Elon Musk vs the Indian Government

Some recent headlines re the entry of Elon Musk’s electric car company Tesla in India read something like the following, 

American car manufacturer, Tesla, is in serious negotiations with the Indian government over its entry into India. India is a very large market and all levels of purchases (high-end, mid-range and entry-level) are significant. However, the Indian government is leveraging on the significance of its market. The government will not allow any Tesla electric car that is not “Made In India” to have the same privilege as a Made In India car. (Source)

You Can’t Have the Market In India But the Jobs In China: Centre On Tesla

The government’s policy is that if the Indian market is to be used, job opportunities will have to be given to Indians, said Union Minister Krishan Pal Gurjar, replying to a question on Tesla.

Mr Gurjar said the government has Production Linked Incentives for automobile and auto components as well as for manufacturing Advanced Chemistry Cell (ACC) battery. Both schemes are open for domestic as well as foreign entities.

Responding to a query on Tesla, the minister said “the company wants workers from China but their market in India. This is not possible with a Modi government… our government’s policy is that if Indian market is to be used, job opportunities will have to be given to Indians.” (Source)

Let’s examine the economics of these arguments put forward by the Modi government. 

Basic economic fact of life 

Consumption is the ultimate economic aim of human life. This is necessary for survival and reproduction. All economic activities are aimed at this end. This also implies that before we consume anything, production is necessary. Without production consumption is impossible. Also, production must be cost effective for the prices to remain low enough so consumption becomes possible for a maximum number of people. That is the way we satisfy the most urgent needs of the maximum number of people. 

Employment of labor services are only important because labor is one of the factors of production. However, it is just one of the factors, and not the only one. In fact it’s not even the most important one. The most important factor is capital. Capital increases productivity of both labor and land and so makes it possible for us to produce more goods without expending much of our labor or land. That is the sign of progress where economy is increasingly using more capital and less and less labor i.e., people are enjoying more leisure time and machines are producing most of the things.  

Is employment important?

The above discussion about the economic fact of life tells us that employment per se is not important. Production and ensuing consumption is important for life. If we can produce and consume more without employing more people, it isn’t an economic catastrophe as most people want us to believe. In fact, that is a boon of life because remember life is not for working; it is for enjoying more leisure. As Henry Hazlitt said, 

The economic goal of any nation, as of any individual, is to get the greatest results with the least effort. The whole economic progress of mankind has consisted in getting more production with the same labor. It is for this reason that men began putting burdens on the backs of mules instead of on their own; that they went on to invent the wheel and the wagon, the railroad and the motor truck. It is for this reason that men used their ingenuity to develop a hundred thousand labor-saving inventions.

All this is so elementary that one would blush to state it if it were not being constantly forgotten by those who coin and circulate the new slogans. Translated into national terms, this first principle means that our real objective is to maximize production. In do- ing this, full employment—that is, the absence of involuntary idle- ness—becomes a necessary byproduct. But production is the end, employment merely the means. We cannot continuously have the fullest production without full employment. But we can very easily have full employment without full production.

Primitive tribes are naked, and wretchedly fed and housed, but they do not suffer from unemployment. China and India are incomparably poorer than ourselves, but the main trouble from which they suffer is primitive production methods (which are both a cause and a consequence of a shortage of capital) and not unemployment.

The progress of civilization has meant the reduction of employment, not its increase. (Source: Economics in One Lesson, pp 55-56)

The reason why we have to continue to work like donkeys is because the fruits of our hard labor are being stolen from us by the parasitic class of our societies i.e., the government officials. There are many ways through which they steal our income. Firstly, taxation. That is a direct way of stealing our income. Second, and more subtle and sinister way, is inflation. By printing money state officials steal our income without even touching it. When government’s central banks create inflation that reduces our purchasing power and transfers that much purchasing power in their pockets. 

If prices fall secularly, because of the gold standard and abolishment of the central bank RBI, then without too much work we all can consume more. That is how we increase the standard of living of billions of people. Thus our problem is not employment, but inflation created by RBI and government taxation. 

Does it really matter where Tesla is manufacturing its cars? 

In this background now let us examine the arguments of the Indian government. For India’s development it doesn’t really matter where Tesla cars are manufactured. What matters is at what cost is he making them to keep the price down. Lower priced Tesla cars will help Indians, not high cost and high price production in India. Comparatively cheap Tesla cars will leave more money in the hands of Indian customers to spend on other items. With that same income, Indians will be able to consume more as consumption is the final aim of life. 

Paying higher prices of Indian manufactured Tesla cars will leave little extra money in the pockets of Indians. That will lower their real income. With that reduced real income, they cannot spend more money on other items in India and the Indian economy will be that much more depressed! A depressed economy will generate more unemployment and not less. 

All those government incentive schemes just represent the higher cost of producing cars in India. Subsidy money will come from Indian tax payers. Higher tax burden will again reduce the income of Indians and make their lives miserable. 

Conclusion

By not allowing Tesla to sell their Chinese manufactured cars in India the Indian government is only lowering the standard of living of people. Economic science informs us that it doesn’t really matter where a product is manufactured as long as that product is available to everyone at a lower price for consumption. Employment per se is never important. Higher standard of living and enjoyment of more leisure is important. The policies of the Indian government are not going to result in a higher standard of living for Indians. As long as the Indian government officials are stealing the fruits of hard earned income of Indians, this country cannot progress. 

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