Economists must rethink their concepts of value and the means for creating it. The time has come to apply some Gandhian economics by infusing capitalism with human values for the sake of inclusive growth.
Accounting conventions require that capital is accounted for in the balance sheet of the enterprise, and expenditures and incomes in the profit-and-loss account. This form of financial accounting is universal for all “corporate form” enterprises, whether they are business ventures, government agencies, or “not-for-profit” social enterprises. Corporate form enterprises account for their assets of land, machinery, and money in the bank in their balance sheets. Human beings appear only in their profit-and-loss accounts. Wages and other costs associated with their employment are accounted for as expenditures.
Financial investors in a business (who are its owners under the law) expect the managers of the business to produce profits for them. They reward a CEO who produces financial value for investors: they have less concern for the lives of the enterprises’ employees.
When human effort (whether blue-collar, white-collar, or managerial effort) is no longer required, in a business downturn for example, for the enterprise to produce whatever it is expected to, or when humans are substitutable by less costly-to-use machines, good business management suggests that human beings should be removed from the enterprise to reduce its costs.
Adam Smith explained, with his example of the pin factory, that division of labour is required for improving the productivity and output of an enterprise. Fredrick Winslow Taylor applied principles of division of labour systematically and developed a model of ‘scientific management’. He broke down complex work processes into simple, repetitive tasks assembled in long production chains. This improved the productivity of workers and efficiencies of large factories. Scientific management enabled more financial capital to be produced from human effort. Henry Ford used Taylor’s methods of scientific management to create the world’s first mass-production automobile factories. Taylor (and Henry Ford) also advised Russia’s communist government on scientific methods of management when Russia embarked on its rapid industrialization drive after a bloody revolution threw out its feudal system.
Human beings are not machines. They can improve their own capabilities if they are motivated and enabled to. Douglass McGregor at the MIT Sloan School of Management contrasted two paradigms of management in the 1960s: “Theory X and Theory Y”. Theory X presumes workers are inherently lazy and must be managed with carrots and sticks. it applies to machines, whose performance must be programmed by external managers. McGregor’s research supported Theory Y that human beings inherently want to do good work and should be enabled to. Theory Y enterprises can be more productive and sustainably competitive without paying the highest wages. Japanese industries proved this theory on a national scale after the Second World War.
Economists must rethink their concepts of value and the means for creating it by applying a ‘three-model’ framework. First, they must have a good mental model of the nature of the entity—machine or human—whose performance they want to improve. Second, a model of how this entity improves itself if it can. Finally, a model of the strategy to help the entity to self-improve. Strategies to improve the performance of machines are not appropriate for improving human performance. Human beings are not machines: they are complex self-adaptive systems.
In the economy, the only work that is considered valuable is work done to earn money, because its value can be measured and added to the GDP. The time has come for economists to reflect on the work humans do and consider how it is valued. Ever since human beings came to live on the earth, our mothers have worked to bring us into the world. They have worked to nurture us without being paid to do it. They have done this work because it was natural human work for them, and it fulfilled them too. The work of our mothers and other caregivers has brought goodness to society, even though it has added nothing to GDP measured in rupees and dollars. We must honour those whose work has nurtured us throughout history. Because if we do not value their work any longer, we will not survive much longer.
For centuries, farmers working with their own hands grew the food that fed us. For centuries, masons using their skills have built the homes we live in. While we do not pay mothers for the work they do, we do pay farmers for the food they grow, and we pay workers for what they build. But how much monetary value do we attach to their work? How is its price fixed in the economy?
Owners of stocks in an economy have the power to control the prices of resources in markets. Prices of the work done by farmers and workers are fixed in the trade between them and the buyers of their produce. One side has its labour, skills, and time to give. The other side has money to pay. Money can be stored in a vault. Those who have money can wait for a better time to pay. Whereas those who work cannot wait. Farmers must be paid before their produce rots. Labourers must be paid before their sweat dries. Their work does not have a shelf life. In an economy, the bargaining power of those who control the money is always greater.
The size of the Indian economy must be increased. For the growth to be sustainable, work must be provided to many more people and simultaneously their incomes must increase too. Mahatma Gandhi was neither a communist nor a capitalist. He was concerned about the conditions of human beings. Gandhi said, “To do and die, and not question why,” seems to be the life of workers in industrial enterprises in both capitalist and communist economies. Gandhi pointed out that while workers theoretically own the capital in a communist country, decisions about the use of the financial surpluses created in their enterprises are not taken by the workers. They are taken by economists and bureaucrats. Gandhi recommended small, ‘human scale’ enterprises, and larger enterprises composed of cooperatives of smaller ones, in which ownership and power remains with the people who produce the value.
Finally, the time has come to apply some ‘Gandhian economics’, to put humanity into capitalism, and make economic growth more inclusive.
(Published in Mint on March 27th 2025)