For those who do not know what Sangkran really is, it is a traditional new year celebration. If you want to learn more, here is a wiki link: http://en.wikipedia.org/wiki/Songkran.
Image source: https://www.youtube.com/watch?v=tAJxa9f0oj0
Sangkran has just passed, but its scent seems to linger on. Since I am from South-east Asia myself, it is a given that I am looking for something to write about this festive event. Then, I found my old article posted around this time of the year in 2014. Though time is moving forward, the contents certainly do not vary much. So, I figured I have the option to copy paste my article from last year; in other words, reposting it. However, considering the fact that I am such a nice person, I have reviewed and made some changes as see fit to give a bit of a fresh look to the article.
Note that this is not an empirical analysis. Our discussion here is purely based on theories and logics plus only a little bit of observation, which is not even close to adequate if compared to those that follow rigorous research procedure involving both qualitative and quantitative analyses and reasoning at great length. This is by no means intended to be a nobel prize-winning article, so please don’t use it as a reference. Let us just indulge ourselves in this brief moment of joy derived from economic thinking.
Economizing Sangkran is nothing of a new concept. Some of us just have yet to realize that economics has always been embedded within the idea of Sangkran since its inception. I was once told that Sangkran is held in April, not primarily for the gods and goddesses, but for the people because since antiquity, April is the month of celebration as it is the end of the harvesting season. By this time of the year, people have stocked up plenty of resources, enough to reward themselves with something exciting and festive, and what can be more exciting than a new year celebration in April? It is this timing which shows us that our ancestors were sophisticated people who did not just allot the new year time based solely on religious reason, but they also factored in the social and economic sides of the coin (assuming the coin has more than two sides. Just don’t think too hard about it…).
Is that it? Certainly not. Let’s put the basic economic concepts we have learnt so far to the test, apply them, and see how practical the simple, yet fundamental, economic theories featured on this website can achieve. Let us rejoice and engage in this first baby step toward economic thinking. The first things we learnt from Economind were basically income and spending, that spending = income, and thereby, an increase in the aggregate spending will also increase the aggregate income because as we spend a dollar, someone else on the other side receives a dollar. In a nutshell, our expense is another’s earning. And do not forget about multiplier effect. A dollar spent might turn into a 5 dollar gain (assuming a dollar is used 5 times) for the entire economy depending on the number of times the same dollar is involved in transaction. We have also talked about inflation, and recently, we have also discussed in detail about price. All these topics have been featured the most in Economind so far, but trust me, there are so much more to economics (and we will get to new concepts/theories sooner or later); for now, one step at a time is always good. So, what we will do is connecting the dots and see what sort of picture they will give us. Let’s give it a go. I will not cover everything, but only a small portion of the fun, to the extent that can make use of what we have learnt up until now.
The first and most apparent effect of Sangkran (new year time) is that it compels everyone to spend their hard-earned cash on all the necessities and enjoyment during the festival. What we should focus our attention on though is not the spending itself, but to whom and where the cash flows. Sangkran has essentially brought forth what I call “seasonal income redistribution“. I just made this term up for the sake of brevity. The mass amount of ornaments, offerings, beers, and many other products and services purchased will allow many sectors within the economy to thrive, especially small and medium enterprises (SMEs). This is especially the case for Cambodia as it just held “Angkor Sangkran”, a huge new year celebration right at its tourism hot spot, Siem Reap province. This sensational event alone can attract hundreds of thousands of both local and foreign visitors, bringing tremendous amount of trasitory income. Benefits will then be shared across borders of many sectors and industries. Moreover, by factoring in the extravagant giant-scale displays of national products like traditional hat and sticky rice cake (Onsorm), earning itself Guinness records, we can clearly see how such an event can potentially boost Cambodia’s popularity on the international stage. The possitive effects will cumulate in the long-term, attracting more prospective investors because such displays are definitely signs of peace and stability. Of course, there are those who argue that stability derived from true democracy is the best, and I admit that Cambodia is not on the top of the list when it comes to democracy. But hey, investors simply do not care where the peace and stability come from. Whether we have true democracy or not, the business world is much less concerned as stronger focus is placed on the economic elements like free market, tax rate, consumption, saving, etc. You know, less politics, more economics here; thus, Sangkran is perfect for bringing in more foreign investment.
Why make 20 hats when you can just make a freakin huge one for 20 people? It just makes sense…
Furthermore, keep in mind that one of the sectors that is most closely tied to Sangkran is none other than the tourism sector. The vast amount of outflow in spending from the city to various tourism sites in Cambodia, particularly to businesses operated by low- or middle-income individuals, will greatly enhance employment, standard of living, closing the income inequality gap, and strengthening the local resiliency and revenue generating potential. The income spurt will likely increase saving, and thus, short- and long- term investment and expansion for larger returns in various sectors and geographical areas. Accurate or not, the information of the population movement during this brief period will serve as great insights for businessmen who are seeking their next potential investment targets. The beneficial impacts can be witnessed in tourism sector and many other sectors such as transportation, agriculture, telecom, etc.
Also, the excess supply of money from new year sales of goods and services by businesses will turn into loanable fund that helps reduce the local interest rate, allowing more financial accessibility for new entrants into the market. However, whether the effect is visible or not, that really depends on how much is spent and saved, and on the preferred means of storing value (i.e. cash under the pillow, cash to gold, cash to properties, or cash to bank account, etc).
