Thursday, September 27, 2007

Why should you fight evil?

Should you even fight? A simple question isn't it. Most people answer in the negative and continue on with their lives leading a very passive existence. It is as if one can lead a life independent of what is going on around him. A little insight into economics will prove otherwise. I could easily give an ethical reason why we should fight evil but a more rational explanation should make more sense to more people.

The point can be illustrated with some real life experience from running the computer sales and services division of zyxware over the last one year. Normally we don't give credit to customers. The selling price of our PCs just about cover our operational cost and a fair margin. So if everything goes well we would have a nominal operational profit that would help in the growth of the company and justify the investment of the capital. Anything below the margins we currently take wouldn't justify our operations and the whole thing would cease to be a profitable venture and should spiral down over a period of time.

However with customers whom we know personally or who were recommended by close friends we used to give credit considering their financial difficulties or giving in to their requests for credit. This is fine with us and we increment the total cost of the PC to cover the additional capital cost. This is required as the capital remains dead until the customer pays us back and we have to have the nominal profit at the end of the year for sustained operations. There are no problems in the process till now. But here we are putting our trust on the customer.

Now suppose there are a few defaulters who does not pay us in time. They would keep the capital dead for more time than was already estimated for during the costing and this additional cost would eat into the total margins for such transactions. Not everybody would default, only a small percentage does. Suppose we give credit to 100 customers every year and 10 of them default leading to a reduction in margins of let us say 'X'.

Like I mentioned before we cannot afford this reduction, so this has to be recovered. If we know beforehand the people who are going to default we could just charge them X/10 more to cover the reduction in margins. But, we don't. So the only practical way would be to charge every body who comes for credit X/100 more to cover this. We don't like doing this and so we have simple stopped (almost completely) giving credit to all our customers. It is too much of a risk for a company like ours whose primary vision is to be a change in the society to try to help a few people and risk ruining the company.

The above is a simple example that shows how the good (the 90 people who does not default) pays for the bad (the 10 who default). This applies to lot of other areas in our daily life, take for example tax rates - tax rates are high so that the total revenue of the state remains sufficient to cover its costs. If people default on taxes then this should be recovered from people who don't. So if all of us pays our taxes then the rates would have been much lower. Another example is cheating in business - when there is cheating there are losses on one side, these losses have to be recovered from the business itself and the only way it is possible is to recover it from people who don't cheat.

Effectively, anywhere there are malpractices or cheating or unfair gains there are costs and these costs will be covered by the people who does not do malpractices or does not cheat or does not take unfair gains. So when good does not fight evil, it is evil who wins always and good who loses always.

The moral of the story is simple - the next time you see evil and does not fight it, remember, you are paying for it. The small corollary is that - you don't have to pay if you join the evil - but don't worry that is what the law of the land is for. At some point the law will catch up, so evil never pays ultimately. Also if you fight the evil, the law will catch up with the evil faster.

Click here to read the rest of this article - "Why should you fight evil?"