Day 182: Will we be Feeding the Fat Cats in Equal Money Capitalism?

Eskom, the South African electricity provider, has been saddling its customers with massive price increases and more to come:

"One of the reasons Eskom is applying for an electricity hike is because the average annual salary of one of its employees is expected to be R820,000 in 2017 and 2018, according to a report on Saturday.

Beeld newspaper reported that Eskom’s total salaries for about 45,600 employees at that time would be about R37 billion.

These figures are one of the reasons Eskom gave to the National Energy Regulatory of SA (Nersa) as part of its request to increase electricity tariffs from April 1, with 16% for the next five years.

Beeld reported that the information was part of Eskom’s submissions handed in to Nersa.

In the documents Eskom claimed that in the current book year, the average salary per worker is R633,000 annually.

According to the documents, the reason for the high salaries was because new power stations needed more employees, and there was need to get more skilled workers and to keep them.

However, the National Union of Metalworkers of SA’s Karl Cloete told Beeld that their members at Eskom do not get salaries like that.

“We want to see who gets paid so much that the average is so high.

“We do know that Eskom’s top-managers have been getting big bonuses and increases in the past decade,” Cloete said.

Investment Solutions economist Chris Hart told the newspaper that no company in the private sector could afford to pay salaries like that.

Eskom’s spokeswoman Hillary Joffe did not deny the proposed salary increase. 

Nersa is expected to announce Eskom’s tariff increase on February 28."

Source: http://www.sowetanlive.co.za/news/business/2013/01/28/eskom-price-hike-to-pay-for-salary-increases

The Problem

Obviously, here we have a classic case of Greed Capitalism, where the greed of a minority is being paid for by the majority. Electricity is something everyone needs and most will pay for it even if the price is insanely high - if people can't pay for it, they'll steal it - which is very common in South Africa. Obviously, most workers at Eskom don't earn over half a million Rand in a year - but some earn much more than that. These high salaries have to be paid for by the consumers.

And this situation is played by the book of Capitalism - you're allowed to make a profit and you're supposed to make as high a profit as you can. If your demand is high at really high prices, then - by all means - make your prices high - even if you can't always meet the demand in terms of supply.

With commodities like Electricity, which has become a basic necessity in our society, the demand will not change much in relation to price changes - and therefore, this point is easily taken advantage of.

The Solution

Each one who contributes to the provision of a particular good or a particular service in a company should receive an equal wage - because each one is a necessary participant within the process. It's not because one is doing physical labor while another is handling management that the one should earn more or less than the other. If you don't have people doing the physical labor, you can't provide the good/service - and, in the same way, if you don't have people managing all the operations, the provision of goods and services will be impossible, or at least highly inefficient.

When each one receives an equal income - prices can be calculated in such a way that each participant/each worker in the company receives an equal share of the profit and that, with this income, each one is able to live a successful and fulfilling life.

The Reward

In correcting this one point of how prices are determined in Equal Money Capitalism, you'll find that no matter what good or service, you'll never be able to take advantage of the fact that a good or service is in high demand by charging ridiculous prices. Isn't the whole point of companies and businesses to make life easier and to manage resources in an effective way? This correction/solution will make sure that this is what businesses and companies are really about.

Related articles

• Eskom hike for salary increases
• Day 162: EQUAL MONEY CAPITALISM - The Way Forward
• The Future of Integrity with Equal Money Capitalism
• Day 165: Equal Profit Share and Equal Money Capitalism
• Day 172: Retirement and Holidays within Equal Money Capitalism
• Day 171: Life-Force and Expression in Equal Money Capitalism
• Day 163: Equal Money Capitalism - Redefining Profit
• Day 181: Applied Equality in Equal Money Capitalism
• Day 177: Will there still be Retrenchment in Equal Money Capitalism?
• Day 173: Supply, Demand, Business and Scarcity in Equal Money Capitalism

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Day 60: How Far can We Stretch our Customers? - Part 3

For context, please read: Day 58: How Far can We Stretch our Customers? - Part 1 and Day 59: How Far can We Stretch our Customers? - Part 2.

I commit myself to creating a world where the interaction between people is open and transparent, so that fear of being stabbed in the back does not exist and in turn does not motivate us to stab someone else in the back.

I commit myself to stop participating in the belief that fucking someone over is a sign of power and grandeur, but realise that it is a sign that I have psychological problems that I urgently need to take on, because I am apparently unable to see myself as equal and one to all and everyone around me - and thus unable to be trusted with anything.

 I commit myself to stop taking pleasure in the pain of others.

I commit myself to stop acting like a character built on top of and from lies - presenting myself like someone I am not - but instead make my hands dirty and dig into the darkness that is me, where I have hidden all my secret thoughts, feelings and emotions and I take them on, one by one, with writing, self-forgiveness, breath and corrective action - until who I am within and who I am without are equal and one and I can trust myself to be self-honest in every single moment.

I commit myself to stop the cycle of the sins of the Fathers by no longer simply regurgitating the information of how economics works and should work - that was poured down my throat - to the next generation - but instead, take responsibility within my position of understanding and use my common sense in exposing what our economic system really is, how it affects people, people's lives and how it destroys the world - so that the next generation may be better prepared to face the consequences that we have created in our ignorance and spitefulness and continue to develop real solutions to bring about real living.

I commit myself to ensure that the economic system where prices and unequal income determine who gets what is abolished and that any similar system can never be re-established - because it is a direct violation of human rights - and a crime against life.

I commit myself to stop abdicating responsibility from my actions towards the rules of the game of economics - because it's not okay to be an asshole just because everyone else is and because the game says it's okay - I instead stand up and take responsibility for my thoughts, words and deeds in every moment - allowing myself to be the change that is necessary to change the game as a whole.

