The Hindu Business Line : Unemployment: The seven sins of perception

Listing the seven problems of perception vis-à-vis the unemployment scene in the country, and suggesting a seven-point solution, P. V. Indiresan says that the aim must be to create employment over a wide range of the economy and for all person s, not merely in rural crafts and for the poor alone. Policy-makers need to take tough decisions for dramatic changes.

A FEW days ago, the problem of unemployment made headlines. Public attention has now shifted elsewhere, but the vexed problem of unemployment remains, and will remain a chronic illness. Unemployment is not like appendicitis: one operation and the problem is over. It is like asthma; you may mitigate it only but have to live with it forever. Unemployment in India has flared up because of seven basic misconceptions. Naïve faith in the power of printed money is one. Some influential economists have suggested as a remedy for rural unemployment that the government should print more notes and distribute it among the rural poor. In their view, the Indian economy is suffering from insufficient demand; once the poor get more money to spend, it will help the poor directly, and the entire economy indirectly.

The Soviet Union adopted this technique to ensure full employment. It worked for a time and ultimately ended in disaster. Distributing paper money to the poor will help only when they produce something saleable in return. If what they produce is not saleable, it will only increase prices, not jobs. Ultimately, as it happened in the Soviet Union, the economy will collapse. Unfortunately, nobody knows what the poor can, or should produce, to make their products saleable. Why blame the poor? We have an army of quite well to do government servants who are surviving on printed money. Nobody knows how to make them produce anything useful either.

Two, we have great faith in labour-intensive, low-productivity technology, and believe that is the best way to halt jobless growth. On the face of it, that is reasonable and is the direct way of increasing employment: If labour productivity is reduced, everyone will get work to do. Unfortunately, when productivity decreases, national income too will, and the remedy becomes worse than the disease.

Three, our unemployment has become as bad as it is because our investment policy is grossly inefficient. The purchasing power of the rupee is much lower in large cities than in villages. Yet, we concentrate our investment in expensive cities to the neglect of rural areas where money fetches much more. Once again, the problem has to do with ignorance: Our people do not know how to put capital to good use in rural areas where money is more valuable.

Four, everyone knows that in the Indian economy services are growing fastest; industry too is growing but it is jobless. As for agriculture, its share in the economy is actually shrinking. Yet, from Naxalites to sophisticated analysts, the excitement is all about redistributing more land to the poor; creating more jobs in agriculture. Logic demands that we concentrate on employment generation in the services, and find ways of weaning farm labour away from agriculture towards services. Unfortunately, for our activists and politicians, land is like mother's milk. It requires firm steps to wean babies; that is what we have to do with our netas too because their addiction to land is no different from that of babies for mother's milk.

Five, we have accepted a notion, which is popular all over the world, that education is a permanent remedy. Prof Marvin Minsky forcefully argued against this belief years ago; his ideas are getting a re-look. He argues that education takes so much time to deliver that it can never be a cure for joblessness. In his view, for the unemployed, jobs should be found to fit the jobless the way they are; they cannot wait to be re-educated. That is, education is only for those who will enter the job market several years hence.

Prof Minsky's ideas are way off the mainstream. In our country, conventional ideas prevail. We hold to the popular view that education, any education, will make a person employable. Most education, particularly college education, makes our youth unemployable; makes their situation worse.

Unfortunately, higher education has become an ideological issue: Educators want total freedom to enlarge higher education without limits and accept no responsibility for the consequences with the argument education is an end in itself, and is not for employment at all.

Six, political concern is for the rural poor only. Their condition is undoubtedly serious. Psychologically, the state of the educated unemployed is worse. It is probable that our politicians are concentrating their attention on the rural poor only because they have most votes.

Undoubtedly, dissatisfied rural poor can vote out any legislator. Neglecting the semi-educated jobless poses a greater risk: having enough skills to take to modern arms, the educated unemployed often take to Naxalism. The risk of neglecting educated unemployment is not mere electoral defeat to a political colleague but one of losing control entirely.

Seven, we have blind faith in doles. Although doles have never delivered results, we return to "targeted subsidies" again and again. We even have ministries for poverty alleviation for the purpose but not one for employment. We are trying to stem the disease; we are not trying to promote good health.

In short, the unemployment scene in India suffers from seven sins of perception: (a) jobs without marketable output; (b) wasteful investment in expensive locations; (c) blind faith that agriculture will fill the employment gap; (d) neglect of services as prime job creators; (e) unemployable education; (f) indifference to educated jobless, and (g) wasteful subsidies.

We can overcome these complex failures only by introducing new ideas, and by surrendering old ones even if we are sentimental about them. We are in trouble because we are unwilling to change. Every new remedy will have its own faults. It is easy to pick on them. It is also comfortable to accept the faults of old habits. Yet, the question is not that of finding a perfect alternative, but a better one: we should not fear to try a better solution only because it is not as good as we want it to be.

Let me suggest a few steps, even if they are found to be a bit drastic: One, invest massively in rural connectivity on the lines the President, Mr A. P. J. Abdul Kalam, has been crying hoarse. Two, reverse rural-urban migration the way Western countries did some decades ago. Three, bring educational institutions under the purview of consumer courts; make them accountable for the quality and content of what they teach. Four, promote multiplication of employment in services as distinct from creation of employment in production. Five, as a corollary of the above, ensure that all workers get residences properly equipped with all municipal services and with access to social services like education, public health and recreation (and punish employers who fail to ensure such amenities to their workers). Six, offer employers attractive incentives to maximise direct (and indirect) employment.

Seven, replace targeted subsidies by investment in public goods. In the process, combine the rural and urban development ministries that are now operating in watertight compartments into a single ministry of habitat development. Likewise, change from ministry of poverty alleviation to one for the promotion of productive employment.

Then, we are looking at an entirely new scenario: Housing and services (and not food) will be the prime source of employment. Most investment will be in low-cost rural areas and not in high-cost cities. Higher education will not be aimless: Consumers of education will have a right to know what they will get out of their investment of money and time. Investors will not get low cost capital for capital-intensive projects but only for creating employment. Rural and urban development will be treated as complementary to each other and not in mutual isolation. There will be no targeted subsidies but overall development of the environment. The aim will be to create employment over a wide range of the economy and for all persons and not merely in rural crafts and for the poor alone.

In general, there will be no compartmentalised thinking — no rural-urban; rich-poor; agriculture-non-agriculture. These are substantial reversals of accepted practice. Undoubtedly, all these changes will have a cost, and deserve critical appraisal. Implementing them will not be easy; they will pose new problems, will create new challenges. Those who criticise have two options: Check what is wrong, or seek what benefits can be extracted from these changes. Choose the former, we will sink deeper into the unemployment cess pit; opt for the latter, you may find a way out.

Thirteen years ago, our political establishment got a scare. Fearing for survival, it permitted the then Finance Minister, Dr Manmohan Singh, to introduce drastic reforms. Once, the danger passed, it reverted to form, and blocked further progress.

As yet, in spite of the spreading Naxalite menace, in spite of unsettled electoral scene, there is as yet no great apprehension that unemployment can lead to disaster. Even then, it is time to think of reforms. They need not be exactly what has been suggested here, but substantial reversals of policy all the same. What we do not want is status quo, nor more of the same. Policy-makers should accept even drastic changes if only to expiate the seven deadly sins of misperception that they have committed and are committing.

This is 135th in the Vision 2020 series. The previous article was published on October 18.

(The author is former Director, IIT Madras. Response may be sent to indresan@vsnl.com)

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