Question of The Day:
How do countries with cheap, abundant labor pools develop an incentive to save and invest in capital?
Home Construction in Bali, Indonesia (triciaannemitchell.com)
The first step in creating capital infrastructure is to educate people about the nature of capital and science. I used to hope that a traditional society could leap ahead with exposure to modern technology. I now believe that to have the broadest impact, technology and capital must be injected in manageable doses and with appropriate types. For example, if people in a village are currently raising crops by digging holes in the earth with pointed sticks, then giving them hoes is a smarter strategy than giving one of them a tractor. However, people must be taught that the hoes are to be used and not hidden way as objects of value, status or beauty. They must want the option of doing something constructive with the time saved in the fields or the extra productivity gained by working larger fields.
Your picture of the woman carrying bricks could be another example. People have been carrying bricks for a living since the dawn of civilization. It is naive to believe that by giving a person a fork-lift truck to move bricks will solve the problem of lifting a brick-carrying society to an improved standard of living.
The technology to invest in is the one that maximizes the marginal productivity of all the brick carrying people. If your life is dependent on carrying bricks in a competitive labor market, then to get ahead you must do one or more of the following:
1) learn how to carry more bricks for the same effort and invest in the capital (e.g., a hod, a wheel-barrow, a donkey, etc.) needed to move more bricks.
2) learn how to create and maintain the capital (e.g., building hods, wheel-barrows, sleds, wagons, etc.) so that others can carry more bricks.
3) learn how to organize the existing human capital so that the synergies of organized labor can be realized. Gung-ho!
For societies that do not want to change their existing capital structure, then they will not change. If carrying bricks on one’s head is perceived as an act of religious faith, part of a cultural more, then the technology of carrying bricks will be difficult to learn and in the short run, the education futile.
Excellent comment Ted, and thank you for the insight! You’re absolutely right that hard-headedness (pardon the pun) will keep people from saving and investing in capital, at least for the right reason. They must have motivation for change. Unfortunately, all to often it is a crisis that forces the change (e.g., floods, war, famine). How to educate people for lasting change is the challenge of our time. Thank you again!
Excellent breakdown, Ted. It is sad that we have been faced with this situation for hundreds of years. I think the best quote I have ever read was, “I am for doing good to the poor, but I differ in opinion of the means. I think the best way of doing good to the poor, is not making them easy in poverty, but leading or driving them out of it. In my youth I travelled much, and I observed in different countries, that the more public provisions were made for the poor, the less they provided for themselves, and of course became poorer. And, on the contrary, the less was done for them, the more they did for themselves, and became richer.” -Benjamin Franklin, 29 November 1766
A perfect quote to consider Rob. While travelling in India a few weeks ago, my wife and I were struck by the sheer number of people living in absolute desperation. Common medical ailments that are a cheap and easy fix in the industrialized countries, would go untreated, resulting in grotesque disfigurations. Such horrors compound the difficulty of denying a handout based upon Benjamin Franklin’s principles. However, I do agree with his assessment, and we endeavored not to succumb to the desire to offer money and make it ‘easy in poverty,’ especially when they are children under the control of an evil extortionist.
Unfortunately, the last line of Mr. Franklin’s quote, only leaves the reader feeling less guilty about their decision to refrain from taking action, even when their sense of humanity tells them otherwise. We must find a way to ‘lead or drive them out of poverty,’ perhaps through Ted’s proposed use of incentivized education and entrepreneurship opportunities (e.g. garden hoe training and garden hoe businesses). While the garden hoe business is best left to the free market, it is the garden hoe training where society can collectively invest in a road leading out of poverty. Education and training is the one public provision that Benjamin Franklin, indeed all of us, would and should support.
A fantastic quote Rob! Thank you.
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