The Holy Market Mechanism

Prices convey a lot of information. It not only tells producers what to produce but rather informs the producers to produce what people want. The more inaccurate the information gets, the lesser will be the economic coordination which will in turn lower satisfaction of wants and botch the resource allocation. In fact, interference in the information conveyed by prices is destructive to the economic progress of an economy.

We often fear that an increase in competition and advancement in technology will take away the traditional livelihoods of the people. Norman Macrae, an editor of the Economist, pointed out that with the advent of Industrial Revolution in England, about two thirds of the jobs that existed in the beginning of the century was eliminated by the end of the century, yet there were three times as many people employed at the end of the century. But the jobs were not the same.

Norman pointed out that in the late 1880s, about 60 per cent of the workforce in both the United States and Britain were in agriculture, domestic service and jobs related to horse transport. Today, only 3 per cent of the work force are in those occupations. Jobs will change with competition, but there will always be more new jobs created than the ones lost. 

I wish to reiterate my argument with another example from Kerala, the literate state of India. Being subject to this primal fear for job loss during the computerization drive during the 1990s, there erupted massive agitations against computerization. Thanks to government's pragmatic resistance against the popular belief, it carried forward the agenda in reigning in technology. As computers replaced manual labour in banks and government offices, employees in Kerala found an enhancement in the quality of their job without leaving anybody unemployed.

The underlying moral is that, the duty of the government must not be to preserve jobs but to equip individuals to grab better ones. Even in a socialist/ welfare oriented governance, market mechanism should work on its own and governments should never interfere in activities that distort its functioning. Nordic countries stand in as an excellent example for injecting market mechanism into the welfare economy to bring in competition. In fact, their unparalleled standard of living is a result of treasuring this untold secret: maintain the balance between welfare and competition. We need them both, so pursue them simultaneously in order to keep market mechanism intact.

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