Archive | December, 2012

Economic Manifesto – 2

11 Dec

The argument is wrong on many counts.

Let’s take the first one, what if he had not invested.

I turn and say what if he had not invested, what would he have done with the money?

Money not invested is dead money. And money doesn’t increase in value lying in vaults and banks. The individual if he is to protect his self interest he needs to find ways to make money grow. So in that sense he had no other option but to invest, whether in his idea or someone else’s idea. Investing the capital is without option.

Now the other argument is, who bears the risk of failure. If the venture fails, the employees would lose nothing rather they would gain as they would received salary for the months they would have worked, while the investor would lose all his saving. Post which employees will find employment somewhere else, while investor would be left twiddling his thumbs.

This argument can also be answered saying failure is inherent risk and when the investment was made individual had no compulsion to take a particular direction, the decision was made on self volition. But that will not address the economic part of the question. Because the logic of the question is based on the argument that if a person to liable to lose everything with no one sharing the loss, he also has the right to gain everything without sharing it with everyone.

The argument highlights one factor and conveniently ignores the other. The impression they are trying to create is that the investor has put all his saving in the venture and its failure will make him a pauper. While on the other hand it tries to prject that the employee without much of an effort would find another replacement job.

If I were to reverse the logic and pose the same question differently. What if the investor after the failed investment, shuts down the venture, and moves on to something else, which succeeds, while the employees who had put all their efforts and commitment behind this business, get branded as failures and become unemployable? In such a case, what is the responsibility of the investor? And if this is a possibility, that what is the stake of the employees in the success of an idea?

To be continued…

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Economic Manifesto -1

10 Dec

One of the basic beliefs in the capitalist mind is that the one who takes the risk must have the highest right to enjoy the benefits of success. Now I am no socialist but despite my strong capitalist leaning I cannot fathom or agree upon this fundamental principle.

Let’s try to break the whole process in sub-parts. This is a very simplified approach but for the purpose of argument it will suffice.

  1. There is always a beginning, in which there is an individual who has the capital. And the individual is seeking returns from this capital.
  2. He has many options, like putting the money in bank but that only protects the value of money but doesn’t enhance it.
  3. That obviously is not what the individual desires, he wants more than that. He thinks of an idea.
  4. He hires people, promise them salary and certain incentives. All of them together start operating.
  5. The idea turns out to be successful business model and profits are made.
  6. The promoter or owner, keeps the profit and everyone is happy.

Objective of the owner is to maximize his profits. That means he must reduce cost as much as possible. Only through lowest possible cost that he would be able to maximize his profits.

The extreme example of this capitalist approach is slavery, wherein the worker doesn’t get more than food for his basic sustenance. That is the lowest cost for the owner.

Though slavery has been abolished the mindset still exists.

Capitalist model promotes slavery, as the system glorifies the individual who takes the risk, a bit too much. It tries to promote the myth that without the risk that particular individual takes there would be no progress.

Such theorists and propagandists perpetuate the myth of a man against the society. Standing alone, fighting the unchanging rigid world, struggling to bring to the world his beliefs and in the process making lives better. And such a man if he succeeds should enjoy the fruits of his herculean labor.

Now obviously it is bull shit.

Such individuals do exist but they are few and far between. Even those individuals do not have the right to such extreme benefits. And in any case if you look at the history of any break-through, the creator rarely has benefitted from his creativity, it normally is the financer who gains from such inventions and discoveries.

In most of the cases it is profit that has come from opportunity.

Now we go back to the beginning.

Individual has money.

Agree.

He wants returns.

Agree.

But this step has another question that has not been asked.

How much return does he seek?

10%, 20%, 30%, 100%??

There must be some value in his mind that there must be justification for expecting that return.

  1. And is the return in perpetuity??
  2. Is thinking of an idea and executing of an idea have the same meaning?
  3. What about other people who helped make it a success? Do they have a stake in monetary success of the idea?
  4. And what happens if the idea fails

I am of the opinion that a return has to be established. And this has to be fair return philosophy and NOT maximization of return approach.

The detractors of this approach would say that if the individual had not invested, there would have been no wealth.

This argument is fundamentally flawed.

To be continued…….