The curse of technology

Parties are vying with each other in promising that they will generate jobs for the unemployed. This will not be easy though. 
 
Actually, workers are becoming increasingly irrelevant in the modern world. Machines are producing goods in large quantities with few workers. 
 
Say, there is demand for 10,000 yards of cloth per day in a town. 

Previously 1000 weavers were involved in producing this. Now, the same cloth is being produced by 10 workers on automatic looms. 
 
Businessmen find it profitable to employ more machines and less labour because the cost of capital is declining. 

It is cheaper to borrow money from banks and buy machines. On the other hand, the cost of labour is increasing by the day. 

Economic development has become its own enemy. Development means prosperity which, in turn, means low interest rates. 

Development also means high standards of living which, in turn, means high wages. 
 
The final result is that economic development is leading to displacement of workers by machines.
 
Indeed a number of high-skill jobs are being created in the modern factories such as in designing, computerisation, etc. 

But number of these jobs are small in relation to the population. 

Moreover, these jobs are concentrated in big cities. Weavers are losing jobs in Varanasi while engineers are gaining them in Gurgaon. 

It may appear that jobs are being created in cities but that is really a local phenomenon.
 
Nearly one-half of our youth are unemployed at the national level. 

Such would not have happened if large number of jobs were being created in IT and other sunrise sectors.
 
The only way to create jobs in large numbers is to make it profitable for businesses to employ labour instead of machines to undertake production. 
 
This requires that the cost of labour be brought down. Governments across the world are moving in this direction. 

Labour reforms are designed to achieve this objective. 
 
Allowing businesses to lay off workers when not required, to employ them through contractors and to give them right to hire and fire as per their choice—all such measures lead to a reduction in the cost of labour. 
 
That is the natural direction to go. But we should not be under any illusion that this will lead to an increase in wages. 

There is a trade-off between numbers of jobs and wage rates. Businessmen will employ less number of workers if wages are high. 

Contrariwise they will employ larger numbers if wages are low. Labour reforms will lead to a reduction in wages and increase in the number of jobs.
 
Many scholars are of the view that imparting of better skills and better matching of applicants with available jobs can help solve the problem of unemployment. 

Some positive impact will indeed take place but this may be like a drop in the ocean. 

Better skills will enable the workers to produce more goods. This will lead to lower cost of production.
 
Job reduction
 
Improvement in infrastructure will have a small impact on job creation. 

Better roads, banking and communications will lead to a reduction in the cost of transaction.
 
Once again it will lead to a reduction in the cost and an increase in demand. 

But these improvements simultaneously lead to a reduction in employment. 

Previously we would employ large number of workers in making paper, making envelopes and sorting the letters and making from the post office. 

Now the same communication takes place with a click of the mouse. 

The paper and envelope makers and sorters in the post office have lost their jobs.
 
The fact that infrastructure and good governance does not lead to creation of jobs is easily verified by comparing developing countries like India and developed countries like Japan.

Unemployment remains at high levels in these countries. 

This is not to decry the benefits of modern technologies but only to point out that solution to the problem of unemployment will not come from this route.
 
The culprit is technology. 

The modern production process simply does not require large number of workers. 

Existence of the humankind is becoming increasingly irrelevant to the workings of the economy. 

The solution will come from making employment generation the direct objective of the economy. 

We cannot assume that economic growth will automatically lead to an increase in number of jobs. 

It may be necessary to move towards lower rates of growth. 
 
For example, say an ‘unemployment tax’ is imposed on modern textile mills.
 
This will lead to an increase in cost of cloth. It will lead to lower rate of economic growth. 

High cost of cloth will lead to lesser demand and overall economy will slow down. 

But it will also lead to restart of handloom industry. Large number of jobs will be created in weaving. 
 
Hence there can exist an opposite relation between economic growth and employment. 

High economic growth secured by the use of automatic machines will lead to less employment, not more as conventionally held.
 
The new government should take this reality on board. 

Following the beaten track of infrastructure, good governance and skill development will lead to short term gains. 
 
There will be a sense of euphoria in the first two or three years. 

But this will not sustain. 

India is today an unemployed developing country. Tomorrow, it may become an unemployed developed country. 
 
Therefore, the new government should impose heavy taxes on select modern industries where there is a large employment potential. 

The opposition to FDI in retail would be a correct step in this direction. There is a need to improve governance, infrastructure and skills. 

But benefits of these will reach the common man only when combined with measures to explicitly and directly create jobs.

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