India and the Promise of Productivity

by on December 20, 2011 at 7:37 am in Books, Economics, Food and Drink | Permalink

In the comments to Anti Chain Store Policies in India and America, “Lark” posted a long “refutation” from Triple Crisis of the “neo-liberal” arguments for retail reform in India. I will focus on one remarkable argument:

…experience across the world makes it incontrovertible that large retail companies displace many more jobs of petty traders, than they create in the form of employees. This has been true of all countries that have opened up to such companies, from Turkey in the 1990s to South Africa. Large retail chains typically use much more capital intensive techniques, and have much more floor space, goods and sales turnover per worker.

One estimate suggests that for every job Walmart (the largest global retail chain) creates in India, it would displace 17 to 18 local small traders and their employees. In a country like India, this is of major significance, since around 44 million people are now involved in retail trade (26 million in urban areas) and they are overwhelmingly in small shops or self-employed.

Of course this is no refutation, fewer jobs are precisely the point. What India needs is fewer jobs; fewer jobs in retail, fewer jobs in apparel and, most of all, fewer jobs in farming. India cannot become even a middle income country if most of its workers, for example, are farmers. To improve its standard of living, India must use fewer people to produce more agricultural output.

Fewer workers in farming (or retail) means more workers producing more goods in other industries. The same basic lesson holds throughout an economy, it is the declining sectors that allow other sectors to advance. Instantaneously? Immediately? With higher wages for every worker? No. Transitions always involve some pain; creation always involves some destruction; growth always involves change. The alternative, however, is stagnation.

The politics of growth are difficult because those who lose from change are always present and are often more numerous and perhaps even more deserving than the present winners, the capitalists, the business people, the international mega corps; but today’s losses and gains are fleeting, the permanent winners are the workers and consumers of the future who will know only the benefits of productivity.

anon December 20, 2011 at 7:45 am

Yes, but there are many folks who have no problem seeing black, brown and yellow people staying poor as petty traders, farmers and retail clerks. And under cover of some sort of “authenticity” and “purity” of culture among other crap.

I’ve never understood how people who are live so comfortably in Europe and the United States can be so comfortable and blase and self righteous advocating ongoing poverty for others who do not live in Europe and the United States. Such neo-imperialism is paternalistic and disgusting.

End of rant.

Danny December 20, 2011 at 7:53 am

I noticed this quite a bit living in Honduras. The people so desperately want to live in the United States that they are willing to risk their life and their life savings to get there…but the NGOs go there for a day or two, see some kids playing football with an old rusty can, and come to some bullshit conclusion that Hondurans are happy because they aren’t consumerist and don’t need to depend on money to make them happy. And then they proceed to give them health care they could never afford, clothes that they could never afford, and food that they could never afford. No….wealth doesn’t make anybody happy.

Rahul December 20, 2011 at 2:24 pm

Reminds me of this girl who had recently been to rural India. She raved about how poor Indian villagers were so socially conscious and fortunate since they ate only “organic” and “local” food. Sigh.

Martin December 20, 2011 at 8:02 am

Milton Friedman made the very same point in – if I recall correctly – in the series Free to Choose with the very same country as his example when he was contrasting – I believe – the path of Japan and Hong Kong with the path India had taken in development.

It’s a shame that these kind of points have to be made over and over again and in the case of India it’s a double shame.

MM December 21, 2011 at 1:29 am

Manmohan Singh is an Economist and understands this – that is why the policy to allow FDI in retail was brought in in first place. There need to be other intitutions in place for people to move into other jobs – there are hardly anything in place to support Enterpreneurs – how is the transition going to take place? So democracy kicks in to maintain status quo.

TallDave December 20, 2011 at 8:03 am

This reminds of the old canard about child labor being a horror of industrialization, when in fact children were coming to the cities in large part because they were worked even harder on farms that were just as dangerous as factories, and paid considerably less because their work was less productive.

There seems to be a huge amount of social inertia that holds societies back from productivity improvements.

Merijn KNibbe December 20, 2011 at 8:55 am

That’s not really a canard. Back in the old days, the city of Tilburg in the south of the Netherlands was a latecomer in the industrialisation process. After 1880, there was quite some growth of the textile industry. This led, among other thing and in a time when infant- and child mortality had started its seminal decline in the rest of the Netherlands (!), to an prolongued and large increase of infant- and child mortality in Tilburg. Only when male wages started to increase (which took decades) and the ‘luxury’ of the stay-at-home mother took hold, child mortality decreased again. Sewersystems and better healthcare were, at first, only circumstancial when it came to lower child mortality. Mother’s weren’t. If you want to know about industrialization, Friedrich Engels still is a very good source. Or the first hundred pages of ‘Crime and punishment’ of Dostoyevsky (great on informal credit systems, too). An economist who did understood and understands all these kind of things: Robert Fogel, who states that it was only after 1895 that the standard of living started to improve on pre-industrial standards, after a hundred years of productivity improvements in industry.

http://www.nber.org/papers/w16938.pdf

See: http://www.amazon.com/heeft-niet-willen-groeien-maatschappelijke/dp/9066630361

Cliff December 20, 2011 at 9:06 am

I don’t get it. The infants were dying from working in textile mills? Or they were dying because their mothers abandoned them to work in the mills? Or what?

Merijn KNibbe December 22, 2011 at 5:41 am

Basically, they were dying becasue their mothers abandoned them.

TallDave December 20, 2011 at 12:24 pm

Are you saying children weren’t working harder for less money while being less productive on the farms?

Robert Fogel, who states that it was only after 1895 that the standard of living started to improve on pre-industrial standards

That depends on the measurement used. Certainly by 1895 they were able to access far, far more goods and services at lower labor cost than in 1700.

http://en.wikipedia.org/wiki/Industrial_Revolution#Technological_developments_in_Britain

TallDave December 20, 2011 at 1:40 pm

*by labor cost, I mean in terms of how many hours a consumer needed to work in order to obtain a given good/service

Merijn KNibbe December 22, 2011 at 5:53 am

Maybe they were able to access more goods. Yes. But they were also dying earlier and getting smaller and sicker. The exact timing differs, but in all industrailising countries there is a phase of several decades in which the ‘biological standard of living’ clearly deteriorated, for a number of reasons.

