Why full employment should be Number 2 goal of our National Strategy:

In India, only 50% - yes only half - the number of people who could work, actually find work. Let that sink in.

Why full employment should
be Number 2 goal of our
National Strategy:

It is generally believed that full-employment is a distant dream in a poorly resourced economy like India.  Nobody has ever explained how, in the absence of full employment, we expect citizens without jobs to lead a life of dignity and self-respect.  

On the other hand, it is widely recognized that, given our population of 1.4 billion, our biggest resource is human intellect and labour.  Yet full employment, which means maximal use of our human capital, is not even a priority in the Govt. strategy for growth.  Instead it is treated as some sort of a luxury that comes our way by doing other things like pursuing “Atamnirbharta.”  Or frying pakoras. 

Why is there such a huge disconnect between what capital we have, and how we aim to put it to effective use?  Strange is it not that even our phenomenal success in export of software services, has not opened our eyes to the fabulous potential of our Human Capital?

To give you a perspective on the problem, I give you the following chart on labor participation rate, that gives you the ratio of number of people who actually work, as a proportion of the total number of people who could be working in the economy.

In India, only 50% - yes only half - the number of people who could work, actually find work.  Let that sink in.

Compared to India’s 50%, more than 65% of people work in the economy worldwide.  Nearer home, in Vietnam more than 80% of people who could work actually do.  In Bangladesh, the number is over 62%, while in Pakistan, who we are taught is the pits, the number is closer to ours, but higher at 54%.

As you will see later in this essay, this mass “unemployment” necessitates the “high wage island” approach to development, in order to protect the incomes, wealth and privileges of the elites.  Such a strategy in turn creates a vicious circle of low growth and still lower employment rate.  But more on that later.

Second, since 2005, labour participation in India has fallen continuously, [I would say monotonically but .. whatever] from 60% of the total working age population, to a little about 50%.

Why this sharp and steep fall in labour participation rate, while the world appears to be doing pretty fine at over 80%, and our neighbors and competitors have actually shown better growth in employment than us?

To the best of my knowledge no decent economist has offered any credible explanation of the steep fall in labor participation rate in India since 2005.  

These essay are part of my modest endeavor to find out what’s going wrong with our development strategy.  The answers I suspect will be highly unpalatable to both, the Dr Manmohan Singh style reformists [I am largely with that tribe], and those against, not excluding RW Bhakts who much prefer the high wage island strategy of growth.  

Decades of propaganda has
created mental blocks in
our thinking:

There are deeply ingrained prejudices when it comes to talking about labor; both good and bad.  So we need to clear the emotive over-hang in the language we use, if we are to be rational.  With this in view, I examine some of the fallacies and misconception that dog the issue.

The first bogey we need to examine is wage & worker welfare.  

“Labor must be paid well.”  “Working conditions need to be good.”  “Such and such facilities are essential.” Clean toilets for women for example.  All this has dinned into us by decades of leftist propaganda.  There is much substance to this, but it misses a very important point.  

It ignores the lot of people without jobs. The 50% of the people, who have no income, is beyond the imaginations of our Leftists.  

Bear with me before you get to your pet counter-argument.  If you are at all reading this, trust me we are on the same side of this issue, even if you are a card-carrying Marxist.

Layering society to
create High Wage
Islands:

Since the days of Manu, a founding principle of our society has been to extract the maximum value for elites, from those at the bottom of the socio-economic pyramid.  [That is why believe in the Aryan influx theory.]  

That should not be strange.  All ancient societies were so organized by caste.  What is unique is that we refuse to give it up, even as the others jettisoned it sometime in the 15th century.

Assume you have 100 people, of which say 60 are employed.  Of this 60, 20 are in well paid office jobs, work in AC offices, or clean, well ordered factories, and even have a mess for lunch; fully paid for.  

Another 40 are in the gig economy, never certain of their job, but by and large manage one, some lasting 4 to 5 years, and are able to carry their experience, and wage rate, from one job to another.  That’s what we call the unorganized sector.  

And then we are left with another 40, who have no jobs, but live with parents, or relatives, dependent on the family for subsistence, doing practically no economically useful work.

If you talk to a leftist, or anybody else in the country, they will say, 40% of the gig workers need to get bumped to the wages of the top 20%.  Nobody, - not your arm chair leftist, nor your card carrying communist, nor the die-hard doctrinaire Marxist - talks of the zero earnings of the 40% without jobs, who depend on family to just survive.  

