5 posts tagged “economics”

Today, A friend forwarded me this online petition asking for increase in the remuneration of Indian Defense Forces, as they've been treated poorly with respect to Civil Servants as per the latest hike by Pay Commission. The argument given is also very straightforward: These Jawans ought to be paid more, after all they pay with their lives for us. So, If you're not supporting this current pay hike demand, You're bound to be called a rich capitalist pig.

As Raj wrote in one of his posts, The above kind of arguments are flawed, with the most famous of such arguments being that of George W Bush when he stated, “Either you are with us or against us in the war on terrorism”. Now, I'm no expert on defense matters and wouldn't be able to give a proper analysis based on numbers on this matter, but I'd try to justify why I support the demand for pay hike but not in its current form.

To take an example, anyone who has seen Indian education system would understand that the current Indian education system can never be brought out of its current mess just by increasing the salaries of government school teachers. There is no accountability -- the labour laws in India guarantee that a teacher can never be fired whatever be his/her performance, no respect for meritocracy -- the networks and political games determine the promotions. Unless the incentives change for teachers as well as for administrators, the situation won't change just by a salary hike.

Some would argue that even if 60% goes as waste, the rest 40% money spent would actually work -- and we should not care for the costs when it comes to the future of our children/farmers/soldiers and other such emotional heroes. But what people do not think about, is what if that 60% of wasted amount was put to a better use? What if that money was used to build toilets for girl students[In my childhood, I've studied in a school where there were none for the students. So, girls used to go out for toilet in groups. While one or two girls relieved themselves, the rest kept a watch so as to shoo away boys].

Indian Defense forces are in desperate need of officers at the higher level while they need to shed a huge chunk of work force at the lower level, and therefore pay hike and incentives need to be aligned on these basis only. And yet, as Nitin Pai wrote:

India’s transformation into a middle-income country requires its Armed Forces to be more capital-intensive. Yet only around 10% of the defence budget is actually available for modernization, compared with around 30-40% in developed countries.

This is because, firstly, almost three-fourths of annual capital allocation goes towards instalments for items acquired in previous years. Indigenous acquisitions— from PSUs and some private firms—account for 40-45% of the capital budget, leaving around Rs28,000 crore ($7 billion) for foreign acquisitions this year.

Along with targeted pay hike and incentives, consideration need to be given to the family related needs of defense personnels:

Much of the disillusionment within the military stems from issues wider than low salaries or difficult and dangerous service conditions. Hundreds of soldiers, sailors and airmen tell me that they worry most about two major issues. Most troubling for them is the shortage of good schooling for their children, and of family accommodation in many cantonments. And there is equal frustration — particularly amongst the more intelligent — about the stifling professional environment of unquestioning obedience, where autocratic commanders can end promising careers with one stroke of a pen.

Of course, none of this means that I'm in support of pay hike of Civil Servants over Defense forces. But blindly throwing away my taxes is hardly my idea of being an emotional fool. And though my rants wouldn't make an iota of difference to this whole issue, I at least can say that "When they came to loot me, I wrote a blog post about how looting others without their permission wasn't such a good idea."

Okay, time for some fisking.

Vinod Mehta, editor of Outlook, one of the leading magazines in India, says in one of his speeches:

We are told the reader is king and it is the job of a responsible media organisation to provide cent per cent satisfaction - This proposition is now so widely accepted that to argue against it is like whistling in the dark. Those who believe otherwise are seen as cranks, out of touch with the contemporary market -- in other words the reader. If journalism is a consumption item like butter chicken, then why not give the customer the flavour and taste he wants. That, after all, is the first rule of free market capitalism [Emphasis mine].

To defend his so called "anti-free market + good journalism" views, he goes on:

I ask you this: If some readers or viewers wish to see or read about paedophilia, should we oblige? If some readers or viewers wish to see or read about wife-beatings, should we oblige?.

Not only this, he goes on to the extent as saying that readers are fools or they themselves do not know what they want:

I will just provide three examples of the confusion in reader’s minds regarding their expectations from the media.

One. Research shows unambiguously that most readers desire to read more international news. Yet, the international pages of a paper are the least read. International news may be good for the soul but it does nothing for circulation.

Two. Readers insist that the price of their morning paper does not matter. It is such a vital part of their life that they would happily pay the extra rupee for it. Yet, as Mr Rupert Murdoch and Mr Samir Jain have demonstrated, print publications are extremely price sensitive. You can bleed the opposition by cover price cuts. The phrase “invitation price” terrifies rival publishers.

Three. Readers will tell you that they want a single-section, compact morning paper. They don’t want sections and supplements dropping out. Yet the opposite is true. Papers with multi-sections prosper, others suffer.

I think I have made my point. We must lead readers, not be led by them. Really great journalism must do more than merely give people what they want. There has to be room for the unexpected, for stories the public has no idea it wants until it sees them.

Seriously, it's hard to give up the habit of lecturing others, especially those involving taking potshots at free-markets without understanding any of it.