Some data on child mortality around 1913:

Breastfed children: 10% (before 1 year of age)
Non-breastfed children 25% (before 1 year of age)

http://www.google.nl/search?q=Tilburg+zuigelingensterfte&sourceid=ie7&rls=com.microsoft:en-GB:IE-SearchBox&ie=&oe=&redir_esc=&ei=MwrzTo7-E4TsOfzF2LIB

Working at the mills disabled the possibility for breastfeeding the children, leading to a clear increase in child mortality while cripling the health of the remaining children for the rest of their live.

Also, there is quite some evidence that total hours spend on paid labor increased after 1600/1700. You might consult Jan de Vries, http://books.google.nl/books/about/The_industrious_revolution.html?id=CMhg4FcRU_oC&redir_esc=y

david December 20, 2011 at 8:05 am

Innovation would be improving on net but, okay, let’s accept that there are losers. Why does nobody ever suggest compensating the losers out of the gains of the winners? “India” needs innovation but, as libertarians like to say, pierce the veil and you find that some people benefit and some people lose.

TallDave December 20, 2011 at 8:14 am

Compensating the losers out of the gains of the winners would reduce the incentive to be a winner. (If you subsidize something…)

david December 20, 2011 at 8:51 am

The optimal level of individual incentive is the benefit less the loss, not the benefit alone, surely.

TallDave December 20, 2011 at 10:51 am

If we knew the optimal level and could calibrate it that finely, we wouldn’t need markets and could all happily fly the hammer and sickle in an economic utopia. Unfortunately that’s never worked anywhere it’s been tried.

At any rate progressive taxation and the welfare state already does this, probably too much.

david December 20, 2011 at 11:39 pm

So you know the optimal level is zero?

david December 20, 2011 at 11:42 pm

To be clear here: you are calibrating what the individual incentive is even if you choose to do nothing, because endorsing doing nothing is an endorsement of the consequences of doing nothing. You’re just calibrating it finely at zero.

TallDave December 21, 2011 at 2:18 pm

If you don’t attempt to calibrate it, you are allowing the market to set the difference.

If you attempt to calibrate it, you are saying “we know better than the market what the correct price is.” This almost never works out well.

Danny December 20, 2011 at 8:41 am

How exactly do you compensate someone who lost their job, got a job paying 10% less, but a cost of living that is 10% lower too? You don’t.

JWatts December 20, 2011 at 9:06 am

“Why does nobody ever suggest compensating the losers out of the gains of the winners?”

I hear that particular suggestion all the time. What I seldom hear is a practical and specific solution.

Brett December 20, 2011 at 12:22 pm

Matt Yglesias and other liberaltarians suggest it all the time. It would basically be the “Danish” model: high welfare spending in the form of social insurance plus liberalized markets.

JWatts December 20, 2011 at 1:59 pm

That’s not a specific solution, but a general society wide solution.

JWatts December 20, 2011 at 2:13 pm

To clarify, I didn’t mean to hand wave away your solution, but I did state I didn’t generally hear any specific solutions. I do often hear the general solution of a larger dole.

Brett December 20, 2011 at 7:43 pm

More specifically,

1. Unemployment Insurance.
2. Universal Health Care Coverage, preferably the Singapore Model (although you could also do a Single-Payer Plan like Canada or Taiwan)
3. Wage subsidies at the lower end of the spectrum, possibly with temporary subsidies to companies that hire workers (but I’m still open on the last one).

These are just some rough ideas.

Brett December 20, 2011 at 7:43 pm

Sorry, the formatting got screwed up.

Cliff December 20, 2011 at 9:08 am

Everyone suggests this, but a) it’s impossible, and b) the losers have not been wronged in any way.

anon December 20, 2011 at 11:27 am

“Why does nobody ever suggest compensating the losers out of the gains of the winners?”

I hear that particular suggestion all the time.

Yes, how can anyone miss the ongoing demonisation of the “wealthy” in the US? Did all of these “wealthy” take their wealth by force or fraud? Unlike all the money handed out by the political class (Ds and Rs) to their buddies in the “private” sector. I’d like to see a lot more demonisation of crony capitalism and insider trading by the political class and their buddies, and a lot less demonisation of individuals voluntarily choosing how and where to spend their own money (including adults being able to choose to ingest mind altering substances).

More government results in more distortion of the voluntary transactions of individuals.

marris December 20, 2011 at 11:19 am

The “compensation idea” implies that a loser lost something that he *was entitled to*. And what is the argument for his entitlement?

I may stop buying from Alice and start buying from Bob. Alice loses as a result of my decision. But so what? Why is Alice entitled to receive some of my income. Perhaps Bob is entitled (since he took the trouble to produce something I want to buy). Why is the switch not a *correction* of justice [a reward for Bob's work]?

Alternatively, if you think Alice [as a loser of my decision] is entitled to compensation, then can’t we apply the same argument to Bob in the historical period? Isn’t he entitled to “back pay” since he was a loser of my historical decision to pay Alice?

Brett December 20, 2011 at 12:20 pm

The “compensation idea” implies that a loser lost something that he *was entitled to*. And what is the argument for his entitlement?

It’s a pay-off in order to get the social stability needed for “winners” to continue doing business. Your “winners” may have won through voluntary trade, but that doesn’t make the “losers” (who may have had good positions before hand, but are now faced with falling living standards and poverty) any happier. They may turn to crime, riot, vote for regulatory restrictions designed to protect their welfare, or worse.

In order to buy them off, you make “pay-offs” in the form of welfare spending, transfer income, health care, etc.

The Anti-Gnostic December 20, 2011 at 12:34 pm

People with high time-preference physically threaten people with low time-preference into subsidizing their existence. So the low-time preference people move away. Then the high-time preference people don’t have any net tax payors to carry the load, so they follow after the low-time preference in order to repeat the cycle. This strikes me as a time-limited experiment with an ugly ending.

marris December 20, 2011 at 1:23 pm

This response conflates two very different ideas. It is true that the losers may be less happy than they otherwise would be. But Bob and I are happier. Maybe there’s a “making Alice happy again is worth lessening Bob and my happiness” argument, but the argument must be made. Your response just repeated the facts of what *is* without building a case for what *ought to be.*

A second idea in your response is social stability. Basically, if Alice gets unhappy enough, maybe she will attack me and Bob… is this an accurate summary? One feature of this scenario is that Alice’s behavior may not be *good behavior.* There may be some constraints on how hard we should work to ensure her happiness. Suppose giving X dollars will keep her alive at a subsistence level, but 2X dollars will make her very happy. Are Bob and I obligated to pay her off until she promises to not attack? This is a protection racket, right?

