Saturday, April 28, 2007

What is the incentive to do good?

Most, if not all, children are taught to do good by their parents and by the society as a whole. It would however be debatable as to how many actually try to do so when grown up. The reasons tendered (for doing good) would range from gratification and peace of mind to heavenly rewards. But what is the real physical, psychological and meta-physical reward for doing good?

The harsh reality is that, on an individual basis there is no real incentive to do good. Doing good normally costs the person doing it. But for maybe a sense of gratification or a peace-of-mind, both of which are trained responses which could have been trained otherwise. On the contrary, not doing good or instead doing bad could result in personal gains. Lot of people have identified this vile truth and try to reap such rewards.

Let us take a look at historical perspective. Man is a social animal. This means he needs the help of other men. Not that he needs help in the absolute sense but he would be able to do a lot better with help than without it. So this resulted in men living together as a society. Now in a society you have interaction between the members. Each of these interactions could be biased towards 'good' or towards 'evil'. In either case, on an average the good someone receives would equal the good he gives or the evil he receives would equal the evil he gives. However the total quality of life in the society as a whole would be much better if the interactions are biased towards 'good'. Thus ethics evolved and society as a whole tried to define good and bad and the kind of acceptable behaviour in the system.

The social fabric is held together by the value system. People who subscribe to the value system do good maintaining the quality of life in the system. However among the majority of do-good-ers a small minority of do-bad-ers can thrive. They will have a higher credit column in the 'good-bad' account book. They draw 'good' from the system and give 'bad' back to the system. The society tries to counter balance this by setting disincentives for doing 'bad'. So those of the do-bad-ers who get caught pays the price for doing 'bad'. However there still would remain a percentage of social parasites who are neither do-bad-ers or do-good-ers. They sap the goodness from society but does not give anything in return.

There is no real way of addressing the do-no-good-and-do-no-bad people in the society. The only possible way to address this in part is through social programming by instilling in people while they are still young a feeling of satisfaction and happiness associated with doing good. So the incentive would be personal and internal. Rational people should be able to identify the historical reason and the motivation for doing good should be the goal of making their lives better by making the total quality of life in the system better.

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Wednesday, April 25, 2007

Is it evil to be rich

During the early stages of Google it was the darling of the IT masses. However as the company grew it slowly started drawing criticism from different circles. Google has remained the same with the same corporate policies and the same objectives, the primary objective being - to make money and more of it - as with any other company. So what shifted the attitude. The perceptible difference is that Google is richer by several orders of magnitude from what it was during its pre-IPO years.

Everything that google does these days is being observed carefully to identify if there is any evil in it. People don't usually understand something very fundamental - companies exist to make money and that is what they are supposed to be good at. Making money is a game where you dont always have a win-win situation. Sometimes you do but mostly not. The winner in all cases should be the company. So when the company takes certain steps to ensure that it wins more games and that it wins handsomely people starts complaining.

As long as a company does not indulge in illegal or unethical business practices there is no reason to complain that the company is not doing anything good for the system or the people. In the first place that is not the company's job. It is the government's job and it is the citizen's job. Moreover when you are talking about a private company you are not talking about a single entity amassing wealth. It is the whole set of shareholders amassing the wealth. Yes the total set of investors of all the companies would comprise a small subset of the total population, but they do a very essential process in the economy - creating wealth.

When google was incurring losses/earning very little income by giving away services for people for free, it was the apple of everybody's eyes. But now that it has grown into an IT behemoth earning in billions, it has slowly started becoming an eye-sore for some. I guess one simple explanation would be - jealousy.

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Sunday, April 15, 2007

Do we really have the right to use our own resources

"We have no authority to use more than what is required at minimum cost be it energy, materials, or money", Laurie Baker

The renowned architect and humanist Laurie Baker passed away recently. His life story has been covered in most of the news magazines that come out in India. This was one sentence that struck me most. The whole low-cost philosophy of the man can be summarized in the above sentence.

The statement applies not only to architecture and building but to almost all walks of life. These days the term affordability is being redefined every day. With salary levels going higher and higher, more things are becoming affordable for the average educated and decently employed person. The question however is, should somebody go for something just because he/she can afford to? The answer Laurie Baker gives is a definite NO.

The world has only a fixed absolute amount of resources. Be it energy, natural resources, natural products, we have only a finite total amount. Additionally some of the resources that are replenished by nature - example trees - are generated at some finite rate which limits the rate of our usage of such resources. All resources have a cost in procuring and delivering to the end user. However the costs normally does not include the cost incurred by the Natural System in generating the resource. A simple example is paper. The cost given by the end user for the paper reflects only the cost in cutting down the tree, transporting it, creating the paper and transporting it. The cost incurred by nature in growing the tree is discounted. The further cost incurred by nature when the tree is cut down is also discounted.

The world economy is governed by market forces. Unfortunately mother nature has no say in the market economy and her debit columns remain blank. People draw from it but don't pay the cost. It is for this reason that the great man said that people should restrain themselves from over-consumption just because they can afford to do so. It should be remembered that the affordability is most probably a result of the skewed cost structure. So the safest rule of thumb when a decision has to be made regarding a purchase is - can you do without it, if not then what is the minimum quantity that you would want to meet your needs.

