Tuesday, June 28, 2011


Should Ratan Tata advise Mukesh Ambani about how to use his wealth?

A couple of days ago famous industrialist Ratan Tata commented about the lavish life style of another billionaire business tycoon Mukesh Ambani quoting his 27 storied Mumbai house viz., Antilla. Tata said that Mukesh Ambani's house Antilla represents the rich Indian's lack of empathy for the poor. His remarks: "The person who lives in there should be concerned about what he sees around him and [asking] can he make a difference. If he is not, then it's sad because this country needs people to allocate some of their enormous wealth to finding ways of mitigating the hardship that people have." 

Is Ratan Tata right in his remarks or is he misguided in his judgements? Is he aware about the role of an entrepreneur in an economy or is he ignorant of this basic economic fact? Or is his remarks has some underlying assumptions which make those remarks perfectly apt for Mukesh's lifestyle? Let me deal with these questions one by one. I take two scenarios to carry out my analysis. In first scenario we assume that Mukesh Ambani is an honest entrepreneur and his profit comes from the market competition. In second scenario we assume that, Mukesh is not an honest entrepreneur and his profit comes from his business ties with government officials and his manipulation of the system of State. We see the implications of Ratan Tata's remarks under both these scenarios.

Scene 1: Mukesh is an honest entrepreneur
I first make an assertion and then go onto prove it. If Mukesh is an honest entrepreneur then his profit - which he earned in the market competition - is absolutely legitimate, and if he don't desire to do a philanthropist work then that is his voluntary choice. Ratan Tata has no right whatsoever to advise Mukesh about allocating his honestly hard earned wealth amongst the poor people or to comment on his lavish lifestyle.

As Ludwig von Mises explained, the only way in which an entrepreneur can make profit in the market competition is by serving and fulfilling the most urgent wants of his customers in the best possible way, and that best possible way is of providing top quality goods at the lowest possible price. Only those entrepreneurs succeed and make profit in the market process who can ascertain and fulfill the subjective wants of customers in the best way compared to his counterparts. 

By producing and selling top quality goods at a lowest possible price successful entrepreneurs allow even the very poor people to buy his products. By allowing them to buy his products he lifts their standard of living; he lifts them out of their poverty even without raising their nominal meager income. That happens because with the falling prices in the market with the same amount of nominal income people can now buy more goods and services i.e., their real income rises. And no sane person will deny that this is the real way of increasing prosperity in the society; this is the true way of eliminating poverty and lifting the standard of living of millions of poor people. 

Philanthropy, about which Ratan Tata is advising Mukesh, will only help poor people in a very short run i.e., for the urgent immediate consumption purposes. Such help to poor people will actually harm them in the long run by making them dependent on such easy free money. It will not cultivate any habit of hard work and independent living in those people. Redistributing the income will only exacerbate the problem of poverty because human nature is such that most people will always prefer the free goods. Such allocation of rich peoples' income will make everyone of us poor too because rich people play an important role of providing essential savings for the economy. And without savings it is impossible to sustain a labor population in present time which is involved in production of intermediate capital goods. And without capital goods it is impossible to increase the future production of final consumption goods, and without that progress (so-called growth) is not possible. Capitalist class - which includes people coming from all strata of society, and not just rich - plays a pivotal role of supplying this saving. If they are forced to allocate their saving to poor people, who will mostly use it for immediate consumption, then society and economy cannot progress and without progress everyone of us will be poor one day for sure.

And people should not forget another vital economic truth that, honest entrepreneur do not become rich by exploiting the public, but they are made rich by their consumers i.e., the same public. Consumers voluntarily buy the products sold by such sellers because they prefer their products over other sellers. And in this process they give their portion of income to these entrepreneurs making them rich in turn. Profit is a signal that the businessman is fulfilling the most urgent wants of his consumers in a best possible way, and that's why he is rich. On the other hand those entrepreneurs who make losses are not fulfilling consumers' wants properly and so they remain poor in turn by going broke! (to deeply understand the beautiful system of profit & loss I will advise my readers to read Mises' wonderful book, Profit and Loss).     
 
So, if Mukesh is an honest entrepreneur then he has all the rights to keep and use his profit in whatever way he wants to. 

