The Price We Pay For Not Understanding The ‘Price’ 0 798

In the book titled ‘Marx’s ‘Theory of price and its Modern Rivals’, Sri Lankan born and educated Prof. Howard Nicholas exposes the flaws in the many theoretical debates in money, price and inflation. This he does by revealing the inconsistencies and contradictions in economic theories submitted to explain price. This is nothing new in Sri Lanka and many developed countries attributable to the fact the certain economists, due to a false understanding, are misled on what price is all about. Therefore, let us examine this false interpretation and try to understand the real parts that from PRICE which we play in commerce.

According to Prof. Nicholas, Orthodox economists starting with David Ricardo have not quite understood the concept of ‘price’ and how it is computed. He argues that the explanation of price by Marx, who had a deep understanding of the capitalist system, is more logical and clear. To understand Price we have to first understand how commodities bearing a price tag are produced and marketed. Prof. Nicholas who refers to this process as the- Production Cycle’ explains that present day economists go astray since at the outset they focus only on the process of exchange, assuming individuals are naturally endowed with commodities. This mistake causes them to ignore cost of production and focus on individuals and their choices when explaining prices.

A second important point made by Prof. Nicholas in his book is that when explaining price, from the outset we need to bring money into the picture. This is, to explain prices as money- prices. When products calculate the values of their commodities, they do so in terms of money thereby setting money prices. Buyers of goods in markets make payment in accordance with these money- prices. According to economic orthodoxy, the prices that matters are relative prices. That is, the price of one product in terms of another and not in terms of money. In fact, although this may not be so apparent when reading standard economics text books, money has no role to play in the basic explanation of prices. It only makes its appearance when macro-economic phenomena, in particular the aggregate level of prices are considered.

The third major argument prof. Nicholas advances is that the basis for explanation of cost of production of the commodity as its money cost of production, needs to be seen as the labour time spent in production. This is what Marx referred to as the value of commodity. Labour time spent in production amounts to money costs, when money represents labour time by itself. This happens when money is used by producers, to depict the value of the product. The importance of explaining prices is perhaps best been by producers, to depict the value of the product. The importance of explaining prices is perhaps best seen by the present downward pressure on global prices, resulting from the massive technological change across the globe. Despite unprecedented levels of printing of currency by Central Bank of major countries, world inflation rate has continued to fall down. This underlines the importance of labour productivity in explaining price, and the incorrect explanation of money and price by economists. It may also be the clearest practical support for Marx’s price theory as seen by Prf. Nicholas

By : Dr Kenneth De Zilwa

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Growing demand for urban TRANSPORT STRATEGY 0 736

An efficient, modern and clean public transport connectivity is essential for a country, before we think of isolated link of Monorails link without public transport network system to fill the gap. Public investment in such assets is now becoming essential given the use of private transport and the rising cost of fuel imports. It is estimated that the split of the public passenger transport (bus and railways) in Sri Lanka has reduced from 65 percent in 2010 to 44 percent in 2018 leading to urban traffic congestion (Figure-1).

The estimated cost of this shift has increased from LKR 400 million in 2011 to LKR 2.2 billion in 2018. The worst impact of ad-hoc pricing policy on private motor vehicles (Motorcars, three wheelers and motorcycles) and fuel in 2015 illustrated by the operational vehicle fleet increased from 2.52 million in 2010 to 5.70 million in 2018. It should be noted that operational fleet of 3.90 million in 2014 increased and to 4.53 million in 2015 which is a 16 percent annual increase which was also the highest annual incise in the Sri Lankan history as a result of low fuel pricing and reduction in import tariffs on vehicles in 2015.

Factors Displacing Public Transport

Many considerations have influenced the displacement of public transport and among them,

01. The fuel pricing reduction that was introduced in 2015 witnessed the increase in petrol consumption of the transport sector from 885 million litres in 2014 to 1,329 million litres in 2015 accounting for a 50 percent annual increase, which encouraged increased use of private vehicles (Figure-2). The increase of private vehicles on the roads reduced the average vehicle speed in Colombo Metropolitan Area from 21 km per hour in 2010 to 8.2 km per hour in 2018 (main road corridors of CMA).

