In a comment to a previous post Ketan wrote that the “total number of people required to produce all the goods & services needed to fulfill all the needs of Indian population is less than the available workforce.” I explore that point here.
Some years ago, it is said that someone suggested that the US patent office should be shut down because everything that was discoverable about the world was already done and it would be pointless to keep the office with nothing to do. As it happens, it is just an urban legend.
The story that’s most often told is that in 1899 the head of the U.S. Patent Office sent his resignation to President McKinley urging the closing of the office because “everything that could be invented has been invented.” It’s been told and retold so often that even President Reagan used it in a speech.
I bring the story up to illustrate a point and it is this: some stories get repeated because they are believable. It is believable because people subconsciously feel that somehow we have reached a plateau in the progress of humankind and things are not going to change very much from now on. Perhaps this subconscious feeling is a result of insecurity about being able to deal with change. Change is good for the collective but it is not necessarily good for individuals.
This story may appear to be irrelevant in the context of things that needed done and how many people are required to do them. But there is a connection. Just as there are no foreseeable limits to what can be invented, there are no limits to what can potentially be done.
The productivity of labor has increased several folds ever since the beginning of the industrial revolution. In other words, each unit of labor today produces tens or even hundreds of times more stuff compared to before. It used to take 100 people to do something; now that same thing can be done by one person. So it would appear that phenomenal increases in labor productivity would put 99 people out of 100 out of work. But that is not how it works.
Parkinson’s law about work expanding to fill the time given for its completion is a specific case of a more general feature of the world: given the appropriate conditions, everyone can be productively employed at some job that needs to be done.
So we have to square the fact of unemployment — disguised or plain — with the fact that there are jobs that are not being done.
Let me digress once again. Take telecommunications. About fifty years ago, there were 400 million people in India. India had about half a million phone lines, and for that job India employed 50 thousand telecom workers. Since then, productivity of telecom workers have increased 100 fold (except in the state owned enterprises such as BSNL.) So it would appear that for half a million phone lines, India would need only 500 telecom workers and there would be 49,500 formerly employed telecom workers would be out of jobs. That’s not what happened.
What happened was that from about half a million phone lines, we have 500 million phone lines. And telecom employment increased to half a million — even though productivity increased by two orders of magnitude. Instead of lowering employment, because of the increase in the size of the telecom services sector, it led to an increase.
Not just POTS — plain old telephone systems — we now have PANS — particularly amazing new services. PANS are too well-known to bear repeating.
There is no dearth of things that need to be done in India. India does not have a good transportation system. What it needs is a fast rail network. That means we need 10 million people working for decades to build one. India needs manufactured goods. Our manufacturing sector is puny. Naturally so because around 800 million people subsist on less than US$ 2 a day. They cannot possibly afford manufactured stuff that you and I cannot imagine living without. But these same people, if they were to work in the manufacturing sector, they would be able to afford the manufactured goods.
We are caught in a vicious circle. There are no jobs because there is no need to produce lots of stuff. There is no need to produce lots of stuff because people don’t have the buying power for the stuff. They don’t have buying power because they don’t have jobs. It can become a virtuous circle. But that would require good policies by good policymakers — which in our case we have not got.
India needs houses for people. India needs cities for people. India needs schools, colleges. India needs hospitals and gardens. The list is long. For all these things, because it has a large population, it needs a lot of people to work to produce all these things.
Just to be sure, let’s keep this in mind. Material poverty is about the lack of stuff. What’s stuff? Everything that we use. Food, clothes, shoes, houses, books, a whole lot of services from education to dentistry to entertainment. When an economy does not produce enough of that stuff, the people are poor.
What distinguishes an advanced industrial economy from a desperately poor economy like India’s is that the former produces a lot of stuff and the latter produces little. And remember, stuff has to be produced for it to be consumed. To produce stuff, economic policies matter.
If you have a socialistic economy, it produces little. Talk to the Russians and former citizens of the USSR. If you have a market based capitalist economy, you produce a lot of stuff. Ask the rich Americans. Being productive, they are rich and because they are rich, they rule the world. India’s population is four times that of the US but yet India is a weakling in the world dominated by the US.
Let me stress again. Economic policies matter. What distinguishes the Indian economy from the American are economic policies.
Back to the original point. If India were to have good economic policies, India would be able to employ all of its human resources to produce the goods and services that India’s immense population needs. There is no way that India will ever run out of things that need done.