Now it may be that none of this “morality stuff” matters in the end. Maybe the social forces are so powerful that there’s a hurricane of Alice and Alice-like people out there and we are faced with a stark choice: either divert them from attack or suffer the storm. In that scenario, aren’t we only obligated to do the minimal amount required to get Alice to back off? Maybe that’s a social welfare program. Maybe it’s the distribution of happy pills. Maybe we should enable competing welfare programs and let each community try to divert the storm through trial-and-error.

Brett December 20, 2011 at 7:49 pm

A second idea in your response is social stability. Basically, if Alice gets unhappy enough, maybe she will attack me and Bob… is this an accurate summary? One feature of this scenario is that Alice’s behavior may not be *good behavior.* There may be some constraints on how hard we should work to ensure her happiness. Suppose giving X dollars will keep her alive at a subsistence level, but 2X dollars will make her very happy. Are Bob and I obligated to pay her off until she promises to not attack? This is a protection racket, right?

You could call it that, but keep in mind that “attack” contains a variety of responses. It could be things such as labor riots and revolutions, but also behavior such as voting for regulatory/protectionist legislators that could hinder economic growth and technological innovation.

As for the “obligation”, there really isn’t one. It’s just that it may be cheaper to buy some social stability through these types of “payments” instead of dealing with constant social and economic turbulence (go look at China with its “wildcat” strikes, or late 19th century/early 20th century USA). It’s a trade-off, and the amount “paid out” is going to vary from society to society.

Erik December 20, 2011 at 8:22 am

But how does this work if you introduce some type of assumption regarding the existence of global limits to growth?

Theories that rely on infinite growth are usually like the overweight person who doesn’t want to change his eating habits or lifestyle and is growing towards obese, who assumes that new medical technology and procedures will be able to keep him alive despite himself. He may not be very mobile, or able to enjoy life (other than his consumption), but innovation will keep him going!

The problem with the “politics of growth”, in this respect, is the presentation of black and white choices framed so starkly. “Growth” vs. “Stagnation.” You might as well say “life” vs. “death”, but that’s ridiculous. After all, GDP and standard of living metrics are like measuring personal well-being solely on the number of calories a person consumes.

The Original Frank December 20, 2011 at 8:35 am

GDP per person is correlated to the good things in life — all of them.

Erik December 20, 2011 at 8:49 am

The problem with economics is that it treats human individuals, societies, and economies as logical constructs that conform to mathematics as neatly as the laws of physics. The problem with human beings is that they are ruled neither by logic nor mathematics.

Anon. December 20, 2011 at 9:06 am

That’s completely irrelevant. A model is a model, and as long as people act “as if” the model is (approximately) correct the approach is methodologically sound.

The Anti-Gnostic December 20, 2011 at 12:46 pm

LOL. It’s actually the other way around.

Reminds me when I was driving to a restaurant with a friend who swore by everything Google. We stop at a T-intersection and my friend, face buried in his iPhone, tells me to go straight.

msgkings December 20, 2011 at 1:23 pm

Outstanding.

Cliff December 20, 2011 at 9:10 am

So you are suggesting there is a limit to the total amount of “growth” in the world and you want to hoard all the growth for developed countries? That seems nonsensical to me.

anon December 20, 2011 at 9:51 am

Nonsensical and elitist and immoral.

Brett December 20, 2011 at 12:25 pm

Theories that rely on infinite growth are usually like the overweight person who doesn’t want to change his eating habits or lifestyle and is growing towards obese, who assumes that new medical technology and procedures will be able to keep him alive despite himself. He may not be very mobile, or able to enjoy life (other than his consumption), but innovation will keep him going!

It’s been a reasonable assumption so far. I think you’re falling into the common mistake that “growth = consumption of more resources”, when that’s not the case ( a lot of growth, in fact, comes from using technology to get more output of “inputs” in the form of resources, labor, etc). When you factor in “intensive growth” like the above, you’re really limited more by how much people are willing to work and invest, plus technology itself (which may plateau sometime in the late 21st century, at least in terms of fundamental discoveries).

Matt Waters December 20, 2011 at 12:27 pm

So, uh, what are these limits to growth exactly? Are they still the same as when Paul Ehrlich predicted that there would be a massive famine in the 80′s across America due to overpopulation?

I’m not a fervent believer in market fundmentalism, especially when it comes to financial markets. But such analyses that have “limits of growth” seem to completely deny the existence of, you know, supply and demand curves. So, while developing countries mean a higher demand curve, they also mean a higher supply curve. This is not just the higher productivity of farms, mines and wells in developed countries, but the additional engineers and scientists who will have also contribute to new breakthroughs just like American scientists.

To put it more bluntly, the idea that developing countries do not push out the supply curve assumes that third world people can only be parasites on the world; that they can’t contribute to the world economy and can only take from the world economy. I don’t know about you, but I find such a “White Man’s Burden” ideology revolting. I much prefer free trade where market transactions force developing and developed countries to take and give in equal amounts. It doesn’t always work that way, I know, but that’s the ideal to shoot for.

Todd December 20, 2011 at 8:34 am

“Are there no prisons?…And the Union workhouses, are they still in operation?….The Treadmill and Poor Law are in full vigor then?….I was afraid from what you said at first, that something had occurred to stop them in their useful course.”

Merry Christmas everyone.

David Ellis December 20, 2011 at 8:34 am

“Fewer workers in farming (or retail) means more workers producing more goods in other industries.”

Really? That big assumption just flew by, didn’t it?

How about fewer farm and retailers means the unemployed are a larger percentage of the population than before. Ya think?

Last I heard the Industrial Revolution was over. There’s excess capacity of ecess capacity these days.

JWatts December 20, 2011 at 9:09 am

“Really? That big assumption just flew by, didn’t it?

How about fewer farm and retailers means the unemployed are a larger percentage of the population than before. Ya think?”

Can you site any evidence to support the view that unemployment would rise vs the massive amount of historical evidence that says all of the displaced workers will on average find another job and long term unemployment would not be affected?

FooFighter December 20, 2011 at 10:37 am

Actually curious, can you cite more than a few examples expediently finding as-high paying jobs when their industry was wiped out? I don’t doubt they are there, but I can’t easily think of one.

TallDave December 20, 2011 at 11:00 am

What did you think happened to all our farmers?

Tom West December 20, 2011 at 1:46 pm

Well in South America and Africa, a substantial number of them ended up in mega-city slums and favelas, and are still there a generation later.

TallDave December 20, 2011 at 4:57 pm

Hey, I’m just as against crop subsidies as anyone.

