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View: Services, not manufacturing, are our best bet in a post-jobs world dominated by tech


The dystopian world of jobless growth has been staring the world in the face for decades now. In the US, GDP and jobs growth started delinking from one another from the early 90s; in every recession after 1991, a return to old levels of employment took longer and longer.

In our case, the delinking process probably began after the Vajpayee years, post-2004. The UPA era saw high growth in the first half, but jobs didn’t keep pace. Poverty was reduced by income transfers and boondoggles (MGNREGA etc), not real job creation. It’s quite possible that in the coming few years we’ll see another, probably temporary, revival in jobs, thanks to cash sops being doled out through the production linked incentive (PLI) schemes to encourage local manufacturing. But it may not sustain.

Two reasons why, and they’re inter-related. First, for the most part, growth is the result of increasing use of technology and not human labour; and second, the excess of capital sloshing around in the world economy ensures that more technology will be used rather than labour in most new enterprises, whether they’re in manufacturing or services.

Credit Suisse recently estimated that India may have as many as 100 unicorns (startups with more than billion dollar valuations). But almost none of these will be turning a profit or even breaking even despite guzzling millions of dollars of cash. India wouldn’t have had so many billion dollar loss-makers without there being a huge cache of patient capital willing to be deployed in promising ventures. Conclusion: India’s future growth will be fuelled by capital and enterprise, not large labour deployments.

Some Leftists may offer Luddite solutions to prevent the replacement of labour with capital and technology, but this can’t work. Even if India bans some kinds of labour replacing technologies, others with labour shortages will see an opportunity in deploying more technology to improve productivity and margins. In the end, we can only lose by not adopting the latest technologies. In the US, trust busters are talking of breaking up some of the powerful tech companies (Google, Facebook etc) so that they don’t worsen tech fuelled inequities in society. But history teaches us that cutting edge tech doesn’t always come from the biggest companies. It comes from small startups, too.

We need to balance this dystopian view with the positive side of the ledger. While technology does disrupt or destroy good quality jobs, it also reduces costs at a dramatic pace, thus making basic goods and services accessible to all.

Two trends are responsible for this. One is the sustained shift in the composition of most economies from agriculture to manufacturing and finally to services, especially digitally delivered services (banking, insurance, news, books). This reduces marginal costs to near zero in many cases. Combined with the shift from non-renewable to renewable energy, we’re also rapidly moving towards near zero marginal costs in energy. A solar panel incurs practically no running cost after the initial capital expenditure is incurred. Anyone who wants his book published can do it at near-zero cost in the e-book format. Author Jeremy Rifkin details this idea in his book The Zero Marginal Cost Society.

The second trend is technology mediated “dematerialisation”. In almost every product we buy today, including physical goods, gadgets and equipment, less material is used. The modern car uses less fuel, less metals and fewer body parts than the one produced a century ago. This process, called dematerialisation, where less and less inputs and raw materials are used to produce the same product, is detailed in Andrew McAfee’s book More From Less.

The combined effect of the trends towards lower marginal costs and dematerialisation will improve affordability where most Indians, even poorer ones, will be able to buy them. Remember, four years ago we saw a dramatic drop in bandwidth prices, allowing even people who can’t afford toasters or refrigerators to access the internet with a mobile phone.

In India, thanks to rigid factor markets (land, labour) inherited from the licence-permit-raj era, we are still to fully transition from agriculture to manufacturing; in fact, we practically skipped the manufacturing stage of development and went straight into services, which is what drives GDP growth for us today. It’s where we are globally competitive. The ongoing farm agitation is a symptom not of bad law making, but an instinctive realisation by farmers that their political and economic power will wane as India transforms agriculture. Far fewer farmers will produce more output from even less farmland in future.

In a world where massive incomes will be generated from technology, one can expect a steady rise in tax revenues from a larger base of affordable goods and services. This improves a government’s ability to provide food and basic needs at subsidised rates. The defining feature of the UPA era was not jobs growth, but high tax revenues that enabled a massive attack on poverty.

The discussions we need to have in a tech-enabled, post-jobs world are the following: Which sectors with the highest jobs potential should be incentivised over those which need far less labour? Which technologies have the potential to provide livelihoods to the maximum number in the shortest possible time (app-based taxis, home services etc)? How do we incentivise entrepreneurship, which is where most new jobs will come from?

The broad takeout is simple: India’s future is in services, and not agriculture or manufacturing. All our policies should be oriented towards making our services super competitive, and not focus on reinventing the manufacturing wheel or try to retain too many underemployed people on the farm.

(R Jagannathan is editorial director of Swarajya.
Views expressed are of the author’s and not of www.economictimes.com)

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