From: kotes@splinter.coe.northeastern.edu (Koteswararao Nandipati)
Newsgroups: soc.culture.indian
Subject: "Unemployment Problem of India" (***very long****)
Date: 17 Aug 92 00:11:34 GMT
Distribution: na
Organization: College of Engineering, Northeastern University



The following is an excerpt from the book "Small is Beautiful" by 
E.F.Schumacher.

(A study of economics as if people mattered). 

****fore warning*****
This is a very long article, ~10pages. Please be aware of it before
start reading it.
*********************


The Problem of Unemployment in India
(A talk to the India Development Group in London)

-------------------------------------------------------------

When speaking of unemployment I mean the non-utilisation or gross 
under-utilisation of available labour. We may think of a productivity
scale that extends from zero, i.e. the productivity of a totally unemployed
person, to 100 per cent, i.e. the productivity of a fully and most effectively
occupied person. The crucial question for any poor society is how to
move up on this scale. When considering the productivity in any
society it is not sufficient to take account only of those who are
employed or self-employed and to leave out of the reckoning all those
who are unemployed and whose productivity therefore is zero.

    Economic development is primarily a question of getting more work
done. For this, there are four essential conditions. First, there must
be motivation; second, there must be some know-how; third, there must
be some capital; and fourth, there must be an outlet: additional
output requires additional markets.

    As far as the motivation is concerned, there is little to be said
from the outside. If people do not want to better themselves, they are
best left alone -- this should be the first principle of aid. Insiders
may take a different view, and they also carry different
responsibilities. For the aid-giver, there are always enough people
who do wish to better themselves, but they do not know how to do it.
So we come to tthe question of know-how. If there are millions of
people who want to better themselves but do not know how to do it, who
is going to show them? Consider the size of problem in India. We are
not talking about a few thousand or a few millions, but rather about a
few hundred millions of people. The size of the problem puts it beyond
any kind of little amelioration, any little reform, improvement, or
inducement, and makes it a matter of basic political philosophy. The
whole matter can be summed up in the question; what is education for?
I think it was the Chinese, before World War II, who calculated that
it took the work of thirty peasants to keep one man or woman at a
university. If that person at the university took a five-year course,
by the time he had finished he would have consumed 150 peasant-work
years. How can this be justified? Who has the right to appropriate 150
years of peasant work to keep one person at university for five years,
and what do the peasants get back for it? These questions lead us to
the parting of the ways: is education to be a `passport to previlege'
or is it something which people take upon themselves almost like a
monastic vow, a sacred obligation to serve the people? The first road
takes the educated young person into a fashionable district of Bombay,
where a lot of other highly educated people have already gone and
where he can join a mutual admiration society, a `trade union of the
previleged', to see to it that his previleges are not eroded by the
great masses of his contemporaries who have not been educated. This is
one way. The other way would be embarked upon in a different spirit
and would lead to a different destination. It would take him back to
the people who, after all, directly or indirectly, had paid for his
education by 150 peasant-work years; having consumed the fruits of
their work, he would feel in honour bound to return something to them.

    The problem is not new. Leo Tolstoy referred to it when he wrote:
`I sit on a man's back, choking him, and making him carry me, and yet
assure myself and others that I am very sorry for him and wish to ease
his lot by any means possible, except getting off his back.' So this
is the first question I suggest we have to face. Can we establish an
ideology, or whatever you like to call it, which insists that the
educated have taken upon themselves an obligation and have not simply
acquired a `passport to privilege'? This ideology is of course well
supported by all the higher teachings of mankind. As a christian, I
may be permitted to quote from St.Luke: `Much will be expected of the
man to whom much has been given. More will be asked of him because he
was entrusted with more.' It is, you might well say, an elementary
matter of justice.

    If this ideology does not prevail, if it is taken for granted that
education is a passport to privilege, then the content of education
will not primarily be something to serve the people, but something to
serve ourselves, the educated. The privileged minority will wish to be
educated in a manner that sets them apart and will inevitably learn
and teach the wrong things, that is to say, things that do set them
apart, with a contempt for manual labour, a contempt for primary
production, a contempt for rural life, etc., etc. Unless virtually all
educated people see themselves as servants of their country -- and
that means after all as servants of the common people-- there can not
possibly be enough leadership and enough communication of know-how to
solve this problem of unemployment or unproductive employment in the
half million villages of India. It is a matter of 500 million people.
For helping people to help themselves you need at least two persons to
look after 100 and that means an obligation to raise ten million
helpers, that is, the whole educated population of India. Now you may
say this is impossible, but if it is, it is not so because of any laws
of the unvierse, but because of a certain inbred, ingrained
selfishness on the part of the people who are quite prepared to
receive and not prepared to give. As a matter of fact, there is
evidence that this problem is not insoluble; but it can be solved only
at the political level.