Tom West December 20, 2011 at 1:44 pm

Can you site any evidence to support the view that unemployment would rise vs the massive amount of historical evidence that says all of the displaced workers will on average find another job and long term unemployment would not be affected?

May I cite the huge enduring unemployment endemic in mega-cities in Africa and South America?

While displacing a large number of people from current low productivity endeavors may be a requirement, recent history shows that it is *not* an guarantee of advancement.

Perhaps the government’s actions are simply a statement of lack of confidence in their ability to orchestrate the next move in the growth progression, which would leave them with a mass of very unhappy, unemployed people (who would directly blame the government for enabling the situation). This often leads to government instability, occasionally revolution, and often bellicosity in an attempt to focus unhappiness somewhere else.

India’s government back-slide may simply be a rational weighing of what they believe the probabilities of attaining the next step to be, given India’s history and culture.

JWatts December 20, 2011 at 2:11 pm

“May I cite the huge enduring unemployment endemic in mega-cities in Africa and South America?”

Sure you can, but were those slums the result of improvements in farming which displaced formerly productive workers or the results of abject poverty driven by a very high birth rate? I think the evidence in South America points to high population growth, not actual displacement of formerly productive farm workers.

About Africa, at least for big chucks of it, I think they have both low farm productivity and vast slums, so it doesn’t directly bear on the argument of worker displacement at all. Since the workers aren’t being displaced from the farms due to automation, it’s not tangent to the discussion.

Tom West December 20, 2011 at 3:47 pm

I believe half of Alex’s point is that you need a bunch of unemployed to deploy into higher productivity occupations. I am pointing out that it’s not particularly uncommon to have those resources *not* used, even in the long-term, despite economic models that would indicate otherwise. Often these nations consumers are already receiving the benefits of high-productivity agriculture via trade, so having local agriculture become more productive won’t realize wide-spread gains and are thus not necessarily a necessary step towards growth.

No doubt persistent high unemployment indicates market failure (caused by any number of reasons: government, culture, lack of investment, military insecurity, etc.), but given large parts of the world have a history of market failure for a variety of reasons would be irrational not to consider it heavily in government policy decisions. Even if *you* want pro-market policies, in a democracy where you can count on a change of government later, it might be unwise to commit to a course that is catastrophic if only half-finished.

TallDave December 20, 2011 at 5:01 pm

I believe half of Alex’s point is that you need a bunch of unemployed to deploy into higher productivity occupations.

No, it’s the same process that creates both.

I am pointing out that it’s not particularly uncommon to have those resources *not* used, even in the long-term, despite economic models that would indicate otherwise.

That would assume high productivity farming drove them there, but actually a lot of that was driven by food aid. No point in being a subsistence farmer when they’re giving food away.

TallDave December 20, 2011 at 5:02 pm

Also, the urban poor are usually better off than subsistence farmers anyway (that’s why they don’t go back to farming).

Tom West December 21, 2011 at 7:25 am

Would you care to explain why the unemployed displaced through high productivity farming are going to be different from those displaced by trade or food aid. They’re still displaced farmers who are the necessary inputs to the next stage.

My main point is that the magic of the market isn’t automatic and it isn’t guaranteed. Furthermore, a sufficiently large disruption can mean there is *no* market when a revolution (social or governmental) occurs. The western world managed (with lots of revolutions!) to survive an industrial revolution that was spread over nearly a century, and survived an agricultural revolution spread over decades with only a world war or two (oh, and a few revolutions).

I imagine that the Indian authorities are well aware of this fact, which no doubt enhances natural conservatism.

As an aside, I consider a free market like evolution, a literally mindless process that usually adapts for the better. However, there’s no guarantee that:

(1) enough change in the environment too quickly won’t force adaption, but instead kill it, and
(2) it doesn’t evolve into a dead-end (usually because (a) traits that successfully exploit the physical environment also accidentally change it or (b) traits that work when limited in the population spread widely and turn out not to be adaptive when dominant in the population)

In this case, I’d say developing countries are wise not to discount (1), while (2b) may be at play in the West (most profit coming from finance is not a successful long term strategy).

TallDave December 21, 2011 at 2:27 pm

Well, if subsistence farming no longer makes economic sense because other farmers using tractors are far more productive, you can get a job with a company making, selling, or maintaining tractors, which is more productive than subsistence farming.

If subsistence farming is no longer economically sensible because of food being dumped on your country at zero cost, there is no new tractor industry to join.

S Korea did manage to transition to Western living standards in only 30 years without mass death. It mostly requires social capital.

I would suggest Ridley’s “Rational Optimist” on the subject of adaptation. It is perhaps what most makes us human. Free markets are a method enabling faster and better adaptation.

TallDave December 21, 2011 at 2:31 pm

And, I should add, in the tractor example, there is an element of social capital there. These massive food aid programs tend to lack the element of social capital feedbacks that usually goes along with productivity improvements.

Cliff December 20, 2011 at 9:12 am

So what do all the winners (consumers paying lower prices, .etc.) do with their new wealth? Something that does not spur economic activity or lead to any new jobs?

FooFighter December 20, 2011 at 10:31 am

In the case of walmart, the winners will not be spending money in India. Tar I can promise you.

Also, trickle down is quite possibly the most busted theory in the history of economics.

Brett December 20, 2011 at 12:27 pm

Your promise is worthless, since “spending money in India” is exactly what Wal-Mart wants to do. They want to be able to invest money in the country, including both their own facilities and the internal infrastructure necessary to supply them. A big part of the now defunct Indian bill allowed certain categories of companies to own up to 100% of their operations in the country, which would require – wait for it- more investment.

FooFighter December 20, 2011 at 10:31 am

In the case of walmart, the winners will not be spending money in India. That I can promise you.

Also, trickle down is quite possibly the most busted theory in the history of economics.

TallDave December 20, 2011 at 11:07 am

Huh? All those Indians paying lower prices are going to fly off somewhere else to spend their savings?

Also, that isn’t “trickle-down,” which is a tax policy theory.

FooFighter December 20, 2011 at 10:35 am

Sorry for double post. I was trying to correct a typo.

Andrew' December 20, 2011 at 11:12 am

What version of trickle down? The one where we dismantle the poor person’s car and sell it for parts and give the proceeds to some rich guy? Compared to which version of trickle up, the one where we sell the manufacturing plant for parts and give the poor guy the proceeds?

TallDave December 20, 2011 at 11:15 am

The “excess capacity” is a function of misallocation driven by a credit bubble.

