## How markets work

A long time back, there was this picture that was making the rounds on Twitter and (more prominently) LinkedIn. It featured three boys of varying heights trying to look over a fence to see a ball game.

Here is what it looked like:

These pictures were used to illustrate that equality of outcomes is not the equality of opportunity, or some such things, and to make a case for “justice”.

As it must be very clear, the allocation of blocks on the right is more efficient than the allocation of the blocks on the left – the tallest guy simply doesn’t need any blocks, while the shortest guy needs two.

And if you think about it, you don’t need any top-down “justice” to allocate the blocks in the right manner. All it takes is a bit of logical thinking and markets – and not even efficiently.

Think about how this scenario might play out at the ball park. The three boys go to see the ball game, and see three blocks at the fence. Each of them climbs a block, and we get the situation on the left.

Shortest boy realises he can’t see and starts crying. There are many ways in which this story can play out from here onward:

1. Tallest boy realises that he doesn’t really need that extra block, and steps down and gives it to the shortest guy, giving the picture on the right.
2. Tallest boy continues to stand on his block. Shortest boy realises that the tallest boy doesn’t need it, and requests him for the block. Assuming tallest boy likes him, he will give him the block.
3. Tallest boy continues on the block. Shortest boy requests for it, but tallest boy refuses saying “this is my block why should I give it to you?”. Shortest boy negotiates. Tells tallest boy he’ll give him a chocolate or some such in return for the block. And gets the block.
4. Tallest boy doesn’t want chocolate or anything else the shortest boy offers. In fact he might want to settle a score with the shortest boy and refuses to give the block. In this case, the shortest boy realises there is no point being there and not watching the ball game, and makes an exit. In some cases, the middle boy might negotiate with the tallest boy on his behalf, leading to the transfer of the block. In other situations, the shortest boy simply goes away.

Notice that in none of these situations (all of them reasonably “spontaneous”) does the picture on the left happen. In other words, it’s simply unrealistic. And you don’t need any top down notion of “justice” to enable the blocks to be distributed in a “fair” manner.

## Maruti Worker’s Stupidity

I just read a long article in today’s Business Standard (how I used to miss the paper until I resubscribed to it last week!) about the ongoing labour struggles at the Maruti Suzuki factory in Manesar. So the workers there want to form a new union, and allow a whopping 33% of the new union’s members to come from outside the factory. And the management is understandably not accepting it.

That workers need a union is understandable. That the Manesar unit wants its own union disjoint from that in Gurgaon is understandable. But a third of its members from outside? What is the average worker in the factory who is supporting this new demand even thinking? How the hell is such a union going to represent him in any way?

Some simple arithmetic. Considering that the “outside third” is going to come from the CPI/AITUC, it can be assumed that they’ll vote in one bloc. So to get something passed, they need a further 1/6 of the total votes in the union. Which amounts to a fourth of the actual workers in the union. So, as long as something is supported by this “outside bloc”, it takes the support of only a fourth, a measly one fourth, of the “real members” to go through.

I understand that the “worker leaders” who are championing this ongoing strike will have some incentives in bringing in AITUC/CPI. But what’s in it for the average worker? If he were to think rationally, this new proposed union makes absolutely no sense for him. I guess (and hope) that the Maruti management knows this, that it is not in the interest of the average worker to join this union. And I hope they’re somehow using this fact in their ongoing negotiations.

Will be fun if the guys who tried to consolidate their own power by bringing in outside representation into the union get shafted.