Balancing innovation and employment

We need to adopt a very different approach to manufacturing and industrialisation from the one followed in the America of the late 19th and early 20th centuries, and in Southeast Asia and China more recently

What has Make in India got going for it? The primary facilitative factor for the Narendra Modi Government’s flagship initiative to convert India into some sort of a manufacturing power — and raise the share of manufacturing from the current 17 per cent of GDP to 25 per cent of (a much bigger) GDP by 2025 — is the large Indian market. India’s unmet domestic demand, for everything from household furniture to televisions, is enormous and offers a contrast to the export-driven model that has distinguished the East and the Southeast Asian manufacturing experience.

Second, India is strategically investing in manufacturing and industrialisation  or more accurately reversing what has been called a “premature de-industrialisation” — at a higher degree of technological advance than its Asian peers. The potential of Indian prowess in IT software and programming, in digital design, and in the biosciences to propel relatively high-end manufacture is appreciable. Among other areas, this is true in pharmaceuticals and in precision manufacture, covering certain types of machine tools or aerospace components for instance. Indian skills in these approximate those of Japanese and American technicians, and in many cases leave the Chinese behind.

Yet, while precision manufacture will create value, it will not create jobs, certainly not as many as India needs. Actually, this points us to a larger debate. The Harvard University political economist Dani Rodrik wrote an acute article in January 2015 on the future of manufacturing, jobs and the economy, and the evolution from the “welfare state” to what he called the “innovation state”. The article drew conclusions that may be extremely relevant to proponents of Make in India and those who fervently wish for it to succeed, especially as, to quote Rodrik’s first line itself, “A spectre is haunting the world economy — the spectre of job-killing technology.”

Three paragraphs from Rodrik’s article are worth noting:

“The potential benefits of discoveries and new applications in robotics, biotechnology, digital technologies and other areas are all around us and easy to see. Indeed, many believe that the world economy may be on the cusp of another explosion in new technologies.

“The trouble is that the bulk of these new technologies are labour-saving. They entail the replacement of low and medium-skilled workers with machines operated by a much smaller number of highly skilled workers …

“A world in which robots and machines do the work of humans need not be a world of high unemployment. But it is certainly a world in which the lion’s share of productivity gains accrues to the owners of the new technologies and the machines that embody them. The bulk of the workforce is condemned either to joblessness or low wages.”

Stressing that “disruptive new technologies produce large social gains and private losses simultaneously”, Rodrik argues for a new social contract between state, society and citizen that does not posit unacceptable inequality as a natural and unavoidable corollary to unremitting innovation. To be sure, this is a debate that will dominate the 21st century and perhaps Make in India will anticipate some of the trade-offs and bargains of the debate.

Some of Rodrik’s academic work  though not the specific media article quoted in the preceding paragraphs  was referred to in a provocative Economic Survey (2015) chapter titled, ‘What to Make in India? Manufacturing or Services?’ In its concluding section, the chapter holds out both the boundlessness as well as the boundaries of Make in India:

“The choice for India is not manufacturing versus services but comparative advantage deifying (unskilled-intensive) sectors versus comparative advantage defying (skill-intensive) sector development. This is both a positive and a policy question… The policy question is the following. Insofar as the Government retains influence over shaping the pattern of development, should it try to rehabilitate unskilled manufacturing or should it accept that that is difficult to achieve, and create the groundwork for sustaining the skill intensive pattern of growth?

“Attempting the former would be a history-defying achievement because there are not many examples of significant reversals of de-industrialisation. A lot would have to change in India  from building the infrastructure and logistics/connectivity that supports un-skill-intensive manufacturing to reforming the panoply of laws and regulations, or perhaps addressing corruption in the manner of their enforcement  that may discourage hiring unskilled labour and achieving scale in the formal sector.

“Sustaining a skill-intensive pattern on the other hand would require a greater focus on education (and skills development) so that the pattern of development that has been evolving over time does not run into shortages. The cost of this skill-intensive model is that one or two generations of those who are currently unskilled will be left behind without the opportunities to advance. But emphasising skills will at least ensure that future generations can take advantage of lost opportunities …

“India can either create the conditions to ensure that its existing unlimited supplies of unskilled labour are utilisable. Or, it can make sure that the currently inelastic supply of skilled labour is made more elastic. Both are major challenges. What the analysis suggests is that while Make in India, which has occupied all the prominence, is an important goal, the Prime Minister’s other goal of ‘Skilling India’ is no less important and perhaps deserves as much attention … The future trajectory of Indian economic development could depend on both.”

The challenge for current and prospective Indian political leaderships, perhaps right up to the middle or third quarter of the 21st century, will be to find this happy mean between innovative technologies that transform manufacturing but don’t create jobs, entrepreneurial energies at the bottom of the pyramid that could create service-sector  or mixed-sector, such as food processing (self)-employment as an offshoot to a manufacturing story that by itself may not create as many jobs.

Also required will be a social engineering that will enable Indian society to discriminate between individual and family prosperity and a regular blue-collar job. In a sense, this may explain Prime Minister Modi’s emphasis on ‘Start-up India’, to complement Skill India and Make in India.

All this suggests a very different approach to manufacturing and industrialisation from the one followed in the America of the late 19th and early 20th centuries, in Japan after World War II and in Southeast Asia and China more recently. It also suggests why Make in India will both determine and be determined by a different type of developmental framework.

(The author is Senior Fellow, Observer Research Foundation. He can be reached at [email protected])

 

Source: http://www.dailypioneer.com