This is where Keynesians always seem to get confused. Capacity only exists to serve demand, demand does not exist to soak up capacity. When you try to create demand out of nothing, you get bubbles and misallocation.

mpowell December 20, 2011 at 2:41 pm

Wow, I believe that is close to a perfect example of how to miss one of the most important insights in Keynesian economics. So let’s put it this way: if our economy is generating a certain amount of supply, but we don’t have enough demand for that supply, instead of trying to stimulate a matching level of demand we let employers generating excess supply lay off employees and wait for this misallocation to correct itself? That’s Austrian economics for you: a nice story that doesn’t match the experience of actual economies. Personally, I find it odd that you consider demand to be fundamental, not supply. To me, potential supply at maximum employment seems like a much more likely fundamental property of an economy. I believe one of the insights of Keynes was that, fundamentally, you can have a shortage of demand due to a variety of factors that we could summarize as a change in the demand for money. And that it is better to stimulate more demand. There is probably some misallocation that will occur as will always be the case in a market system with various inefficiencies, but stimulating generic demand will not strongly exacerbate this and, on the whole, that approach is better than permitting deflationary cycles to take hold.

TallDave December 20, 2011 at 5:06 pm

Yeah, that works great until the bubble pops.

The consumer initiates transactions, not the producer, therefore the economy exists to service demand, not to provide supply. Supply without demand is a misallocated investment of resources. No, the best long-run solution is not to keep misallocating until the bubble pops.

TallDave December 20, 2011 at 5:13 pm

Although, to be fair, I don’t think Keynes was necessarily wrong that countercyclical fiscal policy can be good per se, esp. in his time when total gov’t spending as a % of GDP was a third of what it is today, it’s just that all the neoKeynesians today (esp. Krugman) advocate something much more like a continuing expansion of the state that just goes faster in bad times, built on the back of ever-expanding debt.

Matt Waters December 20, 2011 at 12:31 pm

Look up “necessary but not sufficient.” For higher standards of living, less people working in manual, inefficient trades is a necessary but not sufficient condition. You can have mass unemployment with fewer farmers, but you can’t have higher living standards with the same number of farmers. The math just doesn’t work in the latter case.

JWatts December 20, 2011 at 2:15 pm

+1

neoclassical_libertarian December 20, 2011 at 7:21 pm

David,

The United States once employed about a third of its population in the farming sector, producing almost enough food for the entire population. Today with increased productivity, the United States employs about 2% of the population in the farming sector, which produces a surplus that is being exported. Do you think most of the people are, as your hypothesis would imply, unemployed in the farming sector today? If that were true, unemployment just from the farming would be more than 25%. This figure is more than the *underemployed* today of the entire labor force of 18%.

KevinH December 20, 2011 at 9:10 am

This has been the traditional economic thought, and it is not without merit, but in this age of high unemployment can the argument “fewer workers in farming (or retail) means more workers producing more goods in other industries” really be taken without a grain of salt? The unemployment rate in India was 10.8% in 2010 (according to indexmundi.com). It seems that available workers are not the bottleneck for growth. A general ‘efficiency’ story might stick, but it is a bit more nuanced and not a forgone conclusion as you would have to factor in lower overall economic activity. It seems to me that the most likely bottleneck for indian growth is education, not over-employment or high-cost of living.

TallDave December 20, 2011 at 12:04 pm

I don’t think very many would argue available workers are the bottleneck. It’s more a question of ability — for instance, if you’re a 3W subsistence farmer, it’s pretty damned hard to learn a skill, and even if you learn the skill there may not be a market for it.

The market for those skills is created by the same process that destroys the old job. That’s how the U.S. ended being the richest country in the world — we have the highest productivity.

KevinH December 20, 2011 at 6:09 pm

Your first paragraph seems to agree perfectly with what I have said above. It is education/ability not numbers.

Yet I fail to see how higher unemployment automatically creates demand for different jobs. You could make a VERY tenuous argument based on the idea that certain demands needing a few wealthy people (sort of a demand version of the ‘supply-side’ argument), but in India we already have a large range of economic wealth to provide the seed demand you would need.

I agree that everyone wants India to move to a high-productivity and high-wealth economy, but assuming that one automatically implies the other seems folly to me, and certainly hasn’t been argued well in Alex’s post. The possible worlds of economies seems full of little local minima and maxima, and it is very easy to imagine a situation where (as you would hear in Boston/New York) ‘you can’t get there from here’.

TallDave December 20, 2011 at 11:11 pm

I don’t think anyone really argues that “higher unemployment automatically creates demand for different jobs.”

But the process that creates unemployment (productivity gains) is the same process that creates higher-paying jobs.

It’s very hard to earn $70K+ digging a ditch with a shovel — but get yourself a backhoe…

(And then you have machinists who build the backhoe, engineers who design a better backhoe, petroelum engineers to extract the oil… )

Brett December 20, 2011 at 12:31 pm

Education is certainly a big part of it – I’ve read a fair number of articles describing how the IT companies in Bangalore are complaining about the lack of skilled, educated workers. Another big factor is simply that the Indian economy is rife with regulation-created inefficiencies and corruption dating back to the “License Raj”, going far beyond the retail sector.

Of course, displacement of jobs in the Retail Sector might put heavy pressure on the Indian Parliament to carry out needed reforms into other economic sectors to create more growth.

farmer December 20, 2011 at 9:21 am

“India cannot become even a middle income country if most of its workers, for example, are farmers”

new zealand, argentina, australia and canada respectfully disagree. I hear ya that @ current output per acre ratios, your sentance is true, but there’s nothing suggesting those are constants. Ag has historically been the way poor places become middle

Andrew' December 20, 2011 at 9:33 am

It might be people per acre. If one person lived in Canada he’d better be a farmer.

anon December 20, 2011 at 11:04 am

new zealand, argentina, australia and canada respectfully disagree.

I was not aware that most of the workers in these countries were agricultural workers. Does that include all people who work in food processing, distribution, and retail, or just those “down on the farm”?

Thanks!

JWatts December 20, 2011 at 11:07 am

Most people in New Zealand, Argentina, Australia and Canada are not farmers. Roughly 65% of the population of India are farmers.

Canada is roughly 5% farmers, Australia is roughly 2% farmers, etc. So, the statement “India cannot become even a middle income country if most of its workers, for example, are farmers” is correct.