    Now let me turn to the third factor, after motivation and after
know-how, the factor I have called capital, which is of course closely
related to the matter of know-how. According to my estimates there is
in India an immediate need for something like fifty million new jobs.
If we agree that people can not do productive work unless they have
some capital -- in the form of equipment and also of working capital
-- the question arises: how much capital can you afford to establish
one new job? If it costs $10 to establish a job you need $500 million
for fifty million jobs. If it costs $100 to esablish a job you need
$5,000 million, and if it cost $5,000 per job, which is what it might
cost in Britain and USA, to set up fifty million jobs you require
$250,000 million.

    The national income of the country we are talking about, of India,
is about $15,000 million a year. So the first question is how much can
we offer each job, and the second question is how much time have we to
do it in. Let us say we want fifty million jobs in ten years. What
proportion of national income (which identify as about $15,000
million) can one reasonably expect to be available for the
establishment of this capital fund for job creation? I would say,
without going into any details, you are lucky if you can make it five
percent. Therefore, if you have five per cent of $15,000 million for
ten years you have a total of $7,500 million for the establishment of
jobs. If you want fifty million jobs in those ten years, you can
afford to spend an average of $150 per work place. At that level of
capital investment per workplace, in other words, you could afford to
set up five million workplaces a year. Let us assume, however, that
you say: `No, $150 is too mean; it will not buy more than a set of
tools; we want $1,500 per workplace', then you can not have five
million new jobs a year but only half a million. And if you say: `Only
the best is good enough: we want all to be little Americansc right
away, and that means $5,000 per workplace', then you cannot hafe half
a million new jobs a year, let alone five million, but only about
170,000. Now, you have no doubt noticed already that I have simplified
this matter very much because, in the ten years with investment in
jobs, you would have an increase in the national income; but I have
also left out the increase in the population, and I would suggest that
these two factors cancel one another in their effect on my
calculation.

    It follows, I suggest, that the biggest single collective decision
that any country in the position of India has to take is the choice of
technology. I am not laying down the law of what ought to be. I am
simply saying that these are hard facts of life. A lot of things you
can argue against, but you cannot argue against arithmetic. So you can
have a few jobs at a high level of capitalisation or you can have many
jobs at a relatively low level of capitalisation.

    Now, all this of course links up with other factors I have
mentioned, with education, motivation, and know-how. In India there
are about fifty million pupils in primary schools; almost fifteen
million in secondary schools; and roughly one and a half million in
institutes of higher learning. To maintain an educational machine on
this kind of scale would of course be pointless unless at the end of
the pipeline there was something for them to do, with a chance to
apply their knowledge. If there is not, the whole thing is nothing but
a ghastly burden. This rough picture of the educational effort
suffices to show that one really does have to think in terms of five
million new jobs a year and not in terms of a few hundred thousand
jobs.

    Now, until quite recently, that is to say, some fifty to seventy
years ago, the way we did things was, by present standards, quite
primitive. In this connection, I should like to refer to Chapter II of
John Kenneth Galbraith's "The New Industrial Estate". It contains a
fascinating report on the Ford Motor Company. The Ford Motor company
was set up on 16 June 1903, with an authorised capital of $150,000 of
which $100,000 were issued but only $28,000 were paid for in cash. So
the total cash which went into this enterprise was of the order of
$30,000. They set up in June 1903 and the first car to reach the
market appeared in October 1903, that is to say, after four months.
The employment in 1903, of course, was small -- 125 people, and the
capital investment per workplace was somewhat below $100. That was in
1903. If we now move sixty years forward, to 1963, we find that the
Ford Motor Company decided to produce a new model, the Mustand. The
preparation required three and a half years. Engineering and styling
costs were $9 million; the costs of tooling up for this new model were
$50 million. Meanwhile the assets employed by the Company were $6,000
million which works out at almost $10,000 per person employed, about a
hundred times as much as sixty years earlier.

