Article: Emphasis on manufacturing, what is this way to increase employment

Swaminathan S Anklesaria Iyer, New Delhi: America’s President-elect Donald Trump and Indian Prime Minister Narendra Modi have one thing in common. Both are advocates of giving subsidies to manufacturing companies and investing in them. They believe that this will increase employment opportunities and make their country great. Will this really happen?MAGA’s dream: America is a high income country. The share of manufacturing in GDP has been declining there for decades. Americans complain that millions of jobs from their country have been exported to China. This means that many things have stopped being made in America and are being imported from China. Trump wants to bring back those jobs so that his/her dream of Make America Great Again (MAGA) can be fulfilled.

Why employment decreased: Sorry, this is Bans Bareilly in reverse. This is what Robert Lawrence, who was one of Bill Clinton’s economic advisors during his/her presidency, has to say. he/she explains that due to many historical changes, employment in the manufacturing sector has decreased in developed countries. These reasons include technological changes, changes in people’s spending habits and changes in the business world.

Before the Industrial Revolution: Till the 18th century, 80% of the people in the world were involved in farming. At that time, the disparity in income between people of different countries was also less. After this came the era of industrial revolution, which increased productivity and income. In America, in 1810, 81% people were dependent on agriculture, while 3% were employed in manufacturing and 16% in the services sector.

Trump will fail: By 1950, the number of people dependent on agriculture declined to 12%. This increased to a peak of 24% in manufacturing and 64% in services. By 2020, the three sectors’ contribution to employment increased to 1.8%, 8%, and 91%, respectively. When a country becomes rich, the same trend is seen there. This is an ‘economic law’, which is not possible even for Trump to change.

Effect of Machines: It is also true that as the use of machines increases, employment decreases. Only 1.8% of the population in America does farming. It produces so much produce that after meeting its needs, it also exports agricultural products on a large scale. Earlier it has been seen that because of machines, people left farming on a large scale and went to more productive sectors, where they got much higher wages.

How did the change happen: Initially, increased productivity led to falling prices of agricultural products and a decline in wages. In such a situation, people shifted from farming to manufacturing sector. As the size of such companies increased, they were able to produce at lower costs. This boosted demand, hence increased production and related employment. But as countries became richer, demand for material goods grew at a slower rate than that for services.

Growth will be slow: When Trump became President last time, he/she imposed import duty to encourage investment in the steel and aluminum sector in America. his/her argument was that these were ‘strategic’ industries. After him/her, when Biden became President, he/she expanded the scope of ‘strategic’ to include solar panels, batteries, windmills and electric vehicles. It seems that Trump may add more things to this list in the second term. However, if such policies are adopted even in the name of national security, it will be called protectionism. And this will slow down economic growth and reduce employment.

Apple’s success: Today 43% of the population in India is dependent on agriculture. This means that it will take a long time for people to shift to industry and then services. The truth is also that in the first 10 years of Narendra Modi’s tenure, there was not as much increase in employment as was promised. The only success of the government’s Production Linked Incentive Scheme has been iPhone maker Apple, which has created 1.5 lakh direct jobs. This figure may seem good, but for a country like India where 1.2 crore people join the job market every year, it is very low.

There are more holidays: Why could crores of new jobs not be created in the manufacturing sector despite many government schemes? According to economists, labor laws are to blame for this, which make it difficult to fire workers, but in my view this is a minor reason. A bigger reason than this is holidays. In India, employees are entitled to national holidays, one month paid leave, casual leave, sick leave and maternity leave. This means that some workers work less than 200 days a year. Then companies have to pay ESI, gratuity, contribute to provident fund, contribute to pension fund. They also give leave travel allowance. Due to this, Indian workers become more expensive than workers from other countries. To avoid this, Indian companies hire casual workers or outsource work to small companies, which are in the unorganized sector. In such a situation, good jobs are not created, which people want.

Trade Union Barrier: Reducing holidays to 50 days a year could be an initial step, but sadly this is not even being discussed. Both BJP and Congress have strong trade unions, which will oppose the cut in holidays. Therefore, the reforms necessary to increase employment in India are not politically possible.