TallDave December 20, 2011 at 11:10 am

Exactly, getting people out of subsistence farming is where the biggest productivity gains happen.

farmer December 20, 2011 at 1:21 pm

well, yes. i suppose i ought to have mentioned that those were historic, not present. Australia/NZ/Canada/Arg were where india is now in roughly 1850 +/- a few decades. And it worked out such that now they have been able to transition out of everyone being farmers. But in 18XX, i bet in all above 65% were farmers

TallDave December 20, 2011 at 1:38 pm

And they had about the same PPP GDP per capita that India does today.

Mabuse December 22, 2011 at 7:55 am

Uh, you may want to re-check your figures when it comes to Australia. One of the first things you’re taught when you study the history of Colonial Australia is that our economic development was unique in the history of European settler societies in that the majority of Australia’s settler population were urban from almost the very beginning; in fact widespread rural settlement had to be actively encouraged by the colonial governments through the Selection Acts in the late Nineteenth Century.

Ryan December 20, 2011 at 9:33 am

What’s interesting to me about this issue is how it is virtually identical to Friedman’s classic case-study of protectionism in the Indian hand-loom market. Almost all of us have heard or read that case-study and up until now I didn’t think anyone but Marxists rejected it.

Plus ca change, plus c’est la meme chose…

JWatts December 20, 2011 at 12:26 pm

“I didn’t think anyone but Marxists rejected it”

Are you sure that’s not still the case?

The Anti-Gnostic December 20, 2011 at 9:43 am

“Of course this is no refutation, fewer jobs are precisely the point. What India needs is fewer jobs; fewer jobs in retail, fewer jobs in apparel and, most of all, fewer jobs in farming. India cannot become even a middle income country if most of its workers, for example, are farmers. To improve its standard of living, India must use fewer people to produce more agricultural output.”

If that’s good for India that should be good for the US, right? So what, exactly, is the justification for importing millions of Central Americans and others, and lowering inputs per worker to Third World levels in the US?

(It’s almost like there’s this US oligarchy that would benefit from a Third World-style oligarchic economic model that is driving the debate on this issue…but that’s just crazy talk. Kookery. Racism.)

anon December 20, 2011 at 11:06 am

what, exactly, is the justification for importing millions of Central Americans and others

Do you mean “importing” as in actively bringing to the US or do you mean immigrating, as in those who choose to come to the US of their own volition and on their own?

The Anti-Gnostic December 20, 2011 at 11:56 am

Let them in, bring them in, clone them in labs, dig them up out of the ground, whatever. Thanks for contributing.

RM December 20, 2011 at 9:55 am

I think there is a a cultural issue at work here. Desis really love to own their own business. Asking a South Asian to give up his small business and work for somebody else is almost sacrilegious.

Do supermarket chains franchise? Instead of Walmat opening a store, could they franchise one out to a family and create the aura of ownership? Walmart could still work backwards and increase farm productivity, supply chain management, etc.

Mabuse December 20, 2011 at 10:20 am

I don’t know about the American scene, but in Australia one of the big three supermarket chains works on exactly that model (although they started out as a bunch of independent groceries forming a wholesale co-operative).

anon December 20, 2011 at 11:07 am

Kind of like Chik-fil-A?

Ed December 20, 2011 at 10:13 am

“Can you site any evidence to support the view that unemployment would rise vs the massive amount of historical evidence that says all of the displaced workers will on average find another job and long term unemployment would not be affected?”

The historical evidence isn’t “massive”. New industrial jobs replaced lost jobs in agriculture, other industrial jobs replaced lost jobs in industry, and to some extent service jobs did the same for lost jobs in industry, between the mid eighteenth century to the late twentieth century. Each of these adjustments, incidentally, was painful for the generation that had to go through it.

Now what happened during this period is that the earth’s supply of fossil fuels was exploited, production of oil worldwide peaking around 2005. Hence there was continuous worldwide growth throughout this period. This is not necessarily the norm historically.

Also, you want to own more than one or two sets of clothes. When a factory produces clothes more cheaply than the guy down the street making them by hand, you buy a dozen sets of clothes from the factory and people get employed by the factory. But if the factory automates, you don’t necessarily go and buy a hundred sets of clothes since they are now even cheaper -where do you find the place to store them? And if the answer is service jobs, how many massages can you get in one day?

The cornicupians don’t realize that there are worldwide limits to growth imposed both by production limitations (fossil fuels) and consumption limitations (humans are not consumption robots able to consume endlessly). But they always interpret this stance as an attack on the concept that growth is good. And since economic growth is good -and it is- then policies meant to spur it will always work, right?

JWatts December 20, 2011 at 11:27 am

Somehow your rebuttal actually fails to rebut anything I actually said.

Yes, losing jobs to more efficient practices is painful for the job losers, but society benefits in the long run. And historically, those workers have found other jobs. If India increases the efficiency of it’s retail sector the entire country will benefit. Some people will be losers and some people will be winners, but in the end the country will have reached a new local optimum which will result in a richer populace.

“The cornicupians don’t realize that there are worldwide limits to growth imposed both by production limitations (fossil fuels) and consumption limitations (humans are not consumption robots able to consume endlessly). ”

And the peak oiler’s don’t realize that fossil fuels aren’t a long term limit. You might as well be saying that whale oil can’t run our lanterns forever. Yes, that’s true, but it’s also irrelevant. As soon as the price of current oil exceeds the price of functional replacements, usage of oil will dwindle and the usage of alternatives will skyrocket.

As to the statement, “humans are not consumption robots able to consume endlessly”, all the evidence I see with my own eyes says that statement is completely bunk. Wealthy humans may change the types of their consumption, say from basic food and firewood to computer games and cross country biking, but they will continue to consume.

Michael Cain December 20, 2011 at 12:48 pm

“As soon as the price of current oil exceeds the price of functional replacements, usage of oil will dwindle and the usage of alternatives will skyrocket.”

But it’s not that simple. Ability to use alternatives typically requires very large investments. For example, conversion of existing cars from gasoline to natural gas costs thousands of dollars; conversion to electricity significantly more. There is also a large coordination problem, in that consumers and producers must somehow agree on what the preferred alternative is (methane? hydrogen? electricity?). Any of those requires large investments in production and distribution systems.

My own concerns are not that it isn’t technically feasible to find alternatives, but rather that the necessary capital and other resources won’t be able to implement the alternatives in a timely fashion.

Michael Cain December 20, 2011 at 12:49 pm

Crud. “Available,” not “able”.

Brett December 20, 2011 at 1:00 pm

For example, conversion of existing cars from gasoline to natural gas costs thousands of dollars; conversion to electricity significantly more. There is also a large coordination problem, in that consumers and producers must somehow agree on what the preferred alternative is (methane? hydrogen? electricity?). Any of those requires large investments in production and distribution systems.

