The Telegraph
Since 1st March, 1999
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- The concept of SEZs is a prescription for disaster

One does not need any proficiency in reading the economist’s abracadabra to explain the bane of jobless growth currently afflicting the Indian economy. Common sense is enough, commonsense in regard to what liberalization is about.

The major planks of liberalization have consisted of the following. First, a gradual withdrawal of the State from economic activities, alongside selective disinvestments from public undertaking. Second, while the public sector has shrunk in industry and commerce, the proponents of private enterprise have themselves pressed the government to play a larger role in developing economic infrastructures that cost huge chunks of money but yield low returns. In all parts of the country, the authorities have been generous to help entrepreneurs acquire land and obtain power and other attendant facilities. Third, even as building infrastructure for industry and services has been assigned high priority, there is simultaneously a de-emphasis on public investment in agriculture. And finally, all this has been accompanied by the decision to scrap anti-monopoly statutes, lower direct taxes across-the-board, wind down the public distribution system, and rapidly dismantle tariffs and quantitative restrictions on imports.

In the changed environment, service activities, particularly IT-enabled services, have flourished most. Progress has taken place in such other service activities as banking and insurance, tourism and entertainment. With supply side restraints removed, private initiative has expanded in different directions, leading to gross domestic product growing at a rate of 8 to 10 per cent per annum. Services are growing at the rate of 10 to 12 per cent and industry at around 6 to 8 per cent. The farm sector is, however, lagging behind because of infrastructural handicaps. The rate of growth here is hovering between 1 and 2 per cent, in some years actually falling below the rate of population growth.

Therein lies the problem. Industries, including service industries, are free. They are also free to choose the technology they deploy at their workplace and the government has no say in the matter. Since the primary aim is to survive in international competition, entrepreneurs naturally are inclined to opt for the technology that incorporates the latest advances. Adopting a technology of this kind certainly involves sinking of sizeable capital. But if the rate of interest is low, the financial burden will not be that heavy. Besides, a capital-intensive technology reduces the requirement of labour. Where interest on money borrowed to purchase equipment is not much of a factor, entrepreneurs will prefer a labour-saving technology to a labour-using one. An additional consideration: a machine is mute, it does not go on strike or cause any other trouble.

With freebies from the government, including cheap money, services have grown at a fast pace in the Indian economy; manufacturing too is flourishing. However, in both sectors, there is no corresponding increase in employment. Check the data, the volume of employment organized industries and services has either contracted or increased only marginally over the past 15 years. Employment has grown significantly only in what is described as the ‘informal sector’. A large number among those displaced from land, because a new industry or services unit has to come up on it, is not getting absorbed in any industrial or service occupation. They swell the crowd of those others who have lost their jobs because of computerization. This multitude tries to eke out a living through casual work here and there, or by setting themselves up in some small-scale trade. It is this category of people John Maynard Keynes had chosen to describe as belonging to the universe of disguised unemployment.

Industrialists have their point of view. For the sophisticated equipment they have installed, they need skilled labour. A farmer who has surrendered his land, or has been deprived of the opportunity of working in someone else’s land (because such land has been taken away for non-agricultural purposes) is therefore left to graze on his own. In any event, a capital-intensive technology can absorb only a limited quantum of labour.

A question can be raised whether growth which either reduces or stagnates employment should not lead to a problem of demand deficiency in the economy. Apparently not. The IT-enabled services are, in nine cases out of ten, dependent on foreign demand. Demand emanating from the upper crust of society, which has benefited from liberalization, also helps to absorb the supply from fast-growing manufacturing and service industries.

Those enjoying the good times do not bother to stop and think of the plight of the unemployed and under-employed. Had the State any say in the choice of technology for the booming private sector, the crisis might not have assumed the magnitude it has. Harmonizing the rate of displacement from agriculture and small-scale industrial units with the rate of absorption in organized industry and service would not then have been an altogether unlikely proposition. As things now stand, the government, however, has no say in the matter. For the private entrepreneur who has been liberated from all shackles, the only technology he chooses is that which maximizes his rate of profit. It is not his or her concern whether employment grows or worsens.

A further point is worth taking note of. In the industrial revolution which transformed Great Britain and the rest of Europe in the late 18th and 19th centuries, industrial technology was still at such a relatively simple stage that workers crossing over from farming did not face any major problem of adaptation. The picture is qualitatively different now. For survival in today’s competitive world, entrepreneurs, even in under-developed economies, think it necessary to cross over to the same technology as, for instance, the United States of America has. In the relatively labour-scarce American economy, the natural preference is for embracing a capital-intensive technology. Replication of such technology in our case cannot but have a devastating effect on employment.

It is particularly in this context that the concept of Special Economic Zones, one feels, is a prescription for disaster. By exempting entrepreneurs from excise and other forms of taxes and duties and from observance of labour laws, the government is making it easier for them to bear the financial burden of high-cost labour-displacing technology. The upshot is homage to the phenomenon of jobless growth.

Nothing illustrates better the peril of a total withdrawal of the State from the industrial landscape. Where the government invests directly in setting up a plant, it is in a position to decide the technology to be used and thereby ensure a minimum absorption of labour within its own spheres. Private entrepreneurs, in contrast, do not have to worry over such issues. Neo-liberal philosophy has relieved them from the nuisance of having a public conscience. This sets them sharply apart from liberals of the old school like the Cambridge economist, Arthur Pigou, who always insisted on differentiating between private product and social product, and between private cost and social cost. The private sector, Pigou did not have any doubt, must be compelled to bear the social cost — such as net loss of employment and spread of pollution — that private development brings about. It will be considered in today’s milieu a good thing that old fogeys of this genre are no longer around.

But while the old fogeys are dead, the problem of what Marx had described as the great reserve army of labour is still around. Economic liberalization will, inevitably, lead to a steady increase in its numbers. They will refuse to take the course of self-annihilation. The trade unions, temporarily in disarray because of the onslaught of liberalization, will then experience a revival. Once that moment arrives, chances are that both official policy-makers and industrial tycoons will be forced to echo the sentiments of that Beatles song: “Yesterday, all my troubles/ Seemed so far away/ Now it looks as though/ They’re here to stay.”

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