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.
Atanu Dey : Life is a Random Draw 
Digressing a bit but tell me one thing. Is it correct to say that while 51% of India’s population which is into agriculture is producing only 16% of it’s GDP there is not what that all these 51% people can ever get as rich as rest 49% unless they increase their output by 3-4 times?
Other option could be let only 16% population be in the agriculture. What economic policies do you think will help agriculture be a profitable business in India ?
P.S. By agriculture I mean farming.
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Hi Atanu,
I always had this doubt too. Thanks for clarifying. And after reading your article I suddenly had an ahaa moment.
I was reading about the volcanic eruption in Iceland which made Britian to close its airspace. I discovered NASA’s earth observatory @ http://earthobservatory.nasa.gov/NaturalHazards/view.php?id=43252 and was wondering how US has so much time to do all this. Then what you said struck me – There is always work waiting to be done. We are lazy bums and satisfied easily. (Our culture is like that – get a 9-5 job. and spend your time). But there is no doubt that we haven’t helped in achieving the scientific progress but ironically which we use.
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Culture is one word that we use as an excuse.
When it comes to work there is only two things: Innovation and Hard work.
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Atanu,
Firstly, thanks a lot for addressing my query!
Yes, somehow whenever I had thought of needs, I was largely thinking of things that could be replicated easily with minimum human labor. Things like building new superfast railways had not struck me.
I could not understand the explanation you gave of expansion in telecom sector very well, but I still feel there is some disguised unemployment in that sector. This is because all the major companies are essentially providing identical services at comparable prices. If only one or two companies were to cater to the entire market, the number of employees would increase by just two-fold of the current number of employees in a given company, but when instead about 10 companies are jostling with each other, vying for the same customers, the total number of employees sharing from same profits becomes five-fold. So, obviously their salaries would be just one-fifth of what they otherwise could be. I see a very similar condition with newschannels – all essentially providing same news –> advertisers having lot many options to advertise –> rates of advertisements fall –> all employees get lower salaries. This all is reflected in the fact that for doing essentially the same work in the US, here in India earning is much less (even after taking into account lower cost of living).
But, I must say your explanation has made me lot less pessimistic than before (or of course, more optimistic, a word I use with trepidation 😦 ).
I will just enlist 2 major themes I could see in your post.
1. We need to innovate. Meaning, we need to bring out new products & services, and moreover, we need to keep on improving existing products & services. De novo products/services will create new job openings for their manufacture & also to bring them to the consumers. Whereas, improvements over past technologies would absorb the existing work force (but possibly few jobs could actually reduce). But most important, innovators will remain employed.
2. Focus on manufacturing/construction. This will generate employment for lot of people and also allow for employment once manufacturing begins.
Though I see the merit in second point, and am convinced, it is there we can break the vicious cycle, an important issue is: do we have enough land, minerals & energy (electricity) to engage in such activities? Is there real risk of minerals getting depleted soon?
Thanks, again!
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Atanu, let me respectfully disagree! No jobs because not enough consumption and vice versa? Isn’t it that there are not enough jobs because most of our labor is uneducated and unskilled to contribute to production in a variety of ways other than farm or manual labor. Surely, there is govt contribution here or lack of it by not taking seriously the education, health, and basic infrastructure provisions for millions reeling under poverty. Once our citizens become skilled and capabale, the free market can use them in a variety of ways in manufacturing or services which ever is relevant and profitable.
While high rate of goods and gadget consumption is a sign of development, I personally hate it and think that development can and should be untied to intensive consumption of goods at levels environmentally unsustainable in the long run. India and China have a great opportunity to take initiatives to find innovative ways of minimizing material goods consumption and recycling most of the waste – before the two become consumption addict and unwise like that in US.
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every body in india (almost) talking about INNOVATION.its a thousand times easier to say than to do.for innovation to work we have to have strong intellectual rights.why do u think countries which have that quality they are the ones with innovation.
and lastly agree with ananth about ‘lazy bums’
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The main reason there are not enough jobs is because of a single rule : companies having more than 100 employees cannot sack an employee without permission of the government. This makes it impossible for a company to fire employees, which is essential if a company has to downsize or fire inefficient trouble making people.
So what happens is, companies simply do not hire people. In India organised sector employs only 20% of the labor, rest are employed in the unorganised sector. Companies hire people on a temporory contractual basis or hire none at all. So most companies in India are either small or very big. Small because they do not want to hire people.
Most of the growth in China and elsewhere in Asia is because of companies that grow from small to medium size. This does not happen in India. Remove this law and economy will be radically transformed. Millions of new jobs will be created.
You cannot dictate to a business who to hire and who to fire. When that happens, as is happening business simply refuses to hire people. So we have unemployment, underemployment – all created because of a few ridiculous laws.
But I expect nothing positive to happen given the sort of people we have. The only thing up for discussion seems to be reserving jobs for SC/ST/OBC in private sector. What can you do to help somebody who insists on killing himself ?
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Ranger,
What you say about permission from government to sack is utterly shocking. If possible, could you please tell which section of which act states that? Thanks!
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