes everyone feel good.

Thus, in a debt driven economy, more money is analogous to having better life.

2.2. Post pandemic

Things become dramatically different during and after pandemic!

As everyone borrows more and more, the debt burden increases. Remember, all debts are to be paid off someday! In normal time, people do not think much for paying of debt. The house price mostly goes up. So even if house owners default on mortgage, the bank can repossess the house and can sell at a higher value than outstanding mortgage amount. So even if individual business or people are bankrupt, the country level economy (known as macro economy) pulls thru as usual.

During pandemic time, the revenue of most businesses fall so low, that most business cannot make profit at all. The business will also default on their loan payments and soon become bankrupt. With millions of people becoming jobless it will be a national calamity.

The government, as in any recession, usually intervenes. This is done by financial stimulus like printing money (known as Quantitative Easing) and reduces interest rate to encourage business to borrow money and sail thru the cash flow issue.

The important part is, government will give further loans to businesses. These loans are meant to be paid back when situation improves.

This will lead to a situation depicted in the next graph.

Pandemic3Figure 3

The key message here is that with even more debt (on top of existing debt) most businesses will not be able to see profit for a very long time. So they are going to see cash flow problem again after some time, requiring another bail out. This will lead to even more debt – which will increase the fixed cost even more as interest payment will also go up and this cycle will continue for foreseeable future.

No business can run in loss forever (only exception is some nationalized public services). Unless the shareholders/investors see some return on their investment, they will not be interested in paying money to the business.

This is a deflationary economy, dreaded by all. Whereas deflation did happen in the past, this time, clubbed with the pandemic (i.e. loss of lives) the blow will be huge.

The philosophy of the capitalism is survival of the fittest. In capitalism, people with more money are considered better off. People with more money can have a better life. But a pandemic, affects rich and poor equally. Hence, if money does not improve people’s lives, people may not be willing to increase their earning more. Thus the fabrics of run after money philosophy fails!

Although, even during pandemic, the rich and powerful in somewhat privileged as they are able to get tested for COVID19 whereas normal people cannot unless they are serious ill and rich people can still buy essentials at an inflated price from black marketeers.

3. The solution

I admit that I do not know what the solution is. If I were that intelligent, I would have received Nobel prize by now. But still, we can make some attempt to find a solution that may work.

One option could be writing all the debt off for everyone. This means everyone can start with a clean slate. This will help majority of the people. But this will not go very well with the banks and the government. Why?

Because in debt driven economy, the control of economy in the hands of privileged few, namely the banks and the government. If debts are written off, their own flow of income will stop. They will also not be able to control the population saying work hard else you will die starving.

From historical times, society has mostly been unequal rather than equal. Even in Ancient Egypt, there were rich and almighty pharaohs and slaves who served the riches. As the folktales say, when Moses tried to free the slaves, the pharaoh refused. Among many other tricks, the God of slaves unleashed a plague which affected pharaohs’ family only and spared the slaves’ families.

The analogy here is illustrating that rich and powerful always controlled the masses – in olden days with fear of death and in modern days’ fear of (lack of) money!

Usually in recession the government often bails out (i.e. provide cash to big businesses as loan) but this seldom goes to employees. Big corporations claim these saves the jobs, but alternatively, government can help everyone by giving them money directly in the form of Universal Basic Income (also known as Unconditional Basic Income i.e. not means tested). The unconditional basic income is claimed to be easier to manage than means tested benefit system. If this scheme is adopted, the big corporations can simply fail if they cannot run their business efficiently.

The other path could be gift economy. It mode of exchange where valuables are not traded or sold, but rather given without an explicit agreement for immediate or future rewards. This is like catching fish to eat but not catching too much to make a big profit. This model already works in Open Source Software where people write software for others for free and users can donate if they wish. Couch Surfing as another such example where people stay in others’ homes during holidays without paying anything.

Designing an alternate economy model is extremely complex and beyond the scope of this article. My aim here is to drive the thought process of everyone so that collectively we may invent something more egalitarian than greed driven economy.

 

Why so many empty seats in London Olympic 2012?

2012/07/30

Since Olympic is considered the greatest show on earth, it is assumed that there would be a huge demand for tickets and thus gallery will be full of sports fans.

But we can all see how many of the events in London Olympic so far have got plenty of empty seats!

How did it happen?

