Only Way To Full Employment

A lot of ignorant animadversion against capitalists issues out of want of understanding as to the mechanics of money and from mere prejudice. When indulged in by politicians, it is a trick of rousing and using class hatred for securing the support of a large group. It pays the politician to attack landlords and industrialists, as the tenants and factory workers count the larger number of votes. Capital is as necessary as labour for production. The question is only whether the State should be the big and sole capitalist and all management, efficient or the contrary, put in one basket, so to say, or whether there should be decentralized capital alongside of a strong personal interest in its proper utilization and a degree of competition to check inefficiency.

     The use of money is to create opportunities for employment. The habit of hoarding has gone out of fashion. Those who get large incomes these days put their money in banks or in business - and in either case, the money either directly or indirectly goes into production in the form of capital. People no longer keep their money locked up or buried. There is no way of increasing employment or, which is the same thing, of reducing unemployment except by the expansion of business. If the money earned by the rich goes into production, they render service to the community by enlarging business. The government takes a share of all income in the shape of taxes. Some of this also goes into production. But the larger part is spent on the several unproductive but necessary purposes which government must look after. The essential difference between government’s productive activities and those of private citizens is that the former is more expensive if not wasteful, and the latter is generally frugal and better managed on account of the personal interest involved. It follows, therefore, that money left with individual citizens is more productive than the money taken over by government. So it is that the less of the latter the better for the nation. It is a shortsighted policy for any State to tax heavily and take over too much of the business of production and distribution instead of leaving it to the private citizen. Frugal and efficient management is the characteristic of the private sector and this arises out of the profit motive. The profit is the price we have to pay for economic and vigilant management.

     Money does not remain idle in modern times. Wherever it is left, and whosoever has earned it, the money goes into production and if we tolerate the profits that businessmen make out of their business it would be most frugal for the State to let money remain in private hands. Idle money should be taxed but money that goes into production should be encouraged; for it means more and more employment. There is very little idle money these days. Whether it is ‘black’ or ‘white’, it is busy producing, being employed as capital.

     If anyone makes more profit than is good for the community, let it be taxed. No one can complain that there is not now heavy enough taxation. A lot of ignorance and prejudice blur economic issues. Policies born of prejudice are certain to hurt national interests.

     The foregoing paragraphs were written last week, and now receive confirmation in the news this week-end about the World Bank’s latest advice to India. The World Bank that symbolizes the Western world’s joint effort to help development all over, has played the part of an essential pillar of our Plans, and its advice cannot be set aside by the present rulers of India as advice from the Swatantra Party can be. The Prime Minister’s speech in Parliament on his Third Plan was a lecture on the supreme advantages of socialism and the wisdom of putting all national energy and resources - as much as humanly possible - into the nationalized and public sector of our industries and our trade. Here is what the World Bank advises in a very polite tone. (A representative of a leading paper reports from New Delhi, September 10):

     A plea for greater scope for the private sector and for removal of certain irksome controls and regulations for the successful implementation of industrial projects included in the Third Plan is made by the World Bank Technical Mission in its report. The Mission has asked the Government to institute, at the enterprise level, an objective enquiry into the impact of controls on the efficiency of managements in order to eliminate trivial formalities and also to rationalize the price structure for the purpose of stimulating industrial development. Such an examination, according to the Mission’s report, would carry conviction about the real intentions of the Government to foster a mixed economy. Warning against excise controls, the Mission has remarked that one of the most harmful effects of controls in India is that they are particularly discouraging to small enterprises. The Mission also considers it desirable that a large percentage of industrial profits should be allowed to be retained by businessmen in future if private industry is to expand sufficiently to utilise the products which the public sector would manufacture. After referring to the widely prevalent idea in India that large profits are immoral, the Mission feels that the margin of profits up to 12 per cent of the capital employed now allowed for businessmen leaves very little for financing expansion of units. While measures to restrict profits through taxation and price controls are considered by the Mission necessary up to a point, they should not be imposed in such a manner as to have a cramping effect on development.

     This advice from a most friendly source cannot but be given the most earnest consideration and importance, if the Government keeps the real goal of it all, namely, the welfare of the people, at heart and not allow dogmatism to overrule wisdom.

If all this advice is taken up seriously and put through, it will be found how far the resources fall below the requirements of the planned investments and how greatly in need of revision the Plan stands.

     Monopolies arise out of State trading and State management, not out of private industry or private trade, as the Prime Minister believes. When the Government takes over any business, it immediately hands it over directly or indirectly to a selected individual who, thereupon, becomes not only a monopolist free from all competition, but a veritable government authority. When the government does not intervene but leaves things to private hands, the production and distribution remain open to competition. The favourites, licensees and agents of government always enjoy a baneful monopoly. It is a pity that the Prime Minister fails to see this and holds on to the policies of State trading and nationalization.

     The only path to full employment - and this is the true goal - is to let capital grow freely. Enterprise must be emancipated and not put in chains. It will then absorb potential labour in increasing measure. The private sector must be liberated from all harassing deterrents that prevent its rapid growth. Capital formation in the private sector is a national benefit and should be encouraged, and not treated as a criminal activity to be suppressed and prevented. Employment can expand on a widespread pattern only if capital is allowed to grow. “One of the most harmful effects of controls in India is that they are particularly discouraging to small enterprises.” No wiser words could be written than these remarks of the World Bank Technical Mission.