Using status goods for betterment of society

Today there is very large demand for status goods :  Top end cars, gleaming houses, expensive holiday homes,  private planes and boats,  IPL teams , EPL teams and even islands . In this blog will not go into the right or wrong of it. In this blog we will see the positive side of this need for status goods and see how it can be used for the betterment of the nation.

Status goods serve a real need for many people. The need to be looked up to by other in society. This has been there since time immemorial. People are going to be doing things that can give them a higher status.  In the current context most of all the above mentioned status goods are private goods

Status goods are demanded by people of action: those driven by Rajas. Such people are capable of doing the work of ten men and sometimes even a hundred. Many of them have an inner desire to be acknowledged for their strength and capacity for action. Many do not even begrudge, if their fruits are taken free by others. This concept of free rider problem which ails public goods is alien to our Indian mindset. If the man of action, the hero is celebrated in society, he goes on to even greater deeds as long as enough is provided for his physical and psychic well being. At least from the Indian point of view,  I believe that Ayn Rand got it wrong. The man of Rajas does not want all the fruits of his action to be his. He wants the credit to be his.

So instead of bemoaning the need for status goods, it is better to find a way of harnessing this. This could be done by creating public goods which are status goods.

Why should we create status goods which are public goods ? We need to create them to reduce the in your face class differences which arise from private goods. Creation of public goods also reduces the experience of life of a rich and poor man without deducting from the experience of each.

Let me give an example: if a large temple in Chennai takes a donation from a wealthy donor and makes him Guest of Honour for a important festival - the gap in the experience of poorest and richest in this status good is much lower than if the patron had bought the costliest German car in the market. Such public status goods  while at the same time giving a boost for joint social participation in society. In some ways, one car argue that the Hero has actually won a more genuine status symbol - something he can enjoy with all his heart.

It is my surmise that a lot wasteful expenditure is going into private goods because the avenues for putting them into public goods is lacking. We need to create status goods tout of public goods. This will take the need for status and make them sublime out of it.

The lack of status goods is leading people to do crazy things like buy Rajya Sabha nominations,  "influence" awards such as Padma Shri etc. In fact one can go little farther to say that since there is shortage of public goods that give status people are going to the extent of trying to corner whatever public goods are there ie we have a supply side problem  with public goods.

Here are a few public  goods that the government could create that will help create public goods that could also be enjoyed by one and all

• Creating more government educational institutions and universities  and auction the rights to be named  after individuals: Imagine getting Rs 100 crores for setting up a Petroleum  and Energy institute named after Dhirubhai Ambani.
• Creating chairs at government universities
• Temple events: They offer tremendous scope for creating public goods. Cultural and religious events dot the calendar through the year and each of these could be opportunities for creating public goods. The Jain temples still have this practice and the Hindu temples need to re-incorporate these practices. This will bolster art, take it to every person in society and also provide tremendous vitality to the temples. But for this temple should be managed by right people and not bureaucrats.

Last but not the least - this is a very old idea. I am just refreshing them as it is not active in the thought process in society.

This blog is meant to be an interactive forum for development of ideas. If you have any ideas, criticism, please write in the comments section.

Shotgun weddings

Our nation is facing an unpleasant mess of bad loans of the public sector banks.  Public sector undertakings (PSUs)  have a lot of cash on their balance sheet and domain expertise in many of these industries. Banks are unable to find a way out of the mess. The private promoter are Abhimanyus who have no solutions to come out of the mess they have landed themselves in. They only knew how to go into this mess !

These promoters cannot raise any money as their share prices have rightly collapsed as the market has learnt about their modus operandi.  There is a market for the product or the service these assets produce but there are severe financial problems ailing these businesses.

The best solution would be a sale of the private company asset at debt value to the relevant PSU.
In case the value of the asset is lower than the debt, then the banks could sell these assets at these prices and could take some options on the PSU as part of compensation so that as these assets perform they could benefit. This way the losses that banks made would be recouped by the government through either the PSU or the bank.

This will also quickly add to the supply and remove shortages. There is a precedent for such as a move in the merger of Oriental Bank of Commerce with Global Trust Bank. It was simply forced on both the parties.  We need to similarly forcibly move the defaulter assets into well managed PSUs.