First let us understand how Olympic seats are sold. The seats are grouped under different categories. Roughly, there are two major categories – open to public and official allocations. Open to public is a fraction of the total seats. The rest are divided among corporate sponsors, Olympic officials, political dignitaries etc. The sponsors are officials are given a large number of free tickets (in return for their sponsorship or as perks in case of officials). These groups, theoretically, are expected to re-distribute the tickets among their own people.

Clear, this did not happen. After receiving the free tickets, the sponsors or officials often did not bother distributing them to their employees or associated. Even when they distributed, it went to people who were not that interested in the events – so never bothered to turn up in the events.

There is a demand from public that why empty seats are not filled by waiting public then and there. The Olympic organizing committee is yet to announce their plan of how to fill those seats up going forward during the rest of the Olympic session.

This incident surfaced the unethical nexus between Olympic organization committee and corporate sponsors where general public’s interest is sacrificed in favor of corporate sponsorship and officials’ personal agenda.

Why Barclays bank was fined £290 million?

2012/06/28

In June 2012, British bank Barclays was fined £290 million for trying to manipulate LIBOR  rates.

What does that mean?

Just like normal people borrow money from banks; banks themselves borrow money from other banks. They do this for various reasons but often due to cover cash flow in short duration. LIBOR is an indicator or how much one bank has to pay to another bank for borrowing money. In other words, it is a rate at which one bank pays interest to other banks. Just like a customer with good credit score gets a lower interest (as he is considered lower risk), a bank with good reputation gets lower LIBOR rate. How the banks’ credit scores are determined? It is calculated from bank’s financial numbers like how much it is actually costing them to borrow etc.

Barclays actually lied how much it is costing them to borrow. This, in turn, makes them appear lower risk to other banks compared to what might have happened if they quoted their true financial numbers. Thus, they lied to get a lower interest rate from other banks. So, if they had disclosed their true financial data, other banks could have charged more interest to lend them money. Thus investors who lent money to Barclays lost money in interest.

Just like a country’s share index is measured upon how some big businesses are doing, a country’s LIBOR rate is also a measure of how healthy its overall banking sector is. If one bank reports wrong financial figures for its own health, this will affect the overall LIBOR rate. Many financial (both business and retail) interest rates are directly dependent on LIBOR rates. So, wrong manipulation of LIBOR rate is considered a fraud.

Barclays’s traders also bribed and coaxed employees of other banks to make them submit their figures so that it looks better in Barclays favor.

The common British public demanded a full enquiry on this unfair practice as they suspect other banks might be doing this as well. However, so far current British government did not show any move to initiate such enquiry. People believe that this is because wealthy bankers pay hefty donation to political parties and thus neither Conservative nor Labour party are willing to upset their billionaire donors.

Can you use typical Hackney cab as personal transport?

2012/06/16

The London cabs are ubiquitous symbols of the city.  Most licensed cabs in London and other UK cities are of this type. Although there are few other licensed cabs which use other cars. Please note that minicabs (which must be pre-booked and can’t be hailed on road) use normal vehicles.

The way interior of these vehicles are designed it is easy to push pram/wheelchair inside. It is also specious inside to carry enough luggage to airport.

But why don’t people use it as personal car?

The first reason is the cost. Typical cost to buy these vehicles new is around £30,000 – which is quite expensive considering you can buy various luxury cars at this price. Secondly, these cars are not very comfortable for long distance travel. Seats in normal passenger cars are usually more comfortable. Thirdly, even if you buy one, you may find that many people are trying to hail you on streets assuming it is a cab!

Typically, these cabs don’t carry passengers besides driver. All 5 passengers seat behind the driver. There is a rear bench seat for 3 persons and there are 2 additional seats which are stowed away when no one is sitting on them. This explains why it is not very comfortable.

How does day light saving work?

2012/05/30

If Daylight Saving Time (DST) is not in operation, then during the middle of year (May-Aug), the Sun will rise in UK around 05:00 will set around 19:00.

If we use DST, then clock will go 1 hour forward so that it will appear that Sun rises at 06:00 and sets at 20:00.

This means, you can switch on your lights in your house after 1 hour every evening (well, sort of).

So this will give you one extra hour of daylight every day. For most people it is a benefit.

