What is the 'fourth' fundamental law of capitalism? Will capital ‘inherit the earth’? Has the pandemic quickened the intuitive appeal of the capital-labour substitution? Should sovereign funds be based on corporate wealth, not just natural resources? Would Universal Basic Income work in a relatively poor country like India?
In the first annual Ashok Kotwal Memorial Lecture, Professor Debraj Raj talks about the future of development, and the contribution of labour, capital and automation in growth.
After a quick introduction, he dispels the notion of balanced growth by showing that, far from being constant, the share of labour is falling, over time, across countries, and within sectors. Presenting employment elasticities of different sectors, and labour shares for many economies, he establishes the ubiquity of capital-labour substitution. We see GDP growth has outpaced employment growth in India too, even though there is an abundance of cheap labour.
He presents his theory of accumulation and automation, which rests on a discussion of two pillars: the human-physical capital asymmetry, and the two ‘flavours’ of capital – ‘machines’, which are complementary to human labour, and ‘robots’, which can substitute human labour. He highlights that, unlike human capital, physical capital is alienable and can thus be scaled and accumulated indefinitely. Concluding from above and considering the relative price of humans (wages) and robots, he establishes that his ‘fourth law’ of capitalism demands an inexorable replacement of tasks across all sectors by robots. He clarifies that the absolute level of wages can rise – and should, to provide impetus for ongoing automation – but in the relativistic battle between capital and labour, the former will always win. He offers solace to his human audience by providing four escape routes from this ‘repugnant’ conclusion.
Although the fourth law triggers the Piketty anxiety of ‘capital inheriting the earth’, he believes the substantive worry is that of personal income distribution, which depends on individual holdings of labour and capital; this raises the need for a scheme for universal basic income. He provides a few back-of-the-envelope calculations and discusses the pragmatics of building a sovereign fund which yields a national dividend. He proposes the ‘India Fund’: predicated on corporate wealth, and social ownership based on dilution of shareholder value.
He concludes with a discussion of the advantages and limitations of this proposal and the scope for further research, in response to questions from the audience.
The Ashok Kotwal Memorial Lecture has been instituted as an annual lecture on key issues of development, in memory of our founding Editor-in-Chief.