15 August 2017
Originally published by CapX.
A few weeks ago, the Indian road and highways minister Nitin Gadkari said that driverless cars would be banned in order to “protect jobs”. This kind of fallacious argument is nothing new. Over the past year or so, newspapers have been publishing articles arguing that automation is to blame for job losses. Even seemingly intelligent people, such as Bill Gates, have been making outlandish suggestions, saying we should tax robots, for example, to compensate workers who might lose their jobs as a result.
On a superficial analysis, one could indeed say that automation causes job losses. But by digging a bit deeper, you can see that bad government policies are the root cause for unemployment.
Take driverless cars. Driving is not a job that requires specialised skills. Low-skilled workers are abundant and also inexpensive. Why, then, is Uber so interested in developing driverless cars? Could it possibly be because governments around the world have imposed costly regulations on the company, or banned it outright, to protect the taxi cartels.
Never mind that this immediately makes Uber drivers redundant, it also gives Uber an incentive to invest billions in developing the cars to circumvent the burdensome regulations. This will ensure that all drivers lose their jobs in the long run, including the taxi cartels governments are trying to protect.
Lant Pritchett, at the Centre for Global Development, wrote last month of a similar problem in the US. Workers from Central and Latin America could easily take low-wage jobs in the US. But minimum wage laws and immigration restrictions make labour artificially expensive.
That is precisely why Amazon is pouring billions into drones. In the absence of government intervention, it would be far cheaper to hire low-skilled immigrants for delivering parcels. But since government won’t allow that, it is cheaper to use drones. Most delivery jobs in the US will be eliminated in the near future as a result of bad immigration policies. Policies which were, ironically, crafted to save those jobs.
Note the tremendous inefficiency this creates. The world’s scarcest resources, entrepreneurs and scientists, are working to economise the most abundant resources, namely low-skilled labour. All of that entrepreneurial and scientific talent is being wasted due to bad government policies. Pritchett rightly laments that this makes it harder for poor people to escape poverty.
Pritchett’s observation is nothing new. In January, I wrote that even Karl Marx understood how technological progress is distorted when government tries to protect certain industries or occupations. A case in point is Indian manufacturing, which the government tried to protect from foreign competition.
Countries at a similar level of development have labour intensive manufacturing which makes use of cheap labour. In India, the opposite has happened. Whatever little manufacturing takes place there is extremely capital intensive. Why did this happen?
Before 1991, government imposed extremely high tariffs on imports to encourage domestic manufacturing. Manufacturing grew, but it became more capital intensive over the years, even though cheap labour was abundantly available. The explanation for this lies in India’s complex labour laws.
India has nearly 250 labour laws between the centre and the states. The cost of complying with these labour laws is so high that companies found (and still find) it cheaper to use machines than to hire people, creating the phenomenon of jobless growth.
All of this evidence points to just one culprit. It is not greedy corporations and it is not automation. Ridiculously ill-conceived government policies are the sole reason that low skilled jobs are dying an untimely death.
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