It is almost taken for granted these days that the only way to generate employment in any domain is to invite some big company to undertake investment within it, and to succeed in this effort against other contenders for that big company’s attention, the domain has to offer inducements like tax concessions, easy land availability and a docile workforce, all of which curtail the rights of the working people.
This thinking is the product of a theoretical counter-revolution that has occurred in economics over the last few decades, and is based on three false premises: first, that the constraint on employment is set by the availability of capital stock, the augmentation of which through investment is essential for creating more jobs; second, the only agent that can undertake such job-creating investment is big capital; and third, for the sake of greater employment and hence the general good, the interests of big capital have to be privileged over those of others. This thinking afflicts not only parties of the Right and the Centre, but alas, even the Left, which is a prime reason it got eclipsed in West Bengal.
This theoretical counter-revolution is against the Keynesian Revolution of the 1930s, which had rightly seen the constraint upon employment in an economy as arising not from the shortage of capital stock but from a paucity of demand; it had then contended that a primary injection of demand through State expenditure would generate employment, and the spending out of the freshly-accrued incomes of those newly-employed would generate further rounds of demand through a process called the ‘multiplier’, so that the ultimate additional employment would be several times what the original injection of demand had created. The State thus had to spend more and not provide blandishments to big capitalists to generate greater employment.
The Keynesian theory was developed in the context of the Great Depression when both mass unemployment and unutilized capital stock existed, so that it could rightly identify paucity of demand as the constraint on employment; but, it may be argued, today’s India hardly fits that description. It does not have vast unused capital stock alongside unemployment; an increase in capital stock is therefore necessary for increasing employment.
This, however, is a mistake for two obvious reasons: first, one can readily identify many sectors where employment can be increased through larger State expenditure without any immediate need for investment; and second, whatever increase in capital stock becomes necessary over time because of larger State expenditure will come forward, either automatically in response to the demand for it, or through State investment, without requiring any blandishments to big capitalists. This is not to say that big capital should be discouraged; it is just that there is no need to woo it for generating greater employment.
Let me give an example. In India today, the posts of more than one million schoolteachers remain unfilled, with rural children being particular victims of the resulting teacher shortage. The reason for this lies not necessarily in the absence of school buildings (and if there is such absence, it can be easily remedied through additional State expenditure, over and above what the State needs to spend for appointing teachers); the reason lies apparently in the fact that the State ‘lacks the resources’. And that is because it refuses to tax the big capitalists and the rich; indeed, it gives them tax concessions so that they can invest and generate employment (which the State itself could have done with more certainty of the outcome by taxing them).
The sheer indecency of this policy is palpable. India has no inheritance taxation, unlike every major capitalist economy of the world; India has virtually no wealth taxation; and economic inequality today is so vast that the reported expenditure by one rich family in Rajasthan on one night for celebrating a wedding, Rs 17 crore, is large enough to pay, out of its interest, an adequate living wage to 60 unemployed families ad infinitum.
Even if the absurdity of inviting big capital for generating employment by suppressing the rights of the working people is conceded, some would say that state governments are helpless in the matter, that tax concessions to the rich and the resulting fiscal constraint are a matter of national policy; states just have to adjust to it. But the state governments have to fight against such national policy instead of mindlessly accepting it. Likewise, the Central government cannot simply shift the blame to the International Monetary Fund, the World Bank and advanced countries for succumbing to this policy paradigm instead of fighting against it.
What is more, even within such a policy paradigm, there is some scope for raising additional revenue and for readjusting expenditure so that more socially useful expenditure with a larger multiplier effect is undertaken at the expense of current avenues of spending. The proximate barrier to doing all this lies in the attitude; as Keynes had remarked: “... the ideas of economists and political philosophers, both when they are right and when they are wrong, are more powerful than is commonly imagined. Indeed the world is ruled by little else.” We cannot overcome growing unemployment until we rid ourselves of the utterly erroneous ideas that currently rule us.
The only countries that in modern times have fully overcome unemployment are the erstwhile Soviet Union and Eastern European socialist countries. János Kornai, the well-known Hungarian economist who was by no means a communist or communist-sympathiser, attributes their success to their governments and government-owned enterprises having a “soft budget constraint”, which is just a euphemism for their undertaking prodigious expenditure; there is no other way of generating employment.
Prabhat Patnaik is Professor Emeritus, Centre for Economic Studies, Jawaharlal Nehru University, New Delhi