Today marks the 144th birth anniversary of Mohandas Karamchand Gandhi, whom we affectionately call Bapu or Father of the Nation.
Historians, both revisionist and radical, have heaped criticism on the Father of the Nation; it used to be and is still fashionable to do so. Yet, there are no political leaders, perhaps anywhere in the world today, willing to do what he did nearly 100 years ago.
After returning to India from South Africa in 1915, for about a year, Gandhi traversed the length and breadth of India by train, in third-class compartments — which no longer exist — just to learn about the common man and this country. Can we name a single leader today who would try to ‘learn’ about the
Gandhiji went to South Africa in 1893 to work as a lawyer after earning a barrister’s degree in London and spending two years in India, failing to build a practice.
It was South Africa, rife with racial discrimination, which actually transformed him from the ordinary struggling professional to the Mahatma that he went on to be.
One particular experience had a strong impact on the otherwise quiet and shy Gandhiji — the ‘Pietermaritzburg incident’, as it is sometimes referred to, where he was thrown out of a first-class train compartment. Not because of not holding a valid ticket, but because of the colour of his skin.
Pietermaritzburg happened during Gandhi’s very first year in South Africa. It was probably not a coincidence, therefore, that on returning to India, he first decided to ‘learn’ about his country and its people by travelling in trains — this time, only by third class.
In 1917, he also penned an essay titled “Third Class in Indian Railways”.
Train of thoughts
Much of what he said in it about the filth and squalor in Indian trains and railway platforms resonates even today. Reading it also makes you realise that although the Indian Railways has improved considerably, the fact that we no longer have a third class has actually only cosmetic significance at times. However, there is one issue raised in the essay on which I would disagree with Bapu — and I’m sure he wouldn’t have taken offence. It has to do with the comparison he makes of the travel conditions of first-class passengers with those travelling by third class.
While noting how first-class fares are five times that for third-class travel, Bapu goes on to ask: “Does the third-class passenger get one-fifth, even one-tenth, of the comforts of his first class fellow? It is but simple justice to claim that some relative proportion be observed between the cost and comfort.”
What Bapu was alluding to here was justice — or the lack of it — in the realm of pricing goods and services. Unfortunately, the logic of economics works differently. I am not saying this is right or wrong; it is just that in matters of pricing, there may be simple economic motives at work making things seem unjust.
Logic of pricing
The reason why ‘simple justice’ and a simple link between ‘cost and comfort’ does not work in pricing is because people have different tastes. Hence, they are prepared to pay different prices for the same product.
A die-hard Shahrukh Khan fan may not mind paying more for his movie than what someone swearing by Salman Khan would. So, we have two people willing to pay different prices to watch the same movie in the same seat of the same theatre for the same show!
A seller would ideally want to charge every buyer the maximum amount he/she is willing to pay for the product. But buyers do not walk into a store and tell the seller the maximum they are ready to pay. One way through which firms try to get around this problem is by engaging in a practice called price discrimination. This involves the same seller selling identical goods at different prices.
We have many examples. For instance, when you buy in bulk, the seller gives a quantity discount. Since students often have less money, they get price discounts in many cases on producing a valid student ID.
Another example one can quote is the entry fee for the Taj Mahal, with Indians having to pay Rs 20 while foreigners must shell out Rs 750 — a difference of 3,650 per cent.
Also, I am told that the guards at the Taj entrance are very savvy — they can tell by just looking whether you are Indian or not! A couple that recently visited the Taj was told by the entrance guards that while they could pass off as Indians, the Yankee English accent of their kids made it unnecessary to even examine passports. They had to pay the Rs 750 rate for the two children.
Note that price discrimination will not work if you can’t prevent resale. If I could buy a product in bulk or with a student ID and sell it to others at a higher price, the original seller stands to lose out.
Another way to engage in price discrimination is by letting buyers self-select. Thus, when firms put out coupons, price-sensitive consumers will clip and use them, while other buyers will not take these pains.
Similarly, airlines offer more expensive business class seats with greater luxuries and also cheaper no-frills economy seats. Just as resale will prevent successful price discrimination, business class travellers need to be prevented from buying economy tickets. Clearly, if the economy seats offered just enough luxury, those otherwise willing to pay business class fares would switch to these.
Discrimination justified?
Jules Dupuit, a French civil engineer, explained this really well in the context of train travel. I shall reproduce what he said:
“It is not because of the few thousand francs which would have to be spent to put a roof over the third-class carriages or to upholster the third-class seats that some company or the other has open carriages with wooden benches. What the company is trying to do is to prevent the passengers who can pay the second-class fare from travelling third-class; it hits the poor, not because it want to hurt them, but to frighten the rich. And it is again for the same reason that the companies, having proved almost cruel to the third-class passengers and mean to the second-class ones, become lavish in dealing with first-class passengers. Having refused the poor what is necessary, they give the rich what is superfluous.”
Dupuit wrote this in 1849, 20 years before Gandhiji was born. It is unlikely that Bapu would have read Dupuit. Either way, he wouldn’t have agreed, for he couldn’t stand discrimination of any type.
As the punch line of the film Lage Raho Munna Bhai had it, “ Bande mein tha dam, Vande Mataram ”! This man, indeed, had guts to be different.
(The author teaches microeconomics and game theory at Louisiana State University, and is Visiting Professor at the School of Management, KIIT University, Bhubaneswar.)