MBA Student, continuedMy point was the misplaced emphasis on the "maximization" of profits. This is the problem, the maximization part...not profits per se. Say for example, there is an opportunity for a multi-national corporation to create a high-protein breakfast for a poor farmer in a developed country and to make cereals to be sold in a developed country. The business plans submitted both showed profits. However, the developed country business plan provided higher profits than the developing country business plan. Where would the money be invested? This is the essential point.

One thing which has changed recently is the increasing adoption of the "bottom of the pyramid" idea. The decrease in population growth combined with slower and slower economic growth in the OECD countries have resulted in the corporations trying to find growth in less developed countries. This has resulted in more emphasis on providing services/products to the poor. The poor as customer is one of the highest respect given to these people at anytime in history. See, the idea that poor people are not intelligent is misplaced as you would know and so is the idea that they need support, aid etc. These ideas somehow show the poor person in a "weakened" state.

However, the poor as customer is a state of strength. A state which shows buying power and demand. Which is readily understood by many people around the world who understand the language of incentives. In your mail you said that

As I see it, the problem with poor countries is that they don't have enough people with the "misplaced emphasis on profits" as you put it. This is not just my opinion, there is substantial empirical evidence to support that conclusion.

I am surprised at this conclusion. Coming from India I certainly believe this not to be true. There are many people in the poor countries who have "similar misplaced emphasis on "maximization" of profits". That is not the reason for the failure of development.

It is more complex that what I can explain or understand but I do know that one of the main reasons is the lack of institutions and policies. Democracy which you have mentioned earlier is one such institutions. Capital markets, freedom of press, Education, Company Law, Justice system, law and order etc are some of the kind of institutions which are needed to make this happen.

If I believe that there is a similar misplaced emphasis in the poor countries on profits as in developed countries then what is that I am blaming the corporations for? I believe that due to the nature of the success, money and power achieved by these corporations they are placed in a better situation to provide services to the poor, of course at a profit, then the multitude of small businesses in poor countries.

Think about it, the innovation, R&D, infrastructure, people skills etc required to create products and services are vastly different from what succeed in the developed world. The big corporations in the world have the power and money to make his happen. Anyways, I could be wrong in this. At the end of the day, systems and incentives make things happen I guess. I am not sure....My thoughts, and I apologize for a longish mail. Cheers.

Prof Hunter:No it wasn't that (your email was disliked). It's just that I do poorly with replying to email!

You said: Starling, I have read Sen's work and do understand his reasoning behind famines and democracy. However, he did not connect that to capitalism. Even a socialist country like India was for a long time, did not have famines, and this can be attributed to its democracy.

I am not sure I agree about India not having had famines. According to Wikipedia:

There were 14 famines in India between 11th and 17th century (Bhatia, 1985). B.M. Bhatia believes that the earlier famines were localised and it was only after 1860, during the British rule, that famine came to signify general shortage of foodgrains in the country. There were approximately 25 major famines spread through states such as Tamil Nadu in South India, Bihar in the north, and Bengal in the east in the latter half of the 19th century, killing between 30-40 million Indians in the period as India's native industries suffered almost total collapse, with its skilled artisans driven out of work while British imports flooded into the Indian markets.

Moreover, I am not sure why someone would write a book like this (Bhatia, B.M. Famines in India: A study in Some Aspects of the Economic History of India with Special Reference to Food Problem, Delhi: Konark Publishers Pvt. Ltd.) if there had not been a serious problem with famine. (But perhaps) this is tangential...

You said: I do agree on your point that people need incentives. ... My point was the misplaced emphasis on the "maximization" of profits. This is the problem, the maximization part...not profits per se.

Prof Hunter: I am not sure how you can have one without the other. I have heard laments like this very often: if only venture capitalists or entrepreneurs or owners would expect or take or accept lower profits, we'd all be better off for it or there be more wealth to be spread around. To say this is to fundamentally misunderstand incentives as they apply to economic activity and perhaps, to confuse the kind and purpose of different kinds of incentives. It may also indicate very different, though not neccesarily incorrect, assumptions about the nature of human behavior.

In short, I think that you are suggesting is that "moral incentives" be introduced into economic decisions where financial or renumerative incentives hold (almost) exclusive sway. A "moral incentive" is one "where a particular choice is widely regarded as the right thing to do, or as particularly admirable, or where the failure to act in a certain way is condemned as indecent. A person acting on a moral incentive can expect a sense of self-esteem, and approval or even admiration from her community; a person acting against a moral incentive can expect a sense of guilt, and condemnation or even ostracism from the community." But let me stop here and move on, for this may not be what you mean at all!

To be continued...

Tags: democracy | famine | socialism |

Links: Freedom Watch | Camelot Destra Ideale | 123 Beta | Is it Just Me? | Stingray | History Mike | Median Sib | DarkStar |

See also: Gates of Vienna: The Four Horsemen Gallop Through the Horn of Africa | Why Famine Stalks Africa | Planck's Constant |