A Note on Efficiency

The monetary system used in the world is a man-made way of thought; it's not from natural design, like a law of physics or mathematics. People assign notional numbers to different things, and arrive at concepts of cost, price, value, GDP and so on. This is simply one way of looking at things, and it's the prevalent form today. The use of the term 'efficiency' is also derived from this monetary system, and more specifically, from the point of view of Capital. So activities that are more profitable, are considered more efficient, and cheaper products to a consumer is considered more efficient. To me this is a very self-centered view of efficiency, and doesn't define what is efficient for society. There are three actors in this system- 1. Capital - the owner of everything, who decides and controls the economic activities in society 2. Consumer, who wants to minimise expense, maximise utility in consumption 3. Labour, who is considered a Factor of Production, treated as a Cost to be minimised in the interest of the former two. The center of this Universe is money. Capital owners own most of the money, Consumers spend their money by giving it to Capital in exchange for Consumption, Labourers sell their time and labour to Capital in exchange for money. This is how people are divided into 3 distinct categories, defined by money, and whether they own, spend or seek. There are some features of this system that is by natural design of the system: Capital will concentrate, and it's not an accident. There is a natural tendency to concentrate, because of a couple of reasons: the most important factor in generating new Capital, is to own existing Capital. Secondly, this is fortified by inheritance. Labour's need for economic activity is dire and desperate. This is the bedrock of the relationship between Capital and Labour: the desperation of Labour, and the lack of it on the other side. This is what enables Capital to dictate terms in any economic activity. Consumption that is self-sustained is discouraged, and dependence on the market is encouraged. There are two reasons for this: first, market dependence will allow Capital to increase it's economic activity by selling more goods and services that were earlier not channeled thru the market. Second, market dependence will increase desperation to sell one's labour to Capital, enabling the production process of Capital. In New York in the early 1900s, people baked their own bread, each family grew a little food in their yards. This enabled them to live to some extent without wages and the market, and they had power to go on strike and negotiate at work. With the advent of canning and mass production of food - things promoted as undeniably positive for consumers - within a few decades people went to the market for everything, and were now dependent on wages to afford their consumption that was earlier independent, quietly surrendering their ability to negotiate for wages. Since it would be rather impolite - even repulsive - to start by asking a human to surrender their wakeful hours and labour, Capital starts with something more tempting- Consumption. People are convinced to think as Consumers, to think that lowest cost - highest utility is the ultimate goal of each human. People are siloed as Consumers, forgetting that humans are both Consumers and Laborers, and in an ideal world, owners of Capital too. Instead, people are brainwashed (thru advertising) to pursue the lowest cost of consumption as an end goal in itself, and this is mistaken for efficiency. The idea that things should become cheaper to the Consumer for a better world is a misconception, because cheaper is not good for the Producer. For example, a coffee consumer would want cheaper coffee, but for a Producer, cheaper is not better. Capital aligns with Consumption to convince people that cheaper is better, and Capital valourises itself by its ability to provide cheaper prices, hence this system is validated as efficient and good for the people of this world. Capital forces with the argument: how can you deny people access to products by making it cheaper? My response: There is another way: pay people more, so that they can afford to consume more products. It is Capital that is denying people access to products, by paying less to it's employees. Economic activity is a zero sum game, a question of how to divide value. Whatever the Consumer pays is shared by Labour and Capital. So here we are answering the fundamental question of this zero sum game: how large is the pie paid by the Consumer, and how shall it be split between Labour and Capital. My idea of efficiency in economic activity puts people at the center, and money in the periphery. In the zero-sum game of Capital-Labour-Consumer in splitting the value in any economic activity, I define efficiency as finding a reasonable balance. The system should be designed such that too much or too little power in any one of the 3 actors has natural deterrence built-in within the system. For example, in nature, there is a fine balance between predators and prey. Too much or too little of one will lead to consequences that will