On the apparent benefits of higher productivity: An arithmetical illustration

Summary

This paper seeks to show, by an arithmetical example, that increased productivity through mechanization can lead to results which make a country worse off. The example shows that the installation of an imported labour‐saving machine will appear not only to have increased productivity, but also to have raised the proportion of investment in G.N.P. and the proportion of capital goods in total imports. All the indications, therefore, lead one to expect a rise in welfare. What the figures hide is that people for whom there are no other opportunities of earning a living have lost their jobs and that consumer goods imports have fallen because both the unemployed and others can no longer afford them. It is not even as if these welfare losses were temporary and bearable because they might ultimately lead to faster economic growth. The example shows that there is no reason to expect that to happen. The paper does not, of course, say that mechanization is invariably harmful—that would be ludicrous—but seeks merely to warn against mechanization in particular circumstances, which arise, however, only too often in underdeveloped countries.

Notes

Professor of Economics, University of Durham. The debts of gratitude incurred in writing this Note are out of all proportion to its length! The author is grateful to Julian Bharier, Arthur Hazlewood, Michael Lipton and—most of all—to Pramit Chaudhuri for greatly improving the original draft. If mistakes remain, they are almost certainly the author's responsibility.