Policies need to be evaluated based on how they affect consumers

A foreign bureaucrat once told American economist Milton Friedman that workers in his country were given shovels instead of tractors to build a canal because more jobs were created that way. Hearing this, Friedman is said to have quipped, “If it’s jobs you want, then you should give these workers spoons, not shovels.” Union Minister for Road, Transport and Highways Nitin Gadkari’s justification for opposing the entry of driverless cars into India is based on grounds similar to that of the foreign bureaucrat. “The government is not going to promote any technology or policy that will make people jobless,” he said recently. The Minister further stated that cab aggregators like Ola and Uber will not be allowed to use driverless cars as it could cost the economy as many as five million jobs.

The fear of disruptive technology causing massive job losses is nothing new. Economists have used the term ‘lump of labour fallacy’ to characterise the common, albeit mistaken, belief that there is only a limited amount of work to be done in an economy. The victims of this fallacy believe the available work needs to be spread among the population to prevent unemployment. The Luddite movement of the 19th century even called for the destruction of machines to save jobs. The reality, of course, is that technology has caused massive job losses for centuries, yet new forms of work have always cropped up to absorb the displaced labour. This is for the simple reason that human needs are virtually unlimited compared to the supply of labour. Nothing about artificial intelligence changes this basic fact of life.

Consumer is king

Policymakers like Mr. Gadkari, however, seem to care more about people who stand to lose from automation than about consumers who clearly stand to benefit from it. Such thinking goes against one of the hallmarks of sound policymaking, which is to focus on what’s good for the consumer instead of what saves the producer from bankruptcy. The interests of the consumer are paramount because, at the end of the day, everyone is a consumer and all economic activity is aimed at increasing the total amount of goods available at his disposal. As French economist Frédéric Bastiat put it: “Treat all economic questions from the viewpoint of the consumer, for the interests of the consumer are the interests of the human race.” Protectionist policies, on the other hand, aim to increase the amount of work that can be done without caring about the total amount of goods that can be got from it.

Further, it is no coincidence that some of the greatest increases in living standards in human history happened during the industrial and the technological revolutions of the 19th and 20th centuries, respectively. Such enormous feats were not achieved by saving jobs but by allowing their creative destruction. India’s policymakers would do well to heed the lessons of history.