True value of labour

How should India grow? A sustainable competition strategy must be based on the resource that a corporation or a country has more of than its competitors.

If a country sits on large hydro-carbon resources, its national strategy must be founded on the use of hydro-carbon resources for growth. Indeed, this is how Saudi Arabia has become very wealthy. It has world-scale, and world-class, petroleum refining and petrochemical industries. A country with more mineral resources than other countries can build its economy on the strengths of its mineral extraction and process industries, as Chile has.

India’s resource is its young people. India’s growth strategy must be founded on the employment of larger numbers of human beings in its enterprises. They are abundant, willing to work, and willing to learn. Our large population of people seeking employment can be India’s assets: they can provide Indian enterprises a competitive advantage.

However, in conventional corporate accounting, human beings do not even appear on the asset side of the register, along with other assets, like buildings and machinery. Human beings are accounted for on the cost and income side, to be used only when required for production.

Human assets

The values of all assets on the balance sheet depreciate over time. Accounting law requires that companies report depreciation of their assets’ values. Human beings are unusual assets. They are the only assets whose value can increase over time. Human beings have an ability to learn and to improve their own capabilities. Provided, they are enabled to.

Human beings can also improve the performance of the company’s machines, and efficiency in the use of other materials if they are motivated to. Thus, human beings are the only “appreciating assets” a company has, and a country has.

“Productivity” is a central concept in national and company economics. Productivity is a ratio of input and output: a measure of how much input is required to produce the desired output. There are two ways to improve any productivity ratio. One way is to reduce the quantity of input. The other is to keep the input constant, and yet produce more output. The most important productivity ratio any manager should be concerned with is how to get the most output from the scarcest or most expensive resource the enterprise has. A universal practice, in corporate, as well as national accounting, is to measure productivity as output per unit of labour. This presumes that human labour is the scarcest resource and that it should be substituted by other resources, such as capital.

However, labour is the most abundant resource India has, and the least utilised unfortunately. Whereas financial capital is relatively scarce. Therefore, the productivity of the Indian economy should be measured by how many good jobs each unit of financial capital produces.

In 2013, the Planning Commission asked Bain and Company to look at the HR strategies of Indian companies spread across several industries and several regions of the country. Companies were separated roughly into two categories. Category A were those who considered their employees as assets and invested in them. For Category B companies employees were costs. Category B companies demanded more flexibility in labour laws. They employed large numbers of workers through contractors to reduce their own costs. They spent less on training too.

Bain compared the financial performances of companies in the same industry and in the same region so that no external factors would vitiate the comparison. They found that Category A companies had more sustained, and stronger, growth in revenues and profits than category B companies.

India needs more business enterprises that employ more humans in dignified work with less capital.

The writer is a former member of the Planning Commission (Through The Billion Press)

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