 I'm going to say something that's going to startle you. I'm going to say that we need many more government companies, public sector units or enterprises than we have right now, not fewer. You're probably shaking your head saying, what kind of an absurd thing is this to say? That's because for 30 years, it's been drilled into your heads that public sector companies are bad. And there's a reason for that, you experienced as well. Because when you experience government companies, most likely a government bank where you go, it's dirty, services poor, the furniture is shabby, and especially when you compare it to a private sector bank. Or when you get to a government office to get a document, a license or renew your passport. Again, these are dank dirty offices, there's palm stains on the stairways, there's cobwebs in the corner, and the people there, they make you feel as if they're doing a favor to you, rather than providing a service for which they're being paid salaries. So you think of public sector as being inefficient, people with the lazy, unproductive people, and something that costs the taxpayer because public sector loses money. That's the image you have in your mind. But I'm going to tell you that we need these companies to save India's economy. And by the end of this video, do watch it till then, I can guarantee you that you'll move a little bit towards me, even if you're not entirely convinced by my argument. But to make that argument, we have to make a bit of a detour to understand how capitalist economies work. Not the way in which it is taught in textbooks, but how they really work. Now imagine an economy which only produces two things, cakes and cake making machines. We also have to assume that these machines last for only one year, which means anyone wanting to bake cakes needs to buy a new machine every year. And we also assume here that all that people need to survive in this economy is cakes, nothing else, just cakes. It is obvious that the cake making machine must come before the cake. If that does not exist, then cakes will have to be imported. So few rich people with ancestral money decide to manufacture cake making machines. They hire a few workers who build the machines and then the machines are sold to some other rich people who start cake bakeries. They too hire a set of workers to bake these cakes. So the economy consists of rich people who either own cake machine factories or bakeries and workers who work for them in these factories and bakeries. The cake machine makers earn profits when they sell their machines to bakery owners. And bakery owners make profits when they sell cakes to everyone in the economy. One cake machine maker, Mr. Money Bagz, discovers a new technology to increase productivity in his factory. If earlier he used to hire 10 workers to make 100 machines, now thanks to the labor-saving innovation, his factory is able to make 120 machines with just six workers. If an average worker was making 10 machines, now they make 20, bringing the cost of production down sharply. Let's assume that originally Mr. Money Bagz paid 100 rupees to each of his 10 workers and had to import raw materials worth 1000 rupees to manufacture these 100 machines. His total cost would be 1000 rupees for raw materials and another 1000 rupees, which is 10 workers getting 100 rupees each in wages. That's a total of 2000 rupees to make 100 machines. Each machine would have a raw material cost of 10 rupees and a wage cost component of 10 rupees, a total cost per machine of 20 rupees. If Mr. Money Bagz sold each machine for 25 rupees, his total revenue would be 2500 or 2500 rupees, his total profit would be 500 rupees and profit per machine would be 5 rupees. As we said, thanks to a labor-saving innovation, Mr. Money Bagz now only needs six workers to make 120 machines. What would each machine cost to manufacture now? Let's assume that raw material costs remain the same, which is 10 rupees per machine. If he pays the same wages, then his total wage cost would be just 600 rupees to make 120 machines, which means per machine the wage cost would come down to just 5 rupees. His total cost would consist of 1200 rupees in raw materials and 600 rupees in wages, a total of 1800 rupees to make 120 machines. Each machine would now cost just 15 rupees. Mr. Money Bagz decides to undercut the competition and sell the machines at just 23 rupees, 2 rupees lower than those working with the old technology. Since he's selling more machines, 120 instead of 100, his total revenue will rise to 2760 rupees even though it is being sold at a lower price. And what happens to his profits? Since his costs have dropped sharply, his profits almost double, even though he's selling a cheaper product. And since it is cheaper, all the bakeries want to buy Mr. Money Bagz's machine. Now, Mr. Money Bagz hires 12 workers and doubles his output and brings the price down even further to 22 rupees. Earlier, Mr. Money Bagz was one of the four cake machine manufacturers in the economy, each with equal market share. Each of them made 100 machines, a total of 400 machines. Mr. Money Bagz had 25% of the market share. Now he makes 240 machines and the demand for machines is still 400. So his market share has risen to 60%. Mr. Money Bagz smells an even bigger opportunity now. He knows that the remaining three machine makers still use the old technology, which means it takes them 20 rupees to make each machine. So Mr. Money Bagz drops his price to just 19 rupees per machine. Remember, his cost of production is still 15 rupees. So he still makes a four-rupee profit on each machine, but his competitors will now have to sell below cost price to compete with Mr. Money Bagz. They will lose money and be forced out of business. And gradually, Mr. Money Bagz will take over the entire market and become what is called a monopoly. Earlier, each of the four machine manufacturing companies hired 10 workers. So there were a total of 40 workers in the machine sector. By the time Mr. Money Bagz takes over the entire market, his labor-saving technology means that only half or just 20 workers can make all the machines needed by the bakeries. That means half of the workers, or 20 of them lose their jobs, and three entrepreneurs also lose their business. Let us assume that a similar thing is happening in the cake-baking industry as well. Thanks to a smarter use of machines and a new labor-saving method, a small number of bakeries who know about these techniques gradually capture the entire market. If there were 400 bakeries buying 400 machines every year, now there are only 100 bakeries left. And they need just 200 machines to make the same number of cakes thanks to the resource-saving innovations they've introduced. And if these 400 bakeries hired 25 workers each originally or a total of 10,000 workers, now the 100 surviving bakeries hire just 40 workers each or a total of 4,000 workers to make the same number of cakes. Now let's add all of this up. In the first year, there were a total of 404 entrepreneurs, four