Understanding th Trickle down theory and Concept of Mercy in Economics


Economics is the only field that finds a huge universal application. It is simply fascinating. Those who specialize in it and come out with new theories laugh all the way to the bank. Those who talk about poverty are very rich!! Be that as that may, the "trickle-down theory" and the allied "Mercy" concept are sought to be discussed with common sense frame of references.

Introduction

Common sense also dictates economics. Common sense is also the answer to understand several concepts. One of the famous concepts is the trickle-down theory. It is a very simple and direct theory. After all, economics is all about how money gets distributed and spent by people at all times. By various classes of people. Hence, if a Kirana shop owner has a son who studies in a top-notch private sector CSBE school, where the registrations for the LKG class starts even when the mother is pregnant, one can safely assume the stability of employment for its teachers, who would be paid handsomely. The office staff will also get some long term benefits such as PF.

Now, cut to the trickle from the purses of the teachers. Yes, part of it might as well come back to the school, where the children study. A good amount will go to the Kirana fellow and the compulsory TV service provider will also become a customer. The multiplex guy who runs the cinema theaters will also be a customer. Perhaps the child of the teacher might have enrolled in a gym for physical fitness. And if she or he is good in Carnatic music, Rs.7000 or more per month would go towards special training with some Guru.

Yes, it is middle-class spending. Or upper-middle-class spending. But India is already highly structured. We do have the rich and the neo-rich, who always travel around in the fanciest and costly imported cars. Even the metro train service is a big no for them. So, the trickle down is restricted to the poor guy who ears his Rs.12,000 to Rs. 14,000 monthly wages at 2019 prices, when the car finds its way for "routine maintenance" or some repair. Well, the service station is assured of business, since the number of cars owned is very huge.

Now, let us come to the concept of "Mercy". This term will not be found in any economics textbook. Am not an economist by profession. This concept was discussed in private conversation by a brilliant post-graduate student of economics, at the excellent Loyola College, Chennai, who went on to do his doctorate at the London Business School. He had explained it with a brilliant example that is relevant even today. Let us take the real estate market. The poor guys who build our fancy flats and apartments up to 45 floors (or even more in Mumbai) are all daily wage earners, and actually displaced farm laborers, who want to earn a little more, through horrible hard work. They are brought to the workplace by contractors. They congregate from all over India. Justice demands that the employer, who walks away with a 38% profit margin, (trade sources estimates), should pay at least Rs. 550 to every single laborer. The lowest wage should be this. This is not so. One is told that the wages are between Rs.350 to Rs. 375 even in Chennai (this is from reliable sources). Even if they are paid Rs.550, the employer would be left with a profit margin of some 31%. This is where the concept of "Mercy" comes in.

Do we have employers who also provide creche facilities and the education facilities as well? A few may be. Yet, we are back to square one, when we find that most do not. So, everything depends on the "Mercy" of the employer. In the post-2001 twin towers attack, the worldwide recession brought the entire Indian economy to a standstill. Buses plied empty. The train travels become easy. Jobs simply dried up. Anyone above 45, was left in the lurch. It was, of course, the rural economy that saved India. The monsoon was not so bad. The farmers who never depend on the industry for their survival had some money that was spent even in the urban areas. For example, even wealthy farmers go on tours to various parts of India. The tourism industry thus saw some cash flow. This game went on for a while before demand for industrial goods picked up once again. It was the "Mercy" of the rural class at work. In the urban areas, the shopping malls were on the verge of being closed down. Am told that there is now a new field called Behavioral economics that is coming to acquire a status of its own. But I do not know anything about it at all.

Now, let us focus on a) How the Trickle down theory does not reach the poor b) The "No Mercy" policy of the middle class at the middle and the poor c) Mahatma Gandhiji's concept of trusteeship d) Trickle down theory of the rich, by the rich and for the rich e) Why "Mercy" is very important in economics.

How the Trickle down theory does not reach the poor

The bottom of the pyramid is always at the very bottom. The cash flow does not reach them at all. This is simple. They just cannot afford to buy even the bare essentials. When one kilogram of good rice costs around Rs.70 at 2019 prices, it is the same for a person who earns one hundred thousand rupees per month and for a guy who earns just Rs.10,000 per month. If the latter has aged parents to support, he is effectively on the poverty line and life would be simply miserable. In fact, we can define this class, that is the lower middle class, as anyone who earns between Rs. 8000 to Rs. 10000/-. That is family income. They would just be on the poverty line.

Nothing reaches them. For example, the Metro project. They just cannot afford to even travel once by the metro train. Since a single point to point travel would set them back by Rs.50/-. This is the amount with which they buy daily provisions. They always travel by passenger trains. If one has to understand how they live, that particular social science research has to just board the EMU train that starts from a station called Arakkonam. This is the western suburb of Chennai, as it has now become part of Chennai, exactly 69 kilometers from Chennai. Hundreds of thousands of passengers board these trains to proceed to Chennai. It is a huge strain, as two plus two four-plus hours of travel simply takes the life out of them. Most of them take the 7.10PM Tirupathi fast train to get back to their residences. Arakkonam still has houses that are very cheap for rent. Industrialization is not so huge here. Many also live in surrounding villages and come to the town on bicycles. They are all raw graduates earning anywhere between Rs.8000 to around Rs.11,000 at 2019 prices. Often, this is the only source of income for a family of four, including aged parents. They just live. Their tiffin boxes would have the breakfast and that is normally shared among hundreds or regular passengers. Entire compartments are "captured" by these guys who would reserve the seats for their friends. Afternoon lunch is carried in another tiffin box. It is estimated that at least one lakh passengers board the EMU trains every day, between 5 AM and 7.30AM in the various stations that the EMU trains stop. The trains are packed like sardines. It is said that the PDS only saves them.

