Wednesday, 29 July 2015

Fair Price Determination

Price (of goods or service) is determined at the point where the demand curve meets the supply curve .  This was one of the first lesson of economics taught to us in junior college. They’d still be doing the same, I guess.

A separate note may be required to illustrate that this method of price determination has resulted in certain goods and services being priced obnoxiously high or obnoxiously low. It may also be argued that because of this, the social inequalities have widened further. Also, economic sustainability of certain professions has come under serious threat, irrespective of the fact that the services are life essentials. The income potential of many service providers, in absolute terms is  so low that it questions the sustainability a society where price is determined by this mechanism. But this is a separate subject in itself. We’re assuming its understanding for the purpose of this note.

Academically, it may be argued that these anomalies will get corrected over a period of time and such period shrinks as the information in the market tends towards perfection. But it is this intermittent period, which can create tension amongst the socio-economic classes of a society, which may lead to unrest and even civil wars.

The government plays the role of lubricator to avoid friction by taxing the ‘have’s’ and passing benefits to the ‘have not’s’ by way of welfare programmes and subsidies. The risk of civil unrest aside, certain members of the benefiting class of the society notice the apathy of the other class. Some of them take a charitable view of the situation and either engage in roles similar to the government or convince buyers to pay higher prices by appealing to the charitable nature of members in their own class. However, both the government and the charitable class work to heal the symptom (social inequality).

A cursory observation is sufficient to infer that these interventions by the government and non-government institutions haven’t healed the symptom. Not because the idea is incorrect. But the rate at which the inequality is increasing is far higher than the rate at which these institutions are able to bridge the gap. The net gap thus keeps widening.
The question to be explored is this: Is it possible to fix the method of price determination in such a way that the undesirable symptoms are avoided? The answer, after due deliberation, appears to be ‘No’. The current mechanism of price determination flows out of natural behaviour of human beings living in a society. Any intervention by government or non-government institutions to curb the undesirable symptoms of such behaviour has resulted in additional, perhaps bigger problems like corruption and systemic inefficiencies.  It might even be argued that these interventions, aimed at bridging the inequalities, themselves have contributed to the increased gap.

What does all this mean in the current context? If one goes by a a linear equation, it forecasts wider inequalities leading to social unrest, leading to disruption of the current economic mechanism. Across many countries & regions in the world, the social tension resulting from such power struggle is being witnessed and is also threatening life. But societies have never adhered to linear equations; and this fact is what keeps the hope alive. The hope is that some new variables will alter the equation.

Village Swaraj is the culmination of Mahatma Gandhi’s view on the subject. It outlines the working of an ideal society. Someone rightly commented that such a society, which has attained swaraj, i.e. swa+raj can only be created by individuals, who have attained control (raj)over their own individual selves (swa). From an economist’s perspective, what are the characteristics of such a person? Let us attempt to understand this. He is content with what he earns and owns. Greed does not urge him to earn more and fear does not persuade him to own more. He does not view his economic standing by comparing himself with fellow-members of the society. Someone with more or less economic prosperity is viewed as the manifestation of diversity amongst human beings.
If such individuals inhabit a society, the theory of village swaraj may be witnessed in practice. Ironically, such a society will not require the theory of village swaraj. It may turn out that description of what one observes in such a society coincides with the theory of village swaraj.

How would such a society determine price? It would be unacceptable in this society that a specialist surgeon charges Rs.10000 for a day’s work, while the farmer sells his labour Rs. 200 per day. However, to arrive at a fair price for every product and service is tough, almost an impossible job. How then will price be determined? Such a society will leave the responsibility of determining the price with the supplier. In case of multiple suppliers / service providers, they may collectively arrive at fair price. Buyers or service recipients will not question the pricing. In fact they will receive the service with gratitude and at the same time bless the service providers. There is no need for laws to ensure fairness.

Do such individuals exist? My guess is that most individuals are intrinsically such. But the ones who are most likely to realise such a society are the ones, who have the ability to swim against the tide. 

Lonely, but not Scared Anymore!

We don’t fit into any ready mould. Neither in the mainstream nor in the alternate sphere. This makes me feel lonely, but also relieved. Relieved, because I’ve come to terms with this fact. Relieved, also because I’m not obliged to adhere to any religion – Environmentalism, Nationalism, Humanism, Consumerism, Capitalism, or any other religion or belief system with regard to farming, education or social order. This may come as a surpris for a few of you reading. You may have thought that I’ve a strong sense of ideology, but fact is that I have no sense of identity in the belief systems of anti-capitalism, anti-consumerism, anti-modernity and the like. I have no grudge against the mainstream anymore.

I’m unable to connect with any group, but I feel very much connected with every individual. I’ve discovered that all individuals are like that. When I converse with one person, whether about economics of different farming approaches or about education of children or about managing personal finances or almost any other subect, the conversation is quite an open communication. Both of us listen to each other. However, one more person joins in, and the conversation gets dominated by fears, doubts, distrust and caution. Of course, these emotions come to fore in the guise of practicality or pragmatism. The flip-side of the discussions so far with individuals has been that these turned out to be purely academic in nature. In every case, no action emanated or was intended. Purely academic conversations become quite boring.

But I’m no longer scared of this loneliness. That does not mean that I’m ok to stay lonely. It means that with time, I feel hopeful that we will not be lonely. The thought of what our children will experience on this front had been scaring me some time back, but the fear has been reduced a bit. My father and brother have been telling me that we’ve shown strength and determination in difficult situations. Things can only get better in future. I feel confident of our physical and mental strength to wade through rough waters – together. That helps me overcome fear. In the last few days, I’ve analysed our finances as well and the assessment assures me that we are adequately provided for even if we are unable to earn for the next 15-20 years.

What if we continue to remain lonely, despite our efforts to be otherwise? Unlikely; because if I remain alone for a long enough time, I’d have learnt to live alone – and that is not the same as being lonely!