Sunday, June 19, 2016

econ lesson

This article's first paragraph contains an important economics lesson for those with ears to hear and eyes to see:

India is, for the first time, allowing private firms to build military weapons. This breaks the monopoly of the [state-owned] Ordnance Factory Board facilities which, because of politics and [the] fact that the Board employs nearly 200,000 people, has long been protected from commercial competition. That protection was worn down by the growing complaints from users and voters about [poor-quality] products. This is the result of corruption and lack of competition, something that became more obvious since the 1990s when India began allowing more commercial competition for state owned firms.

In Korea, a single, beautiful peach can run you close to $5, US. In the States, that would probably buy you a bag of lovely peaches. Why the difference in cost? Lack of competition. Korea might have a free-trade agreement with the US, but the peninsula is still very averse to global competition and does what it can to subvert the FTA. Korean farmers like charging top dollar for their products, mainly because they know they have a captive audience on the peninsula. Let in foreign items, and that means two things: (1) the obligation to produce higher-quality merchandise, and (2) the obligation to sell at lower prices. I'd never accuse Korean farmers of being lazy, but they're averse to working harder for less gain. That's perfectly rational, but it's a rationality rooted in a fundamentally unhealthy way of looking at the economics. Let in competition, and the consumer wins.


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