automatically bring the system back in balance, without the need for external intervention. A tree or human doesn't grow higher and higher without limits. There are advantages and disadvantages to being too short or too tall, and there are forces in nature that pulls from both sides, so as to find a reasonable balance. So my idea of an economy is one that finds a reasonable balance, and shuns the pursuit of linear extremities like highest-shortest, largest-smallest, cheapest-costliest and so on. Even for an individual in the wild, in extreme hunger, the individual will take any risk, whereas with a full stomach, even easy prey or fruit is not pursued. This is an example of the push-and-pull that exists in natural systems, that enables a balance. Learning from this, a society should pursue an economic system that is fair and reasonable, and integrate by design the forces of pull-push within the system to avoid extremities. Economic activity has the following fundamental goals: 1. Provide a livelihood for Producers, so they can Consume in turn. 2. Service the needs and wants of Consumers 3. Provide common services for the welfare of Society From this perspective, I shall redefine Efficiency. For simplicity, I use the word 'product', and the same applies to 'service' as well. 1. Consumption: When a consumer pays for a product, we look at what they are paying for. There are costs that are intrinsic in the product, like the material and labour that goes into creating the product of value. Then there is the act of selling, with expenses that are extrinsic to the product, like rent, sales commissions, brand ambassadors, advertising and so on. These expenses are essential from the point of view of Capital, to clock sales. From the point of view of the Consumer, these are wasteful, in that they are not reflected in the product. If the Consumer could buy the products without these costs, the product would be cheaper while having the same intrinsic value. So efficiency from the point of view of the Consumer is minimising the payment towards aspects of the economic activity that do not affect the product's intrinsic value or utility. So functions like Audit, Quality Control, Accounting, Marketing and so on - they serve the needs of Capital, but they do not add anything to the product. If you say that Quality Control ensures good quality for the Consumer, you are assuming that the Producer is dishonest and lacks ownership over the quality of the products produced. Why is this so? Does a home-cook (mother or father) producing food for their children or guests require a quality control function to oversee their work? Since Capital forces labour to sell their time and labour for fixed wages based on time, it incentivises shirking of work, and discourages productivity, integrity and ownership. So it deliberately creates an antagonistic relationship with labour, by the open effort to squeeze the maximum out of labour for the least possible wages, and by taking away all ownership and then insisting on a 'sense of ownership'. Since there is no ownership with labour, and there is no incentive for honest work, Capital engages an army of Checkers to ensure that the unproductive double-work of double-checking everything from the product to accounting. These are all inefficiencies built into the system by Capital. It's efficient for Capital to incur the expenses involved in these activities to maximise their profits, but it's inefficient for Consumers to pay for these things, because they don't affect the intrinsic qualities of the product. 2. Production: The purpose of economic activity is to provide livelihoods, so economic activity organised in a way that it can support the livelihoods of more people, is more efficient. It creates more consumer demand, and reduces the load on the State to fill in for unemployment, like with schemes like NREGA, where exactly this principle of efficiency is followed. Since mass unemployment is not the fault of the masses, and since the State can't watch it's people suffer and die, it must intervene with some form of subsidy that would go against the Free Market. As a normal, intended outcome of economic activities in society, this is inefficient. Hence society should pursue economic activity that provides more livelihoods, so that the State is not burdened by the poverty created in the name of cutting labour costs. More labour intensive activities should be encouraged, and automation is inefficient from the point of view of providing livelihoods. 