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Sunday, July 17, 2011

Productivity Line

When tackling any sort of problem, it matters immensely how you frame it. The construct and language you use to describe the problem will inevitably direct and guide how you formulate solutions. Let’s take a look at the economic topography of the world – there are places where a great deal of innovative products and services are created that many have access to and other places where much less is created and fewer people have access to the little there is. The medium of exchange for these goods and services being money, the issue of this global inequity among human beings has been constructed in the context of money. It has been framed as an issue of ‘poverty’, the lack of money and therefore the ability to acquire. With this framework lack of money becomes the central issue and we draw ‘poverty lines’ – how much money is reasonable to have and formulate solutions that focus on how to redistribute money and give people ability to acquire.

What if instead we had framed the issue in the context of productivity – in terms of what you give or create and not what you take or acquire? Then instead of looking at the world and wondering why so many people are able to acquire so little, we would ask why so many are able to create so little and why we are so grossly lopsided in terms of productivity. Instead of seeing people as lacking enough money to be above some poverty line we would look at it in terms of people lacking in ability to be above a productivity line. If we saw it this way we would construct our solutions profoundly differently. Rather than focusing on money – which is simply a token of exchange – we would be forced to focus on human capability and the conditions that drive it.

So let’s examine one of our primary solutions to the larger inequity in the context of productivity. If we looked at it this way rather than the context of poverty, would we still do it? Would we do it the same way? Let’s take NREGA – the National Rural Employment Guarantee Act. Its goal is to reduce poverty by providing livelihood security. The government site that tracks this provides details on how many persondays of work was done and how much was distributed in ‘wages’. It is however extraordinarily difficult to actually find a list of what was created with this scheme – if there is one at all. Rather the first link on the main page under ‘What’s new’ brings up a pdf of a letter to the Principal Secretaries of all States from the Joint Secretary Mr. DK Jain asking them to take the necessary action to produce photographs with latitude and longitude of ‘works’ done to ensure, no doubt, that wages were not handed out without some sweat. At least wages should be given out for digging ditches, moving dirt from one place to another and other equally extraordinary things even if they have no real purpose (check out the picture on the site). Has it succeeded? Well, if the measure is in wages – income - then perhaps it has.

On the other hand, if we were to evaluate this in terms of productivity, we would need to report first and foremost what was created with the money. What was produced and what was the per person productivity? This means that we cannot get away easily by simply pointing to ‘wages’ and ‘income’ as measures of success. We would need to get in there and debate and figure out first how we would measure productivity and output and then track this. And to get a decent outcome we would have work harder to figure out how to drive productive output. We couldn’t just be lazy and let people do anything they can think of to work up a sweat, however useless. If we need people to cross a productivity line, it is a whole different ball game.

Think about our other approaches - subsidies, foreign aid, microfinance, government spending - and you will see the subtle differences in approach that would emerge. So let’s forget about the poverty line and figure out how to construct a productivity line. What do you say?

8 comments:

  1. @When tackling any sort of problem, it matters immensely how you frame it.

    +1 for this.

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  2. Thanks for your creative thinking.

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  3. Very good opinion indeed and gives an eye opening point of view.

    I think more follow-ups on this subject , exploring other such points of view as well, will make a very very interesting read.

    As an example, please explore some more on questions of "productivity" of those few with very high incomes - inherited wealth by birth, earning risk free rent on inherited wealth (born as a majority shareholder of a big family held corporate), elite education not by merit but by sponsorship of parents, far less entrepreurial than those thousands who have brilliant ideas but their start-ups hardly live to see first anniversary while this bourgeois inherited class holidaying in caribbeans and appearing in front pages of business magazines!

    I am not a "leftist" by any chance to ask this. The conservative "left" is strongly against entrepreurship & rule of merit and therefore despicable. But so is equally despicable the proponents of bourgeoisie by inheritance. But somewhere doesn't the dichotomy of division of humanity into classes and masses based on inheritance should be seen as responsible for inequalities - monarchs and their ruled, bourgeoisie & proletarians, the Lords of the fiefs and serfs of the lands, for example?

    Economics define two components that constitute income - Rental & Residual. The latter is result of enterprise & productivity while the former is a risk free, enterprise free income which is accrued to one just by virtue of owning capital resource (inherited or otherwise). Is it not worthwhile to treat those super-rich as BPL, below-productive-line ,who earn name, fame & far more than sufficient means for subsistence not by merit but just by virtue of inheriting landmasses of wealth!!

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  4. Reference to the previous comment - what is the difference between a non-productive negligent poor earning his subsistence by moving dirt from point A to point B and then moving it back to where it started and that of that super-rich who earns far beyond the means required for his subsistence by being lucky to be born in a family that owns acres of land, millions of shares of a family owned corporate and indulged in nothing extra-ordinary but yet earning extraordinary living & a lavish life? Which is a bigger sham that afflicts any society affected with inequal distribution of income, the poor getting free lunches or the rich buffoons born with a silver spoon?

