yazadjal.com

As I was saying, the unions and the government failed Mumbai.

Unions are supposed to get a good deal for their workers. Instead, they got what must be the worst possible deal.

Advocates of government planning assured us that the government could manage Mumbai’s transition from a factory city to a financial hub, with a minimum of pain to those affected. it failed in this, botched things up and made things worse for workers.

These were not innocent mistakes. These errors were inevitable because the mechanism was faulty.

Union leaders were not elected by workers. This was supposed to be for the workers’ own good, as otherwise they would be manipulated by the management into electing a pliable union (certainly a possibility in those times). So which union would represent the workers was a complicated matter almost always ending in the courts (which would sometimes order elections.) Often there used to be competing unions trying to outbid each other in making demands.

Because there were so many things decided at the government level rather than at the company level, unions were affiliated to one political party or the other (because this gave them bargaining power with the government). But this also meant that union leaders were less concerned with welfare of the workers and more with bolstering their numbers and getting their members’ votes at the time of elections. When faced with a choice between letting a factory close (and the workers get compensation) and not letting it close (with the risk that it dies a painful death, owners scoot off, salaries remained pending and no one gets anything) they invariably chose the latter course, because the former option would cut down on their union membership. The same considerations applied when they had to choose between letting a few workers be laid off now and the company going bankrupt in the future.

Similarly the government too had a perverse incentive. If they allowed a bit of unemployment in Mumbai, they’d lose votes. If workers had to move out of Mumbai for employment elsewhere, it would mean that Mumbai would get decongested a bit, but it also meant they lost votes. Why would a local politician in Mumbai be worried about jobs being created elsewhere? Who would have more political power - union leaders and factory owners of already existing companies in Mumbai? Or software companies that hadn’t yet been set up and shopping malls that hadn’t yet been built?

Those who want the government to plan these things forget that not only does the government does not have the information to do the planning (Indeed no one does. Who could have predicted the rise of the software industry in, say 1980) but also government officials do not have the incentive to facilitate any change. The mechanism simply does not exist.

Which brings me back to my original point. If you think you have an alternative to capitalsm, don’t just say “The government should…” Come out with a mechanism and be prepared to defend it.

Actually it also brings me to a point about sweatshops. I will come to that.