3. Services to Society: Not all activities are equal for society. Health and Education provide a collective welfare to society that goes beyond the individuals and specific economic transactions. For example, an educated, healthy society is productive and resilient towards foreseen (Climate Change) and unforeseen (Covid) challenges that life throws up. On the other end, we have vices, from alcohol to junk food, and healthcare costs arising thereof; while these contribute to conventional GDP counting, it's a negative to society as a whole, and society is better off without such economic activity. Of course, the argument here is from the lens of individual liberty, and individuals are free to choose for themselves, but society on the other hand cannot encourage and celebrate this, because these things have a negative impact on the collective. In more practical terms, the way we look at food, education and healthcare, is very different from the way we look at clothes, sports and entertainment, which is in turn different from junk food and alcohol. GDP should be split into a gradient: Essential, Good, Neutral, Bad, Vice. We have to see how much of the GDP falls in each category, and that's more important for society than merely the aggregate. If more economic activity falls under Essential, Good or Neutral, the more efficient it is for society. Role of Capital: Capital resides mainly as land. For anyone living in a home or starting a small business, rent makes life precarious. It forces dependence on employment (for home rent) and desperation to achieve profits (commercial rent). Any group of people have different talents in aggregate. So India with its population, surely has great sportspersons, entrepreneurs, scientists, chefs, hairdressers, tailors and what not. The single largest hurdle against starting one's own business is Capital. And by depriving these people an opportunity to put their ideas to use for society, we are denying Society the best ideas, people, products and services from coming to the fore. I'll give a couple of examples to illustrate: when kids of Bollywood stars get 'launched', it deprives the country's cinema of the best talents from coming to the fore, and that's inefficiency. If only a small fraction of 1% of the country can play golf or race cars, the national Golf champ or racing champ is not really the best of the best, but the best out of a fraction of 1% who have access. So by denying equality in opportunity, we deny society a chance to see the real special talents within, and instead some are forced on us as champs or actors and we're told that these are the best the country has to offer. Likewise, lack of Capital, specifically in the form of land, holds back the entrepreneurial talents from flourishing, and leaving society worse off. So in society's interest, it's good to have a population that is not desperate, or enslaved into monthly salaries. So there should be limits to Capital - people can only own what they directly work in. Owning land as 'assets' or 'investment opportunities' puts Capital at the centre - there is Capital in excess with a few and they don't know what to do with it, so they 'park' it in land. This whole cycle needs to be broken - people should not have so much excess Capital, and should not be allowed to own more than what they have direct use for. For example, Beijing (or Shanghai? I don't remember) taxes a person's second house at a much higher rate than the first. Or the bidding system to own a license to own a car in Singapore. It should be easy to own a small patch, and increasingly harder and more expensive to own as one owns more and more land. The rules of the economy today are laid out by Capital owners (they form the bureaucracy, judiciary, legislature, commercial giants and so on), and they all got their land thru historical exploitation and inheritance. So essentially they looted Society of Society's land, and made it their own long ago, and now insist that land rights be honoured even as they concentrate more and more land in their own hands. This cycle has to be broken. One idea I really like - https://en.wikipedia.org/wiki/Agrarian_Justice Then there are two other considerations: 1. Resource Use: The current economy is one of linear consumption, and all talk of circular economy and recycling etc are lies. Less than 10% of plastics get recycled, mainly because it's much much cheaper, easier (and of better quality) to produce plastics from fresh petroleum rather than recycling. Likewise, crude oil, mining of minerals, coal, fertilizers, groundwater - we are digging from under the earth, and using it up in a linear chain called the economy. There is no concern about the future because if a business looks at self interest, or a country looks at self-interest, it's the most efficient approach towards wealth and more money, both individually and for the country. The GDP numbers do not count the real cost of using up a limited set of resources underneath the Earth, that belongs to Society. Efficiency is the amount of resource used to produce a certain product, and not in money terms, but in terms of the actual limited resource, like water or bauxite. If I can produce food using only rainwater, that is way more efficient than using groundwater, although the latter is considered economically more efficient in the current linear times we live in. 2. Emissions and Waste: The lesser is one's Carbon footprint for a given economic activity, the more efficient it is. The permissible Carbon footprint per capita for the world as a whole is around 1.5 MT/person/year, for a sustainable future (note: I don't remember the exact number, but it's around this). India is at 1.8 MT per capita/year, and this is mainly because the rural poor average out the urban rich. The rich in