The Fallacy of The 24-Hour Economy

Post date: Thu, Apr 4, 2013
Category: General
By: IEA Kenya,

Among the unexamined claims in newspaper columns and commentaries on the economy is that part of fighting poverty and raising employment is by converting Kenya into a 24-hour economy. In the thinking of the politicians and their advisors, is the conventional claim that economic activity can be expanded by getting the population to work round the clock and thereby expand the proportion of the unemployed and increase national output. Making this claim as an argument in economics constitutes a fallacy for a variety of reasons.

First, arguing for creation of a 24-hour economy is based on the assumption that what exists today is a partial economy and therefore output is not being maximized in respect of time. For many employers, the work that is carried out is planned because that is what the business is capable of producing for its markets. The number of workers and the amount of time is set to ensure that production meets the demand that exists. Thus if demand was to expand, then the same enterprises would hire more workers and extend work time accordingly. Production is not an end in itself but is undertaken purely to meet a demand that is real. So for a majority of businesses and work places in Kenya, the constraint is the size of the market and that cannot be expanded by a government declaration of a 24-hour economy.

Secondly, preoccupation with “creating a 24-hour economy” reveals a mistaken understanding of what an economy is. Every economy is an aggregation of production and consumption and this takes place regardless of the arbitrary assignment of time intervals. Essentially therefore, every economy is a 24-hour economy because it aggregates all the consumption and production irrespective of the time. Taking the common measure of economic activity as an example, Gross Domestic Product (GDP) estimates the aggregate production of goods and services that was brought to market within a given year.

What matters most in raising people’s incomes and tackling large scale poverty is productivity. Simply put, human welfare is improved whenever people use less of a resource (time included) to produce the same amount of output. A call for a 24-hour economy suggests that we merely need to add inputs such as labour into the equation to ensure growth. That may not be true for an industry where the output and inputs are finely matched and therefore an increase of labour or other inputs means that the added resources do not produce a corresponding amount of benefit.

Finally, every industry and market has different requirements depending on the nature of their demand. Some services and products are consumed during some seasons or portions of the day and less so during others. By example, it is not for nothing that the urban trader carries different goods dependent on time of the day and the season. These traders are alert to the seasonal nature of the demand and understand that keeping these stalls open throughout the day is altogether futile. Pray that politicians and pundits learn the great lesson that these urban traders already know: that an economy works throughout the year. They cope with this situation by meeting demand with appropriate supply and not by staying in the street corner or stall for four more hours with goods that nobody would buy.

So let it be understood that Kenya is not a low-income country because it is a 10 or 12 hour economy. Rather, it’s just that productivity, hence incomes are low to begin with. Shop owners and employers are not daft by closing shop at dusk. If there was demand to open throughout, then they would not hesitate to do so as other establishments do. All economies work for 24-hours and it is productivity levels that distinguish between the high income and low income ones. That is the development problem that requires consideration. Easy slogans about the economy are often wrong, and so is the “fallacy of the 24-hour economy”.

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