I commit myself to stop educating the next generation into how to be mean and nasty fuckers who try to continuously win, win, win without caring that it means others must lose, lose, lose - and therefore start with taking responsibility within myself and my own life, so that I can be a living example who stands by her word.

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Day 58: Elasticity - How Far Can we Stretch our Customers? - Part 1

In previous blog-posts the concepts of supply and demand were discussed and it was explained how economists use supply and demand curves to predict how the quantity demanded and supplied of goods will change when their prices change. However, so far we've only been able to predict in which direction the quantity demanded for a good or services will change if the price of the good/service changes, or in which direction the quantity supplied will change if the price of the good/service changes (will it go up or will it go down). But to make more accurate predictions, economists require to know by how much the quantity demanded/supplied will change by a certain change in price. In order to do this, a new concept must be introduced, namely: Elasticity.

Elasticity basically measures responsiveness. It is possible that if a price goes down slightly, that the quantity demanded will barely change - in this case we speak of a low level of responsiveness. But it is also possible that if a price goes down slightly, that the quantity demanded will significantly increase - in this case we speak of a high level of responsiveness.

So - with elasticity we're looking at a relation between an action and a reaction - where, the change in price is the action and the change in the quantity demanded/supplied is the reaction.

To calculate elasticity, (take a breath, it's going to be a little technical now - don't worry, it'll soon be over) we divide the percentage change in the reaction by the percentage change in the action. Because two percentages are divided by each other - we end up with simply a number (not a percentage) and this number is referred to as the 'elasticity coefficient'.

Let's make this more tangible by discussing the Price Elasticity of Demand.

The Price Elasticity of Demand

With the price elasticity of demand, the change in price is the action and the change in quantity demanded is the reaction. We know from previous discussions that if the price of a good goes up, the quantity demanded will generally go down (when something becomes more expensive, less people are willing and able to pay the higher price). And - when the price of a good goes down, the quantity demanded generally goes up (when something becomes cheaper, more people are willing and able to pay the lower price). The price elasticity of demand will thus help us assess by how much the quantity demanded of a good goes up or down in response to a change in price.

To calculate the price elasticity of demand, we divide the percentage change in quantity demanded (the reaction) by the percentage change in price (the action). Let's say - the price of petrol goes up by 10%. In response, the quantity demanded of petrol will go down as less people will be willing and able to pay the higher price. But, since many people are currently dependent on petrol to for instance drive to work, it will for many make sense to just pay the higher price, rather than looking for alternative ways to go to work that might take up more time or that are simply not available. Therefore, let's say that the quantity demanded will only go down with only 1%.

The price elasticity of demand for petrol is then calculated as follows: 1% (percentage change in quantity of petrol demanded ) / 10% (percentage change in the price of petrol) = 0.1

Because 0.1 lies between 0 and 1- this result indicates to us that the price elasticity of demand is 'inelastic'. In other words: Even if the price of petrol goes up by quite a large percentage, in comparison, the quantity demanded will not go down by much.

Demand is inelastic when a change in price will cause a smaller change in quantity demanded.

Demand is elastic when a change in price will cause a bigger change in quantity demanded. In case of elastic demand, the elasticity coefficient will be above 1.

Goods with an inelastic price elasticity of demand are often goods that people need, like basic necessities (eg. basic foodstuffs, electricity, water, petrol, etc.), as well as goods that are addictive (eg. tobacco, alcohol, drugs). With basic necessities, a person often simply doesn't have the choice not to pay the higher price. Therefore, if a person knows that the good they are providing/selling is a good with inelastic demand - they can take advantage of the situation by raising the prices as high as possible, because they know people will still pay for it; it's either paying up or endangering one's life. With addictive goods, the same logic is used, because even though prices of these goods are high, the addiction will motivate individuals to keep on purchasing the good, even if they have to sacrifice a lot of money for it.

Goods with an elastic price elasticity of demand are generally luxury goods - meaning: goods that are not necessary for one's survival, such as books, holiday resorts, fast cars, etc. If the price of a luxury goods goes up, many people will be willing to sacrifice having this good in order to have more money available. Or in other words: the price will be a big factor in deciding to acquire luxury goods, whereas with basic necessities - the goods must be purchased de facto and the decision to buy the good is therefore less dependent on the price.

Other points that play a role in determining the price elasticity of demand are:

1. Substitution possibilities
The amount of substitutes available will also play a role int he price elasticity of demand. If there are many substitutes for a product, then instead of paying a higher price, people will simply turn to a cheaper substitute. However, if there are no or only very little substitutes, then people are inclined to keep on buying the same product even if the price rises.

2. The degree of complementarity of the product
The degree of complementarity of a product refers to the tendency of people to use this product together with other products. For instance, you use batteries with appliances - you use salt to spice your food, etc. For goods with a high degree of complementarity (that are often used together with other goods) the price elasticity of demand will tend to be low (inelastic). And the other way around for goods that are used individually.

4. The proportion of income spent on the product
The larger the proportion of income spent on a product, the higher the price elasticity of demand will be (elastic).

One can see that having insight in the price elasticity of demand of the good one is selling gives the seller the opportunity to make the biggest profit possible - and one doesn't have to know much economics to do this, simply considering the points above and assessing what type of product one is selling in relation to these categories will aid a person in milking their customers to give them as much of their money as possible.

We discussed here the price elasticity of demand - the same principle of elasticity can be applied in relation to:

• The income elasticity of demand (how will the demand for a good change with a change in the income of households?)

• The price elasticity of supply (how will supply for a good change with a change in the price of the good?)

• The cross elasticity of demand (how will the demand for a good change if the price of a related good changes? Eg: how will the demand for coffee change if the price for tea changes?)

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