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Wednesday, September 29, 2010

Food Water and Air Economics

In the past few days we have heard a lot about Food rotting at FCI godowns, the subsequent direction of the SC to distribute the food amongst the poor and finally the debate about the possible means to distribute the food. Despite the PM saying that distributing food free of cost might be a disincentive for farmers, many ways were suggested by various political parties to distribute food to the poor. For Eg. extra grains can be allocated to the PDS of the poorest districts of the country free of cost, poor people can be distributed food coupons which can be redeemed against grain etc.

All these methods, although being practical could not be effectively applied because they did not have proper checks & balances in place. One could not stop these grains from going into the black market. It is almost impossible to build a system where the giver is not benefited without giving a benefit back to the receiver. Thus, the receiver must pay in some or the other way to receive that something, this something is food here. This raises doubts about the effectiveness of the Food Security Bill that the government is proposing.

All these deliberations make me question our development as a society. Food is something that nature gives us free of cost! So, in all these years of development have we actually simplified the way we live or we have actually made our lives complex(like we first develop complex financial systems and later use software to simplify them,learning those softwares is also a big problem in itself,we call this development). I do not understand where this kind of development will lead us to.

We might not accept the blame for making food as a salable commodity because we cannot conceive of a modern system where food could be free. We would attribute free food to be a concept of nomadic prehistoric life where man would eat whatever he got. Free food in the present day would only be considered Charity! I also do not have any chronology of facts to show how food got commoditised. But, i see a ongoing change which is comparable to commoditisation of food. We can also extrapolate this to the possible future.

Commoditisation of Water and Future Commoditisation of Air:-

One interesting fact i observed is that we can survive without food for weeks, without water for days and without air for only a few minutes. Their commoditisation is also happening in the same order. It is not far away when we will face problems similar to distribution of food with distribution of water. People will find it illogical ,"economically", to distribute water free of cost, because, then water will be a salable commodity,freely available water will not be consumable by anyone,many of us even today cannot drink non-bottled water!People might be dying of thirst and the PM would say that "it is against the basic tenets of economics to give water free of cost"! If we further extrapolate it to commoditisation of Air. I can easily assume that people can be held at ransom for supply of Air. Also, biggest charity could be distributing Air "Free of Cost"!

We might not be in a position to fix the responsibility for commditisation of food,but, we can fix the responsibility for commoditisation of water and future commoditisation of air. This can surely be attributed to incessant industrialisation and madness for growth which leads to pollution. I feel that these would have been the reasons for food commoditisation as well,but, would prefer refraining from being judgemental.

Looking at the current scenario,we can say,faster the rate of  growth,faster will be the commoditisation. Also, in the same lines,"if the rebellion in the period of food insecurity can be so fierce,imagine its ferocity when a man gets devoid of water and air".Also, if time for commoditisation of water is comparable to the rate of growth then,imagine how fast will we commoditise water and air. Thus, we can judge how far are we from trouble! Is this what we mean by growth and development? I would like to end with a famous north american saying:-

“Only when the last tree has been felled, the last river poisoned and the last fish caught, man will know, that he cannot eat money”.

Note:- I am not a growth and development cynic. But, i find these issues genuine enough to be thought about.

Monday, September 27, 2010

A few Questions...

Confusion was created for a few days after a heated discussion with a friend(Patro) who outrightly rejected my idea of "Economic Terrorism". I thought it would be better for me to ask some basic questions. It so happens that with all this education and upbringing we start believeing in somethings as if they were axioms of life. When such things prove to be false,they drastically change our thought process. Let us ask ourselves a few questions:
Who owns the land in and around a specific region?

Is it of the government or of the community, or do we believe that the government is actually the reflection of the community ?

If so,how can the government subidise land for creation of a SEZ with the local community not getting any short term benefit?

If this has happened,why is there disparity in our country?

Why is a Pilot paid more than a bus driver(a very old question)?

As they are not paid equally,did the person who became a driver get an equal opportunity to be trained as a pilot compared to the person who became a Pilot?

If not, how is different pay justified?

Is it not ironical that government sends a poorly paid soldier to fight all rebels(of all forms) to protect the interest and money of the rich?

