Eliminating Unemployment

Fully Utilizing Social Resources can Eliminate Unemployment

By Ashok Natarajan

Feb 11, 2010

Chronic unemployment is a major problem for both economists and policy makers as it prevents the realization of the optimum welfare of all people. Further it throws into question the role of the market as the instrument for ensuring the welfare of the people. The situation prevailing now is that there is a high-level of unemployment simultaneously coexisting with high level of unmet social needs. Millions of individuals are there who are very eager to work but are unable to find work opportunities. This is aggravated by the problem of millions of more people suffering in poverty with only their bare minimum requirements being met. That millions remain unemployed while millions more suffer from poverty shows that something is seriously wrong with our economic system. This is comparable to letting our food supply rot while so many people are hungrily waiting outside.

Official unemployment figures stand at around 10% in the U.S this figure does not take into account those who have given up the search for employment. Neither does it include those who are underemployed and not fully utilizing the talents they are equipped with. According to Randall Wray, the actual unemployment rate in the U.S could be around 25% or more. The situation is not very different in the other OECD countries. There may however be slight variations in the figures due to government measures for imposing part-time work on citizens.

There is no valid reason why all those who want to work cannot be gainfully employed. It is not as if all the needs of the world have already been met by the existing work force and therefore no more workers are needed. If half the population of the world is still mired in poverty, that is a clear sign that a lot of pending work has to be done to raise this segment of humanity to decent middle class standards. Even in the developed nations there are still many types of needs which are not being properly met. There is still a lot of scope for improving housing and health care. It is puzzling that nothing is being done to meet these needs while so many are eager to work and contribute.

Imperfect Markets

Markets do not conform to theory because situations in real life are very different from what is portrayed in theory. Real-life markets are far from perfect. Economies are highly structured and resistant to change. A man owing a car cannot simply use it as a taxi to make money. The car owner must first pay heavy fees to acquire a taxi license from the municipal government. Similarly a man wanting to build an extra room or garage in his house cannot do it straight away without first getting approval from the town planning authority. The cost of medical services is very high in the U.S as the number of doctors is controlled by federal regulations. The Nano mini car launched by Tata Automobiles, which sells for $2500 dollars here in India can only be sold in the U.S for 8000 dollars, as it has to be modified to conform to safety regulations there. That automatically restricts the number of people who can buy it there. Many such regulations were certainly meant for the protection of the general public. But at the same time such restrictions limit the employment opportunities of many people who are willing to work. Such restrictions force many experts in the field to conclude that full employment is a goal impossible to fulfill. But if we look at the issue objectively, we can see that the right to employment is a right that is as fundamental as the right to safety.

Untapped Opportunities

The market functions in an imperfect manner mainly because not many people are even aware of unmet social and economic needs that they can fulfill. I have written earlier in the GEC about the global shortage of skills, which refers to the immense gap in the requirement for skilled labor and the actual availability.

There is also a big gap in the field of education. It is a well-known fact around the world that unemployment and poverty are very high among people with minimum education. For example in the U.S the unemployment rate among those who have not completed high school is three times as high as those with college education. The ratio in many other countries is even higher. Given the high level of sophistication of the modern economy, the minimum compulsory education can be raised by two more years than what is compulsory now. This will dampen the flow of youth entering the market looking for jobs while at the same time it will increase the demand for teachers. Moreover when youth do enter the labor force, they will also be better equipped to meet the requirements of the market.

One area where awareness is lacking very much is the potential for creating money. Randall Wray has argued in his GEC webcast and article cost effective that it will be more advantageous for governments to print money to create jobs than let the effects of unemployment such as poverty, crime and social welfare expenses cause havoc with the economy. In another webcast, Bernard Lieater has shown how complementary currencies can be utilized to pay for constructive work that is not being taken care of by the mainstream economy.

