The never-ending growth stories still hang on the impact demonetisation and GST have had on the economy. Not only the political opposition, the economists in general are also questioning the rising figures of gross domestic product (GDP), while the central government continues to maintain that there was no adverse effect of the dual policy on the economy.
In the meantime, the Bharatiya Janata Party (BJP), which is at the helm of affairs at the Centre, has introduced a new element in the discourse of economic growth. Its national executive recently adopted a resolution for “New India” with adequate reference to the idea and concept of “creative destruction.” This resolution obviously came under the shadow of demonetisation and GST. The BJP thesis quoted from no less an authority than Joseph Schumpeter, the internationally famous Austrian–American economist .
Schumpeter’s creative destruction and Harvard Business School’s Prof. Clayton M. Christensen’s “disruptive technology” are very much in vogue in modern day capitalism. Both argue that old industries and services that have become archaic cease to be sustainable because basically they no longer earn profits, and so they are eventually abandoned. But capital and labour cannot remain idle. Schumpeter says that capital moves to new forms of industry and labour follows the same path in course of time. But it is not clearly stated how the labour displaced from the traditional industries would fit into the new form of industry, and even assuming that labour will be retrained, which will be time consuming, jobs will elude most of them because most modern industries are characteristically capital intensive and labour saving.
Christensen’s theory of “disruptive technologies” separates new technology into two categories: Sustaining and Disruptive. Sustaining technology relies on incremental improvements to an already established technology. Disruptive technology lacks refinements, and often has performance problems. An entrepreneur therefore faces a dilemma on whether to employ capital in “disruptive technologies”, as while the risks are greater, the profits are higher. In case he invests capital in this new area, this new technology that involves higher levels of automation does not create a large number of jobs. The few jobs it creates are also for those more skilled. This has a big impact on employment as the job market shrinks.
Much later than Schumpeter , another eminent economist, Joseph Stiglitz, also pointed to the modern-day industry’s inability to create new jobs for those who work with hands and feet, because of increasing automation. This was also threatening white-collar jobs for non-specialists.
Jobless workforce swells in tandem with expulsion of entrepreneurs who fail to survive the onset of “creative destruction.” Nevertheless, the economy may continue to grow and the GDP may continue to rise, giving rise to a situation of jobless growth.
The BJP’s drive for creating a “New India” cannot escape the tortuous course foreseen by economists. Abrupt demonetisation and untimely GST have indeed brought about the “destruction” part of Schumpeter’s “creative destruction”. In one stroke, trade and business, particularly the informal sector, suffered enormous destruction. The capital available with the medium and small trade and businesses dried up because of the losses suffered due to demonetisation, and they have yet to recover from that crisis. These sectors have little access to banking finance, making their recovery difficult. On top of it, the faulty introduction of GST has further deepened their crisis. Therefore, it is doubtful whether the “creative” part of Schumpeter’s “creative destruction” is going to be realized in near future.
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