The world is changing in unpredictable ways. New ways of thinking are necessary to understand what is going on. New models of institutions are also required: old models have outlived their useful lives.
India is in a good place because:1. It has not 'reformed' its economy enough in compliance with the standard, international model of economic reforms that became dominant from the 1990s2. Its informal sector is still 'too large', according to economists3. It has 'too many people', according to economists, living and earning in the rural sector, and in 'nature-related' production activities4. It has many women not yet engaged in the 'formal' economy5. The Indian economy is not integrated into global supply chains
I explain, in the Tribune this morning (A Blueprint For All Round Growth), how India's economy can be an engine of its own economic growth when growth is thought of more systemically and not only in economic terms. (Link and full text below.)https://www.tribuneindia.com/news/comment/a-blueprint-for-all-round-growth/
A BLUEPRINT FOR ALL ROUND GROWTH
Adding more women to the formal workforce is not the solution for growth when the formal economy is not creating enough jobs
Many disruptive forces are colliding to create radical uncertainty. Artificial intelligence will disrupt business models in many industries. Global governance institutions have broken down—the UN, WTO, climate accords. Domestic politics are churning in many countries. Wars are raging within and between countries. Climate change continues uncontrollably. The old order has crumbled, and no one knows what the new global order will be. New lenses are required to make sense of what is happening. Also, the time to think about the work that human beings will do in the future and earn adequate incomes.
A popular view amongst economists is that India’s economy has not grown well because its’ informal sector is too large. Also, the ‘middle’ is missing: too many small enterprises that do not ‘scale up’. Too few women are employed for wages in the formal sector, and too many are engaged in family care and community activities.
Such perceived weaknesses could be potential strengths of India’s economy. Formal, large-scale enterprises are not creating enough good jobs even in developed countries. They employ more capital and technology to improve their efficiencies, reducing their needs for human labor and human intelligence. They also take caregivers away from families. Meanwhile, healthcare needs are increasing everywhere with ageing populations and mental distress, and societal unrest, caused by unemployment of youth and their insecurity about their future earnings.
Modern economies cannibalize human society to feed economic growth. Humans are included only as resources in economists’ models, not as agents with independent wills and desires. Common people in all countries seem to think that the ‘liberal’ policy-making intelligentsia has been manipulating them. They are unwilling to accept ‘free market’ prescriptions. The IMF says that its ‘tighten the belt and open for trade’ agenda of economic reforms is being resisted everywhere since the 2008 global financial crisis.
Einstein (and others) have said that working harder to implement solutions based on the same thinking that caused them is madness. New lenses are required to see the deeper forces changing the world. ‘High frequency’ indicators, like daily stock market fluctuations, and monthly and quarterly variations in employment trends and GDP, record only perturbations on the surface of the ocean. They cannot reveal the deeper forces in the ocean causing large and longer-term changes. ‘Big data analytics’ reveals interesting correlations; it cannot explain causation. One must look deeper beneath the data to gauge the deeper forces, interacting with each other, causing the storms on the surface.
The future of workers
Henry Ford 1, who revolutionized manufacturing by improving efficiency with the introduction of assembly lines and standardized work, lamented that when he wanted only a pair of hands, he got a whole human being with emotions and demands for justice and social security. Machines and AI are more efficient. And do not demand fairness. Human labor, human intelligence, and even human creativity is being replaced by technologies and AI. Capitalists may now increase profits unrestrained by the human needs of their employees. With technology, economic benefits shift from wages for human work to dividends from capital investments. This is the principal cause of the increasing inequalities in financial wealth between the top 1%, most of whose wealth is produced in financial markets and tech enterprises, and the bottom 50% of citizens who must be employed to earn and increase their wealth.
In the formal economy the only work considered productive is work in formal work settings, generally out of home, to earn money and add to the GDP. Overall women work more than men. But the work women do in informal work settings, at home and in their communities, is valued less. Pulling women and others out of care-giving and informal work into formal economic enterprises adds to GDP. However, it reduces societal well-being. The economy improves; society suffers.
The ‘employment elasticity’ of growth—the numbers of jobs created with each unit of GDP growth--is reducing. Formal enterprises create fewer jobs per dollar of capital invested. The employment elasticity of India’s economy is one of the lowest amongst developing countries. This is tragic because India has the largest cohort of youth needing employment: India’s potential ‘demographic dividend’.
Needs for care have increased in all societies with people living longer beyond conventional retirement ages who need care and are not earning enough themselves. Mental health problems are increasing for youth with increasing social dyspepsia, and they need more care too. Care-giving is touted as the new growth sector for entrepreneurs who will provide care and wealth for investors too. The problem is: who will pay the enterprises for the services provided? Older unemployed people and younger under-employed persons will not have the money to pay themselves. Governments also do not have the resources required because they cannot raise taxes on corporations and wealthy people and yet must balance their budgets.
The following solutions will make growth more inclusive and sustainable, by creating more incomes and jobs for youth and women, as well as provide more affordable home-based care. These are ways in which India’s economy will become more inclusive and sustainable and an engine of its own growth.
One, form more local, cooperative enterprises that increase the wealth of worker-owners faster than wealth of stock market investors.
Two, create denser local economic webs composed of small enterprises in farm, manufacturing, and service sectors.
Three, support local systems solutions cooperatively developed by communities for their environmental problems.
Four, use capital frugally and promote enterprises that employ more people with better wages in all sectors, except where it is essential to have capital and technology intensive production such as manufacturing of computer chips.
Five, reform education at all levels to promote life-long learning capabilities rather than skill development for specific jobs, because the nature of jobs and skills required will keep changing unpredictably.
Six, nurture enterprises that learn new capabilities faster, because their internal capacity to learn faster than enterprises in other countries is the only way that a country can compete with other countries whose enterprises are also improving their capabilities.
Seven, reset the goal of Viksit Bharat to make India into a more inclusive society by 2047 that provides equal political, social, and economic freedoms to all its citizens, whatever their castes and religions, and measure all round progress, rather than the size of the economy. A more wholesome society will grow more sustainably.
Arun Maira
Author of Reimagining India’s Economy: The Road to a More Equitable Society
Former Member Planning Commission