Accessibility and affordability part 2

The rich in any country can normally afford to buy a large amount of products, be it in large packages or in multiple-small packages, to avoid multiple trips to the store. They also have large refrigerators (particularly in the US and Europe) to store large amounts of foods for weeks.

The poor, in contrast, have to subsist on daily wages and they have to use cash conservatively. They make their purchase if they have the cash and buy only what they need for that day. Multiple trips to the store are not only inevitable, but are even treated as a substitute for entertainment that otherwise is not affordable.

During a downturn of the economy, such as during the high oil prices of early this year or during the current crisis, companies try to preserve the affordability of their products by either creating smaller servings or by reducing the active ingredient of the product such as detergent, effectively reducing their quality.

At the same time, those companies will strive to keep the prices of their products relatively unchanged. The same companies will then adjust their produc& packaging and pricing accordingly when the good times arrive again.

Street vendors have practiced this for a long time: they buy cigarettes in large packages, open the packages and sell the cigarettes individually. In so doing the vendors create the capacity to consume and also enjoy a handsome profit

The potency of accessibility prevails in the financial markets. The success story of PT Pegadaian, the de-facto monopolist of pawn shops in Indonesia, is based on the combination of a network of hundreds of pawn shops all over Indonesia and a very simple procedure of getting loans if one has goods of value as collateral. (more…)

Accessibility and affordability

IN THE FINANCIAL CRISIS OF 1998, THE SMALL AND MEDIUM enterprises as well as the informal sector were recorded in our economic history as our savior, providing an otherwise nonexistent social safety net for the masses.

These sectors absorbed over 61 million jobs or slightly over 60% of total national employment. By some unofficial statistics, the informal sector accounts for more than 60% of our gross national product, a level slightly higher than that of Ukraine (5 1 %), Russia (45%) and Italy (27%) but lower than Bolivia (65%) and Nigeria (76%).

So important is the role of the informal sector and yet we fail miserably to understand and appreciate it as a counterpart to the formal econorny.

Even before the crisis of 1998 and the current one, we became aware that street hawkers and street-side cottage industries had sprung up everywhere, producing and selling anything from clothing and footwear to imitation Rolex watches and Louis Vuitton bags. Unauthorized taxis, three-wheelers and ojek (two-wheeler taxis) account for a big chunk of public transportation in big cities. Warung Tegal is a famous nickname for vendors supplying affordable foods for construction workers, blue-collar workers and for other informal sector businessmen.

These are tremendous undertakings and their sustainability hinges upon two economic principles: accessibility and affordability. They are strategically located in commercial centers, albeit without formal license or permit, offering easy access to their customers. Often they operate from carts and have to endure hide-and-seek games with security officials of their respective local governments. (more…)