The problem of unemployment in India…

…An extract from E.F. Schumacher’s book, “Small is Beautiful”, first published in 1973.

…Now, until quite recently, that is to say, some fifty 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 J.K. 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 authorized capital of $150,000 of which $100,000 were issued but only $28,500 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 Pound 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 Mustang. 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 Pound 10,000 per person employed, about a hundred times as much as sixty years earlier. Galbraith draws certain conclusions from all this which are worth studying. They describe what happened over the sixty years.

The first is that a vastly increased span of time now separates the beginning of an enterprise from the completion of the job. The first Ford car, from the beginning of the work to its appearance in the market, took four months, while a mere change of model now takes four years.

Second, a vast increase in capital committed to production. Investment per unit of output in the original Ford factory was infinitesimal; material and parts were there only briefly; no expense 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 in inflexibility. Galbraith 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 specialized 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 organization 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 organizing specialists that there will be specialists of organization. More even than machinery, massive and complex business organizations are being tangible manifestations of advanced technology”.

Finally, the necessity of long range planning, which, is a highly sophisticated 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 this? The upshot is that the more sophisticated the technology, the greater in general will be the foregoing requirements. When the simple things of life are produced by ever more sophisticated processes, then the need to meet these six requirements moves ever 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 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 hardly 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 capitalization 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 part of some part of a watch, or a carburetor, produced more cheaply than in Britain. So let it be produced in Hong Kong or in Taiwan or whatever it might be.” The role of the poor is to be gap-fillers in the requirements of the rich. It follows that at this level of technology it is impossible to attain either full employment or independence.

The choice of technology is the most important of all choices.

My two cents.
Cent 1: While a lot of what Schumacher says is true, it seems to me that Schumacher misses the idea of “Disruptive Innovation and Creative Destruction”. Which is one reason why we stumble our way forward on and on. Creation does happen, the only thing is that for the most part, it happens at a great cost, and it leaves a lot many by the wayside. I also think he underplays the importance of extensions”

Cent 2: His argument precludes full employment, unless we chose the right technologies. That is such an under-appreciated idea, but I think that is true enough.

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Posted on November 23, 2004, in Uncategorized. Bookmark the permalink. 2 Comments.

  1. Very very interesting! Here are my many cents:

    I think Schumacher means to say that extensions will be just that – extensions. They will not be a replacement for complete creation, as is evident in developing countries. Our IT industry is a great example of extensions. In fact, no country can now afford to be completely creative (or independent) mainly because of ROI-based measures of success which will force the lowest-cost approach on everything and anything – right from sourcing nurses to sourcing iron and steel. Schumacher seems to imply that technology is making independence impossible (as if its an inherent weakness of technology)- I would say that the very role of technology today is to make sure that countries can remain independent, for only then will the lowest-cost approach work.

    It is also my view that the concept of rich and poor are no longer in black and white. Its become much more complex than that. The biggest manufacturers – like China and USA – are no where near rich, considering the levels of NPAs which Chinese banks have, or the trillion dollar deficits of USA. The economic world keeps moving forward purely because of momentum, and the fear that if one collapses, the chain reaction would be unstoppable (like Japan’s countinued faith in US treasury bills). A much-magnified harshad metha scenario, if you will.

    And it would seem that these “rich” are now as dependent on the poor, from the outsourcing wave that is now unstoppable by anyone. Technology and ROI based growth has made that a reality.

    • Schumacher seems to imply that technology is making independence impossible (as if its an inherent weakness of technology)-

      I don’t think that is what he is quite implying. I think he is saying that there are alternatives in technology available, and in a developing country with a large population, we have to consider these alternatives. The lowest cost technologies are in general mass produced and highly automated, and choosing these will likely make independence impossible.

      I don’t quite get what you mean when you say “I would say that the very role of technology today is to make sure that countries can remain independent, for only then will the lowest-cost approach work. “

      Yes, agree with you on the rich and poor bit, though I can never be sure if it’s only a momentum thing or if there are other parts to it.

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