Supply and Demand

Human history can be well defined on the basis of this relationship and we are guided and ruled by this framework, writes Dr Bhaskar Dasgupta.

india Updated: Dec 30, 2005 19:17 IST

One of the key foundations of Economics is the supply and demand relationship. Tons of ink and entire forests have been felled in the pursuit of this relationship, political parties and ideologies have risen and fallen, depending upon which side of this relationship they are on, our human history can be well defined on the basis of this relationship and we are guided and ruled by this framework.

It is an equation, demand and supply are two sides of a coin, as long as we stick to pure economics, nobody gets much upset about it, except for maybe some dusty economists or some coffee-house intellectuals. But there are moral aspects attached to it that makes the argument a bit more pointed and bloodshed galore. Sometimes supply is bad and sometimes demand is bad. It is this all too human inconsistency that I would like to explore in this column.

In particular, I would like to address two applications of demand and supply to illustrate this inconsistency. The first is corruption. The hypothesis in the corruption case is that the person who demands the money is bad. Anybody who demands baksheesh, bribes, underhand money, brown envelope contents, pocket or paper grease, hafta, “commissions”, is such a bad man. He is absolutely foul, horrible and should be shot out of hand.

From tiny middle class drawing rooms across the world over to grandiose UN conferences on corruption, all are heaving with heated denunciations of corruption and the air is thick with righteous indignation and shocked surprise at the sheer evil. Academics and NGO’s write tomes of papers on how bad corruption is for the countries and societies. Transparency International ( publishes yearly rankings for the corruption perception indexed countries.

Countries such as Bangladesh, China, India, Nigeria etc are under the spotlight. Newspapers and TV stations go to town, headlines blaring, Bangladesh the most corrupt country in the world for the 5th year running. Torrents of abuse drift down on the heads of their leaders. So on and so forth! Basically, demanding money for services above and beyond what is “right” (howsoever defined) is bad. In other words, DEMAND is bad. Fair enough? Sounds about right, no?

Nope, demand is not bad when we consider another application, which is narcotic drugs. Generally speaking, anybody who supplies narcotics is considered to be bad. The users are generally criminalised as well, but nothing like the people who supply them. Users get treatment in clinics; there is a strong and significant movement to decriminalising drug usage in small quantities across the western world. One understands that drug usage is an addiction and here in this case the demand side is the root cause of all evil.

Still within the western world and the way the legal/foreign policy aspects are constructed, the people who supply drugs are held to much higher moral values compared to the people who consume them. Cigarette / tobacco firms are bad, horrible, drug dealers are the scum of the earth, billions are spent on the drug war and countries have gone to declared and undeclared war on druggies and drug producing countries. Analysts and the media have cut down entire forests in moaning about this supply evil. My word, so now supply is bad?

If supply is bad, what do we think about these countries? Russia, China, Taiwan, South Korea, Italy, Hong Kong, Malaysia, United States, Japan, France and Spain? Multi-national companies based in these countries were rated to be the most highly rated for paying bribes overseas. Sweden, the darling of all social theorists and usually the standard to which many aspire to, is third best on this list. But it is relative, mind you. If you recall couple of decades ago, an Indian government lead by Rajiv Gandhi was roiled by charges of corruption over an artillery supply contract by a Swedish firm. More recently, another Swedish firm is in the news for wanting to supply a huge arms deal to Pakistan. Knowing about the generalised corruption of many an arms contract of Pakistan, I would be extremely surprised if this was truly clear and white.

But I digress; the same survey points out that the majority of bribes being paid by these companies is in the arms and construction industry. To top it all, most of the OECD countries have strict anti-corruption laws on their books. Not only that, but there is a very heavy OECD anti-corruption convention, which has been ratified by the OECD countries. To be fair, many executives are prosecuted for bribery in many OECD countries. You are still lucky to be in the western world. If you were in China, off comes your head. But that does not explain why, every year, newspapers and the media is full of dire noises about how Bangladesh is the most corrupt nation. Demand is bad! The overwhelming idea that one gets when one reads about these economies is that doing business in Dacca, Abuja, Mumbai, Karachi and Tashkent is not possible without sprinkling copious amounts of baksheesh.

On the other hand, look at the drugs equation. The biggest consumers of drugs are in the USA and Western Europe. The biggest suppliers currently are in South East Asia (the Golden Triangle), Columbia and Afghanistan. We all know what happened to Afghanistan. War on terror overlapped with the war on drugs. Afghanistan was invaded for all the good reasons, but I would have thought that they would take care of the drugs issue, but hey, the opium production has actually gone up. (See UN Drugs Report 2005 at Burma is pretty high on the US and Western European radar, mainly because of its narcotics production, human rights be damned. Columbia has had billions of dollars worth of aid to stop its narcotics production.

Be that as it may, when one looks at this, the mind is definitely drawn towards thinking why is this dichotomy present? Is it racism? Is it just human behaviour? Is it better to blame somebody else than look at root causes? Just what is it? It is not easy to point to a single factor. Logically speaking, it does not make sense at all. When we are talking about the demand-supply relationship, it is simply two sides of the same coin. We do not attribute moral judgements when we are talking about teapots, do we? If somebody is talking about the differences between agriculture, manufactured goods and services, then one can think about some clear issues.

As long as one side of the equation rests within the western countries, and the other side on the non-western countries, this problem emerges. Agriculture - witness the current huge hoo-haa over the WTO liberalisation of agriculture. Manufacturing – consider the big too-doo about Japan’s manufacturing rise a few decades ago and now with China. Services – well, think about all the major hackles raised due to the outsourcing issues. I give up, do let me know if you have any thoughts on my blog at

So what can one do to remove this dichotomy? You know something? I think we cannot do anything much which is short term in nature. So can we do something in the long term? “In the long term, we are all dead” – John Maynard Keynes said. But I am a firm believer in economic laws. I would say that slowly this dichotomy might disappear. Still, seeing this dichotomy in operation does make one wonder.

All this to be taken with a grain of salt!

(The opinion expressed herein are strictly the author's and do not reflect the positions, official or otherwise, of any firm or organisation, that the author is associated with at the present or has been in the past or may be in future. Dr Bhaskar Dasgupta, currently lives in the City of London and works there in various capacities in the Banking Sector.)

First Published: Dec 30, 2005 00:00 IST