Mr. Mehta, I'm not a "citizen journalist" or whatever you media wallahs term guys like me, and my blog is in no way a competitor to your magazine, but I'm thankful that we have a virtual free market for newspapers, magazines amd blogs in this country or else I'd have been forced to read craps like you every morning. Let me explain you why.

If only some of your readers want to read about paedophilia, then obviously you shouldn't publish it because majority of your other readers will become angry. But if all of your readers want to read about it, then may be you can run a cover story on "Why everybody wants to read about paedophilia?" without actually explaining how to get involved in it.

Regarding your three iconic examples which prove that readers are fools in disguise of consumers, I'd like to suggest you to use a little bit of common sense and read more on revealed preferences. Let's say if you come to me today and ask if given a choice which car would I like to buy, I'd say something like Ferrari, Porsche or BMW. But in reality, I can't afford to buy even one single car and in real life, I drive a bike. So, it is a bike that I actually want. Not even a Maruti Suzuki Swift or, a Honda sedan, but a bike!

If you say that International news is rarely read, the reason is simple. People don't understand the nuances of international affairs so as to be able to read beyond a point. When publishing international news, have smaller articles with easy to understand headlines. Of course, A lot many people want to read about International news, but not in the way you present it currently. Just have a look at The Economist, or The Wall Street Journal -- people actually read international news, but you've to target your consumers correctly for that.

If you want to say that people don't mind paying high price for newspapers, think of Walmart. Most people wouldn't mind paying Rs. 1 or 2 more for some grocery item from a neighborhood mom-and-pop store if it's a one-off purchase only. But when savings tend to pile up over a long period of time, it does affect we consumers subconsciously. And as we do the price-vs-value calculations, we tend to realize that how on earth could we have read Outlook magazine once upon a time in our lives.

And lastly, if you are saying that people don't want supplements falling out of newspapers but actually buy newspapers with supplements -- It is due to the reason that in most of Indian homes, a single newspaper is shared between multiple family members. Therefore, it helps if a newspaper has multiple supplements. It also helps during a train/bus journey as the lightweight supplement is easier to read in a crowded compartment. Moreover, it also helps to identify who's the dumbest person in the house -  just notice who picks up the Page3 supplement first even before he/she has touched the main newspaper.

Mr. Mehta, It is easy to pontificate, make random assertions without doing serious analysis and finally blaming free-markets for poor performance of your magazine. But sometimes, truth is better understood through financial numbers, and hence, you've got to listen to we consumers; It'll never be the other way round.

Even if one isn't much interested in Markets or Economics, We all know from observation that as the competition for anything becomes tougher and tougher, the risk factor for a new entrant become higher and higher. For e.g. If i want to write an Operating System for computers tomorrow, I might even manage to do it with some hard work and guidance (Okay, I accept that I'll copy the code somewhere from the net and just change the name of author of code to my name..copyright be damned, but let's for the sake of discussion, assume that I can write an Operating System). But will it really be worth it in financial terms and efforts put? NO. Why? Because there isn't much demand for a mediocre quality OS. Just have a look at Windows Vista!!

Fifteen years ago, If i could have come up with an OS, I'd have been a billionaire today, with my face appearing on the cover of Business magazines every few months for no reasons at all. Sixty years ago, If I could have come up with the invention of contraceptive pill, when I would have died, My children would have covered my grave with diamonds. And hundred years ago, If I could have invented the concept of industrial production of Cars instead of late Henry Ford, I might have half of India to my name, before it all would have been snatched away from me by that old bugger, Jawaharlal Nehru on the pretense of Independence of India and Nationalization.

But today, if I were to try my hand at any of above mentioned adventures, I'll die just penny-less somewhere in Vidarbha, with not even P Sainath and Maneka Gandhi caring about me -- after all, I'm neither a farmer nor a poor dog.

Hence, I must understand the concept of Arbitrage. I must quickly find a niche area, where I can outdo the rest of this descendents-of-the-apes species with least efforts possible. But, as they say, One must understand the theory of before one goes to the practical side of things. So, all you readers, Go to this link, understand what Arbitrage is, then come back and help me in my cause of becoming a future billionaire.

PS: There is no humour in that link. But then, I don't want my readers to come to my blog and then leave it thinking that they just wasted their time learning nothing new. Hence, this post.

Few weeks ago, I was asked to write an essay on following topic for a job selection process in a company. Total timespan was 30 minutes. Here's the topic:

Industrialized nations have now managed to provide their citizens with food, shelter and clothing.  As a result, citizens are becoming aware of other and subtler needs.  But a society geared to the production of goods is poorly adapted to providing for psychological needs.  The very processes by which we manufacture goods so effectively actually reduce psychological satisfaction.

Which do you find more convincing: the claim that industrialization provides for psychological needs or the opposite view? State your position using relevant reasons and examples from your own experience, observation, or reading.

Here's my essay:

Industrialization has often been compared with Mary Shelly's fictional character, Frankenstein's monster. A consumerist society madly running behind instant gratification, in a cut-throat competitive world shall consume itself. The cure-all panacea of "production of goods to satisfy the human needs" to remove poverty and misery from this World, will ultimately turn out to be the evil Monster in Shelly's Novel, which shall destroy its progenitor - "The Humanity".

