Friday, March 11, 2011

Buying respectability

The Economist has an article titled Glitzkrieg, where the blurb reads: "Respectability is for sale. Here is a buyer's guide."

As I read it, I thought: A lot of these tricks are used within India by some businessmen rocketing up to respectability! But there are a few unique dimensions of this racket in India. E.g. big hoardings on the street in Bombay; Gaddafi doesn't do that in London.

But it's interesting to think of three shades of gray:
  1. Goods with objective attributes: An ogre can make a commodity like steel, and the customer does not care. The quality of the steel is objectively visible in the steel.
  2. Goods where reputation helps: A second tier of products & services are those where there are some intangible attributes.
  3. Goods where reputation is essential: In finance, regulators require producers of certain products & services to be fit and proper. Here, it's a matter of life and death. A wannabe has to buy the reputation, to be considered fit and proper, else he will be thrown out of that business. It is similar with ponzi schemes: The emergence and survival of ponzi schemes requires constructing a reputation. There is also an intersection: of ponzi schemes which require fit and proper approvals.
So an ogre who makes steel can choose to spend money on buying a private jet or he can choose to spend money on buying a reputation: that's just a matter of taste. But as you go into the 2nd and 3rd categories, the purchase of reputation increasingly becomes a cost of business.

On these issues, you might like to see: Section 8.1, The intrinsic value of regulation for IFS production, in the Percy Mistry report; and Ethics and entry barriers.

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