Negative Internalities

As human beings, we all have what are known as Primal Urges. These are those most basic of urges required for the survival of the species. The urge to eat, the urge to mate. Somehow, I seem to have an additional urge – the urge to expose Communist Bias.

Specificially, it has to do with a report found over at How The Other Half Croaks. This report claims to be some sort of sociological study of the IT industry. It interviews only 100-something people in Bangalore. Over the next few weeks (maybe) I’ll be tearing this report apart. But today I look only at one specific part:

 These steps indicate that engineering education in India is being reoriented to cater to the needs of the IT industry — a trend that has been questioned by several academics as well as by other industries.32 It is important to note here that IT companies prefer to hire engineering graduates not because their training is directly related to the work they will be doing (unless they have studied computer science), but because they believe that they have already been pre-selected for a certain level of intelligence and aptitude.

I see. And this…for some reason…is bad?

 She argues that the strategy of hiring engineers for software services work represents an “inefficient allocation of resources in a social sense” (2005:159), which also involves negative externalities for other industries by drawing engineers away from them, as well as from public sector research and development institutes.

(Emphasis mine). Ok. Now you hope that people who make these reports are people with brains. Clearly, they are not.

Every (decent) economics course comes with a section on “Market Failures”. That is things that market forces do not handle well. Examples of these are the provision of a national defence force or street lighting. Other exampls include accounting for pollution e.t.c. or externalities. Now every communist worth his/her salt only reads this chapter, and disregards all of the other 15 chapters which show why market forces are a Good Thing (especially the chapters on Free Trade and Minimum Wage)

The definition of an economic externality (positive or negative) is the effect of an economic transaction on an UNRELATED party.

Example 1
There is a Car consumer: X. There is a Car Producer Y. Then there is Individual Z, who has nothing to do with cars. When I say “nothing” to do with cars, I mean nothing to do with the economic activity of producing or consuming cars. He doesn’t sell them, he doesn’t buy them.

X buys a Car from Y. This can be considered an economic transaction. Now in order for Y to have produced that car for X, Y’s factory emitted some pollution. That pollution spreads into the air, and causes Individual Z to cough. At this point, one can say that the X-Y transaction has produced a negative externality. It affected a party unrelated to the transaction. Governments can reduce negative externalities in a variety of ways and that’s out of the scope of this post. The simplest way to do so, however, would be to put a tax on cars. This raises the price of the car for X, so X buys less cars. And the money the government collects by the Tax can be used to make hospitals to help out Z, or find cleaner ways to produce cars. Ok that’s the most simplest of ideas.

But hopefully it paints a picture.  Now how does this relate to the excresence written above? Well what the author is saying, is that BECAUSE demand for labour is so high in the Software industry, the other industries suffer because of it. The fundamental flaw in this thinking is that the other industries are “unrelated” parties in the transaction between non-computer science engineers and software companies.

The bottom line is this:  The software companies AND the companies in other industries are all consumers for the SAME product. They are all competing to buy the same product – the engineer’s brains. The software company happens to value it more than the other industries and thus gets to hire the engineers.

This isn’t an externality, it’s EVERYDAY LIFE!

When you go to a TV store to buy a TV, you see some which are expensive and some which are cheap. You are willing to buy the cheaper TV. Does this mean that because Plasma TVs are out of your budget, that is a negative externality to you? Are you upset that somebody who is willing to pay more than you are for that TV got it? Are you “affected” by it? Sure, the person with more money may not really have any need for a Plasma TV, and may have rearrange his furniture to install it. But that is not a NEGATIVE externality! It is simply a cost which is part of the transaction.

But this report makes it look like it is some sort of negative impact. The simple fact is that the other industries are unable to pay as much as software industries. Why not? Could be lots of reasons. It could be because they don’t make enough profit, or they don’t know how to manage their costs, or because there is some sort of minimum wage requirement or because of some stupid government regulation. The bottom line is that the fact that someone can afford to pay for an engineers services, and someone else can’t does not make it a negative externality.

From those sample quotes alone, it is obvious that the report is a bunch of completely biased tripe. Further, it shows to what level communism is ingrained in the Indian Psyche, and why it will be a long time before most of the people in our country will ever rise from the misery they are trapped in by “Good Intentions”.

More on this stupid report, later.

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10 comments

  1. Just Mohit

    Welcome back! Please set up a feedburner email subscription & subscribe yourself to it. That should do as a backup the next time you decide to delete your blog!! 😉

  2. terah745

    Ah! if you are him.

    Then who am us?

    If you are not him.

    Then please be like him.

    It was Gandhi’s Phoenix.

    Now it is yours.

    Remember Gandhi?

    I am somewhere near Nehru.

    We seem to connect.

    Fix the routers.

    Call the architect.

    Ask the Prince.

    Who the Warrior Within is?

    Let the games be started.

    The whole Rome is watching.

    Roll the Gladiators.

    Release the Lions.

    May all who are against your thoughts.

    Be fed to the beasts.

    And be buried alive.

    Beware! the prince is back.

    So are his Knights.

    Hail the prince.

    Back as the King.

    Long live the King.

  3. Rakesh Lath

    who is ttg?! the guy whose logo appears with your new name and comment. see the little black square?? so what will you do now, rush to change that logo and deny evrything??

    same old ttg. good to have you back.

  4. Phoenix

    1) Who is TTG?
    2)not to mention the same boring lingo, the same limp arguments
    The same boring attempts to discredit stuff instead of actually counter-arguing. Looks like you are the one who “missed” me!

  5. Rakesh Lath

    not to mention the same boring lingo, the same limp arguments. ttg, welcom back!! someone missed you, im sure!!!

  6. Rakesh Lath

    ah, so this is your new avatar. 4plus1over2 = 2.5 you know!! not so difficult to figure out? such paranoia about your identity!

  7. Pingback: DesiPundit » Archives » On Negative Externalities And Suchlike

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