A new liberalisation will energise job markets

The current sense of angst and despondency regarding the inadequacy of jobs is not new. It arose in the mid-1960s and has persisted ever since, barring a short span in the immediate post-liberalisation period of the 1990s. That initial mood of exhilaration, reminiscent of the immediate post-independence period, did not last, and concerns about jobless growth re-emerged. This is even though our policymakers, regardless of political affiliation, having always tried aggressively to promote development, manufacturing, and jobs through a wide variety of schemes.

We need to understand why we have not been as successful as others in the area of job creation despite seven decades of effort. Agriculture (42.6%), Construction (12%) and Wholesale Trade, Repair and Maintenance (10.4%) still account for 65% of all our jobs. These are low-paying jobs. In China, these sectors account for a lower share of 47.4% (with agriculture at 25.3%). Brazil has 35.3% (9.1% in agriculture). In the US, these sectors account for 34.6% of all jobs (agriculture is below 2%). European countries like the UK (7%) and Germany (9.2%) have even lower dependence on these sectors.

The award-winning book The New Geography of Jobs, written by Enrico Moretti, could hold a clue. The book essentially combines the concept of the ‘employment multiplier’ -- first enunciated by R F Khan in his 1931 article about the ‘Relation of Home Investment to Unemployment’ -- with the effects of ‘local consumption’. It delineates that it is ‘jobs that create jobs’ by creating local consumption multipliers. Better-paid jobs have higher potential to create employment multipliers, but only if the money is spent locally. Conversely, they have limited job-creating potential in areas where people work but do not spend.

If we look back in time, Indian policymakers have primarily focused on promoting investment in factories, often in places far away from where the entrepreneurs resided, via specially designed ‘Backward Areas’ and Special Economic Zone (SEZ) promotion schemes, etc. This continues to the present day. Undoubtedly, production and exports do happen at those centres. But ‘development’, as understood by common citizens, does not. Individual citizens associate development not solely with islands of manufacturing/work areas, but as necessarily accompanied by the widespread availability of comfortable living areas having high-quality law and order, cleanliness and sanitation, roads and traffic conditions, well laid-out markets, parks and gardens, varieties of health, educational, sport and cultural facilities, and allied public places.

Our policymakers also like to live in such places. However, they have never focused on creating such facilities on a widely available basis, unlike China, which has copied the pre-existing EU/US model in over 600 cities. Marshall, the classical economist, had discussed the existence of this model in the early years of the 20th century.

What has so far been happening is that the Indian local consumption multipliers have been playing out only in those few important centres where these facilities exist. Job-creation undoubtedly happens in these centres. In fact, these cities have seen such explosive growth that they are now seen to be teetering on the brink of collapse. Currently, 39 of our cities figure in the top 50 of the world’s most-polluted cities. Other cities are, however, languishing in relative terms, with the disconnect between factory concentrations and urban life pre-empting the contribution of local consumption multipliers, and feeding the sense of jobless growth.

This does not mean that manufacturing should not be supported. It should be, as it has other beneficial impacts on society and security. It should, however, not be relied upon to solve the current feeling of angst regarding the lack of jobs. The development strategy not adapted till now in India, but commonly used elsewhere, needs to be adapted. And that is the dedicated embedding of work centres in well-planned urban life.

The developed world’s urbanisation indices reveal that 80% or more people live in cities. China and other BRICS countries’ indices are slightly, but not significantly, lower. Our indices are in the 30s, much below the global mean of mid-50s. This implies that our untapped potential for growth is large. We have 40 cities with more than a million people, 396 cities with populations between 100,000 and 1 million, and about 2,483 cities with populations exceeding 10,000. It is for the readers to assess how many of these urban settlements have the comfortable living conditions adequate to attract the residences of corporates/elites/senior policymakers. But it can all be created now.

Further, the primary difference we have with China is that it has empowered its cities with grant of wide-ranging financial autonomy. Local governments account for over 51% of China’s total government expenditure. We need to embrace this trend. The booming growth witnessed by Ranchi, Dehradun and Raipur post the carve-out of Jharkhand, Uttarakhand and Chhattisgarh and the resultant grant of enhanced financial allocation to the erstwhile impoverished geographies, testifies to the intensity of job growth that can be unleashed by de-centralisation. The very act of local empowerment acted to pull in entrepreneurs and thought-leaders.

Likewise, there may be bright prospects on the horizon for Amaravati. But the need of the hour is not incremental endowment, one at a time, of promising new centres – what we need is commitment at scale to a vast programme of locally-embedded, jobs-led growth, in hundreds of carefully selected and sufficiently empowered towns and cities. We need a second liberalisation.