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March 11, 2010 at 4:24 pm
· Filed under Economic Policies
I don’t remember where I heard this story. But it goes like this:
Once upon a time, lets say in the 1980s, an American economist visited China. He was graciously welcomed by his hosts, the Chinese government, given an official minder, and shown around. He was shown many things the Chinese were proud of: the factories they were building, the Great Wall etc. Then he was taken to the construction site of a giant dam, where thousands of workers were industriously toiling away with shovels, building a barricade.
He asked his minders: “How come all these people are using shovels? You could get a couple of bulldozers and have a few people finish the job much quicker and more efficiently.”
His minder replied: “Yes, but we wouldn’t be able to keep all these people employed then.”
To which the economist replied: “Ah, so it’s employment you want, not productivity. Well in that case you should take away the shovels and give all these people spoons.”
It’s a story most decision makers would do well to keep in mind. Too often, means become an end in themselves. And a by-product of the ultimate goal becomes the goal. At the expense of all else. I’m sure there’s a management term for it. Michael Porter or Drucker or one of those gurus probably came up with something. Goal-derivative scope creep or something like that.
For more on the difference between Production vs. Employment and why Production is a more desirable goal, I suggest reading this post about it that goes into much more detail:
For my money, I would go for a system that is hell bent upon production and having produced, hell bent upon an equitable distribution. Given scarce resources, the most efficient production method is most desirable. If that means more computers in banks, so be it. So you have to lay off bank clerks. But if you look around, humans are somewhat inventive and entrepreneurial. The system adjusts — not smoothly or costlessly — but eventually. And if done with sufficient forethought, without too much pain.
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Aaron wrote @ March 11th, 2010 at 6:50 pm
Aren’t all government jobs somewhat similar to this? Infrastructure is a favorite job creator in America, especially roads.
It’s true. Governments fetishize employment, as opposed to production. They shouldn’t, which is the point of this post.
Economic theory says that spending on public works leads to higher taxes that leads to lower production. So, the government, ideally should only be spending on those public works that lead to better productivity (necessary roads) and welfare of it’s citizens (hospitals, schools). The factor in deciding what to spend public money on should be benefit to the country, not job creation.
From “Economics in One Lesson” ( http://jim.com/econ/ ):
“THE ECONOMIC GOAL of any nation, as of any individual, is to get the greatest results with the least effort. The whole economic progress of mankind has consisted in getting more production with the same labor. It is for this reason that men began putting burdens on the backs of mules instead of on their own; that they went on to invent the wheel and the wagon, the railroad and the motor truck. It is for this reason that men used their ingenuity to develop a hundred thousand labor-saving inventions.
All this is so elementary that one would blush to state it if it were not being constantly forgotten by those who coin and circulate the new slogans. Translated into national terms, this first principle means that our real objective is to maximize production. In doing this, full employment—that is, the absence of involuntary idleness—becomes a necessary byproduct. But production is the end, employment merely the means. We cannot continuously have the fullest production without full employment. But we can very easily have full employment without full production.
Primitive tribes are naked, and wretchedly fed and housed, but they do not suffer from unemployment. China and India are incomparably poorer than ourselves, but the main trouble from which they suffer is primitive production methods (which are both a cause and a consequence of a shortage of capital) and not unemployment. Nothing is easier to achieve than full employment, once it is divorced from the goal of full production and taken as an end in itself. Hitler provided full employment with a huge armament program. World War II provided full employment for every nation involved. The slave labor in Germany had full employment. Prisons and chain gangs have full employment. Coercion can always provide full employment.
Yet our legislators do not present Full Production bills in Congress but Full Employment bills. Even committees of businessmen recommend “a President’s Commission on Full Employment,” not on Full Production, or even on Full Employment and Full Production. Everywhere the means is erected into the end, and the end itself is forgotten.
Wages and employment are discussed as if they had no relation to productivity and output. On the assumption that there is only a fixed amount of work to be done, the conclusion is drawn that a thirty-hour week will provide more jobs and will therefore be preferable to a forty-hour week. A hundred make-work practices of labor unions are confusedly tolerated. When a Petrillo threatens to put a radio station out of business unless it employs twice as many musicians as it needs, he is supported by part of the public because he is after all merely trying to create jobs. When we had our WPA, it was considered a mark of genius for the administrators to think of projects that employed the largest number of men in relation to the value of the work performed—in other words, in which labor was least efficient.
It would be far better, if that were the choice—which it isn’t—to have maximum production with part of the population supported in idleness by undisguised relief than to provide “full employment” by so many forms of disguised make-work that production is disorganized. The progress of civilization has meant the reduction of employment, not its increase. It is because we have become increasingly wealthy as a nation that we have been able virtually to eliminate child labor, to remove the necessity of work for many of the aged and to make it unnecessary for millions of women to take jobs. A much smaller proportion of the American population needs to work than that, say, of China or of Russia. The real question is not how many millions of jobs there will be in America ten years from now, but how much shall we produce, and what, in consequence, will be our standard of living? The problem of distribution on which all the stress is being put today, is after all more easily solved the more there is to distribute.
We can clarify our thinking if we put our chief emphasis where it belongs—on policies that will maximize production.”
Other recommended reading in this vein:
http://www.deeshaa.org/economic-policy-matters/
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