Saving Jobs vs. Increasing Growth - The Daily Reckoning
The Daily Reckoning by Bill Bonner
On This Day - 25 January 2013
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- By Asad Dossani, Author, The Lucrative Derivative Report


Asad Dossani
At first glance, we don't usually associate a tradeoff between saving jobs and increasing growth. The normal line of thinking is that higher growth should create more jobs, so there is no tradeoff to begin with. And in reality, it is true higher growth leads to more jobs. However, plenty of jobs do get lost in the process.

Often, when a new player enters an industry, or a new industry emerges, it replaces an old one. The new industry creates growth and jobs, but those who were in the old industry end up losing out. But overall, the economy is better off. This process is known as creative destruction.

A good example of this is typewriters. At one time, typewriters were very common and a booming industry. Once computers came along, typewriters became obsolete. Chances are, there were many people who worked in the typewriter industry that suffered at the time. But there is no doubt that we are much better off today with computers rather than typewriters.

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Recently, India's foreign investment agency approved plans for Ikea to open stores in India. Pending cabinet approval, Ikea is planning to open 25 stores across the country, and invest 2 billion USD in the process. This will create growth as well as employment. Nonetheless, there is significant opposition to large foreign retailers setting up shop.

As you may expect, the opposition comes from small retailers. It is likely that a significant number of small retailers will go out of business if they have to compete with a store like Ikea. Thus, some jobs will certainly be lost. In some sense, the decision to allow Ikea to set up shop comes down to a tradeoff between higher growth and some job losses.

Even though some jobs will be lost, allowing large retailers will create many new jobs. In the long run, we will certainly be better off, much like we are with computers rather than typewriters. Large retailers have significant advantages over smaller ones. They can usually sell products much cheaper to the consumer, and there is greater accountability.

Furthermore, increased competition will improve the quality of goods in the marketplace for small and large retailers, and this will continue to benefit the consumer in the end. Even though there will be some losers initially, allowing more competition will be beneficial for growth, employment, and economic prospects in the long run.

is a financial analyst and columnist. He actively trades his own and others' funds, investing primarily in currency, commodity, and stock index derivative products. Prior to this, he worked at Deutsche Bank as an analyst in the FX derivatives team. He is a graduate of the London School of Economics. Asad is a keen observer of macroeconomic trends and their effects on global financial markets. He is deeply passionate about educating investors, and encouraging individuals to take part in and profit from financial markets. To put it colloquially, he wishes to take Wall Street products and turn them into Main Street profits!

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3 Responses to "Saving Jobs vs. Increasing Growth"

Rajesh P Doshi

Jan 28, 2013

Dear Asad, I mostly agree with your commentary and appreciate the topics you select. I often carry forward your logic in my presentations. But today, I strongly disagree on two issues - although computer replacing the typewriter is an excellent progress from human point of you because both its manufacture and maintenance uses better skills of people. The case of FDI in retail will be replacing Small 'entrepreneurs' with local Sales boys and sales girls - this is not moving up the ladder as you try to make it out.And you have failed to present the biggest hit to Indian manufacturers, as the large corporations will use the Chinese factory to beat us into closure. Will you put 50% of your net worth on either of this not happening ? Please regain your position by correcting this article.

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Sainath

Jan 27, 2013

I think that instead of the small retailers going out of business, IKEA and the retailer should work together to sell IKEA products alongside the regular products the retailer sells today. I think it is better to have a win-win scenario instead of a win-lose scenario.

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Amal Shah

Jan 27, 2013

Do remember that in Ikea case Indians will be the loosers and foreigners will gain - Indian govt has never really encouraged or invested in skill development which is needed to take on players like Ikea - i shudder to think of how local retailers, carpenters and craftsmen will be jobless, how so many families will suffer for years until new skills are learnt and how Chinese machinery and chinese labour will replace these indian jobs!! God save us!

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