Published in leading Pakistani
newspaper Dawn, April 24th,
2019 – The article explains, and makes a case for the Job Guarantee
Program of MMT, for popular press.
by Asad Zaman
GLOBAL experience shows that
market economies create massive inequalities, enriching the top one per cent,
while leaving the bottom of the population far behind. One key to prosperity is
to provide productive jobs for all who would like to participate in the
production process. Unfortunately, contemporary macroeconomics, which was
blind to the possibility of the global financial crisis, is not equipped with
the ideas and tools required to create full employment.
Conventional macro blames the
poor for their poverty, and suggests education and training to fit them into
existing jobs. However, the private sector does not naturally create enough
jobs to employ everyone.
Experience with Keynesian
remedies shows that expansionary monetary policy starts to create inflation a
long time before full employment is achieved. Modern Monetary Theory provides a
genuine alternative, a job guarantee (JG) programme.
Instead of preparing people to
fit them into existing or potential private sector jobs by providing them with
education and training, we must create jobs tailored to the people. Jobs should
be provided to take people as and where they are. Skills should be provided via
on-the-job training. There are a huge number of jobs which require low levels
of skill and education, and provide enormous benefits to society, but are not
profit-making for the private sector.
Planting trees, building
roads, cleaning dams, infrastructure projects, a range of social services, all
provide benefits to society, and make a measurable impact on appropriate
measures of GNP, but may not be privately profitable. Engaging the entire
working population in productive jobs is a win-win solution since it will add
enormously to the economy’s productive capacity of the economy, while providing
a living wage for all members of society. We must solve a complex set of
structural problems to make this work.
The first problem is
institutional. Just as the private sector cannot provide enough jobs, the
government too lacks the capacity or capability to productively employ millions
of people. Since neither the government nor the private sector has sufficient
capacity, we must turn to communities for provision of jobs. Fortunately,
community-driven development was pioneered by Akhtar Hameed Khan in the Comilla
Project, and has been replicated across Pakistan. Both the Pakistan Poverty
Alleviation Fund and National Rural Support Programmes have created thousands
of living communities across Pakistan. These communities can be given the
responsibility of providing productive jobs, for which funding can be provided
by the government.
Next, we must examine the
consequences of pumping billions into the economy by providing millions of jobs
to all who wish to work, taking them as they are, where they are. A huge amount
of additional demand for goods and services will be created by this additional
money being paid to the formerly unemployed. Using household income and
expenditure surveys which describe consumption patterns of the poor, we can
come up with first-round estimates of the nature of the additional demand
generated.
To prevent inflation, we need
to ensure that employment is provided to produce the goods for which we
anticipate excess demand will be generated, eg if we forecast additional demand
for a million tonnes of food, we must employ the labourers to produce the
additional million.
Careful sectoral planning is
needed to ensure a match between additional demands generated and the
additional production that will be created.
However, even if we fail in
matching supply to demand, excess demand which leads to inflation is not
necessarily harmful. Rising prices signal high demand and set off private
mechanisms to create additional capacity to meet new demands. Large amounts of
labour made available by the JG programme would facilitate expansion of supply
in response to increased prices and profits.
A surfeit of money would
create excess demand for imports. With an overvalued rupee, we subsidise all
imports and can’t afford to increase demand, since that drains our forex
reserves. However, an undervalued rupee acts as a tax on imports which creates
forex reserves for the State Bank. Many economies like Japan, China, and East
Asia have used undervaluation to promote domestic industries and accumulate
dollars. It is true that essential imports with inelastic demands will become
more expensive. However, we can use the surplus generated by undervaluation to
subsidise essential imports. This dual exchange rate policy is far more
efficient than a general across-the-board subsidy to all imports, which is
created by overvaluation.
Many aspects of the JG
programme require careful planning and adaptation to local social and
institutional structure. But the payoff of prosperity for all makes it
worthwhile to invest in the required efforts.
The writer is a member of the
Economic Advisory Council.
