Basic economics taught us for decades that the human needs and wants dictated the economic behavior of individuals, societies and nations. At the core are the definitions of human needs and wants. A need is something without which it is not possible for a human being to survive; for example food, clothing, housing and protection from nature. On the other hand, want is something which is nice to have but without which it is possible for a human being to survive; for example, television, car or smart phone. As a society develops and its economy grows, more of needs are taken to be automatically available, and more wants are perceived as needs that are to be sought after as essential for living. This also explains the differential economic behavior across urban, semi-urban, rural and tribal areas in a nation on one hand and between developed nations, developing nations and the underdeveloped nations on the other. The paradox of needs and wants, and the resultant economic behavior is that resources are limited in nature, and do not lead to unlimited fulfillment of needs and wants even as human needs and wants are unlimited in quantity and quality. At the same time, it is the rather unlimited nature of human needs and wants that pushes the envelope of economic development. Typically, as each need is fulfilled, the accent shifts to fulfillment of a better class of need and fulfillment of basic wants. Economics is a social science that deals with the production, distribution, consumption of goods and services and their management. Human needs and wants, and the economics are therefore clearly interrelated.
Within any nation, there tend to be three main economic sectors which comprise the public sector, which includes the government and the government owned entities, the for-profit sector, which is mostly private sector organizations, and the not-for-profit sector. The not-for-profit sector is also called the third sector, nonprofit sector, independent sector or voluntary sector. In India, the public sector has been playing a major role in fulfilling the "needs" of the society by providing such things as roads, schools and public assistance or welfare. The funds providing these services are typically largely in the form of taxes, and cross-funded through public debt and subsidies. The for-profit private sector generally addresses the "wants" of society by producing and distributing goods and services to a portion of the population based on demand. Demand is the ability and desire to purchase goods and services. If there is a high demand, the private sector will supply those wants. Some examples of what the population demands from this sector include products such as luxury cars, expensive restaurants, cosmetic alterations, and so on, and services such as insurance, marketing, service, advertising, banking, accounting, finance, and so on. Equity, debt, profits and dividends provide the growth and reinvestment possibilities for the private sector. The not-for-profit sector is mostly responsible for the "needs" of the society, provided voluntarily with corpuses contributed by government subsidies, tax breaks and funding from the private sector and high net worth individuals. While the organizational principles are by and large common across the sectors, the governments are motivated by a simultaneous need to serve and control, the public sector entities are burdened by a combination of commercial principles and social purpose and the private sector entities are fired by motives of stoking the demand, increasing production of goods and services, and enhancing market capitalization.
The Indian context
The Indian context is a classic crucible for the basic economics of needs and wants. Seventy percent of India’s population is rural and indigent on farming that is subject to vagaries of nature. Despite significant economic progress, over 25percent of the population lives in extreme poverty, living on a measly earning of less than Rs 32 (60 US Cents) per day, which is the government specified poverty threshold. Over seventy five percent of the population lacks access to proper housing, sanitation, education and healthcare, providing another telling index of poverty. In this scenario, the emergence of an affluent middle class and the conspicuous consumption of high net worth individuals further compound the inequities. Leakage of the various benefits and subsidies before they reach the poor defeat the purpose of well-intentioned government sponsored welfare schemes, and eventually aggravate the overall tax burden and public debt burden in the economy. Infant mortality, child malnourishment and micronutrient deficiencies are endemic. Some pockets of some States of India are said to be faring poorly compared to even the underdeveloped world. Viewed in a macro-perspective, the Indian economy is still in a phase which requires massive need fulfillment across the population geographies and strata. It is a paradox of the global order that in the developed world that wants are easily fulfilled and needs are assured for a great majority of the population while in the emerging countries even a minority of the population would require subsidies for subsistence while wants prove elusive for the majority of the population. Without harping on the causative factors, one may still see this as a great opportunity of economic development, provided production, distribution and consumption of products and services are equitably organized.