machine makers and 400 bakery owners. And there were a total of 10,040 workers, 40 in machine factories and 10,000 in bakeries, or a total of 10,444 people were employed in the first year. In the final year, when the monopolies have taken over, there are just 101 entrepreneurs left, one machine maker and 100 bakery owners. And they hire a total of just 4,020 workers, 20 in the machine manufacturing factories and 4,000 in bakeries. That means just 4,121 people are left with employment and a total of 6,323 people have lost their jobs. But that's not all. Since only 100 bakeries are left and they can produce the same number of cakes with just 200 machines, Mr. Moneybags, the original monopoly capitalist faces a sharp drop in demand for his machines. He can now only sell half the number of machines that he used to produce earlier. And thanks to the massive unemployment, people cut down on their cake consumption because they simply don't have the money to buy the same number of cakes. Now the bakeries face a huge demand shortage. Both Mr. Moneybags and the surviving bakeries have to cut back on costs to maintain their profits since their sales have dropped. So they sack even more people. This only results in a further drop in the demand for what they make and a further drop in the sales and profits till they reach a point when there's no one left to sell to. Now this might seem like an extremely oversimplified version of any economy. Real economies would say don't work like that and that's true. But capitalism, especially advanced capitalism does work like that. It creates monopolies. It creates large scale unemployment and it creates a demand crisis because of that. As I explained through that example. And we have seen this happen in India over the last five to six years where big business has consolidated the entire market under it. MSFBs have been wiped out. There's been large scale unemployment and there's been a massive demand crisis which has come back to haunt big business itself right now. And which is why economists, corporates, columnists, they're all saying the government needs to spend more, forget about the fiscal deficit, put money in the hands of people so that they can buy our products, the things that we make. And this talk of increasing Mandrega spending, get a thing going, similar thing going for urban India for the urban poor. But as I've argued in the past and you can watch that video, I'm gonna put that link in the description. This kind of spending, government spending where low scale work is produced, generated, jobs are generated. For a few days a year, puts very little money in the hands of people and whatever little money is left, they either spend on essentials or they spend it on cheap Chinese goods. So Indian companies are not benefited when you directly put money in the hands of people without giving good quality jobs which sustain them, without providing for products that they can buy. And let me tell you, most of it cannot be provided by corporate India because corporate India caters to the top 10% or at best 20% of Indians. Some affluent, some upper middle class people or middle class people, that is the range within which corporate India produces goods and services. Except for a few things, most things are produced only for this 20%. The remaining 80% are not within their horizons. So the only way to widen the demand base in India and therefore create a multiplier effect is for the government to get in, produce things, goods and services that poor people need and buy and also in the process give them jobs and ensure that they get it at rates which they can afford, which means providing subsidies in these spaces itself. How can this be done? Step one, revive the planning commission and find out what consumer goods, India's vast majority of low income people and the poor actually need a consumer. It is not the same as what the top 10% of people buy. Once a production plan has been drawn out for both goods and services, the government has to decide its priorities and allocate resources to produce those things and initially sell them at a discount to match Chinese and Vietnamese prices. Government companies have to produce soaps, shampoos, hair oil, toothpaste, textile shirts, sardis, cell phones, cheap TV sets, cheap computers, modems, batteries, a vast range of things and all of these have to be sold at a discount to the lower income groups and the poor. You will ask why should the government enter into this consumer product and services space where private sector companies have existed and are doing a good job? That's because private sector companies produce things for the affluent as I said and a large part of their costs are essentially design, keeping them high end and also the advertising, marketing and the huge pay packets that the top management gets and this is what makes these products expensive, these services expensive and 80% of Indians can't afford to buy it and that is why they move to buying Chinese goods whenever they have money. The only way to compete with that and expand the demand basis for the government to produce these things subsidize them so that the poor can buy them and not buy the Chinese goods. And while producing these goods, government companies have to hire people at decent wages so that these workers can not only buy the things they're making but also save money for the future. Of course a big part of this can be done by giving contracts to a wide number of MSMEs, small businesses, giving them wage and employment targets and guaranteeing government procurement of their output at predetermined margins. It is like a PPP contract in consumer goods for MSMEs instead of an infrastructure for big companies. This is the only way to kickstart the economy by supplying Indian made consumption goods for the bottom 60% of Indians where you hire those bottom 60% of Indians to produce goods and services for themselves. And this will also have a positive multiplier effect on the top level of the population because government companies will buy goods and services which are produced by corporate India and also there will be a white collar segment in these government companies which will buy the higher end products that corporate India produces. If MSMEs get work, if MSMEs get contracts, they will also spend on these products. So in a sense this is the only way in which there can be a wider demand base not just of government produced cheap, sturdy products and services for the poor but also a wider demand, a multiplier effect for products which are higher end being produced by corporate India by the private sector. So both sides can exist simultaneously. In fact, ironically, it is only if government enters into producing goods and services at cheap rates for the poor as I said, utilitarian stuff only then can corporate India continue to make profits and continue to have a demand for its products. That's the show today. Keep watching NewsClick. Do subscribe to us. Do like this video and share it as well.