And, remember opportunity cost? You see, no one wants to work during this national celebration. People want to be with family and friends. Nonetheless, there are businesses that are a little bit greedier and take profit a bit more serious than their competitors. This is when opportunity cost comes into play. Price always rises during such an event because there are many more people demanding/consuming while few are working to supply goods and services to meet the population’s consumption. Thus, for some stores and restaurants that close, they really face a huge opportunity cost. Not operating would mean having more free time to enjoy the new year, but the potential profit forgone is sometimes just too big to ignore for some people. So, those who are a bit more hard-working than the rest might decide to seize the opportunity and take advantage of the rising price by simply paying higher wages and passing those cost to consumer. No wonder price increases so much.
Of course, people often complain about the steep increase in price, blaming it on intentional causes such as greed and exploitation. I have heard a lot of it, whether it is in Cambodia, or elsewhere. But, you must understand the difference between intentional causation and systemic causation. Economics is complex, and most of the results are driven by incentives and innumerable activities, interactions and transactions. That is why, most of the time, the means does not justify the end. What do I mean by that? What I want to convey to you is that the increase in price is not something arbitrarily decided by the suppliers. You see, what everyone is doing is pursuing their own self-interest, and because of that, whatever they want to happen might not happen, and what happens as a result of the aggregate actions might be of nobody’s will. Due to the dramatic increase in demand during Sangkran, we end up with competition from the consumer side, and those who have more resources (in terms of money $$$) will be able to offer a better deal for the sellers (thus, the price is settled at that certain level), and that is how business is done. As the demand-side competition is tight, more and more people bid up the price of the limited goods and services. This is free market, flesh and bone. At the same time, sellers raise price according to the upward pressure on price by the market force. Demand outstrips supply, meaning there are simply more buyers, but producers and middle-men only have limited supply at their disposal. Remember, limited supply implies limited raw materials. The suppliers have to also purchase various inputs to be converted into outputs for sale (thus, acting like demanders for raw materials), and with only so much resource available, but with huge demand, the suppliers will need to pay more to get as much input as possible to produce enough to match with the demands for their products. However, there is a catch. Because sellers need to pay more to obtain inputs and processing them, the expected profits have to be worth the extra efforts and costs incurred to the sellers, or else, there is no point in opening their businesses during Sangkran at all. Therefore, the rise in price is a form of incentive for producers to produce more. This is why price rises. Rising price is an incentive. The profitability seen from the increase in price attracts more people to become producers to be able to match with the demand for vast quantity of products and services. Imagine the price of shrimps is capped at $3 a dish by the government, forbidding all restraurants from raising price during Sangkran. At first glance, it sounds great, but deep down, this is quite problematic. It is a disaster! Good luck trying to get your hands on any shrimp dishes. People would flock to order/buy a piece of that sexy dish, and you would have a hard time lining up in a long long queue. Furthermore, with inflexible price (i.e. fixed price at $3), it would be hard to supply more as producers, farmers, and fishermen (or shrimpmen??) would be less willing to allocate their valuable time and energy to work (on top of being lazy) and, especially for fishermen, to risk their life to go out to the sea and catch more shrimps for you.
Well, I guess increasing price, from the consumer perspective, is never a good thing to begin with. That might be one of the negatives about Sangkran or any other huge festivals. When demand starts to rise out of proportion in relative to supply, what might happen is inflation, an uneven short-term inflation, to be specific. In other words, as demand outstrips supply, supply runs low, and price starts to swell up, but unevenly across different goods. To put simply, in a basket of goods purchased, apple’s price might increase by 50%, while books (which I am almost certain not in high demand during the new year days…) might increase in price by only about 5%. However, the initial demand spike for apple would exhaust so much supply (and since producers/farmers are less likely to plant more apple trees as they are aware that the increase in demand is only temporary), what we can observe here is a short-term kinda-sticky rise in price which might normally last for a brief period of time, even after the festival has ended. This is just a short-term side-effect that does little harm to the economy. If anything at all, it only acts as a signal for the buyers to halt their consumption on apple, allowing the price to spring back to its originally equilibrium position. I would like to go a bit further. When price rises for one product (ex: apple), people often resort to buying its substitute, which can be orange (just an example). This is how positive and negative offset each other, and this is how equilibrium happens when you allow price to adjust and control the market (i.e. free market). However, in the case of rising price for Coke, complementary products to coke, like french fries might be less demanded (because assuming people like eating fries and drink coke, if coke rose in price, people would, logically speaking, consume less fries as well). Also, if, say, prices of meat and veggies go up, instant noodle might be sold at faster rate (more demanded), as it is considered inferior goods (something people buy when they have little money to spend). So you see, in an economy, a minus for a firm or industry might be tagged along by a plus for another firm or industry. It helps buffer the negative effect and spread the positives. This is why uneven inflation is, to an extent, much less harmful comparing to the “total” inflation across all goods and services. For this reason, I think, “New Year Inflation” ain’t such a bad thing after all. It allows opportunity for some products that, under normal circumstance, are less popular among consumers.In that regard, Sangkran is a win-win for everybody.
In hindsight, I do not think it would be appropriate to call this post an analysis, but it merely is a reflection on the effects of Sangkran/New year on an economy based on what we have learnt so far reading off this blog. There are many other facets of the economy to be considered (namely, social, environmental, religious, psychological…stuffs), but let’s keep it short. By next year, we will have learnt more economic concepts, and our discussion about Sangkran will also get more interesting. I am looking forward to writing the next year’s article.
Happy New Year to everyone who is celebrating it in April!
Disclaimers: Economind does not own the rights to any of the pictures used in this articles. All the pictures are taken from other sites and used solely for educational purpose.