There may not be a single distribution system to replace gasoline as the primary fuel. I could see a mixture of natural gas and gasoline stations arising (hydrogen is more expensive to build facilities for).

Mind you, that’s assuming that we just don’t start moving around into residential patterns designed to accommodate a more limited role for automobiles. Several decades is plenty of time for US residential patterns to shift drastically, like what happened after World War 2 with mass migration into the suburbs.

Tom December 20, 2011 at 2:12 pm

“like what happened after World War 2 with mass migration into the suburbs.”
Why would we want to go back?

Brett December 20, 2011 at 7:53 pm

Nobody would be forcing you. It’s just that in a situation where there is no cheap substitute for gasoline as an automobile fuel (or the price rises much faster than the implementation of infrastructure for substitutes), people will have to pay much more to live in a twentieth century-style suburb. I think over several decades, most people would choose to move into denser suburbs/cities/towns built around public transit rather than pay those rising costs year after year (especially young, new families who have less money to start with and need to follow the jobs).

JWatts December 20, 2011 at 2:28 pm

“As soon as the price of current oil exceeds the price of functional replacements, usage of oil will dwindle and the usage of alternatives will skyrocket. ”

“For example, conversion of existing cars from gasoline to natural gas costs thousands of dollars; conversion to electricity significantly more.”

Yes, that’s true, but what of it. How much fuel does the average US vehicle consume per year? Let’s say 500 gallons. Assume gas goes up to $8 per gallon (roughly what a chunk of Europe pays currently). That’s $2,000 extra per year in additional cost. If it costs $12,000 to convert a vehicle to CNG, that’s a 6 year payoff period, so you would see some conversions, mostly in those who drive more than normal and would achieve a quicker payoff time. As the price continued to rise to $10 per gallon the incentive would increase and more conversions would occur. Meanwhile, the early adopters would be encouraging the build up of infrastructure, local CNG pumps, etc. The same process would occur with electric and any other viable replacement.

Over a 20-30 year time frame this won’t be an issue. And it’s not like ‘peak oil’ means the wells will all run dry tomorrow. It’s an irregular hyperbola with a tail of decades.

Brett December 20, 2011 at 12:54 pm

Now what happened during this period is that the earth’s supply of fossil fuels was exploited, production of oil worldwide peaking around 2005. Hence there was continuous worldwide growth throughout this period. This is not necessarily the norm historically.

There was worldwide growth for decades before widespread adoption of fossil fuels, including oil. Oil is just one particularly convenient input because of its variety of uses and high energy content. It has plenty of substitutes, especially over a time period of decades (where a society such as the US could drastically alter its residency patterns to fit the new energy system, like what happened after World War 2 when the “car culture” really took off along with suburbs).

As for oil peaking in 2005, I’d like to see your source. Peakists usually play rather fast and loose with the definition of “Peak Oil”, such as defining it as the peak in production for certain types of oil (usually not including “heavy oils” like the Tar Sands or Orinoco Belt in Venezuela).

Also, you want to own more than one or two sets of clothes. When a factory produces clothes more cheaply than the guy down the street making them by hand, you buy a dozen sets of clothes from the factory and people get employed by the factory. But if the factory automates, you don’t necessarily go and buy a hundred sets of clothes since they are now even cheaper -where do you find the place to store them? And if the answer is service jobs, how many massages can you get in one day?

Why would the factory produces a hundred set of clothes per person? They could re-tool to produce a wider variety of clothes, or certain types of clothes on demand, and so forth. It’s not just about producing “more of the same” – with greater economic specialization, we can produce a wider variety of things that people want.

As for services jobs, I think you’re just suffering from a lack of imagination. Imagine telling a 1950s person that manufacturing would rapidly decline as a percentage of jobs, and then asked him what type of jobs would arise to replace it. He’d be stumped to name many of the Service Sector jobs we have now.

k December 20, 2011 at 10:14 am

Some of those job losses are probably deserved.

farmer December 20, 2011 at 10:18 am

the infamous ZMP worker, eh?

k December 20, 2011 at 1:57 pm

perhaps, I was talking about the way that produce goes from the farm to the wholesale market, it’s a complete racket.

People complain about the quality of produce at supermarkets in the US, but in Delhi, the vegetables from the local shop are nearly always inferior even compared to a Giant for instance.

Lou December 20, 2011 at 10:31 am

The worst thing that ever happened to the economy was the computer. It replaced billions of workers.

The Original Frank December 20, 2011 at 10:44 am

Oh, and those galleys had plenty of jobs for oarsmen!

anon December 20, 2011 at 11:08 am

And we’re sill in the early stages of automation, robotics, and inter-connectivity.

JWatts December 20, 2011 at 11:10 am

What, no the tractor was far worse. If Obama would ban the farm tractor the US could reach 0% unemployment for the remaining population within 4 years.

anon December 20, 2011 at 11:32 am

Ban the farm tractor AND freight trucks over 20feet in length and rail freight cars!

And make everyone grow their own food!

Man, we’d have low unemployment then.

See, wasn’t that easy?

Brett December 20, 2011 at 1:01 pm

For that matter, why not ban trucks period? Are there no Strong Men of Mighty Girth and Indomitable Spirit who could pull wagons by shoulder harness down the highways?

anon December 20, 2011 at 1:52 pm

Then we would probably have to “import” lots of folks.

But since we are out of oil and don’t want to import workers, maybe the alternative is to be hip deep in road apples and horse piss because of all the horses pulling all the wagons…. Wagons with wood wheels.

Ah, bring back the good ole days, making your living honestly and sustainably, country road take me home, etc.

john personna December 20, 2011 at 11:52 am

This kind of “just so” story for labor mobility and development is particularly out of touch in 2011. What did I just read, 22pct unemployment in Spain? Success!

TallDave December 20, 2011 at 12:15 pm

That whole “let’s have the government create a solar industry!” notion didn’t work out so well anywhere.

Brett December 20, 2011 at 1:02 pm

It’s not hard to have 22% employment when you have a bunch of labor regulations that protect existing workers at the expense of newer ones (the youth unemployment rate in Spain is particularly bad).

lark December 20, 2011 at 12:40 pm

You are responding to evidence with a dump of ideology. It is revealing that you do not appear to know the difference.

You don’t refute this:

“…experience across the world makes it incontrovertible that large retail companies displace many more jobs of petty traders, than they create in the form of employees. This has been true of all countries that have opened up to such companies, from Turkey in the 1990s to South Africa. Large retail chains typically use much more capital intensive techniques, and have much more floor space, goods and sales turnover per worker.”