How does the money belong only to the rich as the land using which the wealth has been generated equally belongs to a poor man?

Let us consider this case. I, with my parents, visit a nearby Udupi restaurant for breakfast almost on all week ends. There is an unorganised parking place place in front of the restaurant. Whenever we go there, the security guard  there(who has only been given permission to be there and is not employed) takes care of our car. While leaving the parking my father gives him a five rupee coin as tip. This is the way he earns,this is his demand.On the other hand,any organised parking in the city has a minimum charge of Rs 10.

Thus, my question is.Can we apply the supply demand economics at the above mentioned security gaurd's level(we show economic system problems while distributing free food to poor as advised by SC)?
Has he got the opportunity to create his demand?
Will such people have to suffer till the time we completely organise our economy(it may take generations)?
Even in a completely organised economy,does availability of equal opportunity exist?
Do we have a system to give opportunity to our people or its just that a lucky person gets an opportunity to develop himself?
If such is the case,what is the "Importance of India/nation/system" for a man deprived of opportunity?

At last, if we do not provide him equal opportunity,what moral right do we have to ask such man to abide by the law of the land?

Friday, September 24, 2010

The interesting aspect-Ayodhya Verdict

Very briefly, i would like to bring out some points from the Ayodhya Verdict. The judges of the bench are:-

1) Justice DV Sharma
2) Justice SU Khan
3) Justice Sudhir Aggarwal

The decision will be in the favour of the party which is favoured by at least two judges. Thus, the combinations could be 3-0,2-1,1-2 and 0-3 for winning or losing the case.
The government is very cautious and vigilant at this point of time because it feels, resentment due to losing the case could fuel violence. I do not think so.

I feel,the major reason for violence, in case it breaks out, will not be resentment caused because of losing the case. Instead, violence could erupt because of humiliation which might be faced by the losers of the case as they see the winners in jubilation.

Although,all parties have also urged its members not to show any form of jubilation on winning the case. I find it inevitable to avoid rejoicing. Rejoicing might not be organised, but, i feel even individual rejoicing even in the form of sentiment is enough to fuel violence. Government should seriously look at this aspect.

The Interesting Aspect !

The most interesting aspect of the verdict would be if the judgement comes in favour of the Hindus. And, the winning combination is such that both the Hindu judges give judgement in favour of the Hindus and the Muslim judge decides in favour of the Muslims.

It will be interesting to look at the reactions. It would indeed be a test of our belief on our Judiciary.

Lets,Wait and Watch!!

Monday, September 13, 2010

"Muscle Vs Intellect","Economic Terrorism and Economic Fundamentalism"

A few months back, Madhya Pradesh government raided stores of FMCG companies where they had stored sugar for production purposes. The industry criticised this move and said that these companies store sugar for production and cannot be categorised as hoarders. Government later asked these companies to limit their stocks of sugar only for 15 days of production. This was again criticised by the industry. It argued that market forces should be allowed to act and government should not interfere in this supply, demand and speculation cycle. I completely agreed with their argument that we should not get back to the "License Raj" era!

Let us keep the above story aside for a while and look at another case. One thing that has always surprised me is the remuneration of film actors. Is their skill worth the amount they earn? I started looking for my answers and finally concluded on two points that, I believe, must be responsible for the high remuneration:-

1) Huge market base: - Almost everyone watches movies in our country and now movies have also found foreign markets to add to their earnings. Further, life of this product (movie) is only 2-3 hours and reuse requires repayment. This results in huge earnings.

2) Risk involved in becoming an actor- There is huge competition in this field. Many people try for it, but, fail to become an actor. Also, even after entering the industry, people are unable to sustain.

Thus, I felt the above two factors fairly justify the earning of an actor. But, later I observed that most of the present day successful actors come from families already in the film business. They did not have to struggle too much and got multiple chances. Thus, my second point was proven wrong. Now, I was left with only one argument that a huge market base could be the reason the huge earning. But, I strongly felt that I was going wrong somewhere! Thus, later, I asked another question to myself. Is the amount earned by a film, as a product, justified? Then I decided to look at the whole process of film business.