02. The vehicle taxation policy too increased the importation of hybrids from 115, 215 in 2011 to 172,434 in 2018 which amounts to 33 percent of the operational motor car fleet. The operated vehicle kms also increased by four fold from 2011 to 2018.

03. What is noticeable is that public transportation as provided by the railway and passenger bus services, has not improved in their service quality in keeping with per capita GDP growth during the same period.

All these are inherent weaknesses in Sri Lanka’s economic management thought process which gives rise to several short-term problems.

01. High cost of fuel and vehicle imports costing USD 1,625 million in 2018 of the reported in trade deficit of USD 10, 800 million in 2018.

02. The rising import cost and falling reserves were the two major challenges in managing foreign exchange.

03. Heavy urban traffic costing travel time and fuel waste thereby impacting labour productivity.

In the backdrop of a looming BOP crisis, despite the low fuel prices since 2014, the government in 2018 introduced import restrictions by way of imposing 200 percent cash deposit margins and high tariff based on vehicle weight.

Therefore what is needed in this hour, is an innovative package of solutions to be executed at national level for transport management through effective fiscal policies for private motorist, and fuel prices based on the reflective economic cost for the private mode of transport. Those who use road network space during peak hours should pay the road user cost, determined by the cost of the given trip. Further, the public transport system such as Bus Rapid Transport Network (BRT), and the feeder mode of public transport should be linked to high demand BRT corridors and railway networks with facilities for parking and using public transport to reach their destinations. In addition, an integrated traffic management system for urban road networks with less human intervention should be formulated.

The BRT, and high density rail solution should be considered only if there 35,000 passenger movements in a given corridor. If the passenger movements are between 15,000 to 35,000 then the BRT and corridors with less than 10,000 passenger movement should be provide appropriate modes of public transport systems. It is utmost urgent to have a transport hub to facilitate with network improvement to provide parking facilities for private motorists to switch to public transport system. The National Road network should also be improved based of the demand of the public transport network.

By: Dr. D. S. Jayaweera

Transport Economist/ Financial Analyst

 

 

 

 

 

The Silver Lining, in the Emerging ‘Silver Economy’ 0 573

By: Dr. Kenneth De Zilwa

It has become a fad to argue that political and corporate leaders ought to be younger, the world around us has undergone extensive change over the past few decades. In the context of population ageing experienced in many parts of the world, it is argued in political and business realms that leaders require to be more age appropriate and not aged. The old guard, it is contended, is not in keeping with the winds of rapid technological transformation that is taking place.

Silver-lining-01

The 21st century business leadership belongs to the youth who are keeping abreast with technological innovations, robotics, and artificial intelligence in the corporate world. The global economic system seems to be sending out signals suggesting a need for change in the age composition of political and corporate leadership.

Silver-lining-02

Yet there are tendencies in the world today to embark upon a new strategy of capturing the potential of the silver economy which is estimated to be USD 15 trillion per year by 2020. The silver economy is thus becoming a significant mega trend that is shaping the world. In contrast to the past, we are living in an unprecedented era of the global longevity cycle. The age composition of world leaders and policy makers shaping this thought process is indicative of the fact that as the world population is ageing, & more and more business and political leaders will invariably be those with silver hair tips, representing the silver economic ethos. The data indicates that by 2050 the population segment of silver tips, i.e. those above the age of 60 years, will double from its current 890 million to reach 2 billion people, thereby accounting for 22percent of the global population. The UNDP projections also indicate that between 2018 and  2040, China’s 65+  population  would  jump  by  almost  150  percent,  from  135 to 340  million.  Thus by 2040, China will be a “super aged society” with 25 percent of its people being 62 years of age or older, while the Asia-Pacific region would be home to approximately 1.2 billion older people out of a total of 2.1 billion worldwide in that category by the year 2050. It’s not only the sheer numbers of individuals, but the sheer spending power of the silver hair tips that plays an even more important part in shaping global mega trends. According to Merrill Lynch, the investment bankers, the silver economy will grow from its current USD 7 trillion to a population segment with the spending power of USD 15 trillion per year by 2020. This would amount to approximately 16.4 percent of World GDP.  Such will be the scale and influence of this market segment.

Cont..

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