This is a lecture I have taken from Class 12 to M.Com and even with faculty teaching Commerce. And I have been amazed by the widespread lack of clarity on basic issues regarding the Economy.
I begin by asking “What runs an Economy?” Response range from Money to Government. In my view the answer is Income. Obvious enough, but if it was clear to all, the world would be a better place. I find that the salaried class, in secure sinecures, are almost oblivious of this central fact. It is almost “Assume there is income”.
How does one get income?
Obviously by selling a good or service and the buyer wanting that good or service and being satisfied enough to pay one for it.
We would do well to ponder on “who is my customer”, “who pays my salary” and “what do I need to do to keep that stream of income flowing”.
Next question is “why does anyone buy a product or service?”. Quality, brand are typical responses. Strangely enough cost or price are not the first to be mentioned. As if its bad manners or petty to talk about them. Price and Quality I would say.
That begs the question, “what is quality?” “Fitness for use” would be the technical answer, but it is more layered than that. Features, reliability, maintenance facilities and cost etc.
And what accounts for the price? Cost and brand power. What decides cost ? Scale, technology, productivity, method are key considerations.
Outputs for sale can broadly be classified as commodities and products. Commodities are easier to produce, but have little pricing power. Products are THE thing. Over time what begins as a product becomes more like a commodity, as the technology for it becomes commonplace. But there is always scope for moving up the innovation chain.
The back bone of quality or cost is technology. How does it come into being ? R&D I am told or Machines for manufacturing. But the core of technology are people. Both individuals and teams.
It is sobering to note that it is only in 1968, that through Solow, technology was added to the production function as something that affects output. Quite often academics trails commerce, especially in the social sciences.
And the centrality of the “entrepreneur” to the functioning of the economy was articulated forcefully by Schumpeter only in the 1920s.
Last question, “how are people developed”, to the point that they produce technology.
Core answer. Education. Defined as capability. Anything that improves capability is education.
I have found this simple, and even if simplistic, framework to be a fruitful one.
In business, where one has to earn one’s income, the hard way, clarity is at a premium. The sophistication or completeness of one’s answer is not. Being 80% right is good enough.
Each of these concepts needs to be developed further and deeper , before one concludes.
But one thing that stands out is the lack of centrality of Governments in driving the economy. They can and should play an enabling role, having good quality education accessible to all is important. But right now in most countries they play a debilitating role.
In business as in life, it is important to think about two things. Opportunities and risks. They are truly two sides of the coin, but a coin whose one side can be different in size from the other side! And these alter over time. Initially opportunity is small and risk large, but as one develops it the proportion changes.
If one thought through like this one would travel far. The importance of concepts was driven into me not by an academic, but Dr Om Kaul, Training Manager at the then Hindustan Lever, now Hindustan Unilever. What is the concept he would say, raising his brows and Poirot like moustache of his rotund, glistening face. The issue may be one’s behavior or that of one’s colleagues, but thinking in terms of concepts was insightful and useful.
Having this framework one can ask crucial questions.
Is my enterprise competitive ? My country ? What should be the government’s role in all this? What is it now ? What kind of education do we need ? What do we provide right now? If access is crucial to development, how do we ensure it without distorting incentives? The list of questions is long.
Life has taught me the importance of one’s perspective. If the perspective is developed properly and we have the conviction of our thinking then much can be achieved, with modest initial financial resources.
The world today, despite its failings, is an open one. Supportive of capability and enterprise, even if for material reasons. It is awash with venture capital. I only hope that the well off, who benefit from this eco-system, have a social perspective and commitment. Right now, they by and large, betray an utter lack of it.
Sanjayuvach 