our country will consume like EU (7 MT/person/year) or America (20 MT/person/year). This is wholly unsustainable, and any valor in GDP numbers generally ignores a real hard look at this. For Society that envisions a life for humanity on this planet in the future, efficiency is defined as how little Carbon one can emit for a given economic activity, of production and consumption. How little waste can one generate in the process? Like how we tax everything, and insist on ingredients list to be (illegibly) printed on packaged food, we should count each unit of Carbon emission, and allocate it to economic activities, and to individuals. So each person is given say, 1.5 MT of Carbon emission credits at the start of the year, and they may choose to spend it on whatever they wish. They could even travel the world, but they may need to sit on a boat for a month if they must go to America. Each product they consume will have a Carbon emission attached, that will count against their permissible limit. This will encourage people to produce with less resources, less emissions, and also to consume mindfully. It will nearly eliminate private transport, and encourage cycling, good health, natural farming, an so on. Now all of this looks so idealistic that you're reading it like some utopian dream that doesn't have to be taken seriously. But when we're imagining the future, we should start from first principles, and later worry how we can get there. Maybe we don't get there in the next 20 or 50 or 100 years, but the process is the goal: what baby steps can we take from where we are today, to progress towards that goal which appears like a mirage today. Every baby step adds up, and this idea is for the idealistic children of tomorrow, not for the pragmatic adults of today. So having painted the dream, I shall now discuss the present, and what we can do today to start our journey. There are 3 key features of Capital: 1. Most of the Capital owned by people today is thru historical exploitation or inheritance. 2. Capitalism we see in society is Crony Capitalism. There is a strong nexus between Capital and Legislature. 3. Nearly all industries are subsidised. Nearly every large industry is subsidised with land, power, water and so on. This was done in exchange for providing employment. Industries tend to act like they are pro 'free-market', and if that was the case why have they not bought land from the open market, and built infrastructure of their own? One popular argument is that government needs to 'support' industry for an economy to grow. Here Capital points its finger to the 'greater good' and welcomes government intervention and subsidy, briefly forgetting the drumroll of Free Market theories. Truth is, there is no such thing as a free market, and everyone is subsidised. The farm subsidies are spoken of as a drain of limited resources of the nation. But do you know how much the industries are subsidised? For example, the Coffee Board offers a 40% subsidy for setting up small roasting facilities. Coffee land owners get a subsidy for digging ponds. How about the value of all the land that has been allocated to industry, and the roads and flyovers and power facilities provided to them? These subsidies are not in hard numbers that stare at us, so we feel it doesn't exist. Agriculture is considered 'inefficient' because food prices are kept artificially low by government intervention. This should be the starting point of deregulation, on the consumption side. Non food-producers in urban areas should pay more for food. To do this they should earn higher wages. Sadly, even people working for the government services, like the sanitation workers, are BPL card holders, meaning they are Below the Poverty Line. Even the wages for APL card holders are abysmal, and they need subsidised grains to sustain themselves. Thus the wages in urban centers are kept artificially low to enable Capital to have lower labour costs and earn higher margins. The government enables this by subsidising food grains thru the PDS so that the underpaid labour don't revolt against the meagre wages. So the subsidy paid by the government is not just to the Producers of food, but also to Capital, masking their inefficiency (in providing wages) and enabling their profits. We should take a relook at every single Common Resource that the government has given to industry first. Remove all subsidies to industries first. Everyone pays the Commerical Tax rate without exceptions or 'incentives'. End Capital's donations to political parties, or if you prefer a smaller baby step, at least make it public for a start. Once this is done, a progressive land tax should be levied that discourages large land holdings - larger the land holding, larger the tax on the marginal increase in land holding. This is followed by land redistribution. Then cut the fertiliser subisidy gradually, encouraging natural farming. This will reduce the food production, and the prices of food commodities will increase. Eventually the market price should settle well above MSP. All of this is done gradually, a slow tapering of the feeding tube. More importantly, a free market needs