Strategy By Jim Kayalar: The Playbook of Using Economics of Scarcity To Develop Business

A stratagem used frequently in Emerging and Developing countries is to create and preserve economics of scarcity. Designing an equilibrium of Economics of Scarcity requires the participation of numerous stakeholders and can be very time-consuming, but once in place it can be extremely profitable for the entity that creates the scarcity. The same entity is usually also the one to offer a remedy out of the scarcity conundrum and the proposed solution offers yet another venue of profit. Confusing? Not really.

Why would an airport that worked well for years suddenly become congested to the tune of 30-45 minute waiting on circling planes and being told that this is due to congestion only to land to a mostly empty airport ?

Why would a seaport that worked well all these years suddenly become congested if commerce statistics do not show a spike?

Why does public transportation suddenly become inefficient or why are roads and bridges suddenly unable to accommodate traffic?

The “Economics of Scarcity” stratagem has been initiated by someone somewhere. That’s it. Here is the playbook of how to do it.

You target an industry and enlist the services of political decision makers who have the power to make economical decisions that will benefit your business prospects (Most of the time at the expense of the country and its tax payers). Your strategy is to either limit output or input thereby creating at best a monopoly or at worst a profitable oligopoly.

The Airport Play

You build the airport and ensure that no more airports are built or that you build all new airports.

If that doesn’t work you limit or delay the number of new airports through political or legal maneuvers.

If that doesn’t work you delay all incoming air traffic and cause chronic delays. The negative effects of this play are most felt by airlines who have to burn expensive fuel turning circles and weary passengers who have to sit on planes for an extra 30-45 minutes. The airlines can’t complain because they may lose their slots or face other kinds of attrition and the passengers don’t have anywhere to complain to.

Citing over capacity usage and air flight security concerns next you offer to build new airports and to fund the project with a Public Private Partnership(PPP) and propose a build-operate-transfer scheme. “ABC Group proposes a solution to congestion at XYZ Airport. The new proposal is for a new airport at so and so location and will help ease congestion. The government will offer the land and we will build it” you volunteer.

The next move is to drum up the necessary political and media support and presto you have a new business on hand. What did it cost you? Next to nothing.

The build-operate-transfer scheme can then be modified into a build-operate-keep scheme. You can always renegotiate and exert political power when it comes to transferring ownership. Who knows what will happen in 25-35-45 years from now. The idea of course is to keep the title to the airport.

This is how industries of scarcity are setup or moved into the scarcity strategy play. Uneconomic decisions will be rushed to alleviate congestion usually benefiting a certain conglomerate and usually at the expense of the country and its tax payers. In the meantime some way will be found to solve the congestion problem.

The Seaport Play

The same ploy is used except that instead of delaying passengers this time you delay goods for import and export. Perishable goods may rot on the lot while awaiting import/export. Retailers will run out of goods to sell. Exporters will miss deadlines. Some retailers may start rationing imported items per person. There is usually an immediate outcry to find solutions. Politicians and committees get involved. The media have a heyday. Then you offer the solution. A new port facility to ease the congestion. The government will offer the land and we will build it” you volunteer. Uneconomic decisions such as a new seaport that will come into play five to ten years will be rushed to alleviate congestion, usually benefiting a certain conglomerate and usually at the expense of the country and its tax payers. In the meantime some way will be found to solve the congestion problem.

I came across some examples recently during one of my trips to Asia.

Why would an airport that worked well for years suddenly become congested to the tune of 30-45 minute waiting on circling planes and being told that this is due to congestion only to land to a mostly empty airport ?

Why would a seaport that worked well all these years suddenly become congested if commerce statistics do not show a spike?

The Elevator Play

One more ploy with a slight twist and at a smaller scale is one that I came across at an apartment complex in Manila, The Philippines. The building had two elevators and a service elevator. They worked pretty well until a new building administrator took over. The elevators started breaking down regularly and were nonoperational for extended periods of time. Finally only one elevator was working and served the entire building. You guessed it, that elevator also broke down shortly afterward leaving the building residents and staff to use the stairs. Incompetency? Hardly. The administration of course offered a permanent solution to the problem: “Let’s buy new elevators”. As usual in these instances, at the behest of residents a fast and uneconomic decision will be made.

The scarcity ploy works best when it affects a large number of citizens and the media can be brought into play. It of course helps if you own your own media and have your family members and friends in Parliament and Senate.

Read your newspapers for more examples of strategies of scarcity.