Coal and power assets would benefit greatly by this measure.

It will be akin to killing all of the following problems in one stroke

1) The problems of funding the losses of the banks will be solved. Instead of the banks taking the hits the promoters and investors will take the hits. Money saved in this regard will run in lakhs of crores and can be used for other nationally relevant projects.

2) Reforming crony capitalism: When promoters lose their companies and their share value goes to zero, all promoters in future will think a thousand times before they want to con a bank. Making example out of a few is the easiest and time tested way to establish fear of law.

3) Supply side problems in some industries would be solved - namely coal and power and this would spur economic development.

4). Investible company universe is shrinking rapidly in this country. Investment culture is dying as a result. Investors are scared that PSUs will mis-use the cash on the diktats of bureaucrats and ministers. If the PSUs were to use their cash to buy good assets at distress prices, this would remove the fears of the investors and actually substantially increase the prospects of these companies (see my earlier blog on PSUs). The listing of FERA companies in late 70s and 80 created an investment culture which was responsible for creation of many of your good companies.

5) If these problems are fixed the government would actually benefit from this crisis  in the form of higher valuation of the shares of the PSUs or banks.

Handicraft and hand-made products : Can they made the new status symbols ?

The negatives of handicrafts are its greatest positives.

The industry is not scaleable. There is not enough production.  The children of artisans do not want to carry on the trade and want to educate themselves and join the job market. By all accounts, handicrafts industry should be on road to extinction - but all of these negatives are its best hidden blessings.

Whenever some things becomes rare and difficult to obtain they also become costlier and the costlier they become, they have the makings of status symbols. and funnily the more costlier status goods get  it the more they sell  i.e, demand increases as prices increase, a category of goods known as Veblen goods.  In fact, one can argue that these goods are the real natural status goods as it is difficult to increase the supply unlike iphones or high end cars where automated production technology can be used.

Can we find use the negatives, nay positives of the handicrafts industry and find ways of improving design and execution and marketing of handicrafts and market them as the new status symbols ?

If this succeeds and the artisans becomes prosperous, more people will take to producing handicrafts and the production will increases substantially. This will puncture the  Veblen bubble of increasing demand by increasing prices as there may not be much status left in a product whose product volumes are rising and everyone is having one at home.  But that too would be an excellent outcome as the handicrafts would attain vitality because it would have a large base of producers and consumers.

So here is a challenge for all those in these areas. If you find any dying handicraft, can you create very high end status symbols products from handicrafts ?  

Would this be true of art forms also ? Can we create events which are status symbols from such art forms ? The cogniscenti would argue it would be an insult to the art form. No doubt it would be, but would it not be a greater insult to let the art form die ?

The scarcity mindset and the real scarcity in India

For a long time after independence we still believed that resources are in shortage and everything needs to be rationed and controlled else things will go horribly wrong. This closed scarcity mindset led to policies which caused shortage of telephone connections, scooters, cars, foreign exchange, food grains  etc. The other side of the scarcity mindset was to protect the person producing these goods or services - whether it was inadvertent or not I leave it for you to judge. The field was not opened to competition even among domestic players.  so you had two car manufacturers for almost 35 years, one telecom provider for 50 years and so on.

With great difficulty, we have expelled this in many areas of life such as goods of consumption, electronics, automobiles etc but wherever the government is still  the main producer or the Government controls the activity tightly and the licences are not on tap - the same situation is seen. Needlessly to say all natural monopolies are suffering.

Let us take railways as an example and apply the scarcity mindset on it. 

Here is how the scarcity mindset works and the solutions it brings out:  

Railways is an important national asset. All classes should have equal claim on it. The rich and upper castes cannot dominate the field. We need to be more fair in the allocation of capacity on railways. So we propose following solutions

• There are not enough resources to create additional rail capacity. So we should give reservation on the rail seats to poorer people - so we shall have 22% reservation in  seats on trains  for SC/ST and 49% reservation in seats on trains for OBC.
• Ticket prices will be capped and will be decided by the Government ( not by regulators or by the management of Railways) as people cannot afford railway tickets.
• Capacity of a/c coaches will be reduced as the rich eat into the capacity of the poor.
• There are not enough jobs in the nation so we need to reserve jobs in Railways for SC/ST and OBC. We need to reserve slots in promotion for OBC. 
• Private sector cannot be trusted -we have to do everything

Even if all the statements made by this mindset are true and the people are "honest", the result of such a mindset is that it removes vitality from this field and leaves it stagnant for decades.

