Question/Comment: A few years back, I made a documentary about an Indian high-tech firm that was offering free Internet access to semi-literate slum children in Delhi, The Hole in the Wall. Now it turns out that project was the real-life inspiration for the hit film, “Slumdog Millionaire.” Are you sanguine or pessimistic about the fate of such kids?
Paul Solman: I’m not sure about the answer, and I’m not sure anyone else is either, but the question raises one of the weightiest economic issues of the age. Put simply: Will the world’s marginalized children acquire enough skills and/or connections, fast enough, to have something to sell to their fellow humans with something to trade in return?
The economic concept that justifies trade – whether within national boundaries or across them – is “comparative advantage.” So, for example, Tiger Woods may dispatch his laundry and a golf ball more efficiently than anyone on earth. Regardless of the fact that he’s the world’s best launderer, however, he should still hire someone to clean his clothes. Why? Because we’re all better off if he devotes his energies to the higher-payoff activity: playing golf. The world gets better golf (assuming you think this is of value) and the same amount of laundry for a given amount of human effort. Just imagine what would happen if his launderer tried to play golf while Tiger washed the clothes.
Similarly, as economist Robert Lawrence likes to point out, Bill Gates should hire house painters even if he wields the fastest brush in the west. And so on. Thus we should each specialize in what we do that can provide the greatest value. And so we do, by working for the highest possible wage. We get the most output (measured in what people are willing to pay) for the least effort. That’s what efficiency IS.
The problem with “comparative advantage” comes when the task in question can be more cheaply performed by NON-humans.
If it’s more efficient for the economy that unskilled laborers wash Tiger’s clothes while he whacks golf balls, it’s more efficient still to use a washing machine. To put it brutally, the costs of running a washing machine – electricity, water, metal, plastic – may be less than the costs of keeping a person ALIVE (much less alive with dignity).
Economics argues that, as “we” become more efficient at production, “we” become better off. More food produced. More clothes. More clothes washed. More life-extending medical technology. And, of course, more entertaining golf. The more we produce, the more for everyone. A rising tide lifts all boats, as JFK said back in 1963.
But, in the words of the Gershwins, it ain’t necessarily so. Imagine a world in which one person – King Gates – has more than “plenty of plenty”: he owns everything. His militia keeps order. His machines produce all the goods and food and wash all the clothes. His inventors turn out anything new.
Some of what King Gates has will inevitably trickle down. He has to keep his militias and machinists and inventors happy. But we can at least imagine a world, I think, in which the numbers of such people are relatively few, compared to the population as a whole.
Broaden the vision to include King Gates and his court, and you can conceive of a world in which one stratum of folks – one “class,” if you will – has goods and services to trade and another stratum or class – made up of the “unskilled,” the unwashed, and the unconnected – does not.
Arguably, when it comes to the slumdogs of the world, we may have already reached this level of stratification. As both the Oscar winner and its inspiration make clear (you can watch a short FRONTLINE version here), the talents of the marginalized are not in question. The commitment of societies to nurture and develop them, however, most certainly is. It is a matter of long-term investment. Humans have not, in recent decades, proved themselves especially far-sighted. As we move forward in time, the worry with respect to the world’s “human capital” in the slums of Mumbai and elsewhere is that if we don’t develop it, we will not only lose out on what MIGHT HAVE been produced that wasn’t. We might be facing dramatically disconsolate populations as well. And besides, it’s kind of unfair, no?