The capacity of technological innovation to generate job potential is far greater than realized. In his presentation, Gunter Pauli has identified many sustainable technologies that can generate 100 million new jobs throughout the world over the next decade. We all know how many different types of employment and self-employment opportunities have been created by the Internet many of which are not even location-dependent. Some net-generated jobs require a high-level of technical skills while others require new organizational and managerial skills. For example, e-lancing is a totally new field that generates employment for those who can proof-read, write project-reports and do translation services etc. Actually only 5% of the outsourcing potential of the net is even being realized and that means only 5% of the people with the required skills are even aware of the employment potential generated by the net. For example, how many Academy Fellows even consider the possibility of outsourcing their research and clerical work to web-based research assistants?

The internet is not merely a technical innovation but also a social innovation which can be as productive as a technological innovation in terms of employment opportunities generated. In the 1980s the government of India introduced the system of public phone booths to cater to the demands of the public for phone facilities. Within a few years this resulted in the generation of a million self-employed and salaried jobs. One can do a study of the potential for such social innovations in many countries across the world and thereby add a new thrust to job generation.

Though the lay-off of employees in big corporations is hitting the headlines of newspapers, the reality is that it is the small and medium-sized companies which offer most of the new jobs. During the recent recession employment in the small and medium-sized companies in Canada remained constant while employment in the big corporations declined by 10%. Though India is a big country and has a huge population, only 5% of the Indian labor force is even employed in the organized private corporate sector. Even in the U.S dominated by mega corporations, 50% of all jobs are provided by small and medium-sized companies only and 64% of all new jobs have been generated by this segment of the economy only in the past 15 years. This shows why it is necessary to focus on the development of small and medium-sized ventures and give a boost to the development of the entrepreneurial spirit.

Though many governments encourage the formation of new businesses, they do not give enough attention to ensure their survival. Though it is the small business sector that generates most new jobs, it is also true that it is this sector that suffers the highest failure rate. For example the U.S economy generates 600,000 new small businesses every year. But nearly an equal number of small businesses are also closing down every year there due to losses. Figures show that only 75% of new firms survive for 2 years or more and only 50% of them hold on for five years or more. Many such firms are started by people with no formal management training. Netherlands is an exception in that it requires entrepreneurs to undergo formal training before they start their venture. But in the U.S many businessmen who own small businesses cannot even read a profit and loss statement. Organized training and counseling for such businessmen can considerably reduce business failures and losses.

These examples barely scratch the surface of the potential, much of which is too intangible to quantify but nonetheless very real and powerful. Society is a field for interaction between people. Social potential is created by forging new and more effective ways for people to interact. Three social institutions – language, roads and money – formed the basis for the evolution of civilization over thousands of years. Today our capacity for constructive interaction has multiplied a thousand-fold, yet we have only begun to understand how to utilize that greater potential. Can we truly assess the social potential created by the fact that 1.7 billion human beings are now connected over the Internet in a single social system that has the potential to deliver world-class education to everyone, or that 350 million of them participate in a single social networking system, Facebook? We need only imagine the constraints we would face if only 5 or 10% of humanity were accessible by roads, mail services or airlines. Imagine the difficulties we would encounter if the world today lacked English as a common language for communication or if it lacked a mechanism for converted money from one national currency into another. Have we even begun to fathom the social potential generated by linking a very large portion of humanity to a single system for communication, commerce, education, employment, entertainment and other social interactions?

It took India fifty years to install the first 40 million telephone lines in the country, but only ten years to raise that number to 540 million after the advent of mobile phones. Nascent efforts to utilize cell phones as a medium for payments is one instance of that untapped social potential. Apple and other companies have already succeeded in building phone, email, video, music, e-books, GPS, internet capabilities and tens of thousands of specialized applications into a single mobile device which may soon become as commonplace as the i-Pod, but we have yet to recognize even a tiny fraction of the social potential and, consequently, the employment potential it opens up.


These are just a few examples of where new employment potentials lie. Conventional wisdom calls for economic stimulus programs and public investments and tax cuts for generating new jobs. But the time has come to stop thinking along these lines and see the complex and mighty organization which human society is as a very valuable resource which can generate an infinite number of jobs. We stand in awe of the power of money and other resources such as time and energy little realizing that we are ignoring the mightiest resource of all which is social organization.