    Galbrieth draws certain conclusions from all this which are worth
studying. They describe what happened over these sixty years. The
first is that a vastly increased span of time now separates the
beginning of an enterprise from the the completion of the job.  The
first Ford car, from the beginning of the work to its appearance on
the market, took four months, while a mere change of model now takes
four years. Second, a vast increase in the capital committed to
production. Investment per unit of output in the original Ford factory
was infitesimal; material and parts were there only briefly; no
expensive specialists gave them attention; only elementary machines
were used to assemble them into a car; it helped that the frame of the
car could be lifted by only two men. Third, in those sixty years, a
vast increase of inflexibility. Galbrith comments: `Had Ford and his
associates (in 1903) decided at any point to shift from gasoline to
steam power, the machine shop, could have accommodated itself to the
change in a few hours'. If they now try to change even one screw, it
takes that many months. Fourth, increasingly specialised manpower, not
only on the machinery, but also on the planning, the foreseeing of the
future in the uttermost detail. Fifth, a vastly different type of
organisation to integrate all these numerous specialists, none of whom
can do anything more than just one small task inside the complicated
whole. `So complex, indeed, will be the job for an organising
specialists that there will be specialists of organisation. More even
than machinery, massive and complex business organisations are being
tangible  manifestations of advanced technolgoy.' Finally, the
necessity for long-range planning, which, I can assure you, is a
highly sophisicated job, and also highly frustrating. Galbraith
comments: `In the early days of Ford, the future was very near at
hand. Only days elapsed between the commitment of machinery and
materials to production and their appearance as a car. If the future
is near at hand, it can be assumed to be very much like the present',
and the planning and forecasting is not very difficult.

    Now what is the upshot of all tis? The upshot is that the more
sophisticated the technology, the greater in general will be the
foregoing requirements. When the simple things of life, which all I am
concerned with, are produced by ever more sophisicated processes, then
the need to meet these six requirements moves ever more beyond the
capacity of any poor society. As far as simple products are concerned
-- food, clothing, shelter and culture -- the greatest danger is that
people should automatically assume that only the 1963 model is
relevant and not the 1903 model; because the 1963 way of doing things
is inaccessible to the poor, as it presupposes great wealth. Now,
without wishing to be rude to my academic friends, I should say that
this point is almost universally overlooked by them. The question of
how much you can afford for each workplace when you need millions of
them is harldy ever raised. To fulfill the requirements that have
arisen over the last fifty or sixty years in fact involves a quantum
jump. Everything was quite continuous in human history till about the
beginning of this century; but in the last half-century there has been
a quantum jump, the sort of jump as with the capitalisation of Ford,
from $30,000 to $6,000 million.

    In a developing country it is difficult enough to get Henry Fords,
at the 1903 level. To get Henry super-Fords, to move from practically
nowhere on to the 1963 level, is virtually impossible. No-one can
start at this level. This means that no-one can do anything at this
level unless he is already established, is already operating at that
level. This is absolutely crucial for our understanding of the modern
world. At this level no creations are possible, only extensions, and
this means that the poor are more dependent on the rich than ever
before in human history, if they are wedded to that level. They can
only be gap-fillers for the rich, for instance, where low wages enable
them to produce cheaply this and that trifle. People ferret around and
say: `Here, in this or that poor country, wages are so low that we can
get some part of a watch (or computer) or of carburettor, produced
more cheaply than in Britain. So let it be produced in Hong Kong or in
Taiwan or wherever it might be.' Ther role of the poor is to be
gap-fillers in the requirements of the rich. It follows that at this
level of technolgoy it is impossible to attain either full employment
or independence. The choice of technology is the most important of all
choices. 

    It is a strange fact that some people say that there are no
technological choices. I read an article by a well-known economist
from the USA who asserts that there is only one way of producing any
particular commodity: the way of 1971. Had these commodities never
been produced before? The basic things of life have been needed and
produced since Adam left paradise. He says that the only machinery
that can be procured is the very latest. Now that is a different point
and it may well be that the only machinery that can be procured easily
is the latest. It is true that at any one time there is only one kind
of machinery that tends to dominate the market and this creates the
impression as if we had no choice and as if the amount of capital in a
society determined the amount of employment it could have. Of course
this is absurd, and he then corrects himself and points to examples of
Japan, Korea, Taiwan etc., where people achieve a high level of
employment and production with very modest capital equipment. 

    The importance of technological choice is gradually entering the
consciousness of economists and development planners. There are four
stages. The first stage has been laughter and scornful rejection of
anyone who talked about this. The second stage has now been reached
and people give lip service to it, but no action follows and the drift
continues. The third stage would be active work in the mobilisation of
the knowledge of this techological choice; and the fourth stage will
then be the practical application. It is a long road, but I do not
wish to hide the fact that there are political possibilities  of going
straight to the fourth stage. If there is a political ideology that
sees development as being about people, thenone can immediately employ
the ingenuity of hundreds of million of people and go straight to the
fourth stage. There are indeed some countries which are going straight
to the fourth stage.

