Thursday, January 20, 2011

Myth: Governments can create employment

Yesterday, Minister of State for Shipping Nabeel Gabol resigned. According to Dawn his reason for doing so was that he failed to provide his voters with jobs. Herein lies one of many myths that politicians try to sell to people when they need their votes.

Governments cannot create jobs. This is a false notion. It stems from having a shallow understanding of economics and the job markets. Governments can't create jobs because they don't produce anything. If governments do take over certain sectors of service and production, as is the case in Pakistan, the result is inevitably inefficiency and loss. There is ample evidence of this from history. The collapse of communism/socialism should be enough to convince anyone that this model does not work.

If the government chooses to run the ports, they will inevitably be run inefficiently. Depending on political pressure, the government run institutions will be expected to hire regularly. Even if the institution suffers losses, and does not need any more employees, politicians will continue to force recruitment. In addition, politicians in an inevitably corrupt democracy, will push through incompetent people who will not only be useless for the job they are hired for, but will lead to the institution's downfall. Thus we see in the case of PIA and the Railways.

This will also lead to a culture of lethargy and inefficiency, where instead of investing time and effort to learn skills, people will simply depend on these government sanctioned jobs. Hard work will give way to paper pushing. Jobs will be invented just to satisfy the publics lust for employment without introducing any meaningful gains in the service or product manufactured.

Not only is this bad for the particular institutions, it is also bad for the general public. Hard working individuals working in the private sector will be expected to pay these government workers' salaries. After all, the various taxes we pay go to the government, and then into the pockets of its workers. And if taxes are not enough, they will be raised. In addition loans will be taken from international organizations further burdening the private, hard working individual who will be expected to pay them back. In the meantime, politicians will bicker and quarrel about whether or not to close down or privatize the monstrous, inefficient near-bankrupt institutions they helped create.

This is not creating employment. Employment is only created through private endeavor. A private individual (or group of individuals) invests his money into a plant, factory, restaurant, shop etc. which brings something new to the market, or increases the existing products' supply. This entity then hires employees paying for them out of the profits it makes, or expects to make. The public benefits because it has a new product to buy, or cheaper existing products to buy. This is economic activity that overall increases the wealth of the community.

When governments meddle in the creation of products and economics, the management is handed over to government employees or politicians who don't care about profit or loss. A private company that was taking losses would eventually have to shut down. This would remove an inefficient drain on resources out of the market. The capital thus freed would be invested in newer more efficient avenues and the employees would be able to move on.

Ideas like this that governments can possibly allow people to be gainfully employed are based on narrow thinking. People need to look at the whole picture. Otherwise more harm will be done.

The only job of a government is to avert injustice and settle disputes. When governments become too big, they become a burden on the civilians they claim to serve. This is why the Khulafa-ar-Rashidoon did not interfere in peoples' matters, or the markets, or production. This is not the way of the Prophet (S.A.W.S). Everyone needs to be gainfully employed, meaning they should use their skills to serve some economic purpose. When the beggar came to the Prophet (S.A.W.S), he made him buy an axe. Why? So that the beggar could cut wood and earn a living. Not only does this make a person feel independent and restores his honor, but it also serves the public. The wood he sold at the market helped someone stay warm at night.

We should oppose all actions to increase the size of the government and try our utmost to bring back the fair and just system of Khilafah that Allah and His messenger (S.A.W.S) ordered us to establish.

I advise anyone who is interested in really learning economics to read the book "Economics in One Lesson" by Henry Hazlitt, in which he exposes this and other myths perpetrated through ignorance and short-sightedness.

I pray that Allah may grant us the wisdom and vastness of thought to understand and implement fairness and justice.

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