abhi's blog

It is easy to get lost in the narrative of rent-seeking vs wealth-creating activities, and the growing wealth inequality, if we don't question the underlying assumption of where value really comes from.

We can't take it for granted that the value of something is in the eye of the beholder, because then it follows that the value of doing something is defined by the most eloquent argument for (or against) it; it gets messy when these arguments are put forth by people with vested interests.

We can't take it for granted either that value is simply the price that doing something fetches, because it then justifies the level (and distribution) of income as long as there is a market for whatever fetches a price (this also means that anything that fetches a price, is therefore, a productive activity).

We tend to group activities into two clusters – productive and unproductive, based on whether or not they produce value. Since value is a socio-politico-economic construct, it doesn't have a unique globally and temporally constant definition. Depending on who you subscribe to (Adam Smith, David Ricardo, John Keynes, Karl Marx, etc.), your idea of what is a productive activity can vary from specific industries (such as agriculture, mining, etc.) to activities that produce anything that someone is willing to pay a price for.

The two most important resources for a productive activity are capital and labor. They both simultaneously complement each other in the production process and compete with each other for employment. What is commonly understood or interpreted as the efficiency of a process is simply a consequence of optimizing for the relative scarcity of one resource (such as having access to more capital and less labor or vice versa). One cannot define efficiency simply as a function of output produced per unit of labor.

In other words, it's not that an automated warehouse in a rich country is more efficient (or productive) than a labor-intensive one in a poor country; it is instead that the poor country has access to less capital and more labor, and the rich country has access to more capital and less labor – and they're both making the best of it (or are trying to).

Reading The value of everything and Basic Economics.