Monday, February 25, 2013

An email to Arvind Kejriwal

Dear Mr. Kejriwal,

I hope you remember my last email. My name is Shubhendu Pathak. I graduated from IIT Delhi in 2006 and am currently working in the U.S.

In this email I will discuss the misdirection of your movement in your stance against Ambani brothers and other industrialists in India. I feel that your angst against the industrialists in India is misdirected and will lead to unproductive results.

I will discuss a simple example as I feel that it is, in this case, a more efficient way of describing how your stance against industrialists in India will harm the economy and is principally misdirected. The example centers on a small entrepreneur, say Ramu, who sells Samosas (Momos for non Indian readers) in Rajnagar, Ghaziabad. Don’t yet start criticizing that a Samosa wala cannot be compared with the billionaire Mukesh Ambani/Tata. I will come to that point later. This Samosa wala has a small shop in Ghaziabad. He buys potatoes, spices, LPG cylinder, oil, refined flour, cauldron(s) etc. and rents a space. He incurs some cost to buy all of this. Ramu has the recipe (Intellectual Property) and skills and invests his labor to add value to the ingredients to prepare Samosas. Now remember he is taking a risk when he makes this investment, because he is anticipating that his Samosas will be bought by the residents of Raj Nagar. If he prepares the ingredients in the morning, and nobody buys them during the day, he will have to throw away some of the ingredients at night and incur losses.

How does he make profit? People buy his Samosas at a price which is greater than the sum of the costs he incurred to prepare them. So the price P is greater than the cost incurred C. Why do the customers pay a price P>C? After all, the Samosa wala did not force them to buy his Samosas at gun point. The customers with their own individual discretion decided to pay an extra amount P-C, as that is what they believed was the value the Samosa wala added to the ingredients. Profit P-C is the additional value he added, as measured by the customer’s willingness to pay the extra amount. Profit is not insidious, it is decided by YOU and I. So Ramu adds value to society, and people with their own choice reward him for this value addition. This is true power with the public; public decided who is adding value and who should be rewarded. Now Ramu anticipates more demand from Kamla Nehru Nagar, a nearby locality, and makes additional investment in a machine that can make more Samosas in less time. His anticipation turns out to be correct. Kamla Nehru Nagar residents are pleased with the taste of his Samosas and are willing to travel to Raj Nagar to buy them. Remember here again, he is not forcing anybody to buy his Samosas, neither he is forcing anyone to sell him the ingredients. YOU and I, at every instance, are deciding how much value he is adding. Also recognize the risk he took when he made that investment in the machine. Now YOU and I are rewarding him for that risk.

Now, another Samosa wala in Kamla Nehru Nagar called Suresh is also trying to expand his business. His Samosas are not that tasty and he abuses (verbally) his customers every now and then. Slowly his business starts shrinking due to competition from Ramu. Again, it is every individual’s personal decision that Suresh loses his business. YOU and I decided that we don’t want to be abused and that he deserves not to make any profit. This is free market and it is one of the tenets of a Republic.

Now we come to the second part of the story, after which I will transition to how your protests are misdirected. Suresh is now very angry and tries something that is against free market principles. He reaches out to the MLA of Ghaziabad to strike a deal. He tells him that he wants to see a regulation that allows only one Samosa wala for the region of Kamla Nehru Nagar and Rajnagar, and that the government will provide a license to sell Samosas in the area. Of course Suresh will get the license in the 2-G spectrum type “auction”. In return, the MLA will get 5% of shares in his Samosa shop. The MLA agrees to the deal. Now Suresh knows that the MLA is in his pocket, so he strikes another deal. Now he wants the government to pass a regulation that will bar farmers to sell potatoes in the free market (welcome the insidious APMC act). Then he collaborates with the MLA to acquire land (“auction” of natural resources) to grow his own potatoes. After a few years, he becomes the Samosa king of Ghaziabad. Ramu on the other hand is forced to work as a bonded labor in Suresh’s shop, and after a while he commits suicide.

You are protesting against this Samosa king Suresh. Is he wrong? I think it is an irrelevant question. Most of the humans will happily take any undue favor they can get from the government. It is not an attitude problem. It is human nature, it exists everywhere in the world, and you cannot change it. The Samosa wala is not at fault. He is doing what he is expected to do. He is not responsible to protect the Republic of India. YOU and I did not elect him. We elected the MLA. And he is the one at fault. The regulatory regime is at fault. Big unnecessary government is at fault.

There is more to it. There is one example that might help you understand this concept better. You might know that in India when they have to reduce the population of stray dogs in an area, the municipal authorities have a choice to either castrate the dogs or the bitches in that area. Which method do you think is more effective? Intuitively, everybody would say that one should castrate the bitches, because if you castrate a dog, some other dog will do the job (have sex and impregnate the bitch). Same is true with the government. If you castrate Suresh, Samosa wala no. 1024 will do the job. The impregnable government needs to be castrated. Also, people did not elect Suresh, but they elected the MLA. Suresh is not responsible for their well-being. The MLA is.

The industrialist you are targeting, although have taken undue favors from the government to make their samosas, they have done so under a reasonable presumption that if they don’t do it, somebody else will because unfortunately the bitch is always on heat. Nevertheless, these industrialists have added value to our economy and you cannot discredit that. YOU and I willingly paid for the samosas (cars, cell phones etc.) they have made. They now have the labor and capital that will allow India to excel in the next century. Just castrate the government so that the Ramus don't commit suicide.

The big question is why in the hell would they help you, as they seem to be the beneficiaries of this mess? Well not all of them are beneficiaries. If Suresh gets undue favors, other industrialists suffer. Collectively, all industrialists would want this system cleaned because now it is a mess even for Suresh, because the bitch has gone berserk.

I would request you to reconsider your strategy of targeting the industrialists in India.

Best Regards,

Shubhendu Pathak

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