Scene 2: Mukesh is a dishonest entrepreneur
But, if Mukesh Ambani is a dishonest entrepreneur and his profit comes solely from his friendships with the government bureaucrats and politicians then he has no right whatsoever on his wealth. Profit generated by such dishonest political maneuvering is immoral. In a system of government such businessmen are working not to serve their consumers but only to serve the politicians and bureaucrats who help them in restricting the market competition. They actively lobby government so to establish their monopolies in the market. Through these monopolies then they fleece the consumers. And because their profit depends on exploiting the political system they don't care about their consumers. In fact they go to any length to harm their consumers for making such illegitimate and immoral profits. 

This type of system is historically known as 'fascism' and sadly in today's world most of the businessmen, especially the big business houses are making their fat profits by this way only.

If Mukesh Ambani (also Ratan Tata and all others) is doing his business in cahoot with the government officials then his profit is illegitimate. If one day India becomes truly a free country then he should be stripped of his illegal profits (property) and should be convicted and punished for his crimes against the people. He and all such dishonest business tycoons should be incarcerated, may be hanged.       

Conclusion
Looking at these economic facts, if Tata and Mukesh both are honest businessmen and they really want to help people of this country then instead of  allocating their profit to the poor people they should use that capital in producing top quality goods at the lowest possible price. They should try to provide as many economic goods as possible to people of India through market competition. Tata and Mukesh both can profit by serving the needs of poor people. There exists a thriving market even in remotest rural poor areas of the world as C. K. Prahalad has shown. All capable entrepreneurs (existing and new ones) should provide top quality private schools, hospitals, private roads, electricity, water works, sanitation, home etc. goods in these areas at the lowest possible price. That will be the best possible moral way of making a difference in poor peoples' lives; that is the only way in which these entrepreneurs can help the poor in mitigating their hardships. Allocation/redistribution of wealth will only result in misery for all of us.   

1 comments:

kapil69 said...
it's not about being honest/dishonest? it's about show-off lavish life style in a locality which is deprived & it doesn't make sense at all. Every entrepreneur can't be like Bill Gates, i agree & there is no need to be. Ambani can purchase Al Burj or anything like that, nobody will ever comment on that.

Post a Comment

Please leave a civilized comment. Use of bad language is strictly prohibited. I always welcome a healthy discussion.

If you want to carry on the discussion further with me (or want me to reply to your comment) then please email me at: adammalthus-blog@yahoo.com. Privately we can continue the discussion.

Monday, November 30, 2009

FAQs

Kyoto Protocol

From Wikipedia, the free encyclopedia

Participation in the Kyoto Protocol, only where dark green is indicated the countries that have signed and ratified the treaty, yellow is signed, but not yet ratified, grey is not yet decided and red is no intention of ratifying. The only country that has no intention of ratifying the Kyoto Protocol is the United States of America.

The Kyoto Protocol is a protocol to the United Nations Framework Convention on Climate Change (UNFCCC or FCCC), aimed at combating global warming. The UNFCCC is an internationalenvironmental treaty with the goal of achieving "stabilization ofgreenhouse gas concentrations in the atmosphere at a level that would prevent dangerous anthropogenic interference with the climate system."[1]

The Protocol was initially adopted on 11 December 1997 in Kyoto,Japan and entered into force on 16 February 2005. As of November 2009, 187 states have signed and ratified the protocol.[2] The most notable non-member of the Protocol is the United States, which is a signatory of UNFCCC and was responsible for 36.1% of the 1990 emission levels.

Under the Protocol, 37 industrialized countries (called "Annex I countries") commit themselves to a reduction of four greenhouse gases (GHG) (carbon dioxide, methane, nitrous oxide, sulphur hexafluoride) and two groups of gases (hydrofluorocarbons and perfluorocarbons) produced by them, and all member countries give general commitments. Annex I countries agreed to reduce their collective greenhouse gas emissions by 5.2% from the 1990 level. Emission limits do not include emissions by international aviation and shipping, but are in addition to the industrial gases, chlorofluorocarbons, or CFCs, which are dealt with under the 1987 Montreal Protocol on Substances that Deplete the Ozone Layer.

The benchmark 1990 emission levels were accepted by the Conference of the Parties of UNFCCC (decision 2/CP.3) [2] were the values of "global warming potential" calculated for the IPCC Second Assessment Report. These figures are used for converting the various greenhouse gas emissions into comparable CO2 equivalents when computing overall sources and sinks.

