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On Shenoy + on min. wages
Today, on Rediff, we have notes from Amartya Sen and Ashok Mitra. Just
thought we should try to get this dissenting note from Shenoy that one has
heard so much about, now, and put it up on the web. Ashok Mitra states:
"Not many in the country remember Professor B R Shenoy's name these days.
At the time the Second Five Year Plan was being drafted and the
Mahalanabis model was the centrepiece of discussion in learned a
not-so-learned circles, Professor Shenoy, a member of the distinguished
Panel of Economists, was the great dissenter. He did not believe in
planning; he did not believe in the heavy industry prescription; what was
even more crucial, he did not even believe in self-reliant growth. The
climate was alien. That did not bother him, he remained a vociferous free
"... [T]he note of dissent he prepared to the laudatory report of the
Panel of Economists on the Professor Mahalanabis-inspired Second Five Year
Plan was prominently printed and given the widest possible circulation by
Second: On Minimum wages:
Arvind said: I saw those posts and was under the impression that the
consensus was for including the clause in the manifesto. That is why I
included that point. I'll try to post a summary sometime (if not now, at
least after we are through with all topics once. we could also discuss it
again if it is not resolved by then)
My response: Arvind: I don't know what you are reading - and how you are
determing the previous consensus on various issues. The following was the
consensus after furious debates: (I am quoting from the web site at
http://www.indiapolicy.org/debate/manifesto.html which houses the official
consensus of various debates). I would urge that you restrict yourself to
the web while preparing the basic consensus. Then, dig into the past
debates if the material appears not comprehensive enough. Mere 2-line
paras in the manifesto were often the result of 50 pages or more of
debates. They pack a lot of punch! See this one:
"Further, as far as wages are concerned, the government would not
interfere with this mechanism, except perhaps to suggest "desirable"
levels of minimum wage."
This is clear: govt. would NOT interfere with the wage determination
Second, Arvind asks: I would like to know how social security can be
implemented without a minimum wage. For example, I might prefer the dole
to exerting myself if the pay is not enough. Also, won't the min wage rule
be fair to employers as well as employees? Why should it be created in
such a way that only the employees benefit? By minimum, we mean minimum,
i.e., the point below which it clearly becomes exploitation (in other
words, even the usual one meal in every two days is out of reach)
My response: On the question you raise, I would like some of my 'students'
who heard me out at that time, argue the entire gamut of points on minimum
wage, to respond. If Prem, Utkarsh, Puneet, etc., are not able to answer
your question as a good economist and public policy analyst would answer,
then my efforts have been wasted. Let me give a little hint:
- who ever spoke in the manifesto about a 'dole'?
(unemployment insurance is not dole: you pay for it in
- what is fair is NOT determinable by any individual or body. It
is like the price of commodities: prices could change rapidly
every day based on demand and supply, particularly at the lower
end. The markets determine what is fair to EVERYONE
simultaneously. You or I cannot be better judges (cf. Hayek/
Friedman/ anyone else).
- what formula exists ANYWHERE IN THE WORLD for determing the
fine point when a wage becomes exploitative? Give me any
economist anywhere who has arrived at a formula that is
derived from general principles.
- is unemployment NOT exploitative? (i.e., is zero wage preferable
to a low but market-determined wage?). Well, imposition of
min. wage might make some people marginally better off, but it
robs many COMPLETELY of any job or income.
- what is the usual reason for wages to be low in a particular
profession? Why is it that Arvind's profession does not need
such "protection." If so, is it a good idea to protect those
professions which are getting technologically obsolete?
- when the problem is technological obsolescence, as in the
case of the average handloom product, is it a fine instrument
of policy to force someone (consumer) to try to pay MORE than
that product deserves (will that ever happen? Will you ever
buy a product that is priced too high compared to its
substitutes?). Would it be a better idea to create a sharp
policy instrument and to shift vocational education toward
newer and better technology? (min.wage and protection of
obsolete technology usually go together).
- why is the act of creating a min. wage act preferred by
ministers and their cronies? Ever tried implementing such
laws? Check out my comments on that at various places.
- has anyone ever tried to implement the min. wage act in
Dharavi slum? On this list is the ex-Commissioner, Slum
improvement, of Delhi (he has quit the IAS and is at peace
with the world, finally). Can he please tell us how min.wages
impact on the bulk of the poor who live in the informal sector in
- hey! I've given too many hints.
Over and above these hints: Arvind: my best suggestion: pick up a basic
economics book, read up the section on wages, including efficiency wage,
understand the basics of how markets actually fix wages by going round the
shoreline shops of Singapore, asking each person about his/her wage
structure, and come back with your own answer.
Finally, if you read nothing else, just read Hayek. That should overcome
any deficiency in experience of implementation of economically interfering
laws. We should also try to get hold of more material by Shenoy.
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