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Real cost of things we buy...

I always wondered what is the real cost of things we buy. I realized, you can buy an LED torch for Rs. 25! How does it work out? Bill of materials should be less than Rs. 10 and labour another Rs. 5! Wow!! We usually push it aside saying "Chinese", as though its a complete explanation. But is the real cost of the product? I always wondered there has to be more to it - the hidden costs. Then I stumbled on this website: which has a very interesting animation/video that explains the hidden costs involved, and the reasons.
navshot's picture

Western capitalism is really costly

The animation/video in the link in above post also throws light on western (US, to be more specific) capitalism and how its hunger for profits cost us very dear. We may not (atleast not yet) be so bad, but the direction seems to be that... a spending-oriented economy. -- navshot
-- navshot
s_yajaman's picture

Human costs are not taken into account

Navshot, What is not taken into account is the human cost that goes into producing "wealth" for capitalists and cheap goods for us. Barely subsistence wages for starters and inhuman working conditions. Just recently there was a story in the times about a garment factory in peenya about what such working conditions do to people. Read Naomi Klein's No Logo and Windows and Fences and you will see what the SEZs mean to people working in them in Indonesia, Vietnam and other such countries. Srivathsa

Drive safe.  It is not just the car maker which can recall its product.

Naveen's picture

Varying Costs of Human Capital

The recent film, 'Across the Border', I think the name was, showed inhuman conditions & exploitation of women labor in Mexico, where many women work late hours, are molested & go missing. This was based on existing conditions in the various hi-tech industries in Mexico (including IBM), just across the border from the US - an American journalist, in the guise of a laborer, investigates how & why they disappear. The reality is that liberalization & the so-called globalization is a tough trade-off for people from developing countries like India. On the one hand, we have very poor human capital, in search for improvement & craving to achieve some degree of self-sufficiency, slogging it out in extremely difficult conditions, ending up supporting the capitalistic west to grow richer. It is true that we also benefit, but I think the UN must play a larger role in bringing about some standards for these sort of situations. On the one hand, the west tom-toms about quality premises & better standards, but in reality, it's business as usual.
navshot's picture

Human costs and...

Yes, I think its human costs and also equally importantly, irreversible environmental costs/damage. Read this BBC report: This also reiterates what I have said elsewhere - there is no such thing as sustainable energy source in particular; there is no such thing as "sustainability" in general. Sadly, it looks like capitalism (atleast the western version) is too costly. Without that, can we bring ourselves out of poverty? What is the right balance? Is there a right balance? It all looks like a paradox. -- navshot
-- navshot
asj's picture

Thanks for the links

Navshot - nice link. Sri, I have gone ahead and reserved my copies at the local library for the two books (joys of state welfare in UK where one gets full value for the council tax one pays). ASJ
do-it-yourself's picture

Gujri rate

Blood money – the real cost of technology.

What determines the cost of a product?
A scrap dealer knows it the best. Surprised at how a person who breaks down things can be right about making things?

If you scrap a car, it is broken into its basic components and segregated. Metal comprising of sheet metal and solid steel according to their physical and chemical attributes; plastic according to their color and grade; wires for their copper sans the sheath; rubber from the tires etc.

All these are valued using the basic unit of measure - weight. A price added to the weight yields the total value.

There is no ‘value addition’ .

So the price of a crank shaft is its weight multiplied by the price of steel and not burdened by its machining costs or the labor or overheads or profit or the cost of technology involved in making it or the cost of the R&D involved in developing it.

Simple arithmetic.

Hence a used soda can is more valuable than a computer because when a computer is broken down all you get is some plastic and very little metal.

So the less a scrap dealer offers, the more the technology cost. ( For the sake of this example let us club all the additional costs except the cost of raw material and call them technology cost). But even at this stage we have not totally done away with technology cost. For example the steel has used technology to become steel from iron ore and the iron ore itself used technology to be mined. But for this example we can start at the level of the scrap dealer and divide the basic components of a car into metal, plastic, copper aka ‘raw material’ and a technology cost to make these components into a car. And we will be calculating the cost of raw material only by weight. It is now safe to assume that where ever man intervenes there is value addition and hence a cost involved.

So what is the cost of technology? If the cost of the raw material is 25% of the cost of a car or 5% of the cost of a computer, then it is safe to assume that the balance 75% and 95% respectively are the cost of technology. He who makes the technology, controls the price and reaps the maximum benefit.

Is this fair? Should the reverse be true? That is, can we use this methodology in reverse to make and price a car? In reality we can.

The more we indigenously develop things, at all levels of development, the lesser the technology costs and hence the lesser the final cost of any product comment guidelines

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