In fact all this professional Marxists, through out history, concentrated on forming unions among the top 20% of the workforce, trying to increase their wages, without paying even lip service to the ranks of the unemployed.  Is that socialism by any chance or is that rank perversion of the concept?  

Dr B R Ambedkar famously dismissed India’s renown communists in Mumbai as “Brahmins” from Konkan, bothered only about their wages as textile workers in Mumbai.  He was spot on.  The vast sea of unemployed were of no concern to them.

What is the rational way
to deal with the 40%
without jobs?:

What would you, as an equality seeking socialist, do?  

Any rational socialist will, in my opinion, forget about wage levels, and first insist we create an economy where everybody has a job.  Isn’t that what real equality is all about?  First create an economy where everybody who wants to work can find a job.  

Go to any Capitalist country, like those that leftist love to hate - the US.  What do they do?

The topmost economic priority for a Capitalist country like the US is full employment.  Every citizen who wants to work must be able to find a job.  

If employment level falls from full employment, all sorts of emergency measures kick in, till employment again goes to full.  That’s what the US has done despite the pandemic.  Full employment is the goal always.  Why?  

That is what gives every adult an equal opportunity and stake in the economy.  

What do our blind empty garbage-spouting leftist do?  They forget the 40% unemployed, who have no income, but want equality between the wage islanders [the top 20%] and the gig workers [the 40% workers in the unorganized sector].  For these equality seeking brain-dead, the 40% unemployed have no rights!  

That is the basic reason why socialism failed in India.  The leftist used empty pro-poor slogans to advance the interests of the top 20% wage earners and the salaried class, employed in high wage islands.

If the Leftists are
sham, are the fascists
better?:

Are the right wing fascists any better?  Do they talk of full employment?  No.  They tell you unemployment doesn’t exist because if you have no job, you can always fry pakoras.  I kid you not.  Modi is on record for that kind of thinking.

The fascist formula for a good life is exactly similar to that of the blind Indian Marxists.  The logic is simple.  

If you have a hundred cakes, and 100 people, you don’t distribute equally.  Instead you create a caste system.  The top 20% is the creamy layer, or Svarnas.  The next 40% is the Gig worker, or the Vaishyas.  And the bottom 40% lot are the Shudras.

Having done the stratification, the rest is easy-peasy.  

All classes are equal.  Equal work, equal wage.  But the Shudras need to get off their rear end, find a job, or fry pakoras.  Until then, they get nothing.  No work no pay.  What could be more fair?  

Next, all classes are equal. So the 100 cakes should be equally divided between classes, the Svarnas getting 50, and the Vaishyas 50.  

What is the net effect?

1. Every Svarnas gets 2.5 cakes.
   

2. Every Vaishyas gets 1.25 cakes.
   

3. Every Shudra gets nothing until
   she fries pakoras, or becomes a
   “wealth creator.”  As if wealth
   grows on trees.
   

Before you laugh, the Marxist schema for equality in India is exactly similar.  

Under both, in the name of “equality”, you get the same skewed distribution of income, because we are brainwashed into ignoring those without jobs, and think full employment in a poor country is impossible.

Full employment is not
a luxury.  It is fundamental
to an equitable society:

Fact is, full employment in poor countries is also possible, as the Chinese, the Bangladeshis, and increasingly, the Pakistanis are showing us.  We just have to jettison our prejudices, and mental blocks, to understand how full employment is a very much a function of the economic choices that we make.

So please repeat after me.  

Equality is layered.  

In economic terms, the first, most basic layer of equality, is that every person capable of working must be able to find a job.  Without a livelihood, there is no equality.  Living on charity of the family is demeaning.  It is a life not worth living.  

We owe a job to every person, not as dole, nor as some kind of entitlement, but as basic fairness in a society; that is best achieved by creating and configuring an economy that provides a plentitude of jobs for all.  

And as I shall show, when we examine real labor arbitrage, this dream of full-employment is not an idle, empty concept, but a living reality in those countries that shun empty dogmas and embrace real equality.  First give everybody a job.  Then talk of other things.

So what of the “equality” that we talk about in every day parlance.  Equal wages between Svarnas, and the Vaishyas for instances?  Or better working conditions for all?  Do they have no relevance?