The Protocol allows for several "flexible mechanisms", such as emissions trading, the clean development mechanism (CDM) and joint implementation to allow Annex I countries to meet their GHG emission limitations by purchasing GHG emission reductions credits from elsewhere, through financial exchanges, projects that reduce emissions in non-Annex I countries, from other Annex I countries, or from annex I countries with excess allowances.

Each Annex I country is required to submit an annual report of inventories of all anthropogenic greenhouse gas emissions from sources and removals from sinks under UNFCCC and the Kyoto Protocol. These countries nominate a person (called a "designated national authority") to create and manage its greenhouse gas inventory. Countries including Japan, Canada, Italy, the Netherlands, Germany, France, Spain and others are actively promoting government carbon funds, supporting multilateral carbon funds intent on purchasing carbon credits from non-Annex I countries,[3] and are working closely with their major utility, energy, oil and gas and chemicals conglomerates to acquire greenhouse gas certificates as cheaply as possible.[citation needed] Virtually all of the non-Annex I countries have also established a designated national authority to manage its Kyoto obligations, specifically the "CDM process" that determines which GHG projects they wish to propose for accreditation by the CDM Executive Board.

Contents

[hide]

current status

  1. Kyoto Protocol

    The Kyoto Protocol is an international agreement linked to the United Nations Framework Convention on Climate Change. The major feature of the Kyoto ...
    unfccc.int/kyoto_protocol/items/2830.php - Cached - Similar -
  2. KYOTO PROTOCOL

    KYOTO PROTOCOL TO THE. UNITED NATIONS FRAMEWORK CONVENTION ON CLIMATE CHANGE. The Parties to this Protocol,. Being Parties to the United Nations Framework ...
    unfccc.int/resource/docs/convkp/kpeng.html - Cached -
  3. Kyoto Protocol - Wikipedia, the free encyclopedia

    Participation in the Kyoto Protocol, only where dark green is indicated the countries that have signed and ratified the treaty, yellow is signed, ...
    en.wikipedia.org/wiki/Kyoto_Protocol - Cached - Similar -
  4. KyotoProtocol - Toward Climate Stability

    "The Kyoto Protocol is a legally binding agreement under which industrialized countries will reduce their collective emissions of greenhouse gases by 5.2% ...
    www.kyotoprotocol.com/ - Cached - Similar -
  5. Environment - Climate Change- The Kyoto protocol

    The Kyoto Protocol to the United Nations Framework Convention on Climate ... The EU and its Member States ratified the Kyoto Protocol in late May 2002. ...
    ec.europa.eu › ... › EnvironmentClimate Change - Cached - Similar -
  6. David Suzuki Foundation: Climate Change: Kyoto Protocol

    On February 16, 2005, the Kyoto Protocol officially entered into force, marking an important step forward in the fight against climate change. ...
    www.davidsuzuki.org/climate_Change/Kyoto/ - Cached -
  7. Kyoto - Preface

    The outcome of the meeting was the Kyoto Protocol, in which the developed nations agreed to limit their greenhouse gas emissions, relative to the levels ...
    www.eia.doe.gov/oiaf/kyoto/kyotorpt.html - Cached - Similar -
  8. What is the Kyoto Protocol?

    The Kyoto Protocol - a simple explanation of what it is and how it is intended to reduce the greenhouse gas emissions that fuel global warming related ...
    www.carbonify.com/articles/kyoto-protocol.htm - Cached - Similar -
  9. Kyoto Protocol - What is the Kyoto Protocol?

    Will the Bush Administration's decision to withdraw the United States from the Kyoto Protocol weaken international efforts to reduce greenhouse gas ...
    environment.about.com/od/kyotoprotocol/.../kyotoprotocol.htm -Cached - Similar -
  10. Factfile on UNFCCC, Kyoto Protocol, Copenhagen talks - Environment ...

    30 Nov 2009 ... Here is a factfile on the UN Framework Convention on Climate Change (UNFCCC), the Kyoto Protocol and the talks.
    www.independent.co.uk/.../factfile-on-unfccc-kyoto-protocol-copenhagen-talks-1831331.html -7 minutes ago -
  11. News results for kyoto protocol


    Developing countries form climate change front‎ - 1 day ago
    Developing nations have also expressed alarm at efforts to try to ditch the Kyoto Protocol by creating an entirely new agreement or cherry-picking from the ...
    中国日报 - 9 related articles »