Indeed you claim this is “the point” because this creates hordes of unemployed to be redeployed in new industries.

By assuming the truth of your conclusion, that these workers will be redeployed, you avoid all the material questions:

How many hordes of unemployed already exist in India? Are more unemployed apt to support new business expansion? Or are there already so many that adding 40-50 million will simply depress social welfare?

What is the condition of other industries in relation to taking up unemployed workers? What is the health of the Indian manufacturing sector? What other sectors could absorb these workers?

What is the international experience with this sort of transition? I think of Mexico. When its small farms went out of business due to cheap post Nafta corn exports, 8-10 million farmers lost their livelihoods. Some think the rise of Mexican drug gangs is related. That is a form of business of course. But even if this deployment of labor is in some economic sense more productive, it is clearly not socially desirable.

Brett December 20, 2011 at 1:08 pm

Yet Mexico has an unemployment rate of only 5.4%, and a 5.5% real growth rate in GDP. Sure, some of that is from workers migrating northward into the US to work, but in most cases the Mexican farms (particularly the collective farms) were highly inefficient and dependent on transfers from the government just to survive. That’s 8-10 million people doing some with very low productivity when they could be doing something with much higher productivity.

If you want more international comparisons, look at China.

What is the condition of other industries in relation to taking up unemployed workers? What is the health of the Indian manufacturing sector? What other sectors could absorb these workers?

That’s more an argument for broad-based economic liberalization and reform than anything else. India’s had some of that since the early 1990s, but big parts of the “License Raj” (including the tough labor regulations that create two classes of laborers) are still in place.

Matt Waters December 20, 2011 at 1:49 pm

“Hordes of unemployed” tend to congregate around the countries with the most protectionist, backwards, anti-innovation policies. Not just India, but most countries in sub-Saharan Africa have unemployment rates of 50+%. That isn’t a coincidence.

If there’s massive unemployment, then there’s a huge untapped resource somehow sitting there in plain sight. It’s like a huge oil field but with nobody to put up capital to drill it. That’s exactly why such backwards countries have massive unemployment. People with real currency invest in China’s untapped resource instead of India’s because China’s doesn’t have all the roadblocks to tapping that resource, all the things that you’re asking for and that India’s socialist regime has.

And who will buy from the work of these hordes of unemployed? Not just rich countries, but the hordes of unemployed themselves. As people are willing to invest in using their labor, their incomes go up and they buy more, thereby increasing the investment and demand for the hordes of unemployed further. This is not some crazy capitalist myth. It’s why unemployment remained at 5% up until a NGDP shock a few years ago for decades in America, even as the population greatly increased. As the population increased, so did the population’s demand and thus the employment and thus population’s demand, and so on. This cycle happens as long as the conduits (new business formation, investment, etc.) are allowed to remain open.

And as Brett says, you could not have picked a worse example than Mexico. The migration has shifted back, despite the violence, because of the greater opportunities afforded by NAFTA. The drug trade is also a particularly poor example since the drug trade is, well, not a good example of free trade. Meanwhile every sector that is a good example of free trade, like manufacturing and farming, is doing much better than before in Mexico due to liberalization.

Max December 20, 2011 at 1:11 pm

Seems like Krugman tries to make the same refutation here:
http://www.nytimes.com/2011/12/09/opinion/krugman-all-the-gops-gekkos.html

Sure increasing the efficiency of a company by producing the same output with fewer workers is painful for the workers that get fired, but it makes the rest of us better off.

JWatts December 20, 2011 at 4:45 pm

I wonder if Krugman takes checks for his political advertising or is it all cash under the table.

CBBB December 20, 2011 at 5:40 pm

What a bunch of nonsense in these comments (as per usual). But I got here too late and looking at these reams of brain-dead commentary I just feel exhausted.

Ramagopal December 20, 2011 at 8:04 pm

Small stores in poor economies will not be displaced by the likes of Walmart because they serve the rural and low income consumers the way the likes of Walmart do not. Read Peter Bauer’s paper on the importance of shops which sell even one biscuit or one banana instead of requiring the consumer to buy a full packet of them in his book Subsistence and Exchange.
I live in the rural portion of a small, backward county in southern India. I know from daily experience that Bauer is right. There are four large air conditioned supermarkets in the nearby town and in three of them everything is sold below the printed price. They thrive but so do small shops, even ones so tiny that an American an friend of mine calls them matchboxes. Not only will such shops survive Walmart but they should survive walmart

yoyo December 20, 2011 at 8:23 pm

When jobs are hard to find, jobs are of variable income (because the economy is ‘dynamic’), and the welfare state is weak, rent-seeking is much more profitable.

waltzingmonkey December 21, 2011 at 3:50 am

Alex, I agree completely with you, and yet..
1) We in India have failed miserably in adequately educating, adquately feeding our people. They have few skills which are useful in a modern economy. If we destroy jobs in this sector, few of those affected are going to get new jobs elsewhere, and these are very badly paid already. Think of this as a tax on the middle classes, hopefully temporary, until we are ready. (the “not now” argument)
2) There are already quite a few large indian retailers (Reliance, Bharti) who have been trying to grow in Indian cities. They are free to do what is needed, and have all done quite poorly. Indian cities are crowded, with narrow roads and are poorly connected with the countryside. These (not capital) are the real obstacles to the growth of large-scale retailing in India. (the “won’t matter even if we open up” argument).
3) There are any number of reasons that India is not growing. Retail led the US in the ’90s. India is not the US in the ’90s. The issues here are poor infrastructure, poor education, bad nutrition. Retail isn’t the first, or even the third item on the “must do” list. (the “why now? we have other things to work on” argument.

Cheers

Amal December 22, 2011 at 3:06 am

Currently there is no consensus regarding such reforms. You indicate that some pain is necessary. But, this pain is entirely on the poor, atleast for this generation and all the short term benefits are for a different section of the population.

Furthermore, looking at the current status of the western world, the benefits are unclear in practice. An economic recession and the accompanying real-estate bust in the order of what is happening in the US could be a destabilizing force in India.

India is a democracy. You are asking a majority of the population to make sacrifices for unknown future benefits (there may not be any). They have seen such sacrifices benefit a minority of the population over the past decade. Granted, I am part of that minority. This deal will not work in a functioning democracy, which I would like to believe India is.

I understand your argument, but the opposite case is even more convincing based on the current ground reality in India.

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