Arun Maira: When will modern economies learn to value human beings?
Accounting conventions require that capital is accounted for in the balance sheet of the enterprise, and expenditures and incomes in the profit-and-loss account. This is universal for all corporate enterprises, be they business ventures, government agencies or ‘non-profit’ organizations. Businesses account for their assets of land, machinery and money in the bank on their balance sheets. Human beings appear only in profit-and-loss accounts. Wages and other costs associated with their employment are shown as expenditures.
Financial investors in a business (who are its owners under the law) expect its managers to produce profits for them. They reward a CEO who generates financial value for them; they have less concern for the lives of its employees. When human effort (whether blue-collar, white-collar or managerial) is no longer required—in a business downturn, for example—for the enterprise to produce what it is expected to, or when humans are substitutable by less costly machines, good business management suggests that human beings should be laid off to reduce costs.
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Adam Smith explained, with his example of the pin factory, that division of labour is required to improve the productivity and output of an enterprise. Frederick Winslow Taylor applied this principle systematically to develop a model of ‘scientific management.’ He broke down complex work processes into simple repetitive tasks assembled in long production chains. This improved the productivity of workers and efficiency of large factories. This approach enabled more financial capital to be produced from human effort.
Henry Ford used Taylor’s methods to create the world’s first mass-production automobile factories. Taylor and Ford also advised Russia’s communist government on scientific management when it embarked on its industrialization drive after a revolution in 1917 that threw out its feudal system.
Humans are not machines. They can improve their own capabilities if they are motivated and enabled to.
Douglass McGregor at MIT’s Sloan School of Management contrasted two paradigms of management in the 1960s: ‘Theory X and Theory Y.’ Theory X presumes workers are lazy and must be managed with carrots and sticks. It applies to machines, whose performance must be programmed by external managers. McGregor’s research supported Theory Y that humans inherently want to do good work and should be enabled to. Theory Y enterprises can be more productive and competitive without paying top wages. Japanese industries proved this theory on a national scale after World War II.
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Economists today must rethink their concepts of value and the means for creating it by applying a ‘three-model’ framework. First, they must have a good mental model of the nature of the entity—machine or human—whose performance they want to improve. Second, a model of how this entity improves itself, if it can. Finally, a model strategy to help the entity self-improve. Strategies that work for machines are not appropriate for humans.
In an economy, the only work considered valuable is work that earns money because its value can be measured. The time has come for economists to reflect on the work humans do and reconsider how it is valued.
Ever since the dawn of humanity, our mothers have worked to bring us into the world. They have worked to nurture us without being paid for it. This is natural human work, offering fulfilment. The work of our mothers and other caregivers has helped society, even though it adds nothing to GDP. We must honour those whose work has nurtured us throughout history. If we do not, we will not survive much longer.
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For centuries, farmers working with their own hands grew the food that fed us. Masons have built the homes we live in. While we do not pay mothers for their work, we pay farmers for the food they grow and workers for what they build. But how much monetary value do we attach to their work? How is its price fixed in the economy?
Owners of stocks have the power to control the prices of resources in markets. Prices of the work done by farmers and workers are fixed in the trade between them and buyers of their produce. One side has its labour, skills and time to give. The other has money to pay. Money can be stored in a vault.
Those who have money can wait for a better time to pay, whereas those who work cannot wait. Farmers must be paid before their produce rots. Labourers must be paid before their sweat dries. Their work does not have a shelf life. In an economy, the bargaining power of those who control money is always greater.
India’s economy must increase in size. For its growth to be sustainable, many more people must find work and their incomes must rise too.
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Mahatma Gandhi was neither a communist nor a capitalist. He was concerned about the human condition. He said, “To do and die, and not question why” seems to be the life of workers in industrial enterprises in both capitalist and communist economies. He pointed out that while workers theoretically own the capital in a communist country, decisions about the use of surpluses created were not taken by workers but by economists and bureaucrats.
Gandhi recommended small ‘human scale’ enterprises and larger enterprises composed of cooperatives of smaller ones, in which ownership and power remains with the people who create value. The time has come to apply some ‘Gandhian economics,’ put humanity into capitalism, and to make economic growth more inclusive.
The author is a former member of the erstwhile Planning Commission and the author of ‘Shaping the Future: A Guide for Systems Leaders’.
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