TECH TALK: As India Develops: A Tutorial on Development (Part 3)

How does one increase incomes of 700 million rural people in India? Writes Atanu:

Yes, India has huge natural resources. Unfortunately, India has huge population as well. So with 2.4 percent of the world’s land area and 17 percent of the world’s population, the natural resource base does not seem all that rosy. Couple that with the fact that India does not have sufficient fossil fuel resources (we import a lot of that stuff) and one is not all that sanguine about India’s natural resources. How about human resources then? The story there is also not that pretty. We do have a thousand million people. But they are mostly illiterate. Literacy is a basic prerequisite for any sort of human capital. Illiterate people can at best be engaged in subsistence farming, not working on rocket science or cardiac surgery or even BPO.

So then, do we have comparative advantage in agriculture. Perhaps we do or perhaps we don’t. The problem with comparative advantage (as opposed to absolute advantage) is that it is not always entirely clear whether one has comparative advantage because one is good at something or whether it is due to the fact that one is not good at it but one is worse in everything else one does.

The only way to increase incomes is the old-fashioned way as my grandfather used to say: by producing stuff. Income, just to remind ourselves, is just another word for production. We produce a lot of stuff, so we get to have lots of stuff and that is what it means to have a high income. Therefore for rural incomes to rise, rural production has to rise. Agricultural productivity has to increase (and perhaps some increase in agricultural production as well) of course and then the labor released from agriculture has to produce manufactured stuff and then move on to producing services.

There is very little by way of innovation that is required for rural incomes to increase, looked upon that way. But there may be innovations required for getting the productivity to increase. For instance, for raising human capital (a precondition for raising productivity), we may need innovative solutions to India’s literacy and education problems. For educating India’s umpteen millions of youth, we may need to use modern technology innovatively. Perhaps we can use the information and communications technologies to impart quality education efficiently.

Atanu discusses the importance of focusing on production over employment:

Production, rather than employment, should engage our policy makers more than it currently does. Why? Because if you don’t produce irrespective of how many people you employ you cannot distribute. Even if you distribute scanty production very evenly, you are left with a system that fails everyone.

Mechanisation and automation expands the ‘production possibilities frontier’ and thus we can get more out of less mostly less labor. Is that good or bad? Let me use a simple example. You can have 10 rickshaw pullers delivering transportation services through back breaking labor 12 hours a day. Or you can use autorickshaws and employ only 2 people who work in relative comfort to provide the same services. Hypothetically you could have every one of those 10 former rickshaw pullers work only one day every 5 days and earn the same as before. On the other four days they could (1) spend time with family, or (2) learn to make pots, or (3) learn arithmetic, or (4) play the santoor, or (5) take care of his aging parents, or (5) contemplate the universe, …

Now if you are more interested in ’employment’, of course the hand pulled rickshaw is a more attractive system for you. To some, those were the good old days when you did not have the ‘dark satanic mills’, when you had simple country living with horse carriages providing the transportation, and the cooling was done by fans hand-pulled by shapely maidens as one reclined on a diwan eating grapes, I guess. But in those days scanty little was produced and of that, the rich and the powerful got the lion’s share and the unwashed masses simply starved.

What has happened since those good old days? The economy has changed structurally. And that structural adjustment has produced more goods and services and having produced more, more people have a shot at living a less brutish, short, nasty and mean life.

However, adjustments don’t come for free. There is a cost and that cost mostly falls on those whose services become redundant in the new production system. Typist and shorthand pools have disappeared. Instead we have web designers.

People who are concerned about employment alone would have advocated the banning of research into computers and electronics to save the livelihood of typists and stenographers.

For my money, I would go for a system that is hell bent upon production and having produced, hell bent upon an equitable distribution. Given scarce resources, the most efficient production method is most desirable. If that means more computers in banks, so be it. So you have to lay off bank clerks. But if you look around, humans are somewhat inventive and entrepreneurial. The system adjusts — not smoothly or costlessly — but eventually. And if done with sufficient forethought, without too much pain.

We have to get away from this fixation with employment and get more focused on production. We have to use the most efficient and effective tools that modern technology can provide to increase our production. And there will be enough people left over who can use their time to figure out how to distribute most equitably the stuff that is produced.

Tomorrow: A Tutorial on Development (continued)

TECH TALK As India Develops+T

Published by

Rajesh Jain

An Entrepreneur based in Mumbai, India.