Two big questions summarize the scope of economics:
- How do choices end up determining what, how, and for whom goods and services get produced?
- When do choices made in the pursuit of self-interest also promote the social interest?
@Dr.Ekta Sharma,
1. Economic Literatures reveal that, Choice ends up when preference will be determined.
2. If self interest of an individual satisfies the pareto optimal condition, then it will also achieve the social interest.
Thank you
Having a focus on a consumer, what marketing is all about, helps identifying preferences. In gwberal available choice is probably the the highest achievement brought up by economic democracy.
How do choices end up determining what, how, and for whom goods and services get produced?
In the ideal case, the market should decide what to produce, how much to produce, how to produce, for whom to produce. But in the reality there are so many factors which are different. For instance demand stimulates supply. But as well supply stimulates demand. For instance you go to a very big supermarket intending to buy loaf of bread. But you see this promotion, that promotion and at the end you buy much more items. In the socialist system there was planning what to produce, how much to produce, how to produce, for whom to produce. Why? Because in a closed system, what you sold last year, you will sell this year too. With little corrections. For instance if the winter is colder compared to last year you will sell more electricity. It is like the budget of the state, in most of the states it is made on the base of the last year budget wit corrections for prognosed exchange rate of the local currency to USD for instance, to inflation, expected harvest, prognosed growth of GDP etc. Some countries tried so called zero based budget planning – would start from zero and build up the budget based on demands for Government spending, but soon they discovered, that the expenses are pretty much the same – same ministries, same personal etc., - only corrections of inflation and some Government new projects (for a new highway for instance). But I repeat it is only a start of an answer – it could be written whole book or dissertation.
When do choices made in the pursuit of self-interest also promote the social interest?
If we could reply shortly – if the state is well established, with good checks and balances, strong judicial system, strong tax authorities – in that case – yes. Otherwise it goes to the case: “Individual versus collective interests of society.” Somebody in business may want to hide taxes in order to be better off, but it is bad for society. A businessman may induce corruption for a state clerk(s) in order to win a tender for Public project, which he will do worse than the competitors for the same amount of money – this harms the society.
Hmmm ... I would like to ask another question: should business only identify customer preferences and try to meet them? What are customer preferences? Is the client always prepared to make good choices for himself? If we want to buy bread because we need a bread, we buy the bread offered by the baker. We will accept the bread offered. But can we talk about social interest when the baker do a lot to extend the shelf life of a product, so that he can sell more, and the customer can have this bread longer? Whether in this case we still talk about social interest?
Extended and shortened life of products
By Bancho Banov
Thank you Honorata Howaniec. Here we go into the deep waters. I wrote an article about similarities between Socialism and Capitalism. Here are some differences. You write:” But can we talk about social interest when the baker does a lot to extend the shelf life of a product, so that he can sell more, and the customer can have this bread longer?” You, as the proverb says: “Hit the nail on the head.” In the Times of Socialism in Bulgaria there was only one supplier of the bread for a certain district of Sofia – for instance Bread factory No. 1, 2 etc. Only one supplier of cheese. Bier – soared in two or three days. There were only two types of bread, only two types of cheese. BUT THEY WERE FRESH! No consrevants! Now in Bulgaria in supermarket you find 50 brands of cheese. How fresh they could possibly be?
On the other hand, economists in Bulgaria started to speak about „Producer planned short life of products.“ Mainly about machinery, cars, washing machines, refrigerators, even printers etc. When the printing head of your printer is exhausted, buying a new one is only 5-10 Euro cheaper than buying a new printer. A craftsman told me, that new refrigerators are not worth to repair, 1 because all details are inside, 2 because the efforts and spare parts will exceed the cost of new refrigerator. There is also a rumour that in some machinery producing factories, there is a „ Guarantee calculating division.“ It calculates guarantee so, that months or year after guarantee is expired something in the product breaks. A friend of mine has a Juice producing machine, bought in Bulgaria, imported from Poland, 37 years ago in the times of socialism. He says: „ With this machine I have produced tons of juice. Still working, with no repairments for these 37 years whatsoever.“
To Bancho Banov, and others.
You are right, a lot of products was better a years ago. But I don't want to say that socjalism was better, never. But producers go - as you are writeing, and I agree with you - ro wrong way. We are talking about "productivity", efectiveness, for example we are interesting (as producers) how much ham we can make from 1 kilogram od meat, but .... where is our health. "Our" means customers, producers.
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