This philosophy can be seen in the creations of Laurie Baker and in his simple lifestyle. He was a Gandhian to the core and lived up to his high ideals.

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Thursday, April 12, 2007

What is a fair transaction?

I had a very interesting discussion with a friend of mine today. I had recently purchased a used computer from a customer of mine. The objective was to resell it to somebody who needed a refurbished PC. During inspection we found that there is a reasonably good chance for the PC to fail as there were some ready-to-go-bust capacitors on the motherboard. The discussion was whether I should reveal this information to a potential buyer. My contention was that I should because I would rather be 'just' than 'rich'. We discussed about how most companies in our market tries to sell goods to us with false information or with concealed facts. The question is - What is a fair transaction?

From an economics point of view a transaction is a transfer of value from a seller to a buyer at a rate agreed upon by both. The value could be a service, a good, an opportunity, etc and henceforth we will refer to this as the object of the transaction. A person buying milk from a store, paper boy delivering paper to a customers house, a teacher teaching a class etc... are examples for transactions. All the transactions succeed an unwritten contract between the buyer and the seller in that the buyer is going to get the given value and the seller is going to get the given price.

The dictionary reference of fair is "Free from favouritism or self-interest or bias or deception; or conforming with established standards or rules". If either of the parties involved does not get what he was supposed to get, then the transaction can be considered unfair to that party. In an unfair, greedy and selfish world there is always the possibility of a person gaining unfair advantage in a transaction. Thes would mean that one of them - either the buyer or the seller gets cheated in the transaction. So what are the necessary and sufficient conditions for a fair transaction? Is a fair transactions even possible?

When a person decides to buy or sell value, he/she already has a presumed value about the object of the transaction. This presumed value is based on the information that he/she has about the object. Now if the other person involved has either more or less information than the first then there is information asymmetry. In such a situation there is a possibility for the person with the larger set of information to charge more or give less, when seller and when buyer respectively, and the other person to agree to give more or get less, when seller and when buyer respectively. So even if not intentional the transaction becomes unfair to one of the parties. If there is an intention from one of the parties then the unfairness could be amplified. One simple examples of such a situation is where people agree to buy goods at higher than normal rates because of lack of information about market prices. Another case is where people are paid less than what they deserve when they don't know about the market rates.

It is not required that both parties need to know everything about the object of the transaction. Both should have the same sets of information. Equal information alone does not ensure a fair transaction. The buyer and the seller should have similar analytical capabilities to process the given information to come to the same conclusion about the value of the transaction. Here again both should have comparable analytical powers to come to the same conclusion. It really shouldn't matter if one of them is analytically stronger than the other in other areas.

Even if both parties have the same sets of information and if both concludes the same about the value the transaction could still be biased if there is an external factor affecting the transaction. A very simple example is when a third part or a regulatory body sets rates for the transaction. In such a situation the bias will depend on the external factor and could go either way - towards the buyer or the seller. Another simple example is when a person is forced to sell his land for a lower price because he is in urgent need of money.

Thus the three necessary and sufficient conditions for a fair transaction are
a) Equal information about the transaction for both parties
b) Similar processing capability to come to the same conclusion about the value
c) Absence of external factors biasing the transaction
Theoretically it would be impossible to have a fair transaction just like it is impossible to have a perfect market. However we have ignored the ethics and value systems while explaining the logic. A person could sell an object to another person who does not about the value of the object and still sell it at the value he has perceived about it if he is a fair person. The point is that even if the theory fails we still could have fair transactions if we have a good value system in our society. So let us hope for a future where our society has a good value system.

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Friday, April 6, 2007

Personal Luxury at Public Inconvenience

It is sad to look around and see utter disregard for public inconvenience by the common man. Be it the person spitting on the road or the taxi driver parking in a bus bay or the pedestrian walking along the road and not the footpath, you see it everywhere. People always complain about the public authorities not taking enough care about public convenience. I don't see any anomaly in the acts of public authorities and just see it as a reflection of the general state of mind of the common man.

What is disturbing is the fact that people don't really understand that it is such minor transgressions from several people that accumulate and create general public inconveniences. Roads littered with garbage, drainages filled with plastic, roads congested because of badly parked cars etc are good examples for this phenomenon. However most people, even those engaged in committing these civic crimes, complain about the cumulative effect of such actions.

The matter of the fact is that people don't think about the consequences of their seemingly harmless actions. After all what can happen if you spit on the road, you have been doing it since you were a child isn't it?. Or what could happen if you park your car near a busy intersection - it is only for a few minutes right? Or what could happen if you throw your plastic bag into the drainage - it will just go with the sewage right? After all aren't these small luxuries that the system owes you? Isn't it your right to do these things? People don't even realize that they are committing a crime when they make one of these offenses.

The generic solution to these problems is to teach people to think. But, since that is possibly impossible, it is more practical to teach them, while they are still young, certain civic responsibilities and value systems essential to maintain a smooth civil society. It might be a little inconvenient to keep that toffee wrapper in your pocket till the next trash can or even back home, but it would be more more inconvenient for a lot more people if you don't; and other people like you, don't.

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