Alas! This is just quite a simplistic way of looking at things. Industrialization was never meant to satisfy all Human needs or, even make human race psychologically satisfied, which anyway is virtually impossible.

Industrialization or, the use of machines to maximize production of Goods, plainly speaking, is simply the best way devised by humans, to economic growth. In fact, The attempt to relate income levels with happiness is absurd.

I, for example, consider a person above poverty line when he is able to fulfill the basic necessities of life, is able to get himself a proper education, and is able to raise his children in a healthy environment. And this is what Industrialization has helped the Human race achieve.

Machines have helped us to raise productivity immensely. Before the 16th century, when everyone was limited to few basic professions such as soldier, farmer, merchant, weaver, painter etc., It was the elite class only which was able to get employed in the best professions. Those who were poor, had very little access to tree parchments (there was no all pervasive printing press then) to educate themselves, no means for communications as only kings were able to hire messengers (no internet, telephone) and very less of leisure time. It was commonplace for men to work for around 12-15 hours a day.

But the machines changed everything. The printing press gave rise to a literal revolution in preservation and advancement of Human Knowledge. The cost of education came down immensely. The textile machines helped so many people become a part of mainstream by giving them jobs in Industries. The resulting economics progress helped farmers to leave their old professions for better paying economic opportunities in cities, while the farm output continued to grow in countryside by the use of machines.

If it were not for machines, millions of Human might have died of diseases. Now, it became possible to do advanced biological research, create copies of vaccines overnight to administer to new-born babies. Also, the invention of railway engine brought a revolution to transport and trade industry. The cost of trade came immensely down and it was possible to put the David Ricardo's "Competitive Advantage" to practical implementation.

All the satellites, computers, internet, and other means of advanced communication technology and equipment are a result of cumulative research in field of communication by the use of Machines.

However, all this development and economic growth which brought millions out of poverty still didn't satisfy the critics who believed that Machines had made human life more miserable. They claimed, the machines gave rise to Income inequality, consumed natural resources, polluted Earth's environment, and ultimately made all of us miserable.

The point which is missed in all these rants is: It's possible to tackle all these problems (if they really need to be tackled, that is). The environmental pollution can be checked by the collective Human effort. Kyoto protocol and recent movement against the Global Warming are a proof to that. The argument against the income inequality too is flawed. If millions are getting out of Poverty due to industrial growth, while a few become millionaires, then that growth is much better than having everybody living a miserable life with no machines and no economic growth.

As regards with psychological satisfaction, that's a lost cause, I would say. As a philosopher said, there is enough in this world for everybody's need but there isn't enough in this world for one man's greed. The critics who lament machines for want of psychological satisfaction are actually crying hoarse for "Human Greed", which alas! can never be satisfied.

Machines have made Human life a lot richer, a lot better. The citizens in developed nations have much more leisure time for themselves, than they could ever hope to have in 16th century. Arts, Humanities and their related streams have greatly benefited from the role of Machines which have helped raise human productivity for a far lesser effort in manual labor terms. This role of Machines should be immensely valued for it's the only path to salvation for millions of poor living in Africa, India and China.

* * * * *

Post-script: I was rejected by saying that my essay wasn't up to their standards(No further explanations given). Anyways, I very much enjoyed writing the essay. Do you agree with what I've written about Industrialization. Pour in with your comments.

Fareed Zakaria writes an insightful essay in Newsweek on "How to restore America's place in the World". Perhaps it wouldn't be possible in the classic sense now. Anyways, it depends upon your frame of reference too from which you're measuring this supposed *place* From viewpoint of India, Soviet Union was a closer ally during the cold war days, but after the liberalization in 1990's, India has been moving towards the capitalistic philosophy and therefore, the mood in India has turned from anti-US to a trade and economy partner.

Elsewhere, This beautiful essay on salaried class summarizes the plight of honest, hard working people of India who regularly pay taxes and therefore, suffer the most.

I, the salaried citizen pay the taxes expected out of me. In fact, they are deducted at source. The Income Tax, which is the single largest direct tax to the kitty. About 35 million of the population (via) thats about 3.4 percent (some say it is just 2 percent) of this country of a billion pay income tax. The rest, well, they dont pay any income tax. I subsidise them. Dont they earn money? Oh yes, they do, but they are not taxed.

I, the salaried citizen also in most cases, pay most of the service tax, the value added tax and the central excise too; directly or indirectly it all hits me. In some cases, I pay it in full since my grocer passes it on in entirety to me or in some cases, I pay more than it since the pharmaceutical shop charges all taxes and "extra" local taxes that I have to pay - or else he wont give my medicines.

Yes, I know that I should be glad that I get any net salary at all.

Finally, a story which we all would have lived sometime in younger years of our school days involving a fear, an excitement and a desire to talk to a cute girl/boy of opposite sex and yet never been able to do so. Read it, I guess, most of us would relate to it.