However, if you have the habit of getting up very early, then you will have to switch on the light (if you get up at 05:00, till 06:00). That means, even though we are saving day light in the evening, we are losing day light in the morning.

As most of the people do their own entertainment in the evening (after finishing off work), it is argued that DST gives more daylight to most number of people. People are expected to spend more time outdoor and likely to buy stuffs till there is light, which indicates a more active economy.

Of course, same benefit can be achieved by re-adjusting opening and closing hours of business, say 09:00-17:00 instead of 08:00-16:00.

Ok, so if day light is saved by making clock fast forward, why not observe the same time thruout the year?

This will cause problem during winter. The Sun will appear at a later time – which will force children to go to school during dark hours in early morning. In fact, this is one argument often used in favor of turning clock back during winter. As clock goes back, the evenings will become darker sooner (e.g. at 16:00 eveything becomes dark when UK follows GMT during winter). That means, all the day light hours saved during summer are lost in winter! Supporters of dual time argues that during winter no body wants to be outside anyway so no harm if it becomes dark sooner. To some extent, it is true.

Unexpected item in bagging area

2012/05/30

Typical self-checkout till

 

This is common message you hear if you have ever used self-checkout tills at supermarkets!

Supermarkets are increasing using self-checkout tills to reduce cost (i.e. they don’t have to pay someone to manage tills). Most shoppers just hate these self-service tills.

It usually consists of 3 slabs. On left most slab, you keep your items. On central slab you scan barcodes of each item and then put them on bags on your right hand slab.

The machines checks that weight of scanned item (as obtained from store’s database) should equal to the actual weight on your right hand slab (which has a weighing gauge internally).

When you scan an item and place on the bagging area, the computer cumulatively adds the weight and expects the theoretical weight be equal to actual weight of items placed on bagging area.

If shopper scans something and barcode is read wrongly by the computer (a very common problem), it then finds that weights on scanner vs bagging area are not matching and shouts “unexpected item in bagging area”. It requires a store employee to reset the terminal for further use.  Naturally this irritates the shopper. From supermarket’s point of view, this message indicates a fraudulent behavior from customer. They think customer might be trying to steal something and thus not placing it on the bags by not scanning! Thus, the message is heard loudly which is to attract attention of a store employee.

In contrast to other European countries, in UK shoppers are often likely to start a conversation with till operators (although this tradition is dying down within younger generations) and thus UK shoppers hate (especially older generation) absolutely hate self-checkout tills.

Why Social Mobility is important?

2012/05/22

Social Mobility is a measure of to what extents someone’s parents’ income/education/status will dictate how much someone can achieve  (income/education/status)  in their adulthood.

Social Mobility = Parent’s income / Their Child’s adult income

For example, when you were young, your dad earned $20,000 per year in his 40 years of age, which is in today’s terms, say $40,000.

You are an adult today and in same country you are earning $80,000 at same age.

So, your social mobility score is = 40000/80000 = 0.5

If the score approaches towards 0, it indicates higher social mobility. On the opposite scale, if it becomes 1 or more than that, it indicates lower social mobility.

All countries should aim for higher social mobility because it signifies that even if you were born in a poor/disadvantaged family, one should still be able to rise at the top. So, technically speaking, if you live in a country with higher social mobility scores, you are more likely to become CEO of a big company even if your parents pushed trolleys in supermarkets in their whole life.

When a child is born to a rich parents, s/he is more likely to get better care, better education etc. This often leads to successful life at adult stage. Social Mobility measures the extent of cumulative advantage.

So, to sum up,

poor parents, rich kids = higher social mobility
poor parents, poor kids = lower social mobility
rich parents, rich kids = lower social mobility
rich parents, poor kids = bad social mobility (shows that situation worsened over time)

Although how much one can rise in life often depends on individual’s capability, government rules can also influence the outcome. For example, if studying in law school requires expensive upfront fee payment, then only rich people’s kids can afford that – which will lead to lower social mobility score. However, if government can ensure fees are less so that any meritorious student can get admission, then  kids from poor family can study and earn good money, which indicates higher social mobility score.

Some example scores:

Denmark    0.15
Austria    0.165
Norway    0.17
Finland    0.182
Canada    0.191
Sweden    0.274
Germany    0.32
Spain    0.32
France    0.41
USA    0.47
Italy    0.48
UK    0.5

This indicates Denmark has a much higher social mobility than United Kingdom.