The Indian context is notable for the peculiar nature of public, private and non-profit entity objectives. The Indian socialistic model which was antagonistic towards the private sector and the so called big business from 1947 to 1990 saw to it that the government departments and the public sector undertakings (PSUs) got into production and distribution of industrial goods and consumer goods even as the private sector was limited from producing more goods and services for the general population through controls on licensing, equity and debt funding and technology imports. As a result, governments, central and state, could not invest as much as they ought to have in their primary areas of responsibility of social services and infrastructure, and also by default, through the control and command economy model, limited employment generation, technological modernization and demand globalization. Given the skew in public-private participation the non-profit organizations had to move into core areas of social services rather unsuccessfully in contrast to niche areas of service where they would have been more successful. The production-distribution system in India until the economic liberalization of the 1990s sub-optimized the need-want fulfillment. Unfortunately, even after the economic liberalization, however, the liberalized production-distribution system continues as an imbalanced need-want system at the bottom of the social pyramid while a new desire-aspiration driver at the top of the social pyramid has emerged, leaving also a huge uncared for middle portion in the social pyramid. The Indian economy, even before it could cross the trajectory of need-want fulfillment has begun to try leaping on to a more challenging, and even diversionary, trajectory of desire-aspirations pursuit.
Desires and aspirations
Desire is a higher form of want which is accompanied by longing and craving. Influences of social esteem distinguish desires from wants. Aspiration is an even stronger form of desire, tinged by ambition, a potential sense of achievement, and a strong feeling of ego fulfillment. As opposed to needs and wants which are somewhat personalized and stand-alone, desires and aspirations are comparative and are sparked by the cognitive window that an individual possesses. In the Indian economic policy milieu that struggled to cope with “need-want” basics, economic liberalization and globalization brought in “desire-aspiration” as new drivers of economic growth. Indian markets are now home to the top brands of the world in almost all consumer-touching areas such as watches, perfumes, apparel, automobiles, writing instruments, jewels, electronics, home interior products, international travels and scores of other luxury items and services. Aspirations assume an even a larger canvas of social and economic behavior. In contrast to needs, wants, and even desires which are all, by and large, product and service specific, aspirations tend to be life-centric. For example, ambitious young executives no longer desire just a flashy car or a smart phone but instead crave for a total millionaire lifestyle. There is overtly nothing wrong in having aspirations of good to great life but when the socio-economic price of luxury-spend shoots through the roof and contrasts garishly with the stark reality of millions not having two square meals a day, one would wonder if desires and aspirations have arrived too early into the Indian psyche to be of any benefit for orderly economic development.
The issue with the creation of islands of luxury living and proliferation of luxury brands in an inequity stricken emerging economy is that it distorts deployment and use of scarce resources. This inequity gets enhanced when the luxury brands are import dependent, and even more when they are imported as completely built units. According to estimates, a typical luxury product could have an inbuilt premium of 100 to 500 percent, compared to a more functional product, in each category. For example, a luxury car would have almost the same level of component fitment and processing activity as a normal sedan car would have. Even with some allowance for premium accessories and trim for a luxury car, a luxury car requires almost the same employment hours but consumes two to five times higher consumer dollars. From an economic point of view, each dollar spent by the consumer, and invested by the producer, on luxury and super luxury products creates less employment than normal consumer dollar. The possibility of employment dollars dwindles even lower when the product is imported completely as a fully finished product. In a globalized economy, barriers to trade are, of course, an anathema to neo-economists. Yet, one cannot ignore the compulsions on resource strapped developing economies to ensure that each investment Rupee or consumption Rupee is spent for the maximum possible economic benefit.
Archaic socialism, or orderly capitalism?
