The Economic Times daily newspaper is available online now.

    Do you know how to make a pencil?

    Synopsis

    Imagine if making a pencil feels so complex, how complex is it to make the rest of the things we use in our physical world? This is a highly tempting thought. Many people have attempted to highlight this complexity of our world.

    Raunak Onkar

    Fund Manager and Head of Research, PPFAS Mutual Fund

    Raunak Onkar has 11 years of experience in the capital markets. At PPFAS Mutual Fund, he is the dedi...Show more »

    If you find this question odd, you are not alone. In a famous 2 minute video on Youtube of the Nobel Prize winning economist Milton Friedman, he holds a pencil in his fingers and makes a simple statement, “there’s not a single person in the world who knows how to make this pencil.”

    He goes on to illustrate that the wood, the graphite lead, the eraser, the brass eraser holder, the paint, the glue, the labour or machines needed to make the pencil all come together via an invisible system of incentives we know as the free market. A price was agreed upon to buy all these materials to make this simple pencil.

    Imagine if making a pencil feels so complex, how complex is it to make the rest of the things we use in our physical world? This is a highly tempting thought. Many people have attempted to highlight this complexity of our world.


    Many books have been written to highlight how the supply chains of essential materials work and how they are all connected in ways we don’t know.

    A war in one part of the world disrupts some manufacturing process which can halt car production in another part of the world because there is a shortage of an inert gas - Neon needed to make microchips that will eventually go inside the car. We have heard many such stories since the Covid pandemic.

    A disruption in a small thing somewhere leads to shortage of some critical part in some other part of the world. What’s interesting is that we had to wait to hear about them till there was a problem in our physical world.

    When things work well, we hardly ever notice this web of systems that work tirelessly in the background to deliver our products to us. Only when something breaks down, we are made aware of our dependence on basic materials.

    What we have learned the hard way is that we can’t afford to ignore the material world. Not just from the point of view of making ourselves aware of it but also to understand the real cost of our actions as producers and more importantly, as consumers.

    Software may be eating the world but we need hardware to run the software. This hardware doesn’t come out of thin air. As an 80’s born person I have lived through the non e-commerce phase of life and I’ve also embraced the digital world with equal ease.

    There’s an entire generation of people like me who have adapted to this digital reality. Imagine the generation born today that will have the digital interface as their primary exposure to the real world. The ability to see the cost of the real world can dwindle over time.

    The moment we click the “Buy” button in our ecommerce app, there’s a bunch of processes that are spun into motion. Payment, inventory management, warehouse management, delivery planning & last mile physical delivery.

    God forbid we don’t like the product then we press another button to return it and the same system spins back up in reverse till we get the refund in our bank account.

    All this while we are blissfully unaware of the cost of operating this system, not just in terms of money needed to make this work but also the environmental cost of pressing this button. The cost of our convenience is not fully accounted for in the digital world. One can argue that it should be included in the price of the product and we are indirectly paying for the same.

    However, if different parts of the system are not aware of the cost of running the entire system (financial & non financial costs) then it’s less likely to be accounted for in the price of the product. Someone is paying it, either us today or us in the future.

    Ed Conway’s book the Material World, is the latest in the long line of books which periodically make us aware that we ignore the material world at our own peril and the more we get disconnected from the real world we tend to misunderstand how much effort it takes to make the real world work so well.

    Here’s a wonderful (lightly edited) passage from the book which illustrates our state very vividly.

    “..we have all become disconnected from the primary industries upon which we all rely for our survival. Perhaps this is the quid pro quo of modern capitalism. You can get anything you want from anywhere in the world at a bargain price, but don’t expect to understand how it was made or how it got to you. It hardly matters that there’s no single person in the world who understands how to make a pencil or a silicon chip.”

    (Analyst Disclaimer: Views are personal)

    (The author is Fund Manager, PPFAS Mutual Fund)

    (You can now subscribe to our ETMarkets WhatsApp channel)


    (Disclaimer: Recommendations, suggestions, views, and opinions given by experts are their own. These do not represent the views of the Economic Times)






    (Disclaimer: The opinions expressed in this column are that of the writer. The facts and opinions expressed here do not reflect the views of www.economictimes.com.)

    (What's moving Sensex and Nifty Track latest market news, stock tips, Budget 2024 and expert advice, on ETMarkets. Also, ETMarkets.com is now on Telegram. For fastest news alerts on financial markets, investment strategies and stocks alerts, subscribe to our Telegram feeds .)

    Subscribe to The Economic Times Prime and read the Economic Times ePaper Online.and Sensex Today.

    Top Trending Stocks: SBI Share Price, Axis Bank Share Price, HDFC Bank Share Price, Infosys Share Price, Wipro Share Price, NTPC Share Price

    ...more


    (What's moving Sensex and Nifty Track latest market news, stock tips, Budget 2024 and expert advice, on ETMarkets. Also, ETMarkets.com is now on Telegram. For fastest news alerts on financial markets, investment strategies and stocks alerts, subscribe to our Telegram feeds .)

    Subscribe to The Economic Times Prime and read the Economic Times ePaper Online.and Sensex Today.

    Top Trending Stocks: SBI Share Price, Axis Bank Share Price, HDFC Bank Share Price, Infosys Share Price, Wipro Share Price, NTPC Share Price

    ...more
    The Economic Times

    Stories you might be interested in