Change the mindsets to create jobs

The concept of industrial policy must change. ‘Picking winners’ can no longer be a sound industrial policy

Published: 02nd September 2016 04:00 AM  |   Last Updated: 02nd September 2016 06:46 AM   |  A+A-


Though India’s GDP growth is impressive, India creates fewer jobs with every per cent increase in GDP than other countries. India has been converting GDP to jobs at only two-thirds the average of other Asian countries, and at half Vietnam’s rate. Moreover, the low employment elasticity of the Indian economy has declined even further in the last decade. With over 60 million new entrants being added to India’s working age population, creation of jobs must be the principal concern for India’s policy-makers.

As Albert Einstein said, one cannot solve tough problems by using the same approach that may have caused them. To create more jobs, India’s policy-makers must change their mind-set. 

Reframe the approach to education and skills

Uncertainty about the effects of technology is clouding prospects for employment in manufacturing, services, and even knowledge industries world-wide. Industries are being radically transformed. Moreover, shapes of enterprises and jobs are changing. Bank branches are being made redundant by smartphones. Big box retailers like Walmart are struggling with online retailers like Amazon. Changing shapes of industries, enterprises, and jobs make it very difficult to predict what skills will be required in future. The education and skills system can no longer be designed like an assembly line with pre-set content. It must be reframed to enable young people to discover opportunities and jobs as they arise, and to be quickly able to learn the skills that will be required. The thrust of teaching in universities, technical institutions and schools must be to develop better life-long learners. Pedagogy must change.

As industry landscapes change, competition will arise for enterprises from outside the present borders of their industries. Large size and incumbency will not be sufficient in new competition. Only those enterprises will survive that are able to learn and change themselves faster than others. The only resource any enterprise has with the ability to learn and improve its own abilities is human beings. Human beings are the only ‘appreciating assets’ of an enterprise whose value can increase over time as they learn. The value of all other resources of the enterprise — its machinery, materials, even technology — will depreciate with time. Therefore, in a fast changing world, employers would do well to ‘humanise’ their enterprises, and not only ‘digitise’ them with technology.

Reframe the idea of productive enterprises

The policy discourse about India’s jobs problem never fails to point out that over 90 per cent of jobs in India are in the ‘informal’ and ‘unorganised’ sector, and in small enterprises. In fact, most of whatever jobs growth has taken place in India has been in this sector of the economy.

‘Informal’, ‘unorganised’, and small, sound bad compared to ‘formal’, ‘organised’, and big. Therefore, the mindset is to convert informal and unorganised to formal and organised, and to prefer big to small. What effect this will have on the job-creation potential of the Indian economy must be examined. How will the conversion of micro, informal, and unorganised enterprises into organised forms of enterprises (in the ways in which formality and organisation are presently understood) improve the job creation potential of the Indian economy, when formal, organised, large enterprises are not creating jobs in India? Rapid developments in technologies are enabling enterprises to be viable on much smaller scales than before. 3-D printers are a ‘one-person factory’ with the scope of capabilities that previously required large factories with many special machines. Desk-top publishing has made large printing presses unnecessary.

Organisational technologies, such as cooperatives and clusters, have enabled small enterprises to acquire scale in marketing, procurement, and capability development, even before the advent of new technology powered platforms. Now, technology powered platforms are increasing the efficiency and reach of networks, further increasing the potential of small enterprises. 

Human beings are not the most scarce resource in the Indian economy. The measure of an enterprise’s contribution to an eco-system must be in how efficiently it uses the most scarce resource in the system. Large, formal, organised enterprises use more capital, and more energy, and less people. The thrust of policy must not be to mindlessly bring micro enterprises into prevalent forms of formality and organisation. It must be to reframe the concept of productive enterprises — even in the large sector.

Reframe the concept of Industrial Policy

The idea of ‘industrial policy’, which was rubbished with the Washington Consensus, is returning, even in the US and UK, with pressures to create more domestic jobs. However, the concept of industrial policy must change. ‘Picking winners’ can no longer be a sound industrial policy. Because governments cannot predict too far what the shapes of industries will be. Industrial policy for a country must be a process of learning. It is a process of ‘crossing the stream by feeling the stones underneath’ as Deng Xiao Peng said. Economies grow when enterprises learn to do what they were not capable of doing before. Human beings within them acquire skills they did not have. Thus countries become competitive and their economies grow. 

Good industrial policy is not a document. In a dynamically changing world, industrial policy has to be a process for coordinated learning amongst government, regulators and stakeholders. Improve the process and outcomes will improve: faster growth and more jobs.


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