From One Extreme to Another

This morning we had the pleasure of touring both a sandalwood factory and a silk factory. These two facilities were complete opposites of the AT&S and TVS factories. While TVS and AT&S were prime examples of supply chain management, TQM, and the use of technology in manufacturing, the two factories we visited today had manufacturing processes that were highly manual, labor intensive, and seemingly out of date. The wood splicer and wood chipper in the sandalwood factory are both belt driven. These factories were not clean either. It is a wonder that the silk comes out of production clean, rather than soiled or stained. The only hint of Friedman's ten flatteners was in one small corner of the silk factory, where one or two machines use CAD for the most intricate designs and expensive fabrics, costing upwards of 50,000 rupies for a sari (about $1300). Both of the facilities are government run. Given the inefficiencies of the court system, and the unclean and poorly maintained buildings we saw at the government center, it makes perfect sense that these factories are out of date and in disrepair.

An interesting point is that all the sandalwood trees in the country are owned by the government. This includes those in the forest, as well as those that are on private property. The state has the right to go onto a person's property and tag each sandalwood tree. When the tree is mature, in 30-50 years, the government can come onto a person's property and harvest it. The government does provide a small subsidy when this is done, but it is small in comparison to the money that the government reaps for the sale of sandalwood oil and other products. One of the factors necessary for going global successfully, as discussed in our textbook, is the institutionalization of property rights. Clearly this concept is not being applied with regard to an individual's rights to grow and own sandalwood trees.

Right now there is a shortage of sandalwood and the price is predicted to double within the next few months. Because government has control over this natural resource, it can control the production. Right now production is shut down because of the scarcity of raw materials. A small 5 gram bottle of sandalwood oil, less than 1/5 of an ounce, cost me 650 rupees, equivalent to about $17. Since the government can control production, why haven't they planned for a constant supply by planting more trees throughout the forest, or encouraged people to grow tree farms? Doing so would enable them to continue to generate income from this valuable commodity, rather than having to shut down production.