Prayatna

Are the rich getting richer and the poor poorer?

Yes. The New Scientist (March 12, 2005) explains. (Hat tip - Amit)

The rich are getting richer while the poor remain poor. If you doubt it, ponder these numbers from the US, a country widely considered meritocratic, where talent and hard work are thought to be enough to propel anyone through the ranks of the rich. In 1979, the top 1% of the US population earned, on average, 33.1 times as much as the lowest 20%. In 2000, this multiplier had grown to 88.5. If inequality is growing in the US, what does this mean for other countries?

Almost certainly more of the same, if you believe physicists who are using new models based on simple physical laws to understand the distribution of wealth. Their studies indicate that inequality in market economies may be very hard to get rid of.

In 1897, a Paris-born engineer named Vilfredo Pareto showed that the distribution of wealth in Europe followed a simple power-law pattern, which essentially meant that the extremely rich hogged most of a nation's wealth (New Scientist print edition, 19 August 2000). Economists later realised that this law applied to just the very rich, and not necessarily to how wealth was distributed among the rest.

Now it seems that while the rich have Pareto's law to thank, the vast majority of people are governed by a completely different law. Physicist Victor Yakovenko of the University of Maryland in College Park, US, and his colleagues analysed income data from the US Internal Revenue Service from 1983 to 2001.

They found that while the income distribution among the super-wealthy - about 3% of the population - does follow Pareto's law, incomes for the remaining 97% fitted a different curve - one that also describes the spread of energies of atoms in a gas.

In the gas model, people exchange money in random interactions, much as atoms exchange energy when they collide. While economists' models traditionally regard humans as rational beings who always make intelligent decisions, econophysicists argue that in large systems the behaviour of each individual is influenced by so many factors that the net result is random, so it makes sense to treat people like atoms in a gas.                                            

The analogy also holds because money is like energy, in that it has to be conserved. "It's like a fluid that flows in interactions, it's not created or destroyed, only redistributed," says Yakovenko.

Yakovenko also found that the total income of those in the poorer part of the distribution did not change significantly with time after accounting for inflation. But incomes for those in the Pareto curve shot up nearly five times from 1983 to 2000, before declining with the US stock market crash of 2001.

A more sophisticated model developed by Bikas Chakrabarti of the SINP and his colleagues paints a slightly less bleak picture for the poor. His team adjusted the gas model to allow people to save various proportions of their money.

This model predicts both the wealth classes that Yakovenko found. It also suggests that if you save more you are more likely to end up rich, although there are no guarantees. Changing people's saving habits could be an effective way of making the wealth distribution fairer, rather than enforcing taxes, says Chakrabarti, who is one of the Kolkata conference(on the econophysics of wealth distribution) organisers.

The models are understandably simplistic to start with (they would be too difficult to model otherwise), but would need to take into account the fact that wealth (not just money) can be, and indeed is, created and destroyed - there is no law of conservation of wealth. 

I wonder how things would change if everyone was assured access to education.

How to publish and sell your own book, CD, DVD on Amazon.com

Kevin Kelly describes from experience, how to go about publishing and selling books, CDs and DVDs on Amazon.com.

I wish a few of the Indian online shops like Fabmall, Rediff, Indiatimes, FirstandSecond etc.. provide the same service to let individuals publish and distribute their books through their shops.

The long tail in software on the supply side as well as the demand side

Joe Kraus, the founder of JotSpot, recently described the potential of the long tail in (business) software on the supply side.

These three facts

• every business has multiple processes
• processes that are similar in name between businesses are actually often highly customized
• there exist a large number of processes unique to millions of small clusters of industries.

means that there is a combinatorial explosion of process problems to solve and, it turns out, little software to actually support them. Said another way, there is a long tail of very custom process problems that software is supposed to help businesses solve.

Inaccessible Tail

In the past, software’s long tail has been generally inaccessible because software has been

• Too difficult to write
• Too expensive to write and distribute
• Too brittle or expensive to customize once deployed.

It just hasn’t been economical for someone to create a custom software company to help architecture firms. That’s why, in the software business, the traditional focus has been on dozens of markets of millions instead of millions of markets of dozens.

So, my tip for entrepreneurs? It’s all about the long tail. Whatever business your starting, think about how to serve millions of markets of dozens instead of dozens of markets of millions. Serving the head isn’t a bad strategy. You can build a great business. But, figure out how to serve the tail of your market efficiently and you’ve got a blockbuster.

The Economist  reports on Softwide, an example of a business exploiting the long tail in software on the demand side. But the software in this case is not limited to just business/utility software, but educational and entertainment software as well.

Softwide is a kiosk-based approach to selling software on the high street that makes obscure but useful titles available to a far larger market. Set up by Daniel Doll-Steinberg in 2002, this long tail business is a hyrid of electronic storage (online as well as on local hard disks) and online as well as offline distribution through physical stores. Here's how The Economist describes Softwide's business.

Mr Doll-Steinberg originally set out to increase the range of software that could be sold in existing shops. With limited shelf space, most shops stock only a few dozen titles. So his firm, SoftWide, devised a kiosk-based system that can store thousands of pieces of software on a hard disk, burning a disk only when a customer wants to buy a particular title. The first kiosks were tested in WH Smith, a British retail chain, and in Fnac stores in France. But having some titles in boxes on the shelves, and others provided by kiosks, was confusing. So Mr Doll-Steinberg decided that SoftWide should open its own chain of shops. The first two opened in London in 2002, and have since been followed by three more.

In computer superstores, 60% of software sold is games, and about 35% is business software. In SoftWide's stores, in contrast, 50% of the software sold is educational and reference software (much of which is otherwise only available by mail order), 30% is business software and only 20% games. More than half of SoftWide's customers are women, and many are pensioners.

SoftWide's unusual model has a number of benefits over superstores and online downloads, Mr Doll-Steinberg insists. It makes it possible to offer customers advice, which is hard to come by in big superstores where shelves must be kept stocked. Users feel more comfortable with physical disks than with downloads, which can go wrong, cannot be resold, and are unsuitable as gifts. And popular products cannot sell out.

Mr Doll-Steinberg believes he has discovered a huge untapped market. In Britain, the educational and reference market is worth £50m ($96m), and has been in decline since WH Smith pulled out in 2000. Its stores stocked only 50 titles; SoftWide's kiosks hold more than 2,000, including programs to help people learn yoga, stop smoking, design a garden, prepare for a driving test, write business plans and complaint letters or fill in government forms. "Most of the people who come into our stores have never bought software before," says Mr Doll-Steinberg. "They say: 'I didn't know you could do that on a computer'." Such software, he says, should not be relegated to an obscure niche. He estimates that the market could be worth more than £600m.

The article does not say if business/utility software is also sold through Softwide, but it certainly can be, and its quite likely that it is already happening.

Specifically, in a market like India, apart from educational and entertainment software, business/utility software targeted at the large number of very small businesses and homes will require support for installation and help in teaching the users how to use the software. I think Softwide's model can be suitably adapted to build the software distribution network for SMEs in India with the kiosks serving as both demo outlets as well as sales outlets.