Example of Applying UDI-ism to Rice Production

This example will show how having a Tier 2 price for water used in producing rice would result in a better supply of rice and less rice shortage in a periodic drought year.

The context is an island 11 miles long, with two rice farms at each end of the island. Producer A, located at the West end of the island, can produce rice at $10 per lb and uses 10 gallons of water for each lb of rice. Producer B, located at the East end of the island, has a drought-resistant strain of rice which costs $12.50 per lb to produce but uses only 2 gallons of water per lb of rice. Both producers have to pay a transportation cost of $1 per lb per mile to bring their rice to the inhabitants of the island who are scattered uniformly across the island between the two rice fields. For each mile across the island, the consumers have a normal demand for 2 lbs of rice. (Please ignore the ridiculously small amount of rice people on this island need to eat in order to survive, OK?)

The following table shows the cost of the rice from the two competitors across the island, the amount they each will sell, their revenues and the total cost of rice to the consumers. Obviously, we will assume that people will buy whichever producer’s rice is cheapest at their location. For example, at a distance of 6 miles from Producer A, which is also at a distance of 4 miles from Producer B, the price of A’s rice is ($10 for rice + $6 for transporation) or $16. The price of B’s rice is ($12.50 for rice + $4 for transportation) or $16.50. Here, at this location and further to the west, A’s rice will capture the entire market. The market changes winner when the distance is 7 miles from Producer A, which is also 3 miles from Producer B. At this location, A’s rice sells for $17 whereas B’s rice sells for $15.50. Therefore, B has the market at this location and also further east of here.



Table I – Market Shares of Producers A and B in a Normal Year

Note that in Table I, Producer A, having the cheaper strain of rice, has twice the market share as Producer B. The average cost of rice to the consumers is $13.83 per lb.

Next we will assume that on this island, a drought will take place once every five years. In the drought year, the total amount of water available for irrigating the rice fields is only 40 gallons, which is not enough to supply both fields. So the government rations that water between the two fields according to the ratio of their respective water usages in a normal year.

A produces 12 lbs of rice in a normal year and uses 120 gallons of water. B produces 6 lbs of rice in a normal year and uses 12 gallons of water. The rationing policy results in A receiving 40 gallons x 120/(120+12) = 36.4 gallons, and B receiving 40 gallons x 12/(120+12) = 3.6 gallons.

With these severely smaller amounts of water, A can only produce 3.64 lbs of rice and B can only produce 1.82 lbs of rice for a total rice production of 5.46 lbs. With a normal demand of 18 lbs of rice in the island, this results in a rice shortage of 12.54 lbs in the drought year.

For this example, we will also assume that both producers will recover their costs by raising the price of their rice. In other words, we assume that the total cost of the smaller amount of rice is the same as the cost of the normal year’s production of rice and that the full transportation cost of the normal year must also be paid. Thus, the average cost of rice in the drought year equals $45.65 per lb.

To put a dollar value on the rice shortage, we will assume that hunger has a monetary value of $500 per lb of rice shortage to the consumers. With a shortage of 12.54 lbs, the social cost of rice shortage equals $6,273.

In this market system, consumers take it as a matter of an act of God that droughts occur every five years, and that famine has to be tolerated even though the social cost is high.

Now, let us see if UDI-ism can change the conditions. We shall conduct experiments to charge the rice producers for their use of water at different Tier 2 prices for water, starting from $0.10 per gallon to $2 per gallon.

In a normal year, assuming that the cost of water is $1 per gallon, the cost of rice produced by A would be ($10 for rice + $10 for water) = $20 per lb of rice produced. In comparison, B’s rice would cost ($12.50 for rice + $2 for water) = $14.50 per lb of rice. Table II now shows the market share of the two producers in this UDI-ism system.


Table II - Market Shares of Producers A and B in a Normal Year
With Water Costing $1 per gallon

We clearly can observe that Producer B now has a competitive edge over Producer A and has captured a bigger share of the market, 14 lbs for B versus 4 lbs for A.

If we now look at what would happen in a drought year, we will find that because the average water use per lb of rice grown is lower now, there will be more rice produced and therefore less rice shortage.

By varying the Tier 2 price for water over the range of $0 to $2 per gallon, we find that the market shares for A and B in a normal water year vary according to the graph in Chart I.


Chart I

From Chart I, we can see that at a water cost between $0.30 and $0.40 per gallon, Producer B overtakes Producer A as the one with the larger market share. At a water cost of $1.40 per gallon, Producer A is wiped out of the market.



Chart II –Effect of Tier 2 Water Cost on Rice Shortage and Prices of Rice

Chart II shows the effect of various Tier 2 water prices on rice shortage in a drought year, and also on the average price of rice in both a normal year and a drought year. It can be seen that at a water cost of $1.40 per gallon, rice shortage disappears. Including a Tier 2 price for water at $1 per gallon raises the average price of rice from about $14 per lb to about $19 per lb in a normal year. On the other hand, the drought year price of rice would decrease from about $46 per lb to about $33 per lb if UDI-ism is applied at a Tier 2 water price of $1 per gallon.