Thankfully no politician has thought of these things in Railways yet - but you never know !!

Here is how an expansive mindset works:

Railways is a key asset for the nation. It has a great multiplier effect on trade, spread of knowledge and skills and tourism. Hence we need to create capacity for the railways to handle as much traffic as may be necessary

• Railway has demand from rich and poor. the rich are willing to much more for air travel so they will pay good amount for train travel. They otherwise spend a lot and fly or drive. So treat this spending power  as a blessing and have lot of capacity at the top-end with very high end product. Use these profits to provide more services at fair price at lower end. This is essentially a variant of the Free-mium model.
• There is a lot of footfalls at the railway stations. Railway stations are early 20th century buildings. The land is used poorly There is tremendous scope to change them and create  malls, ATMs, food courts and boost the cash flow of the railways. 
• Railways should do what it does best and outsource the rest - just because the honey collector will lick his fingers and steal some honey, we should not go and collect honey.
• Railways can touch the lives of tens of crores of people indirectly and just 10 lakh people directly. So it is better to keep it efficient. At best, 5-6 lakh jobs can be given to "disadvantaged" but an efficient railway can get  economic mobility  to crores of people. So we should not interfere in running of railways and reduce its efficiency.

You can substitute railways for education- schools, colleges and technical training institutes, electricity, water  or for that matter anything  else for which there is a shortage and you will find the mindset  and its downstream effects namely stagnation or inefficiency and shortages.

The other aspect that needs to be exorcised from the national political conscience is to control everything and try to give an equal deal not a fair deal. The quest for  equality have led to creation of important national assets at the wrong places. Picturesque Himalayan landscapes have been industrialized  using artificial incentives which distort the market so much that even a honest businessman could not stay away lest he lose in the market place. Once these incentive periods ran out, these assets are getting shut down as there is no logic in keeping  them there without the incentives. No one gained from this attempt at artificially increasing the industrialization of the Himalayan landscape to the same extent of industrial clusters in say Maharashtra or Karnataka or Tamilnadu. Perhaps all that was required to provide an economic plan suited to its ecology and its strengths.

Another example is the setting up of IIT and IIMs in places which have no ecosystem to support them. IIT Bombay attracts hundred of applicant for faculty positions and IIT Jodhpur hardly gets any applications and even if some one does join he leaves in short time as there is nothing to do for his spouse - a very real criteria in todays day and age. So we have problems of plenty at one institution and utter drought at another. Instead the government could have surveyed what the public in Jodhpur wanted and perhaps given them infrastructure to  say double tourist arrivals.

The aspirations of the country are exploding. In most areas, no amount of fairer division of the output can satisfy the public's demands as there is not enough output  or output of desired quality. The solution is to have an expansive mindset and expand the productive capacity of the nation.

We need to scale up services and goods in short supply. Even the most intelligent and honest leaders with the scarcity  and control mindset cannot really solve these problems. It is not honesty or intelligence that is the missing ingredient, it is the expansive mentality that things can be solved by expansion of human endeavours ie a "We can" attitude.

The scarcity and control psyche is so deeply embedded in our country's psyche, perhaps due to the 200 dark years from 1750 to 1947, that it is taking a long time to go away.

For example if we can expand the production to top class engineers from say current 50000 per year to 300000 per year and expand production of skilled workmen in similar proportions we can have the world auto industry and light engineering industry for breakfast.  These may appear impossible but we should not forget that the right leaders and right policies could expand mobile tele-density more than 100 fold in 6 years from 2001 to 2007.

There is no real shortage of anything in India except that of 

1. exceptional  leaders who do not have a scarcity and control mindset and that of 

2. citizens who will recognize such a leader and give him the mandate to rule.