    Productivity is unconfusedly for the middle-class, therefore, who neither gets free-lunches nor enjoys the inherited wealth! Talking about productivity is like pushing the middle class - the average class ; while all along at both the extreme ends there happens to be no difference.

    What has to be done is instead, focussing on equitable education, breeding innovation, targets of gross intellectual growth and tax the "sloth" of inheritance - some recent texts in economics have even suggested that there is a high correlation between per capita income & IQ levels (read intellectual might) of the people of any nation, quite plausible.

    Innovation is hardly ever studied and researched in subjects of economics & welfare because it is not something that can be predicted through number crunching stats & by the very nature of its revolutionary effects on people, economy and culture it is very against the basic human comfort in the notion of equillibrium which classical texts believe in.

    Only one thing helps - innovation and that comes through education, knowledge & competition. A level playing field is what is required.

    An idealistic solution to income inequalities is let those who have succeeded not carry their wealth beyond their graves, tax inheritance to finance free and equitable education meant for all and let the race to contribute to growth and earn money and success start.

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  5. Reference to the previous comment - what is the difference between a non-productive negligent poor earning his subsistence by moving dirt from point A to point B and then moving it back to where it started and that of that super-rich who earns far beyond the means required for his subsistence by being lucky to be born in a family that owns acres of land, millions of shares of a family owned corporate and indulged in nothing extra-ordinary but yet earning extraordinary living & a lavish life? Which is a bigger sham that afflicts any society affected with inequal distribution of income, the poor getting free lunches or the rich buffoons born with a silver spoon?

    Productivity is unconfusedly for the middle-class, therefore, who neither gets free-lunches nor enjoys the inherited wealth! Talking about productivity is like pushing the middle class - the average class ; while all along at both the extreme ends there happens to be no difference.

    What has to be done is instead, focussing on equitable education, breeding innovation, targets of gross intellectual growth and tax the "sloth" of inheritance - some recent texts in economics have even suggested that there is a high correlation between per capita income & IQ levels (read intellectual might) of the people of any nation, quite plausible.

    Innovation is hardly ever studied and researched in subjects of economics & welfare because it is not something that can be predicted through number crunching stats & by the very nature of its revolutionary effects on people, economy and culture it is very against the basic human comfort in the notion of equillibrium which classical texts believe in.

    Only one thing helps - innovation and that comes through education, knowledge & competition. A level playing field is what is required.

    An idealistic solution to income inequalities is let those who have succeeded not carry their wealth beyond their graves, tax inheritance to finance free and equitable education meant for all and let the Race to contribute to growth and earn money and success begin

    ReplyDelete
  6. To Anonymous above, in response to your comment..
    "As an example, please explore some more on questions of "productivity" of those few with very high incomes - inherited wealth by birth, earning risk free rent on inherited wealth (born as a majority shareholder of a big family held corporate), elite education not by merit but by sponsorship of parents,..."
    do read the post titled Cumulative Advantage posted in June.

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  7. Hi Tara,

    Visiting here after a long time (we met at IITM at the 2010 TEDx). Thanks for continuing to put out thought provoking concepts.

    From your post I understand that taking a developmental design approach is more useful and socially sustainable than an approach that hand-holds the poorest of the poor just up to the threshold of the cycle of consumption.

    As I thought further about this productivity line, the following fundamental economic questions struck me (some of which you have explored in your blog earlier).

    1. What do you think must be an ideal ratio of producers to consumers so that the society is economically sustainable (i.e. capable of diversification, growth and self renewal)

    2. What must be an ideal ratio of consumption to production in an individual's life? One could think of this ratio as an index of Marxist alienation and therefore a proxy to measure happiness :)

    3. In general, how do these ratios vary as a function of population size and other demographics as well as economic complexity (i.e. complexity of division of labor and diversity of goods and services produced and consumed)? For instance, in a subsistence farming society where the economic complexity is relatively low, one could imagine that the ratio of producers to consumers is one, but that is scarcely an indicator of progress. Similarly in an extremely large and diversified society the ratio of consumption to production at an individual level is extremely high, but that is not an indicator of well being necessarily.

    4. If one could measure these ratios from the demographic data of communities that your work with, then one could go about defining bounds on these ratios and subsequently designing developmental interventions to optimize them.

    Also, wanted to share this resource in case you intend to explore these questions more formally:
    http://ineteconomics.org/grants

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  8. Pavan, sorry for such a delayed response to your comment but here is an answer of sorts:

    I think all adults must be producers of value in some way as well as consumers for a society to be truly healthy so I would say 1:1 for adults. That said, ‘value’ can be thought of in diverse ways and only a few will be ‘entrepreneurs’ who create new scalable structures that will provide the mechanism for many to contribute productively. In developed countries roughly 6-7% of the employed population are entrepreneurs. In developing countries it is closer to 50%. This is because entrepreneurs operate as individuals and fail to create scalable structures.

    Consider that a person operating in a subsistence context is exactly following a 1:1 ratio of production to consumption that very closely tracks the body’s metabolic needs. So I imagine that when you produce more than you consume you are likely to be happier (or at least more satisfied along some fundamental dimension) because you are of net positive value to society.

    ReplyDelete