A blueprint for all-round growth

MANY disruptive forces are colliding with each other to create radical uncertainty. Global governance institutions have broken down — the UN, World Trade Organisation, climate accords. Domestic politics is witnessing a churn in many countries. Wars are raging within and between nations. Artificial intelligence (AI) is set to disrupt business models in many industries. 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, it’s time to think about the work that people will do in the future to earn adequate incomes.

A popular view among 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 efficiency, reducing their needs for human labour and human intelligence. They also take caregivers away from families. Meanwhile, healthcare needs are increasing everywhere with ageing populations, along with mental distress and societal unrest caused among the youth by unemployment and insecurity over future earnings.

Modern economies cannibalise human society to feed economic growth. Humans are included only as resources in economists’ models, not as agents with independent wills and desires. Ordinary citizens in various countries seem to think that the ‘liberal’ policy-making intelligentsia has been manipulating them. They are unwilling to accept ‘free market’ prescriptions. The International Monetary Fund says that its ‘tighten the belt and open for trade’ agenda of economic reforms has been resisted everywhere since the 2008 global financial crisis.

Albert Einstein (and others) have said that we cannot solve our problems with the same thinking we used when we created them. ‘High frequency’ indicators such as daily stock market fluctuations and monthly/quarterly variations in employment trends and the GDP only record storms on the surface of the ocean. They cannot reveal the deeper forces causing large and long-term changes. ‘Big data analytics’ reveals interesting correlations; it cannot explain causation. One must look deep beneath the data to gauge the underlying forces interacting with each other.

Henry Ford, who revolutionised manufacturing by improving efficiency with the assembly line and standardised 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 they do not demand fairness. Human labour, human intelligence and even human creativity are being replaced by technologies. Capitalists may now increase profits unrestrained by the 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 economic inequality between the top 1 per cent, most of whose wealth is produced in financial markets and tech enterprises, and the bottom 50 per cent of the citizens who must work to earn and increase their wealth.

In the formal economy, only the work done in formal settings is considered productive — generally outside the home, to earn money and add to the GDP. Overall, women work more than men. But the work women do in informal 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 contributes to the GDP. However, it reduces societal well-being. The economy improves; society suffers.

The ‘employment elasticity’ of growth — the number of jobs created with each unit of GDP growth — is going down. Formal enterprises create fewer jobs per dollar of capital invested. The employment elasticity of India’s economy is one of the lowest among developing countries. This is tragic because India has the largest cohort of the youth needing employment: the country’s potential ‘demographic dividend’.

In various societies, people are living well beyond the conventional retirement age with few sources of income; they need care. Mental health problems are on the rise among the youth, and they require care too. Caregiving 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 underemployed ones will not have the money to pay for these services. Governments also do not have the resources required because they cannot raise taxes on corporates and wealthy people and yet must balance their budgets.

The following solutions can make growth more inclusive and sustainable by creating more incomes and jobs for the youth and women as well as providing more affordable home-based care. These are ways in which India’s economy can become an engine of its own growth.

One, form more local, cooperative enterprises that increase the wealth of worker-owners faster than the wealth of stock market investors.

Two, create denser local economic webs composed of small enterprises in the farm, manufacturing and service sectors.

Three, support local systems solutions cooperatively developed by communities to deal with 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 lifelong 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 develop new capabilities faster, because that is the only way a nation can compete with others whose enterprises are also continuously improving their capabilities.

Seven, reset the goal of Viksit Bharat to make India a better and more inclusive society by 2047 that provides equal political, social and economic freedoms to all its citizens, whatever their caste and religion, and measure all-round progress rather than the size of the GDP.