In simple terms, a film is made, sold to distributors in various regions, these distributors sell it to movie theatres and theatres sell it to the viewers. This follows purely a demand supply mechanism. More the demand of the actor or film maker more is the price demanded by the seller. Further, a film faces competition from other films and the final verdict is given by the viewer who is also the end consumer. Looks like a fine market structure. But, there exists a discrepancy. People cannot record movies in theatre and circulate CD's of the movie without the prior permission of the movie producer. This is because the movie is IPR protected. This protection is given by the government.

Now, let us compare this with our earlier story. If government raids companies for storing sugar and decides a limit for storage, government is interfering in the market process. But, the government's protection to a film producer is not interference in the market process. I am surprised!

People might contest this logic by saying that the cost of production of a movie is very high but the cost of reproduction is negligible. This means that, producing a movie might cost Rs50 crores and 6 months. But, reproducing it costs a Rs 10 CD and 10 minutes of copying time. Thus, if the movie is not IPR protected then the producers might not be able to meet their costs. And, if the business is not profitable, good films will not be made. I do not agree with this and will also substantiate my disagreement with logical reasoning.

We feel that diluting the concept of IPR will kill the industry; this is because we have not been able to conceive of a business model without IPR. In the case of film business, dependence on IPR can either be reduced by a well developed distribution network having great penetration supported by a good film viewing experience in a theatre or by finding other sources of revenue for a movie other than that earned by selling tickets. Such doubts about the bright and profitable future of the film industry were also cast when cable television came to India. People thought that TV will kill cinema. But, this did not happen as the experience of watching a movie in a theatre improved. Film Industry had to struggle, but, innovation and increased people participation gave a new dimension to the film industry. Today, we have a flourishing chain of multiplexes. Further, I do not believe that creativity or innovation is a slave of IPR and money. Innovation is purely because of the inherent zeal of human to grow and develop and not money. Money is purely incidental. Considering all this, the only reason an IPR would be required is that the producers of a movie do not want to share their profits with others. We misinterpret this as wealth creation. Instead, this should be seen as inappropriate distribution of wealth!

Same is the case with other industries. How can the price of MS office be Rs15000? How can an IPR help a person to become the richest man in the world? How can a company price a life saving injection so high that it is out of the reach of even a single person who needs it? What is the perceived price of life? Is this not “Economic Terrorism” by a few privileged people on others who are not so privileged? And, the moment a person raises such questions, he is branded a communist! Is this not "Economic Fundamentalism"?

Thus, the most important question that needs to be answered is about the level and kind of government involvement in economic activity. We should also be clear that fundamentals of economic activity are laid down by contemporary government regulations and are not based on “Laws of Nature”. This is evident by the fact that a strong person cannot snatch money from a weaker person. Thus, we need to device a mechanism which creates a balance such that government regulations are not favourable to a specific section of the society. Whatever the classification might be!

This question is very relevant to Indians in the present time. This is because the disparity that exists in the world is less than that in India. We have some of the richest as well as the poorest people in our country. We also have the most diverse demography in the world. Thus, if we solve our National Issues, the world will automatically get its answers on the questions about prevailing violence.

In the Indian context, how can a person earning a substantial amount (may be 10 Lakhs or above) oppose heavy tax when a person in the same country is not able to afford a square meal? Heavy taxation cannot be considered as force acting against the free market forces. This would not be against wealth creation also, instead it would lead to better wealth distribution. This is because the money taken by government as taxes is actually redistributed in the market by some or the other means. Intellectuals misinterpret this for short term personal gains and forget that some other intellectual will use this exploitation as an opportunity to organise the neglected people and create muscle power which is enough to hold the society at ransom. This is what we observe in many parts of our country.
We need to address this issue. The government/system cannot expect one section of the society to enjoy all the luxuries of life and expect the other sections to work hard so that their children can enjoy. This cannot be acceptable because, after years of struggle one might be able to achieve the amenities/luxuries that exist today. But, in this time, the world would have moved much farther and his struggle would be unending. Thus, growth is not the only thing required, we also need to bridge the gap that exists between various sections of the society. We will have to bring people in the “Bandwidth of Equality” by understanding and abolishing “Economic Terrorism” and “Economic Fundamentalism”.