Truck and Barter

Dance Hall Girls

Is this the way it always is here in Mumbai?

Maharashtra, India, is working to close down the widespread dance-bar business. Apart from the direct effect of flooding local job markets with women and former business-owners, more traditional businesses that rely on an informal financing institution are likely to suffer badly:

Hoteliers say that if a few restaurants going out of business could have this impact, the fallout of 750 bars closing down would be significantly higher. Most bar and restaurants are funded through the unofficial Chit Fund (BC) route.

It's fascinating how a BC operates: a fund organiser invites around 19 businessmen to create a monthly fund pool, for say Rs 20 lakh, with each member contributing an equal amount. The organiser is the pivot of the BC, and has the last word.

The pool of money created every month is auctioned to the highest bidder. So, if a borrower (who is also a member and contributor to the pool) bids Rs 5 lakh for the Rs 20-lakh pool, the bid amount will be reduced from the pool and he will get Rs 15 lakh.

Each member, therefore, contributes only Rs 75,000, instead of Rs 1 lakh. The amount the borrower repays would depend on the demand and supply of funds.

In the next month, the pool is created afresh by new contributions from the members. The per-member contribution will depend on the demand. The higher the demand, the steeper the discount. The member who has already borrowed cannot bid again.

A new bidder (from the remaining members) steps in. If he quotes a higher discount, the contribution required will be less. It is through the monthly contribution that the first borrower repays the money. If the discount is high, it benefits the persons who have already borrowed in the previous months, and those who would borrow subsequently. The process is repeated every month, with fewer members bidding, but everybody contributing.

Clearly, the formal financial markets are lacking some depth that the informal ones have long been providing. Perhaps the dance bar scene is a front for prostitution or worse, human trafficking -- I don't know enough to have a view on the policy. But, to go along with my theme from the previous post, such things can't be view in a static setting. Without the funding from the dance bars, numerous other small businesses may crumble, and new ones may have no funding to rise in the place of those that closed.

Is MP3 the New "QWERTY"?

In PC Magazine, Jim Louderback argues that MP3 is a fat, clumsy old-and-busted, and all-around inferior digital music format. He insists that competing formats, like WMA, are superior because of their digital rights management, smaller files sizes, better audio quality, and smaller royalty payments:

Why hasn't MP3 been unseated? Formats, once widely adopted, are very hard to change. MP3 has become a lowest-common-denominator format: A device simply cannot be successful without supporting it. Why? Because so many users have invested so much time in creating and downloading MP3 files, and they'll resist going through gathering and encoding all over again. There's simply too much material in MP3 format floating around for us to change over, even with all the benefits of newer formats.

What's it going to take to change? I've developed a law of technology adoption, which I modestly call Louderback's Law: Unless a new technology includes breakthroughs in at least two different dimensions—without adding hardship along the way—it will not supplant and older, established one.

The newer audio formats, including Ogg Vorbis, seem to have at least two things going for them compared with MP3: smaller files and less expense. But because any change would require conversion of billions of files—a royal pain in the butt—it just won't happen.

The comment forums are very rough on Mr. Louderback--especially here and here. The latter is quite blunt, and wrote something close to what I was thinking--digital rights management is a bug--not a feature--to many consumers:

Louderback must be on drugs. Ditto everything you said. Is it obvious only to you, Uncle_Jessie, and me that DRM is THE reason that MP3's will survive long into the future? Ogg vobis [sp?] is the only format I would even consider using as a replacement and then only as long as a DRM scheme is not attached to it. Only a formst with 1) better quality, 2) higher compression and 3) NO DRM even has a prayer of replacing MP3. It is what the people want that will determine the de-facto standards, not the manufacturers, distributers, RIAA, or anyone else. All they can do is drag their feet.

In reply, Mr. Louderbeck then takes an interesting stand:

Yes, you are right that DRM is also a big deal. You and I care about it. But I think the mass of consumers are vaguely aware of what DRM is.. They just want to take their CDs, and create songs out of them, and share them with friends. Today everything is MP3... and it will stay that way, because that's what people have -- it's more installed base inertia than anything else. If a format with DRM had been the first one to take off, then that would be the defacto standard. Thankfully that didn't happen. (emphasis added)

He too believes that digital rights management is a bug... The absence of DRM means MP3 is actually a superior format...