The Butterfly Effect

Most selfish decisions are made when we don’t look into the past for lessons, future to measure the journey and in our failure to gauge the quandary of present. In short, decisions made on an impulse or short sightedness purely on evaluating instant profitability or loss, are plain ignorant, the people making these decisions may not necessarily be selfish but naive.

“The butterfly flapping its wings in China can cause a hurricane in Texas”

This metaphorical example, closely associated with the work of Edward Lorenz. Butterfly effect, part of the Chaos Theory, explains the sensitive dependence on initial conditions in which a small change in one state of a deterministic nonlinear system can result in large differences in a later state. To put it perspective “The butterfly flapping its wings in China, possibly at bat in Wuhan has caused a hurricane not only in Texas but one of biblical proportions around the world. One person in a remote part of the world gets infected and the world in turn comes to a stand still, probably this should be the new example for butterfly effect. Though this theory is mathematical in nature and mostly used for weather prediction models and in Quantum mechanics, I am looking at it from a more liberal, philosophical angle with a dash of Economic common sense.

We shut down our preschools on the 10 of March, it's almost nearing the end of May and it looks like we may or may not open the schools till the end of August. The factors to close the schools were many, but mainly because authorities asked the schools, preschools and daycare centre to close down way before any other business was asked to close. Of course the other obvious reasons were we didn’t want the future generation to be at risk, or risk our own safety along with all the people who work at preschools. Ironically, at least 2 weeks later the rest of the business and country were asked to join the biggest lockdown in the world. Though few sectors are opening up, schools will remain shut for at least the next 2 months if not more.

Few other business too will remain shut for unforeseeable future, except businesses that can give us any goods or services that we can consume without stepping out. Therefore, Malls, Theatres, Sports arenas, entertainment parks or swimming pools where people socialise will be out of bounds, which means all the things humans invented to reaffirm we are social creatures will be either be closed by order or voluntarily. All of us whether we like it or not will have to become Robinson Crusoe, though many, unlike Mr. Crusoe will have company of their families and will not live like this castaway thanks to all the modern technology at our disposal. Humans are highly adaptive in nature and most will be able to navigate this period easily, at least emotionally and the few lucky ones, financially too. The rest of the world will struggle in some way or the other and will have to make some tough decision, neither ignorantly or selfishly but with prudence.

If everyone makes a few selfless adjustments, the doomsday predictors can be packed up to the Ma’s a Tierra islands and world can come closer to sanity in this era of packing extra toilet paper. So, at the risk of sounding preachy, I’m sharing few examples of positive 50% mindset, for businesses and individuals, until we can move to 100% again.

Glass half full. Image by: Manu Schwendener

50% positive Mindset

A friend called me few days back to know how are we managing different rental properties and landlords, he and some of his friends were peeved by the constant back on forth with the tenants. My solution was simple, stay 50% positive, explaining further I said, if your rent was Rs 100,000 and your tenant can’t pay you because of the financial hardships associated to the lock down, which is now nearing 3 months, you charge them 50% for not only this period but also for the next nine months or a year. He was shocked and now more irritated with my suggestion, but I explained further, If he looses the tenant right now and the tenant takes the matter to court, he has to wait for the Court’s interpretation of Force majeure, it also becomes tricky as residential deals may not have such clauses and law may take more time to solve such cases. In such a case, the landlord would loose rental income for a few months say for example, 3 months. Now to find a new tenant in this market may take longer than 3 months if the landlords stick to the pre-lockdown prices, and may have to offer reductions of up to 30% to 40% to attract a new tenant. This means opportunity cost, plus brokerage fees, lawyer fees, plus hassle of courts or otherwise, will bring the landlord’s earnings down by 50% anyways for the whole year, in some cases even beyond as the rental markets will take a hit.

In the above table, if your rent is Rs 100,000/- and you let your current tenant go, assuming you have no new tenant for 3 months in this market and the rent goes 25% down, the total earning would be Rs 600,000/- p.a. whereas you charge the current tenant only 50%, your income will still remain the same.

However a positive way to look at it is, just charge 50% to your tenants who are affected by business or job losses, give them the much needed rope. If they succeed in a few months they will not only start paying you the pre-lockdown rent but will also be indebted by your graciousness and will try to make it up to you, as most people like to repay the favours. You will not lose anything in such a deal but win, much more than just money.

Pass it forward

Another example, We as a school have started to offer the same benefit to our parents by offering reduced fee structure. So if you have been benefited or your business permits reduce your prices, forget large profits if your company can survive on 5% margins go ahead make the price reductions possible, it will benefit large number of people who have lost their jobs or have taken salary reductions.

I personally feel even after taking a salary cut managing in these times is easy as huge costs associated to entertainment and socialising are reduced. All these savings can be diverted to new services or products, that entrepreneurs are working tirelessly for and will be available either at doorstep or online, to make our life a little more comfortable.

Modern Gods, have mercy

Finally Banks, moratorium means nothing, it means you will charge us compounded interest on the existing missed EMIs, while we are nursing our wounds or trying to stop the financial bleed. You have the most amount of power, can you charge only 50% interest on all existing loans? This is not asking for waiver on principal amount, most self respecting businessmen would be happy to pay that, but can bank stay 50% positive. This means can we reduce the interest rates on existing loans to 5% or 8% from the range of 9% to 16% depending on the kind of loan, term, OD, home or student. Any newbie banker will know purely in terms of EMI this offer for the next three years will mean nothing much to bottom line, as people paying EMIs since last 3-5 years must have paid a bulk of the interest anyways.

I am no Mathematician, Economist or communist, neither do I claim this 50% positive is a fit for all, this is a simplistic view to larger issue and we all have to tailor make the solutions for our individual needs. I have had Landlords working at 20% positive model because it suits us both, you can or can’t work at 50% then work at 60% or 80% positive structures but give some room to the business and individual who are struggling, use this time to generate goodwill not just profits, align, collaborate and synergise to create a better world for people you can directly make a difference to, they will in turn do the same.

Whenever you are working that new deal, look at the past for guidance, some people can’t be trusted historically and this could be your chance to exit and for the ones you trust and want to work, gauge the future course to ascertain whether you can support each other for that period, present will start to look easier. But if you can’t work out a new structure, then in your case truly, poverty is just a state of mind.

This sensitive interdependence on each other is what make Economies work, the butterfly doesn’t just flap its wings once, like it did in Wuhan that is responsible for our current misery, but every time we make a decision ignorant or calculated, no matter how small will amplify and change the course of our collective history.