People often complain that they are being underpaid or overcharged yet continue to work with the same employer or continue to buy the same overpriced product. Why ? It is because the alternative is even less paying job or even more overpriced and bad product.
The real “fair price” or “fair compensation” has nothing to do with what a person wants or needs or deserves but rather what is the alternative.
Even though none of us realize this, we continue to use this principle in our everyday lives. We chose to fly a low cost but cramped flight because train is bad, we chose to use BSNL’s shaky broadband because alternative simply does not exist. Yet, we complain about low cost airline’s legroom and BSNL’s non-existent customer service.
Today’s complains are tomorrow’s products, so said a management prof. and he is correct. But is it the case that airlines have a secret deal with Knee doctors to hurt your knees ? Or BSNL is so sadist that is loves when its customers are left clueless without a customer service ?
The reality is that the airlines or telecom operators have not figured out how to give the customer those things without making significant loss. The very reason why low cost airlines can keep their fare that low is because they resort to many tricks including reduction in legroom.
If we purely look at the alternative costs of these transactions we realize that both the passenger and airlines gain by reduction in legroom. Airline makes tiny profit where as passenger takes a more comfortable journey than lengthy and unsafe train journey.
These sort of transactions are called “positive sum game” which means both parties who are willingly getting into this transaction gain in the process. They may not acknowledge this gain themselves, but it is visible as we see more and more such transactions with time.
There is always an expectation mismatch despite the positive sum game. The passenger would always love more legroom for the same price and the air-line would love to increase its profit.
Both are perfectly right in their motives. It is these sort of motives that drive people to crating amazing new products and services. But every now and then, one of the party uses the government to achieve its end.
For example all the passengers can gan up together go to consumer court and demand that the airline should increase the legroom. Governments always know which side to take in such cases.
When government steps in to maximize the interest of one of the sides, the other party’s gain reduces substantially and hence the other party increasingly seeks to “engage less and less” in such transactions.
One of the finest example was of Movie Theaters. Government made laws where government would set the ticket prices so that poor people could afford to watch movies. This law actually kept the number of screens to minimal in India. No one would invest in move theaters because the profit they could make was extremely limited.
Despite the fact that India is a movie crazy society, our movies remained small budgeted.
With the rise of multiplexes everything changed. India saw 20% increase in available screens year on year. The ticket prices in some multiplexes increased but they decreased substantially in large theaters.
Today many movies make 100-crore business in the first week itself thanks to large number of screens. Note that, no movie is house-full these days. There are always empty seats. But yet movies make obscene amount of profits.
Applying the logic to Make in India
India is a country where people give undue importance to “job security”. Indians think that “job security” is more important than good products of service, competence at job, price of products and services, future of children, quality of education and employment in general.
One reason why government services are so pathetic is that government servants can not be fired from their jobs very easily, surely not for incompetence.
Just like the law I have mentioned above, government has made draconian laws, that take side of the employee, labor as a result the “other party” the Employer is less and less willing to participate in “giving jobs”.
Arvind Panagariya in TOI.
The high-profile launch of the ‘Make in India’ campaign today is a good occasion to remember the development experience of East Asian economies such as South Korea, Taiwan and Singapore in the 1960s and 1970s and China more recently. East Asian economies principally relied on growth in labour-intensive industry and accompanying expansion in jobs at ever rising wages, as the principal means of prosperity for the bottom half of the population. India focused more directly on social protection for workers through legislation, foregoing good jobs and to a great extent growth as well.
In the East Asian economies sustained rapid growth of labour-intensive manufacture created well paid jobs for the low skilled and paved the way for the migration of vast numbers of agricultural workers into manufacturing. As a concrete example, South Korea grew at an average rate exceeding 8% between 1965 and 1985. During the same years, the employment share of agriculture fell from 59% to 25%. Industry and services absorbed the workers so released.
In subsequent years, especially under Prime Minister Indira Gandhi, India brought legislative changes that further raised protection to organised labour by imposing restrictions on the use of contract labour and forbidding layoffs of workers in firms with 100 or more workers. The outcome was devastating not just for owners of large-scale firms but for workers themselves.
The great Bombay textiles strike under union leader Datta Samant saw once flourishing textiles industry uprooted from the city, with its 1,50,000 workers thrown out of employment. Later large mills and their workers in Kanpur, Ahmedabad and Kolkata met a similar fate. Most of these workers had to eventually find jobs in the unorganised, informal sector.