Slow Money vs. Fast Money - Part II

Continued from here

It is important that both the country and its citizen grow at reasonably matched pace and growth of one does not outpace the other. If a citizen's standard of living increases faster than that of the economy - s/he would be tempted to migrate to an economy/country which matches his/her standard of living creating a drain (brain drain being one of the manifestations). On the other hand, if the economy outpaces the citizen's personal growth, it may often lead to rise in economic disparities leading to social problems.

Since, slow money contributes towards increase in the standard of the economy/country while fast money impacts the standard of individuals, it is imperative that both slow and fast money should coexist in the economy and in the right proportions. Also, fast and slow money should not be interchanged - otherwise it may produce bizzare results.

For example: under communism the state insisted on investing slow money into business leading to setting up of huge industrial houses. Since slow money is non-risky by nature these investments which grew much slower than their capitalist counterparts. More importantly, in countries like India it locked the economy and its citizen into the Hindu rate of growth.

But most importantly, slow money by virtue of being required to remain 'safe' required long winding approval processes and

On the other hand, now the government is heavily insisting on usage of fast money - equity money to be invested in infrastructure and utilities - an area marked by long return cycles and low ROI. Such investments often lead to massive losses in the short term and conversion of fast money into slow money - thus making 'riskworthy' capital even scarce in the economy - often leading to slowdown. The impetus to utilizing fast money for infrastructure has come presumably from the success of opening of telecom (considered a utility and hence target for slow money) to private players.

Indeed mobile phone and broadband networks look like exceptions to the rule which are a utility but across the world are funded by fast money. However, barring emerging economies telecom giants across the world are facing the crunch of slow growth. One should also note the great crashes of 1999 and 2003 when millions were wiped off the balance sheets of fibre optic companies. More importantly, as we are realizing fast, the people who are more likely to continue to make money on telecom are services which utilize the infrastructure - phone companies like Apple/Nokia or VAS companies which offer content over the mobile platform.

Read Part III (Go back to Part I)