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Employment for All

Asad Zaman

An article published in the leading Pakistani newspaper Dawn [1] explains, and makes a case for, the Job Guarantee (JG) programme of Modern Monetary Theory (MMT).

Local agri business for growing food with tunnel farming (source: Flickr cc)

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 product- ion process. Unfortunately, contemporary macroeconomics, which was blind to the possibility of the global financial crisis, is not equipped with the ideas and tools required for creating full employment.

Conventional macroeconomics blames the poor for their impoverishment, and recommends education and training to fit them into existing jobs. However, the private sector does not naturally create enough jobs to employ everyone. Our experience with Keynesian remedies shows that expansionary monetary policy can begin to create inflation a long time before full employment is achieved. MMT provides a genuine solution to this dilemma — a job guarantee 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 and so are of no interest to the private sector.

For example, planting trees, building roads, cleaning dams, infrastructure projects, and a range of social services, all of which provide benefits to society and make a measurable impact on appropriate measures of economic progress, but which may not be private- ly profitable. Engaging the entire working population in productive jobs is a win-win solution since it will add enormously to the productive capacity of the economy, while providing a living wage for all members of society who are able and willing to work. However we must solve a complex set of structural problems to make such a scheme 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 local communities for the provision of jobs. Fortunately, community-driven development was pioneered by Akhtar Hameed Khan in Pakistan’s Comilla Project, and this type of project has now been replicated across Pakistan. Both the Pakistan Poverty Alleviation Fund and the 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 the funding can be provided by the government.

Next, we must examine the consequences of pumping large quantities of money 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 undue inflation, we need to ensure that employment is provided to produce the goods for which we anticipate excess demand will be generated, e.g. if we forecast an additional demand for a million tonnes of food, we must employ the workers to produce that additional million tonnes.

Careful sectoral planning is needed to ensure a match between additional demands generated and the additional production that will be created. How- ever, even if we fail in matching supply to demand, any excess demand which leads to inflation will not necessarily be harmful. Because rising prices signal high demand and set off private mechanisms to create additional capacity to meet new demands. Labour resources made available by the JG programme would facilitate expansion of supply in response to higher prices and profits.

A surfeit of money would create excess demand for imports. With an overvalued currency, all imports are subsidised and we can’t afford to increase demand, since that drains the forex reserves.

However, an undervalued currency acts as a tax on imports which creates forex reserves. 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.


Prof Asad Zaman is an economist and social scientist, and is currently Vice Chancellor of the Pakistan Institute of Development Economics, Islamabad

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