If we remember that Tier 2 prices are actually money collected from consumers into a Public Benefit Fund (PBF) managed by the government, that money is held for the benefit of the citizens. It is not a valueless burden on the consumers. In fact, by paying into this PBF, the money has caused a reduction in rice shortage and a reduction in water consumption. This economic benefit is shown in Chart III.

This has come about because UDI-ism created a more optimal market environment which enables a more efficient production process to compete with another process which is less efficient when all resources are considered. Water was previously treated in this example as a free resource, i.e., an externality. In reality, water is not free. It has a direct economic value, even though it may be difficult to quantify. One may argue that the value of water in this island is $1.40 per gallon, because at this price, it results in the greatest economic benefit to the economy.

Chart III – Economic Benefits of UDI-ism Over Each Five-Year Drought Cycle

In Chart III, the total cost of the rice consumed in each five-year drought cycle is shown for various Tier 2 prices of water, without and with the cost of water included. Because the cost of the water is included in the cost of rice, the total cost of rice consumed in five years increases with the Tier 2 price of water. However, the shortage cost, i.e., the social cost of famine, is greatly decreased by applying UDI-ism. At the Tier 2 water price of $1.40 per gallon, the shortage cost becomes zero. If we look at the total cost to society, which is the total cost of rice (including water cost) and the shortage cost, the optimum or the lowest cost is at the Tier 2 water price of $1.40 per gallon. When the Tier 2 water price goes above $1.40, no economic saving is produced but the higher cost of water simply raises the total cost of the rice.

If one looks at the relatively small part the Tier 2 water cost is in the total cost over the five years, and the fact that it is a revenue held for the benefit of the citizens, the benefits of applying UDI-ism are tremendous. It has eliminated the famine due to drought and it has created a PBF which can be used for creating other public benefits.

UD-ism – A Concept of Achieving Unity in Diversity Through a Practical Transformation of Capitalism and Democracy

What is diversity? One fundamental world view of this value system is that each and every human being has the right to a free will, and that other human beings allow others to exercise their free wills unless conflicts occur. When conflicts between individuals’ free wills occur, that is where many social problems take place. Diversity means the preservation of individual’s right of free will choices. Unity in diversity is, by the choice of words, not the same as unity by conformity. Unity in diversity means seeking unity while preserving diversity. In Chinese this translates to . Thus, unity is to be achieved not by dictatorship. More importantly, unity is not a static or absolute goal that is universally accepted by everyone. It represents a common set of goals or values freely emerging as a majority consensus from the diverse goals and values of the individuals. As individuals continue to change their values, that consensus of unity will also change.

Religion and morality has intrinsically nothing to do with it. However, if the majority chooses a single religion or a single set of black and white morality standards, they will try to set that goal for unity. However, because of the free wills of the individuals, that unity will only be achieved when the minority free wills are persuaded to follow the majority.

In this world view then, critical thinking, reason and logic are also essential elements which enable the system to function. People are not forced to follow. People must be persuaded through reasons to change their minds.

What is the unity then? Unity is a common set of desirable conditions that the majority wants to have. We shall call them Public Good. As it is hard to philosophize without specifics, we shall suggest some of these desirable conditions for the purpose of discussion:

• Having clean and natural environment
• Having good health
• Eliminating hunger and poverty

Most people would agree that these are desirable conditions for themselves to have. Most people would also agree that these are desirable conditions for others to have. Where people may disagree is the degree of help they would give to others in order for the others to enjoy these conditions.

At the base of these feelings is the self-preservation animal instinct. Why should I help the others? They are my competitors for survival. Through evolution, human beings have come to realize that there is a net benefit to the group to share if individuals come together to work as a group. By hunting or farming together, more food is obtained or produced, and the risk of an individual starving is also reduced. However, the scarcity mentality persists. There may be tribal unity, but then one tribe would fight with another tribe over food or resources. Even today, this mentality persists between nations, between corporations, between ethnic and religious groups, and to a degree between individuals.

Organizations (including governments) are set up by people or their leaders to unite people and to compete with other organizations. Rules and laws are set up to maintain order and to resolve conflicts. This system is a system of “sticks”, a system generally of punishment.

Religions are set up by visionaries to motivate people to do good things, either by appealing to people’s idealism or by setting up rules or commandments. It is a system of sticks and carrots. If you commit a sin, you will go to Hell. If you do good, you will go to Heaven. But the carrots are not material gains in this world. So the carrots are not very powerful incentives.

Now the shocker to some idealists. UDI-ism is not a high-minded holier-than-thou system of philosophy. UDI-ism is a system of carrots more so than of sticks. The carrots of UDI-ism ultimately is either money or material gains in this world. UDI-ism is not a religion. It is not a moral code of behavior. It is simply an incentive system for people to profit for themselves while doing things that also produces Public Good. By doing things that are good for all, individuals will receive selfish gains. How? That is the challenge.