They do.  Very much so.  But AFTER everybody has a livelihood.  Don’t forget the 40% unemployed.  Their equality comes before all other kinds of equality.  In the first layer of equality, everybody must have a job.  Having attained full employment, you THEN talk of other kinds of equality.  They become relevant only after everybody has a job.  

Once we have shed the miasma of our prejudices, and think of full employment as something of an overarching goal, we can then go about designing an economy that does honestly strive for full employment, even though it may fall short of the ideal now and then.
This is eminently feasible.

Setting up the goal of
Full employment is a big
Risk for the elites:

Both Marxist and the fascists try their best to hide unemployment, in order to divide the cake such that, those in the high wage islands get the maximum share per capita.  They pull this trick by making “classes” equal.  

As Hannah Arendt famously said,

"Totalitarianism in power does not just declare that unemployment does not exist, it bans the collection of unemployment statistics" 

Hannah was very wise.  “Totalitarians” was the word she used and fits both fascists and communists.  

As I have been at pains to explain, this is no accident.  Fascism is a system designed to keep a few in luxury at the expense of the multitudes.  Its basic aim is an unequal society, where those at the bottom, work to keep the creamy layer in relative luxury.  Hence it must use coercive force to maintain that inequality.  

But as Hitler said, without a credible story to tell, coercion alone doesn’t work.  And so fascists create a story that unemployment doesn’t exist.  They not only ban collection of unemployment statistics, like Modi has already done, but also tell you to fry pakoras. Or become “wealth creators”.  Whatever that is.  As if you wouldn’t do it on your own, if it were that easy, instead of slaving for others.

To aim for full employment, you do not have to rob Peter to pay Paul.  So it is not like we have take wages from the Svarnas and dole them out to the Shudras.  

Instead we have to create a productive economy that requires more of the unemployed to do whatever they are best capable of, in order for everybody to prosper.  Facts is, under full employment, everybody gains; often, the Svarnas gain most of all.  

But they don’t have the incentives to take risks if they already live in luxury with two cars in the garage & college kids in the US.  

It is that aversion to risk that we need to address to create the economy that does provide jobs to all.  

They fear equality.  If everybody gets to be equal, how will they preserve their privileges?  Where from will they find maids to serve them 24/7?  What of their progeny?  

It is these fears that make the elites Conservatives, nay regressive, and avoid full employment, preferring the wage-island approach to development.  Better to keep the unwashed in their place rather than risk their privileges.  That is big fear we need to understand and tackle.

We have many competitive strengths in textiles, in foot wear, agriculture, chemicals, engineering, health services, education, etc. where the skills required of workers are moderate, and our share of world trade is low.  We just have to create the right sort of incentives for such industries to grow manifold, and suck in all those who are currently without jobs.  

Can full employment be
done?

Why does full employment matter?  To understand that study the following graph, which shows GDP per employed person in the economy for India, and the world as a whole.

Note, while an Indian [employed] worker’s output in terms of GDP is about $20,000, compared to the world average of about $40,000, its rate of growth, since the 90/91 reforms, has been phenomenal.

In 1990, the average GDP per employed India was was $5000.  Currently, it is $20,000.  That translates into a growth of 4X times over 30 years.  For the world as whole, the number has gone up from about $23,000 per employed person, to about $40,000 currently, or a little less than 2 times.

Basically our productivity per employed person is growing at 2X times the world average.  We are Indians are not bad at what we do.  But, look at the picture again.  66% of Indians use to work in the 1990s, and only 50% can find work now.  So while productivity per employed person has gone up 4X times, an incremental 16% of the workforce has been rendered idle.

Idle people have no income, they cannot add to aggregate demand, and that in turn limits, our GDP growth, which in turn limits revenue to Govt and savings available for investments, which further limits future growth.  I suspect we have entered this downward vicious spiral sometime in 2009/10 after the financial crisis, and the Modi years since 2014 have made the crisis worse by further making more people idle.

But before I end up a writing a book, I will end this essay here, and we shall return to this topic after establishing a few more basic facts on the ground before theorizing further.

Meanwhile to understand why fascism & neglect of of those without jobs will doom us, here is chart for you to ponder.  It is the same as above but in a different perspective.

 

Note the accelerating fall in labour participation under Modi and earn to fry pakoras in real earnest.

Wait for the next essay :-)

Sonali.