    However, it is not for me to talk politics. If it is now being
increasingly understood that this technological choice is of
absolutely pivotal importance, how can we get from stage two to stage
three, namely from just giving lip service to actually doing work? To
my knowledge this work is being done systematically only by one
organisation, the Intermediate Technology Development Group. I do not
deny that some work is also being done on a commercial basis, but not
systematically. ITDG set itself the task to find out what are the
technological choices. I will only give one example out of the many
activities of this purely private group. Take foundry work and
woodworking, metal and wood being the two basic raw materials of
industry. Now, what are the alternatie technologies that can be
employed, arranged in the order of capital intrnsity from the most
primitive, when people work with the simplest tools, to the most
complicated? This is shown in what we call an industrial profile, and
these industrial profiles are supported by instruction manuals at each
level of technology and by a directory of eqipment with addressses
where it can be obtained.

    The only criticism that can be levelled against this activity is
that is too little and too late. It is not good enough that in this
crucial matter one should be satisfied with one little group of
private entusiasts doint this work. There ought to be dozens of solid,
well-endowed organisations in the world doint it. The task is so great
that even some oerlapping would not matter. In any case, I should hope
that this work will be taken up on a really substantial scale in
India, and I am delighted to see that already some beginnings have
been made. 

    I shall now turn to the fourth factor, namely markets. Thereis, of
course, a very real problem here, because poverty means that markets
are small and there is very little free purchasing power. All the
purchasing power that exists already is, as it were, bespoken, and if
I start a new production of, say, sandals or shoes in a poor area, my
fellow-sufferers in the area will not have any money to buy the shoes
when I have made them. Production is sometimes easier to start than it
is to find markets, and then, of course, we get very quickly the
advice to produce for export, because exports are mainly for the rich
countries and their puchasing power is plentiful But if I start from
nothing in a rural area, how could I hope to be competitive in the
world market.

    There are two reasons for this extraordinary preoccupation with
exports, as far as I can see. One is real; the other not so good. I
shall first talk about the second one. It is really a hangover of the
economic thinking of the days of colonialism. Of course, the
metropolitan power moved into a territory not because it was
particularly interested in the local population, but in order to open
up resources needed for its own industry. One moved into Tanzania for
sisal, into Zambia for copper, etc., and into some other place for
trade. The whole thinking was shaped by these interests.

    `Development' means the development of raw material or food
supplies or of trading profits. The colonial power was primarily
interested in supplies and profits, not in the development of hte
natives, and this meant it was primarily interested in the colony's
exports and not in its internal market. This outlook has stuck to such
an extent that even the Pearson Report considers the expansion of
exports the main criterion of success for developing countries. But,
of course, people do not live by exporting, and what they produce for
themselves and for each other is of infinitely greater importance to
them than what they produce for foreigners.

    The other point, however, is a more real one. If I produce for
export into a rich country, I can take the availability of purchasing
power for granted, because my own little production is as nothing
compared with what exists already. But if I start new production in a
poor country there can be no local market for my products unless I
divert the flow of purchasing power from some other product to mind. A
dozen different productions should all be started together: then for
every one of the twelve producers the other eleven would be his
market. There would be additional purchasing power to absorb the
additional output. But it is extremely difficult to start many
different activities at once. So the conventional advice is: `Only
production for export is proper development'. Such production is not
only highly limited in scope, its employment effect is also extremely
limted. To compete in world markets, it is normally necessary to
employ the highly capital-intensive and labour-saving technolgoy of
the rich countries. In any case, there is no multiplier effect: my
goods are sold for foreign exchange, and the foreign exchange isspent
on imports(or the repayment of debt), and that is the end of it.

    The need to start many complementary productive activities
simultaenously presents a very severe difficulty for development, but
the difficulty can be mitigated by `pump-priming' through public
works. The virtues of a massive public works programme for job
creation have often been extolled. The only point I should like to
make in this context is the following: if you can get new purchasing
pwer into a rural community by way of a public works programme
financed from outside, see to it that the fullest possible use is made
of the `multiplier effect'. The people employed on the public works
want to spend their wages on `wages goods', that is to say, consumers'
goods of all kinds. If these wages goods can be locally produced, the
new purchasing power made available through the public works programme
does not seep away but goes on circulating in local market and the
total employment effect could be prodigious. Public works are very
desirable and can do a great deal of good; but if they are not backed
up by the indigenous production of additional wages goods, the
additional purchasing power will flow into imports and the country may
experience serious foreign exchange difficulties. Even so, it is
misleading to deduce from this truism that exports are specially
important for development. After all, for mankind as a whole there are
no exports. We did not start development by obtaining foreing exchange
from Mars or from the moon. Mankind is a closed society. India is a
quite big enough to be a relatively closed society in that sense -- a
society in which the able-bodied people work and produce what they
need. 

