A Capitalist went to an Orphanage

Once upon a time, a Capitalist went to an orphanage. He was there to fix some plumbing issue with the tap water system and had already agreed with the Management about the remuneration in exchange for his labor and expertise in accordance with the market prices.

He was pondering over the fact that orphanage was almost expecting him to work below the market rate, give them a discount, just because they were an orphanage. That’s ridiculous, thought the capitalist. “Why would I work below the free market rate?” “The Market decides what is a fair price for my services, I don’t. Why should I deviate from it and undermine the market?”

This train of thought eventually led him to think about “how the orphanage function anyway?”

“Or rather how should the orphanage run?”

“Who should take care of the orphans?”

“Who should adopt them?”

Who should adopt the orphans? That is a loaded question. And there could be a lot of answers to it depending on who you talk to and what do they think.

A moral answer to the question can range from “The closest relative should adopt them” to “The rich should pay for their care” to “They should be left to fend for themselves” depending on the exact moral philosophy you subscribe to. A communist answer could be to gather them all into a single central “Orphan warehouse” and train them in trades where the national economy is lacking resource.

A practical answer and obviously the one we see implemented in real life is a series of government and privately funded orphanages along with foster homes and adoption platforms.

Now, what would a truly “Capitalist” answer to the question sound like? You might think “They should be left to fend for themselves” is the true capitalist answer, after all the central tenant of capitalism is that you only work in your own self interest and not care about the society at large.

Not quite, because another tenant of capitalism is to optimize and utilize all possible resources. And like it or not, humans are a resource. So, lets look at finding a optimal capitalist answer to this question.

To find the answer, lets first look at how a typical person’s childhood is funded. In the pre “fixed salary jobs with pension fund” The parents would typically fund the child’s living, development and educational expenses. The child would in return take care of his parents in their retirements. Funding their living expenses along with their medical bills.

In this model, the investment made in childhood of your kid is recouped in your retirement. The entire cycle takes about 30 – 50 years to unfold and is probably the biggest long term investment you will ever make. You know where else you make a very long term investment? Yup, your retirement fund.

So, here is what I propose. The retirement funds should fund the childhood of Orphans. They should make this 40 year investment.

This may sound crazy! So, let’s do some maths.

Let’s say there is a guy called Ramesh. After a tragic accident involving his parents,he ends up in an orphanage at young age of 4. Let’s assume the orphanage spends around ₹3,500 per month taking care of Ramesh and he stays in the orphanage till age of 18 i.e. for 14 years.

Lets assume the Hatwalne Retirement fund is “Adopting” Ramesh at real interest rate (discounting the factor of inflation) is 5%. This means that at 6% inflation rate, the on paper interest would be 11%.

After leaving the Orphanage at age 18, Ramesh decides to spent a few years honing his skills and improving his earning potential.

Let’s say that at age 25 he decides to start paying back the Hatwalne Retirement fund, 7 years after leaving the orphanage. If he pays back ₹6,000 (inflation adjusted) each month. He will have to keep paying for the next 22 years. i.e. till age of 47 years. A 43 years relationship with the fund.

This calculation may seem a bit uncomfortable to a few. I mean, Ramesh is paying back the “loan” for majority of his adult life. This looks even more uncomfortable if you include inflation in the calculation (11% interest rate). In this case, Ramesh will have to pay ₹16,000 per month for 22 years!

Two counter points here:

1. If you assume the earning capacity of Ramesh increases with time, he can pay back more each month and get rid of the loan much earlier.

2. The fact of the matter is that Ramesh will not have to take care of parents and is saving a lot of resources in that respect.

I know this is not really a “Practical” idea per say. Burdening a 4 year child with a life in debt may not be the most ethical thing to do. No one know what actual interest rates should be for something of this scale. And even the retirement funds probably do not want to invest their funds in a 40 year time frame investment.

This is an extreme solution to a non extreme problem.But, Thinking of an extreme solution might nudge us towards an optimum one, that might lie somewhere in the middle.

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