Similar is the case of the servant maids who live in such places. They are the real rock bottom, earning something like Rs.3000 to Rs. 5500 per month. They have to "manage" drunkard husbands, who only make the Government owned "tasmac" shops very rich!! ( in Tamil Nadu, but more or less same everywhere). They spend hours in the PDS shops that keep them alive.

The No Mercy policy of the middle class at the middle and the poor

The middle class is made of the upper middle class. the people in the middle and the lower middle class. Then comes the poor, at stratifications mentioned above. The MBA marketing whiz kids are always worried that their "branded" products are never purchased by the lower middle classes and the poor.

Yes, they aren't. The classes at the middle of the spectrum and the lower sections below it, show no "Mercy" to buy branded products. For instance, there are at least twenty unbranded varieties of tooth powders in entire South India, that are far cheaper than the kinds of toothpaste. These classes use them. The smaller packs that retail for just Rs. 10/- ( Colgate has one product called Colgate Vedshakthi), are meant to entice this population and upgrade. It does not require an economist from the Delhi School of Economics or the Madras School of Economics to inform us that this population would be at least 35 crore Indians. They are outside the branded product market. They will almost remain so, as long as the present NEEM kinds of horrible policies for educated and technically trained manpower continue. If they do not have purchasing power, how will they show "Mercy", which is the crux of the issue?

For example, let us take Lays, the product from Pepsico. Fine. It is very good. But it is very costly. The unbranded item, the spicy potato chips comes from a local guy, and for Rs.30/, the quantity is double that of Lays. The lower middle classes and the poor are immune to diseases. They may drink unhealthy water, but they survive. They may still have tea at Rs. 8/- and survive. They just cannot spend Rs. 35 (GST included at the branded hotels). India is home to hundreds of thousands of shops even today. Yes, the "No Mercy" policies will continue, unless we increase the purchasing power of the poor.

Mahatma Gandhiji's concept of Trusteeship

Mahatma Gandhi was possibly the world's best economist who was so shrewd to understand that "Mercy" is central to economics, though he did not use this term directly. He was the supreme leader who said: "there is everything for everyone's need, but not for everyone's greed". He sought to appeal to the conscience of the rich capitalist and sought of pleaded to him to form a trust where the wealth will sort of be distributed to a huge number of people, through socio-economic projects. This is exactly what is now sought to be done through hundreds of trusts set up by Corporate houses. They are still a trickle. The mandatory two percent is just not enough.

Only some giants like Azim Premji commit Rs.900 crores of his personal wealth and do world-class CSR. How many the famous industrialists have even thought about it? The game is on. At least some people are doing something. All of us be happy about it!!

Trickle down theory of the rich, by the rich and for the rich

Even the world's best economists would not have answers to just this. The trickle-down theory has in-built safety mechanisms for the rich. For example, the entire contract for building concrete roads in hundreds of thousands of villages ( this was seriously implemented) by the former DMK regime, in Tamil Nadu, was given to one particular company, whose owner is still the owner of the prestigious Chennai Super Kings, the most successful IPL team. Though no one could prove it, allegations of corruption were happily made.

Exceptions are always there. For instance, superb companies like Larsen and Toubro. For this company, giving a single paise bribe is a big no. Their construction quality is world class. Their employees are well paid. Their contractors are well paid. The same DMK Government had handed over the responsibility of constructing the numerous bridges, some two decades ago, to this company. Everything was above board and on paper. The construction was world-class. When the corrupt Jayalalitha came back to power, she created such a hue and cry and alleged that corruption was rampant in this construction. L&T warned that it would approach the Supreme Court. The midnight arrest of the Chief Minister, the late Mr. Karunanidhi was the lowest point in Tamil Nadu politics, even today. Even here, the concept of mercy is important. The CM had mercy. Hence no corruption. Every single pie was spent. So quality is world-class. Even the very poor also use the bridges. Yes, perfect trickle down, for a change!!

Well, we have not even touched the tip of the iceberg. If the politician earns crores of black money and eats in the five-star hotels, this capitalist is very happy. The IT guys do not question the politician the source of the income. If the same fellow packs his son to study in the USA, the airplane guy gets the money. The ground-staff, reportedly, is still paid Rs. 20,000/- per month. Some trickle down, but the hundreds of CEOs who fly at company expense, earning salaries upwards of two lakh rupees, feed the airline industry.

The shopping malls get the same class to spend their black money. The poor visit the same places in the best clothes they have and do window shopping. For them, spending Rs. 100 on "samosa" is the only expense they can afford. The game goes on and on. No "Mercy" at all. There is enough "Mercy" of one rich man for another at work.

Why mercy is very important in Economics

We need to understand that "Mercy" is at the core of most economic problems worldwide. Every political problem also has economic overtones. If the politicians have "Mercy" they can easily solve any tricky problem. If we do not save our environment, we are doomed.

Here, we need "Mercy" of the tallest kind. India is not going to change with bullet trains. We need our express trains to run faster. We need zero corruption, for which we need "Mercy" of the political class. We need people to tolerate people as people. Irrespective of caste or creed. We cannot play one religion against any other religion. In any social unrest, only Government buses are burnt. So, even here, we need our politicians to show "Mercy".

The world will be far better if we have another Mahatma Gandhi. Our economists need to revisit many of their theories. I do not remember the name of the brilliant economist who talked about "Mercy" and what he is doing now. Hats off to him.

Conclusion

This author would be the happy if he were to receive any feedback from anyone having a background in economics. The ideas are only indicative. There are hundreds of other examples for every single point. Real life observations, based on common sense have been presented.

Readers, please do share your views. May this world become a better place to live in.


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