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June 04, 2005
It is the productivity
Abstract: The author argues that the root cause of the Indian (or third-world) poverty is neither the corruption nor the huge population. But the problem lies in meager growth in productivity levels.
TOC:
* The problem of under development
* It is not the corruption
* It is not the population either
* It is the productivity
* Some ponderings on the subject
The problem of under-development
Even after achieving 50 years of Independence, the rate of social and economic development is not up to any Indian's satisfactory levels. What has gone wrong with India ? There seems to be so many divergent opinions. Some point to the huge population and some point to corruption in public life. Some point to Nehruvian socialism. And some point to mis-directed capitalism.
The development is so slow that it paralyzes the hopes of best optimists. It generates a sense of skepticism and helplessness in the minds of population. The Indian culture is already predisposed to concept of fate/karma; the current state of affairs reinforces a dis-empowering mode of thought: "Nothing happens in India." This kind of fatalism and acceptance of failure feeds into the system which discourages/penalizes even the people who genuinely attempt to change the system.
What is the root cause of the India's insufficient development ?
It is not the corruption
At first glance, corruption looks like the most probable root cause. But in my opinion, the corruption probably contributes or aggravates the situation but it is not the root cause.
Corruption irritates. And corruption does skew the system. It may favour an unoptimal agent of production. It may give a chance to corrupt contractor with dubious track record. But I believe, the corruption is not a root cause but one of the aggravating factors. Some times, it looks like that the under-development is root cause of corruption, rather than being other way around.
I am not saying that stopping of corruption would not help the system. It sure would help. I am sure all those funds which are channeled into unproductive pockets of corrupt officers and politicians would help towards the development. But getting blinded by the hope that the corruption would fix all the problems is wrong too.
For example, on a road project, assume that we eliminate 100% of corruption and channel all the funds to actual building process. Even then, the funds wouldn't be sufficient to build enough roads to the western standards of development as long as we are still stuck with low per head productivity levels.
It is not the huge population either
And neither the population is the root cause of under-development. More the population means more teachers, more police, more doctors, more janitors, more working hands, more production, more goods, more services, more jobs (and even more politicians).
Most of the people get stuck with the question: how do we provide education for such huge population ? Or how do we feed such huge population etc.?
The huge population becomes a liability only if we start putting pressure on land and resources. We did pretty well on the food sufficiency and we could do better. One could argue that the natural resources are not in proportion to such huge population. But which nation on earth does have all the natural resources abundant for its needs ? Look at Japan; the population density of Japan per square kilometer is much more than that of India. The land is not a problem at all as has been proved by Japanese experience. In my opinion, the big population is an asset rather than being a liability.
It is the productivity
In my opinion, the real problem is the insufficient growth of productivity. What is productivity and how is it the root cause of poverty ?
Productivity is the amount of goods & services produced per head (per capita). Looking from a different perspective, it also means the amount of goods & services consumed per head (per capita).
The reasons for slow productivity gains are too many: probably our mis-directed government policies or inherently unmaterialistic & fatalistic Indian culture.
Try to compare three three systems: an African rural village, Indian rural village and a Western urban setting. These are three gradations in productivity landscape. One can see generally that African village is using more manual labour with low productivity while an Indian village is little better off.
So now the question is whether the African village can jump to western levels by pumping technology and capital into it? Apparently so far the conclusion is that the development is mostly incremental. An incremental productivity raising tool/practice is accepted which in turn makes the road for next level by enriching the demand through creation of better purchasing power. If you want to skip the middle level and directly jump to highest level through pumping more capital and technology, it always fails because of low absorption rates in the system; most of the time this results in destroying the traditional livelihood and endangering the whole path itself.
The productivity growth is not always linear incremental; there are possibilities of huge jumps in productivity levels with judicious planning and vision. For example, better and relevant education/information will do a lot to productivity level.
The productivity gains happen because of better processes, better tools/machinery usage, better technology usage and some times these requiring employment of more capital.
The main reason put forward by lot of skeptics is that we have so much of surplus labour and won't the usage of machinery render the labour force out of work ? This is a complex issue to understand.
I don't think, I have a sufficient evidence to refute it; the incremental addition of machinery will put some pressure on labour but the additional productivity gained in the process is going to create more avenues for the replaced labour else where. I have an example of such scenario from rural experience from Andhra Pradesh. Ten years back, most of the agriculture in Telangana has employed pure labour. But over a period of time, the tractors, machine ploughs, xxxx have been introduced. I used to get scared every time some new machinery got introduced into system fearing that it is going to damage the labour force. But what I witnessed was that all along this transition, the labour wages have been climbing up and the labour is productively employed in some other sectors outside the agriculture.
Other argument people raise is what happens when the productivity levels are so high that one capitalist can produce enough for the whole of population with the help of tools ? Won't the rest of the population lose the means of economic power ? There is a fallacy behind this argument; the false assumption is that the human needs (demand for goods & services) are finite. But in reality, human needs are infinite. As Gandhi pointed out that "there is enough for every body's need but not enough for every body's greed." The human greed for better life and luxuries is infinite and those previously unimagined needs are going to keep industries and labour force employed in those sectors.
There is another subtle point to observe along with the gain in productivity levels. The thing that balances the production and consumption is the distribution of wealth created. It is the responsibility of government policy which should take care of proper wealth distribution. But government should not achieve this by regulating the production & consumption but by creating forces to channelize these activities into a better balance.
Some Misc Notes on the subject
Another general complaint we hear is that there is not enough purchasing power in the system which rewards the entrepreneurs to create new products & services. This is a chicken and egg problem. Arguing the other way around, there is not much of purchasing power in the system because there is not enough of production which employs those labour.
I think, the fine balance is always to go at incremental steps where the incremental gains obtained in the system helps offsetting the shifts in labour force.
The other thing to be careful is of falling trap to copying the western style of production means. The western economies didn't advance to their current stage in one huge leap but through many incremental shifts. Since currently the western countries are advanced way beyond our levels, the structural changes resulting from blind copying of western models will be painful to adjust. It doesn't make sense to reinvent the wheel but sometimes we may have to do just that.
Posted by nachiketa at June 4, 2005 05:25 PM
Comments
Problems in india are neither due to corruption nor multiple languages.
it seems like productivity is the cause of problem, but its not.
corruption, productivity or public toilet systems are just the effects not the cause.
there is no need for a unified language and country should get rid of english as an official language. having a foriegn language language as national and primary language of business is shamefull.
all problems discussed are result of common cause - enslaved bhartiya psyche, which is forced to call its country INDIA not BHARAT. which is forced to sing the song of slavery as national anthem.
just think about it.
this relation does't seem obvious, but i will explain and make it clear in future.
as for solutions - if problem could not be correctly identified solutions are impossible. if we go about fixing the effects not the causes, this will only change the presentation of effect.
Posted by: amar at June 29, 2005 07:12 AM