competition. Capital goes towards duopoly/monopoly because it's by design - Capital if left to itself will secure 100% market share (and pay unliveable wages). Capital is self-centered, and those are correct actions if one believes in self-interest as the ultimate goal. Hence, we have Zomato and Swiggy, Uber and Ola, Amazon and Flipkart, Jio, Airtel and Vodafone... wherever we see the consumer is finally left with usually two, sometimes three choices. This is inefficient in the best of times, and can be catastrophic in agriculture. I'll explain: if Pepsi becomes a monopoly in the chips business, it will decide what potatoes to grow, at what price it will be bought, and so on. This is bad for the farmer, since Pepsi will try to lower it's costs, and because of the David vs Goliath nature of things, the farmer stands no chance. This also leads to loss of biodiversity, which is something beyond commerce. We cannot put a value to history, culture and tradition, so like we preserve our ancient monuments, so we must preserve varieties of rice, wheat, cotton and so on, or at least give them a fighting chance. The existence or extinction of biodiversity in food cannot be determined by one generation or the monopoly of one corporation. All of these companies enter the market saying that they give more choice to sell for the farmer, but the truth is they are all after a monopoly. They all enter with attractive options for both buyer and seller, and after they establish strength and size, they will slowly squeeze both sides to enlarge their profits. This is the basic philosophy of Capital, found in every sphere. Once they establish dominance in the market, they will reduce the production process to a set of menial tasks paid at the price set by them, and this will be squeezed until it can't be squeezed anymore. This goes unsaid even though we see it everywhere, and it's not a good thing. So it's better to have a diverse set of small middlemen than a couple of large corporations. It's even better if the farmers can form collectives, and organise the value-addition, transportation and selling of farm produce while retaining ownership of their produce. So we should discourage concentration of power by limiting the size of entities engaged in commerce, and more importantly, encourage farmer cooperatives where the producer retains control and ownership over the produce until it reaches the Consumer. Food doesn't operate under classical economic theories. This is the reason why even the most free-market of economies subsidise their farmers heavily. A person can live without toothpaste or cars, but could kill for food. On the other side, there are natural limits on how much one can consume. So lower prices will not boost consumption like a conventional Demand Curve would suggest in an Economics textbook. A country needs to secure it's food, and also feed it's hungry. These cannot be left to market forces, because Capital doesn't own responsibility for these things. We should move towards less government intervention in agriculture, but this must be done by increasing the ability of people to pay more for food, so that the MSP is rendered irrelevant by market pricing, and not by law. People should be encouraged to live in less dense places on the map. Higher the density, greater the taxation, except for people engaged in essentials (education, healthcare) and public services (legislature, judiciary, bureaucracy). We should create strong disincentives to moving to urban living, and encourage dispersed, rural living. Localised, decentralised production consumption should be encouraged. Anything traveling long distances to be consumed should be taxed more. This way we pursue efficiency from the point of view of society as described above. Post Script: 1. If we remove Capital for a moment, the value of any product is the value of the labour that went into it. So if productivity increases, value decreases, because less labour goes into the production of one unit. So from the point of view of labour, it's not more efficient to be more 'productive'. Efficiency manifests itself only if you are more productive relative to the average labour producing a product. If the entire society becomes more productive, it only reduces the value of the product, and all the producers are none the better off for this productivity increase. 2. Nature determines the productivity of different patches of land, based on rainfall, warmth and sunlight, soil conditions and so on. Farming is efficient or inefficient based on how much a farm produces relative to the average or median farm under similar conditions. Appreciation in real estate or sales of shampoo or junk food or mutual funds may contribute to the GDP and reduce the share of Agriculture in that pie, but it's irrelevant while discussing the efficiency of agriculture. If a farmer produces a reasonable produce of food, using the sunshine and rain falling on a patch of land, securing a part of the nutritional needs of society, that is efficiency by itself. How it stacks up against smart phones, mutual funds or diamonds is not a measure of the productivity or efficiency of that farmer.