Sunday, November 27, 2005

We don't want heroes like Manjunath!

I am your average Joe. The kind of person who wouldn't mind giving a lookover at a beautiful woman, and also the kind of person who would risk his hand (mind you, not my life, that is for my girlfriend or sister or mother, and not in that order, please) for a damsel in distress.

The average person thinks he is braver than the average person. On that count, I am below average! I hate being in situations where I have to compromise my integrity between the repair of a telephone connection and the payment of an extra baksheesh. And I would be paranoid of being in a situation where I had to take on a goon who threates the quality of my job with my life. However, there are a few men among us who would risk their life for what they believe to be the true worth of their duty. But why should they risk their life? I repeat the question to myself because it holds the key to the worth of a man, a noble man's valuable life. This world needs heroes alive and not dead.

During my graduation years in engineering, an apparently simple question tormented me a lot. Why don't people kill each other for their ends? And it is not as difficult as it is made out, most murders are on-the-spot decisions than pre-planned ones. You may shudder at the question but do believe my naivete in pursuing its answer. And it turns out that the average person's life was far more risky in the past than it is today.

Does our tacit knowledge of ethics answer our accordance to the value of life? Definitely to a great extent. Perhaps more importantly, the answer lies in the rise of institutions, especially of law and order and protection of contractual rights. Random killing of people breeds high insecurity and very costly for a society. And moreover, ascribing equal value to people's lives and punishing them for a transgression made murder less likely. And finally the fact that even if you did murder a person, you couldn't take away his rights. To give a crude analogy, in the past, Kingdom A could invade Kingdom B and subjugate the residents of B and it wouldn't be considered a human rights violation. Today that is not the case any longer.

A more sophisticated analogy would be this. If Corporation A invades the "customer territory" of Corporation B, and asks the customers of B to mandatorily be customers of Corporation A, we would laugh off it off. Now reverse the logic. If Corporation B does not allow Corporation A to enter its "customer territory" and makes its customers implicitly a captive customer base for itself, we begin to doubt. But then, this keeps happening all around us. From limiting certain kind of businesses to only preferentially granting allotments for particular businesses. Like petrol pump licences.

If you have not realised who am I talking about, read it here. The economics of the tragedy runs like this. You have oil much in demand. And it costs a bang. What you can do is add a cheap adulterant (kerosene) which costs one-third (approx.) of the price of oil, and sell it thus making a neat profit. There is a 53 paise profit per litre sold. A typical service station sells about 1 lakh litres of diesel every month. That makes for a profit of Rs 53,000 per month per service outlet. Maybe worth targeting a honest officer who treatens to ruin your adulteration process!

Two questions: Does kerosene really come so cheap? And if oil is being adulterated, why do not customers switch the diesel-providers?

Well, kerosene doesn't really come cheap. What makes it cheap is a government subsidy at Rs 10-11 per litre. And more importantly, every 1 of 3 litres Kerosene distribution intended for household consumption through PDS outlets flows back to industry in one form or the other.

The second question is more simple. Petrol pump allotment is a political process (remember the analogy of Corporation B "protecting" its customers from Corporation A) so you need a licence for it. On top of that you have a state-run corporation granting them, little wonder there is so much susceptibility to political machination and insulation from market discipline.

What does "market discipline" mean! Think of it as the relationship with your doodhwala. If he gives too much water in the milk, you threaten to go off to another doodhwala, or well, switch to packaged milk. Now imagine if the state decreed that you couldn't threaten or switch your doodhwala, what would be the outcome?

Transplant the same relationship to the oil company and the service outlet. In this case, the company cannot cancel the contract of the service outlet because the outlet has been selected through a political process and not a market process. If it were a market process, there wouldn't be licences with political strings, the oil company could easily disband the service outlets for null enforcement of quality standards. Again, under a market process there would be lots of oil companies and lots of service outlets, with the unadulterated outlets gaining customers and reputation and the guilty ones being discharged from the process. Again, the key is that political decisons regarding production (subsidised price of kerosene) and distribution (granting of licences for outlets) be in the institutional realm of competitive markets as much as possible. In a market it is more difficult to bully your employer or customer into submission, whereas in a political process one often finds that force works. The market process won't be so smooth, but the oil will be of better quality, those who deserve thrive and there wouldn't be need of a death like Manjunath.

When heroes are emerging, it implies that we need better institutions, NOT more heroes!

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