The Hindu Business Line : More growth doesn't mean more jobs

THE All India Congress Committee has resolved to increase the country's growth rate to 7-8 per cent. Economic growth is seen as the self-evident route to the creation of employment and alleviating poverty. But the experience of many countries — showcased as success stories of economic growth — shows that economic growth has not lead to the creation of jobs.

Prof Zulkifly Osman of Universiti Kebangsaan says that economic growth in Malaysia has been propelled by using cheap female and foreign labour and preventing any increase in wage rates: "In 1980, 85 per cent of the workforce in the electronic industries was female... Since female workers have paid lower wage rates than their male counterparts, their participation in the labour market had, thus, caused an overall decrease in average wages in the manufacturing sector... Malaysia in the 1990s was generally faced with serious labour shortages, leading to the need to control wage rises. This forced the Government to resort to more foreign labour. Hence, while the country continues to grow, the gains accrue to foreign investors and foreign workers, whereas the locals are facing reduced employment opportunities and depressed wage rates."

In an article titled `Turkey's Jobless Recovery", Edward Hugh writes on his Web site that despite high growth rates more people are becoming helpless and have stopped seeking jobs: "The latest labour-market survey shows a massive erosion of jobs during this extraordinary period of economic boom. Although the unemployment rate fell, the number of employed declined over by two million in the last two years. The withdrawal of discouraged workers accounts for the illusionary fall in the unemployment rate. In our view, a drop in the number of unemployed is due exclusively to the withdrawal of 1.5 million workers from the labour force."

In an article titled "US Economic Recovery and Unemployment" on networkideas.org, Sukanya Bose writes that jobs are not being created in the US economy despite economic recovery: "The growth in employment which started falling since early 2001 continued to fall even during the first quarter of January 2004. In 2001 alone, there were 1.5 million net jobs lost according to official estimates on payroll employment. The following year added less than 0.4 million jobs. Employment growth during 2003 has been inadequate to make up for the massive job-losses of the previous two years. The situation in the opening months of 2004 has see-sawed so far. "Direct demand injection in the form of substantial increases in defence and defence-related expenditure, orchestrated through the war against terrorism, and has supplemented traditional supply side measures... Yet the transmission from very high profits to higher employment is not at all obvious. A case in point is General Dynamics, one of the top five military contractors. The stock price of the company rose 553 per cent, but General Dynamics downsized its workforce in the early 1990s by 80 per cent from 1,02,000 to 21,000."

It is clear that the common man is not benefiting from the high growth rates attained by these three "successful" countries. The situation in India is similar. According to the Economic Survey , India's growth rate was 5.4 per cent per year in 1983-94. Simultaneously new jobs were being created at the rate of 2.7 per cent per year. The growth rate increased to 6.6 per cent in 1994-2000. But the rate at which new jobs were being created declined to 1.1 per cent.

The situation in the organised sectors is more alarming. In 1997-2002, the number of persons employed in the public sector declined from 196 lakh to 188 lakh, and in the private sector from 87 lakh to 84 lakh. Economic growth is eating into jobs. This is what was expected. Economic "development" means that there is more availability of capital which leads to lower interest rates. The price of labour, however, does not decline below subsistence levels.

If at all, it shows a tendency to rise in line with rising expectations. As a result, it becomes increasingly profitable for businesses to employ more capital and less labour in the production process — cane unloading in sugar factories by automatic unloading machines and wheat harvesting by harvester machines are cases in point. The use of such machinery leads to higher production and more economic growth but fewer jobs. This is a long-term tendency which necessarily comes along with economic growth.

How have large number of jobs been created in countries such as the US in the last 50 years then? New technologies were being created which were leading to the creation of new jobs. The invention of the motorcar led to jobs for motor mechanics. The invention of computer created jobs for software programmers. The supply of these "new" skilled personnel was initially less and, hence, their wages were high. However, their wages have been declining to subsistence levels as the supply of mechanics and programmers is increasing. These high wages are only a short-term phenomenon that is seen when new technologies are being created. Thus, two opposing effects on jobs can be discerned: In the old economy, the use of capital increases and that of labour decreases. On the other hand, high-wage jobs are created in new sectors. The net effect of the two tendencies was positive in the past. But the stagnation in new technologies has made the net effect negative. The current pattern of economic growth is, in fact, eating into jobs.

The Congress-led Government at the Centre should, therefore, realise that economic growth in itself will not create jobs. In fact, a reduction in economic growth to create jobs may have to be looked at. Also, using high-cost handloom cloth rather than low-cost machine-made cloth should be considered. If the Government pursues faceless economic growth its fate could well be similar to that of the BJP's in the last elections.

(The author is a New Delhi-based freelance writer. He can be contacted at bharatj@nda.vsnl.net.in)