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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”.

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