High salaries and inability to put valuation on knowledge assets is cause for recession

We all knew (at least I knew) this was coming!. I run a Software company and when I was looking to hire developers, I was forced to pay very high market rates. Kids out of the school got top offers from big outsourcing companies. Some of these students did internship with us and I did not see them any different then those who did not get placement. In some instances, the not so creamy layer students did much better in their projects in our company. I ended up offering jobs to many of the students who did not have placement through college and did their internship with us. I even made their package above average then what the market pays in general in this region. But it was nowhere close to what the Top companies offered to those creamy layer.

Being a startup, the expectations we had from the new hires was very high. There is always a ton of work as we are building very complex products for Indian Markets and lot of work goes in research. This is in contrast to those working in large companies who are on bench for first 6 months and then put through in training. A kid out of school with no work pressure but driving cars, having luxurious bunglow,etc was what we saw in boom time. And of course this did not seem right at all.

On the global scale, the Infotech Industry had been creating lot of value addition and impacting the lives of every individual worldwide. Technology was supposed to simplify things and make life easily. But what we saw as people started getting more and more busy every passing day - either glued to their computers or cell phones and hardly had time for family. With IMs, Cell Phones, unwanted emails popping up every minute, net browsing, kong meetings, coffee breaks, there was hardly any productive work getting done in offices. It seemed that suddenly the economy graph was shooting sharply compared to population growth and for everyone to keep up with economy, we had to all work crazy hours. This was not really the case at all. It was again a case of unproductive usage of time, high salaries and fake demand created for additional hours.

Sadly enough more and more investment was put in Hi-Tech / Software Services business which even today is hard to measure. How do you measure Software Asset? How is facebook valued different then orkut or hi5?

If hi5, twitter, digg or plaxo comes with new killer feature how does their valuation increase and others decrease? Lets say facebook is valued at $50 billion (just as an example) and is a US business and tomorrow lets say a new startup in India lets say 'jaldibol ' and Indian product brings so much innovation that it gets more traffic then facebook. This may make 'jaldibol' valuation more than facebook e.g $60 billion (just suppose). This may or may not result in lower valuation for facebook. But what this did is suddenly Indian entitiy got valued at $60 billion which even 100 year old big businesses don't get valued despite being the best company with huge infrastructures for years.

Lets take this even further, now the investors / VCs go ga-ga over 'jaldibol' and they put in multi millions and well established companies try to get a piece of this product 'jaldibol'Â by putting in lot of money. What happens if tomorrow there is a better product then jaldibol? What if jaldibol servers crash and there is downtime, etc? What if a new feature in Jaldibol brings down its value drastically?

There is a real issue even today on how to measure such Soft Assets. How can they be brought up in GDP/GNP economic numbers? We are still measuring economy with old yardstick and have totally overlooked how to measure the knowledge assets that dominate the economy over the last 30 years.

Till we find a solution and better systems to measure knowledge assets and till we rationalize salaries and there is overall reduction of at least 40% across the globe in salary levels, we will continue to see this recession deepen. No matter how many stimulus packages are announced and no matter how much nationalization is done, unless the problem is looked from the right perspective, we will not see a revival