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If Markets Are Scissors, What Do They Cut?
If Markets Are Scissors, What Do They Cut?
When I took admission to G.B. Pant University in 1971 to pursue graduation in mechanical engineering, I experienced a cultural shock. I had never seen such a lush green campus with trees lining both sides of the roads, the backdrop of the Kumayun Hills on the northern horizon, and neatly constructed buildings with elegant facades – imposing yet not intimidating. The first Agricultural University of India, G.B. Pant University was established in collaboration with the University of Illinois and had an engineering college that I attended. Several faculty members were U.S.-returned and spoke English with an accent I found hard to understand. However, perhaps the most significant challenge was the course on elementary economics, taught by a young professor from Visakhapatnam. I hardly understood what he said in class. Hapless and clueless, I wondered why an engineering student needed to study economics.
After a few weeks, when my ears and brain got accustomed to my teacher’s accent, I heard him say one day that markets are like scissors. As the two blades of a scissor act upon a cloth to cut it, so do supply and demand set market pricing. Demand for a product means nothing if there is no supply, and supply is worthless without demand. This made perfect sense to me, and my happiness at finally learning something important was unbound. The teacher said that while one of the two might play a more active role in price determination in the short run, both are essential for the market to exist. However, I was stuck on a question: If markets are scissors, what exactly do they cut? But I was too timid and handicapped by my lack of fluency in English to ask.
As I grew older, I overcame the language barrier. I did well, if not excelled in my studies and realised the importance of economics — not just in engineering, but in every field. Economics plays a crucial role in shaping the world and influencing various aspects of society, politics, and the environment. Transactions are a fundamental part of our daily lives. Even interacting with the environment is involved – for example, we must breathe air to live, have sunlight, drink water, have soil to grow food and so on. When our exchanges are fair, they benefit individuals and promote a more harmonious and sustainable community. Striving for fairness in all transactions can enhance the quality of life for everyone involved. Economics, in this sense, is the axis around which the world moves.
In 2006, I visited Tokyo and witnessed an economic miracle. Having risen from the ashes of World War II, Japan’s astoundingly rapid and complete financial recovery seemed surreal. During this trip, I met many thoughtful people. Though they did not speak fluent English, their expressions were flawless. I was told that Japan’s “economic miracle” was made possible by the cooperation between manufacturers, suppliers, distributors, and banks, organised in close-knit groups called “keiretsu”; the annual wage negotiation between factory owners and workers, called “shunto”; and the guarantee of lifetime employment, called “shushin koyo”, in large corporations.
During a beautiful week in Japan, I observed three school children travelling on the Metro, their school bags tagged with RFID to ensure their safety. They joyfully played a game where each child made a sign behind his back with his hand and then showed his hand. They would either lose or win, depending on the combination of the signs made. My host explained that the game was “Rock, Paper, Scissors”. Each player simultaneously formed one of three shapes with an outstretched hand — a fist signalled a “rock”, a palm represented “paper”, and a fist with the index finger and middle finger extended, forming a V symbolised a pair of “scissors.” Rock wins over scissors as it can blunt them, scissors win over paper as they can cut it, and paper wins over rock because it covers it. If all players choose the same shape, the game is tied and replayed. It’s such a simple yet profound game! This game has stayed with me since then. I often play it when in doubt to guess the outcome.
My friend Suresh Patel at the G.B. Pant University, younger than me by a few years, graduated in agriculture and later entered the banking sector and excelled there. His rise to the position of the Managing Director and CEO of Andhra Bank brought him to Hyderabad. Thus, we met four decades later and had a good time during his stay for over two years. Once, I shared with him about this “game” and brought up my long-standing unanswered question from 1971 – if markets are scissors, what do they cut? A man of a few words, Mr Patel gave me the perspective of a banker – the purpose of money is to provide solid financial support to organisations and projects for economic development. He kept speculative trading and risky investment out of the equation. Mr Patel superannuated in 2017 and later became the Central Vigilance Commissioner of India.
This metaphor of markets as scissors led me to study more. The COVID-19 lockdown and my health issues gave me a lot of time to read books by some great authors. Two such books were The Theory of Moral Sentiments and The Wealth of Nations, written by the Scottish philosopher Adam Smith and published respectively in 1759 and 1776. Running into several hundreds of pages and dotted with examples from that era, a modern reader may wish the books had been more manageable. Still, these books are of immense value as they provide a deep understanding of the origins of economic theories and principles that still underpin much of today’s economic thinking. Smith’s emphasis on individual liberty, free markets, and limited government intervention continues to shape monetary policy and ideology debates.
Just as scissors can cut or divide things, markets have the potential to create both opportunities and societal disparities. So, just as scissors need a tailor’s hand, markets, too, need guidance and control – which can even be intrinsic. Balancing free markets and government intervention involves finding a middle ground for competition and innovation while addressing market failures and ensuring fairness. Some ways to achieve this balance include implementing regulations to prevent monopolies, protecting consumer rights, providing social safety nets, promoting fair competition, and investing in public goods and services. The goal is to harness the benefits of free markets while mitigating their potential negative impacts on the environment and livelihoods. Will this be possible in the emerging digital economy and AI-driven world?
Will the AI, as it becomes mature, be Smith’s “invisible hand” regulating the economy? Will it ensure that technological innovations are deployed responsibly and equitably? Will it make a fair deal for livelihoods, businesses and the environment? By harnessing technology’s potential while mitigating its negative impacts, societies can work towards inclusive and sustainable development for all. Not growing is not an option in the 21st century, but neither is compromising on moral principles. I believe, in the emerging world, it will be possible and even easier to flourish by following righteous and ethically correct ways.
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