A funny thing happened on 1st June. I was at home in the evening and I get this message from Sucheta: Come to our book launch on 5th June. The book was being launched by Dr. Subramaniam Swamy. She told me that the printed copies had just arrived and she will send me my copy the next day and that she looked forward to my feedback.
I told her that I already have the book. She said you don’t. I said I do. She said you can’t possibly have it. I said I do. She said prove it. So, I got my daughter to take and send to her, a video of me and the book while opening a random page and reading from it. Now, she had to believe me.
Why I am telling you this? Because when it comes to Sucheta and Deb, they don’t trust anything and it comes routinely to them to check and double check things before believing them. In this case it turns out that unknown to Deb and Sucheta, one of their colleagues had already sent me a copy of the book.
I have read the book and it’s riveting. I also bought a kindle version so I could underline stuff and convert that into notes for reference — and boy there’s a lot of that. The kindle version has 147 references in the end and many of them are hyperlinks. So I did some investigative work on the authors’ investigative work and clicked on each link. And every single one of them — except a couple of broken ones — opened.
It’s a complex book for someone like me. I am no expert in the technology of stock exchanges. I come from a very lazy school of value investing. One of my teachers, Warren Buffett, says that you should invest your money by assuming that the stock market will shut down for a decade after your investment. That’s a practice I have tried to follow.
He also once wondered what’s the point of getting rich by looking at the ticker tape all day? I find it incredibly boring to look at red and green flashes on a trading terminal all day just to get rich. But I know people who do it and some of my friends have done it very very well in that field. But I am not that kind of a guy.
So I don’t know why Sucheta and Deb invited me to quiz them on their book. But I was honoured and delighted to do it. And I prepared a “four part question paper” for them to answer. Each part was compulsory. 🙂
You can see the video from here.
Here are a few things I learnt from the book.
- Although the title of the book is “Absolute Power” there was no reference to the famous quote: “Power corrupts and absolute power corrupts absolutely.” Written by Lord Acton, a British historian of the late nineteenth and early twentieth centuries, these words mean that that a person’s sense of morality lessens as his or her power increases. The book “Absolute Power” chronicles how this happened to NSE. Unrestrained power, it is said, attracts corruption like honey attracts flies. This is a tendency, not a law. It’s a pattern that tends to repeat. This book shows us how this happened to NSE. But we also saw the same pattern in IL&FS, Stock Holding Corporation, and NSDL — something that’s described in the book and in Sucheta’s columns. No doubt we will see similar situations in the future.
- Network economics in the stock exchange business is great because it has winner-takes-all attribute along with high switching costs. But when a dominant exchange becomes arrogant, like BSE did when it was a monopoly, and refuses to change with the times, then high switching costs won’t save it from being disrupted by new upstarts who are far more adaptive and not arrogant at all — at least not in the beginning. This is described very well in the book in the context of BSE vs. NSE in the early days. The irony here is that the very arrogance that caused BSE to lose so much market share (NSE now has a 94% share in the capital market segment, and a 100% share in the F&O segment) could lead to the fall of NSE one day. Unless of course, it changes the way it behaves with the world outside. And I certainly hope that it will do that by dispassionately introspecting on its behavior chronicled in Absolute Power.
- The authors show that a significant part of NSE’s profitability was caused by what they describe as “regulatory capture.” When analysing NSE’s fantastic operating performance, one should also question what caused it? According to the authors it wasn’t just technological innovation and network economics.
- Cultures can degrade over time. They need to be maintained and nurtured carefully, like in a garden. The original gardener (in NSE’s case, Dr. RH Patil) will go and will be replaced by others, and if they don’t share the vision and values of the original gardener, then weeds will grow.
- If one person can destroy the culture of an eminent institution through the unrestrained exercise of absolute power, then another person who is honest, independent, and fearless can successfully challenge that absolute power. The book shows how this was done by Prof. Ashok Jhunjhunwala in the case of NSE investigations and I loved reading that part.
- Like whistleblowing, investigative journalism is not easy. It’s very very hard and stressful and most people can’t handle it well. But we need whistleblowers and we need their investigative journalist handlers. And we need both to come together to throw sunlight on those dark dungeons of secrecy in many systemically important institutions enjoying absolute power. Sunlight, it is said, is the best disinfectant. And it’s true. This book, Absolute Power, is that disinfectant. Or to use the current lingo — it’s the sanitiser we need to clean up the system.
I certainly hope that at least a few dozen young people, who will read Absolute Power and other books written by Deb and Sucheta and who will also study their track record in investigative journalism spanning more than three decades, will look up to them as their role models.
Disclosure: No position in NSE or BSE. I was not paid anything for writing this review or for conducting the interview.