The inability of the socialist economies to reach full potential in the second half of the 20th century is attributable to State controls which stifled free enterprise. India was a classic example. Surprisingly, State capitalism practiced by China gave astounding results. The 21st century, however, ushered in significant changes in the world economic order, especially over the last five years. Free market economies with unbridled financial systems posed systemic risks and caused global economic meltdown. Welfare economics funded by public and global debt without productivity driven economic growth has caused in part the Euro Zone crisis. Given that State capitalism has been uniquely and inimitably only a phenomenon of China, and in addition is antithetical to democratic cultures, there do not seem to be many choices of alternate economic paradigms that can be followed by emerging economies such as India. Rather than despair, it would be appropriate for the Indian polity to leverage the historical socialist roots fused with contemporary free market enterprise to generate a new model of orderly capitalism. The need for such orderly capitalism is dictated by the continuing inequities juxtaposed with the economic benefits of free market enterprise.
According to an analytical study by the National Council for Applied Economic Research (NCAER) and Centre for Macro Consumer Research (CMCR) just about 1 percent of India’s households have an annual income of Rs 1.25 million (USD 25,000). This is far lower than the income threshold of top 1 percent in the US of USD 500,000 to 700,000. The US figure is 20 times that of the Indian threshold, and is 10 times more even after adjusting for the purchasing power parity. On the other hand, the minimum wage guaranteed by the Central Government under the National Rural Employment Guarantee Act (NREGA) is just Rs 100 (USD 2) per day, guaranteed for only 100 days in a year. Considering the millions of indigent households, the inequities between the USD 400 annual income at the bottom end and the USD 125,000 annual income minimum threshold for the top 1 percent households are strikingly disheartening. Do the rural households need more Xylos and Safaris or more tractors and bore wells, and do the urban households need more Audis, BMWs and Mercedes Benz’s or more buses and monorails are questions difficult to answer non-emotionally. If progress is pursued without rational economic allocations there could be more progress surely but with more inequities. On the other hand, if free market enterprise is pursued with caveats of inequity reduction, potentially the benefits could be synergistic.
Optimized DAWNs: A new sunrise for egalitarian economics
The development of human race has for centuries been predicated upon creation, discovery, development and utilization of an ever increasing array of products and services, based on ever expanding frontiers of research in science and technology. This is an inexorable trend, which requires people, money and business processes to be available on an increasing level. A developed society has all of an emerging nation’s wants and desires fulfilled as basic needs. The more the wants and desires in an emerging nation the more would be the development compulsions as well as development triggers. Yet, resource generation and distribution have to be at adequate levels to support continuous growth. India is fortunate in this context. India would be adding 10 million of educated manpower each year over the foreseeable future. Many of the infrastructure projects, despite the current delays, would be energized over the next few years. High speed trains and super highways are likely to be funded well by infrastructure bonds. The oil and gas sector is likely to see induction of more modern exploration and drilling practices with foreign collaboration. With the power of talent, the torque of transport, the spring of oil and gas, and the energy of electricity, India could hope for sustainable growth. To boost infrastructure development, PSUs are allowed to issue infrastructure bonds of Rs 30,000 crore in 2011-12.
As India starts benefitting from this vast resource pool, India must also start planning for universal fulfillment of basic needs of healthcare, housing, food, education and sanitation. Planning and resource allocation indigenization of luxury to bring desires to the level of wants. Relative priorities must not be lost sight off. A spend of Rs 2 crore on a chauffeur driven imported luxury car, for example, is equivalent to an investment on 6 buses which can transport 300 people daily. The more the level of sunk investments with lower economic productivity the more cash strapped the economy and the society would be in the pursuit of the needs, wants, desires and aspirations, which are surely required to trigger and sustain an economic boom. However, by recognizing that less could actually be more (as even the luxury car makers such as Audi and BMW seem to have discovered!) and resolving once again that India should be in the forefront of indigenous manufacture of all classes of goods, policy planners and industrialists of India can usher in a new economic model for India. An optimized DAWN model which seeks to provide the vast Indian population with needs and wants at superior levels but desires and wants at basic levels, would position India on a sustainable path of high economic growth with social equity. On the occasion of the 63rd Republic Day of India, this great nation with its fascinating social fabric could have no better republican resolution than this!
Posted by Dr CB Rao on January 26, 2012