    Everything sounds very difficult and in a sense it is very
difficult if it is done for the people, instead of by the people. But
let us not think that development or employment is anything  but the
most natural thing in the world. It occurs in every healthy person's
life. There comes a point when he simply sets to work. In a sense this
is much easier to do now than it has ever been in human history. Why?
Because there is much more knowledge. There are so much better
communications. You can tap all this knowledge (this is what the
Indian Development Group is there for). so let's not mesmerise
ourselves by the difficulties, but recover the commonsense view that
to work is the most natural thing in the world. Only one must not be
blocked by being too damn clever about it. We are always having all
sorts of clever ideas about optimising something before it even
exists. I thing the stupid man who says `something is better than
nothing' is much more intelligent than the clever chap who will not
touch any thing unless it is optimal. What is stopping us? Theories,
planning. I have come across planners at the Planning Commission who
have convinced themselves that even within fifteen years it is not
possible to put the willing labour power of india to work. If they say
it is not possible to do the most elementary thing within fifteen
years, this is just a sort of degeneracy of the intellect. What is the
argument behind it? Oh! the argument is very clever, a splendid piece
of model building. They have ascertained that in order to put a man to
work you need on average so much electricity, so much cement, and so
much steel. This is absurd. I should like to remind you that a
hundred years ago electricity, cement and steel did not even exist in
any significant quantity at all. ( I should like to remind that the
Taju Mahal was built without electricity, cement and steel that all
the cathedrals of Europe are built without them.) You may say, again,
this is not an economic problem, but basically a political problem. It
is basically a problem of compassion with the ordinary people of the
world. It is basically a problem, not of conscripting the ordinary
people, but of getting a kind of voluntary conscription of the
educated.

    Another example: we are told by theorists and planners that the
number of people you can put to work depends on the amount of capital
you have, as if you could not put people to work to produce capital
goods. We are told there is no choice of technology, as if production
had started in the year 1971. We are told that it can not be economic
to use anything but the latest methods, as if anything could be more
uneconomic than having people doing absolutely nothing. We are told
that it is necessary to `eliminate the human factor'.

    The greatest deprivation anyone can suffer is to have no chance of
looking after himself and making a livelihood. There is no conflict
between growth and employment. Not even a conflict as between the
present and future. You will have to construct a very absurd example
to demonstrate that by letting people work you create a conflict
between the present and the future. No country that has developed has
been able to develop without letting the people to work. On the one
hand, it is quite true to say that theses things are difficult: on the
other hand let us never lose sight of the fact that we are talking
about man's most elementary need and that we must not be prevented by
all these high-faulting and very difficult considerations from doing
the most elementary and direct things.

    Now, at the risk of being misunderstood, I will give you the
simplest of all possible examples of sel-help. The Good Lord has not
disinherited any of his children and as far as India is concerned he
has give her a variety of trees, unsurpassed anywhere in the world.
There are trees for almost all human needs. One of the greatest
teachers of India was the Buddha who included in his teaching the
obligation of every good Buddhist that he should pland and see to the
establishment of one tree atleast every five years. As long as this
was observed, the whole large area of India was covered with trees,
free of dust, with plenty of water, plenty of shade, plenty of food
and materials. Just imagine you could establish an ideology which
would make it obligatory for every able bodied person in India, man,
woman and child, to do that little thing -- to plant and see to the
establishment of one tree a year, five years runnign. This, in a five
year period, would give you 2,000 million established trees. Anyone
can work it out on the back of an envelope that the economic value of
such an enterprise, intelligently conducted, would be greater than
anything that has even been promised by any of India's five year
plans. It could be done without a penny of foreign aid; there is no
problem of savings and inestment. It would produce food stuffs,
fibres, building material, shade, water, almost anything that man
really needs.

    I just leave this as a thought, not as the final answer to India's
enormous problems. But, I ask: what sort of an education is this if it
prevetns us from thinking of things ready to be done immediately? What
makes us think we need electricity, cement and steel before we can do
anything at all? The really helpful things will not be done from the
centre; they cannot be done by big organisations; but they can be done
by the people themselves. If we can recover the sense that is the most
natural thing for every person born into this world to use his hands
in a productive way and that it is not beyond the wit of man to make
this possible, then I think the problem of unemployment will disappear
and we shall soon be asking ourselves how we can get all the work done
that needs to be done.


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