Capitalism: Couple of points

Imagine a situation where there is a wealthy businessman, and he has an excellent B-Plan to make more money. He opens a mall in few villages, and offers low prices for an extended period of time enough to drive the mom-and-pop stores out of business. He makes loss over the period but, as he is wealthy, he is fine. As he monopolizes the villages. He then raises the prices to values higher then before. Is this legal? Yes. Ethical? Thats a different debate. Should the govt protect the small time investors and prevent this situation? Obviously. But How?  Please comment on that after reading the rest of the post.

Just note few of the things which make the situation tricky. The wealthy businessman are few in number. So the competition is that much less. Even if there are a little too many for comfort, it makes economic sense for all of them not to compete against one another. There are better off looking at different villages as market or selling different products. As the govt is obligated to protect the interest of all its citizens, what laws should be implemented to prevent rich business from growing richer at expense of village folks?

All the controversy and walmart bashing that you see is because of their tactics. In US, which is run on the ultimate form of capitalism, huge chains like sears, circuit city, walmart, target, sports academy are present everywhere. But single-shop owners are not present in that large a number.

During our fortnightly lab meetings, another issue came up. It was possible that any of there stores, sometime in future, record the stuff a person purchases, and charge each of them accordingly, i.e., different price for different costumers for the same product. More frequently you buy a product, more you are willing to pay for the it, and hence by a capitalist principle, more they are gonna charge you for it. As scary as it sounds, it not something to be scared about (From my limited knowledge of economics, correct me if i am wrong). Price rises for everyone. And hence the inflation. And so you currency will lose its value. Consequently, your employer will raise your salary. No harm done!

If you are wondering how is the previous case different from this one, remember that the in the previous case, only a part of the population is affected. So raise in inflation is not significant. And so only the village folks get poorer. We need a solution in capitalist domain. If we venture into socialist/communist form of governance we do have some solution. But, get you creativity going in solving this problem in capitalist domain.

I had put this for discussion with a group of friends. Here are some of the points that came up.

A study has shown that  “kiranas” can  coexist with big time retailers. But I am not sure if it talks about India alone or all over the world

Few solutions:

One of the  plausible solutions is moving towards socialist form of governance specifically for food grains, cereals, oil and basic amenities is a govt controlled efficient Public Distribution System. India had a decent network of Fair-Price Shops (nyaya bele anagadi in Kannada) or Ration Depots all over the country. But of course, govt interferenace has its drawbacks of corruption among others. As the Govt gave up it’s exclusive procurement rights, the system died out. Govt no longer has access to sufficient food grains. The private companies are quick to approach the farmers and get the produce at a lesser cost and once they have it, they can import/export or process it depending on the market needs. This can lead to hoarding.

Another solution that was tried (targeted at walmart) was to restrict the area of shopping area to a certain value. In India, too, such a law was tried. They were aimed at stopping tata-birlas from running more business. But it was circumvented by opening business under proxy names.

Charge large taxes on goods sold at higher rates elsewhere. This again is some kind of regulation which might not work too well owing to transportation cost etc.

Capitalism on Waitresses and Waiters:

Tipping culture exists in US because some people are paid less than minimum wage. They are paid less than minimum wage because it is a tipped job! When waitress or waiters earn less then minimum wage even after tips they dont report it because it becomes an excuse for the employer to call them incompetent and fire them. More on that here (via desipundit).

I am a capitalist too and love the idea of free market, but it is quite cruel at its fullest level. Do comment on possible solutions to the problem I described above.

Happy new years to all my readers!