The approach to automation and jobs will differ for rich countries like the US and countries like India.
Automation matters for a country at a per capita income of $45,000, says Manish Sabharwal, the chairman of staffing firm Teamlease. There technology is deflationary for wages. The US unemployment is probably the lowest ever, yet wages are not moving up. So, the US and developed countries are trying to prevent people from falling into poverty. India is trying to pull people out of poverty. Those are two completely different problems.
“At our per capita of $1,500, our problem is the application of land, labour, capital, and how it combines—total-factor productivity. Poverty is about productivity. Why does Joe Sixpack make $50,000 a year and Ram Bharose make Rs 50,000 a year? … It is the institutions, the infrastructure—I am not sure it is Silicon Valley,” he says.
Technology is important, Sabharwal says, but not of the cutting edge artificial intelligence/machine learning kind. We can raise incomes to $8-10,000 if we
- reduce regulatory cholesterol (“If you take the entire universe of compliance in India, there are 60,000 compliance items, 3,600 annual filings and it changes 5,000 times a year.”)
- improve human capital , and
- build infrastructure (“The average taxi in Bangalore travels at 8 kmph. Most people can walk that fast. So what happened to the productivity of the internal combustion engine?”)
Can the expansion of manufacturing lift wages?
“The peak of any country's labour force in manufacturing was Britain in World War II, which was 45%. America peaked at 33%, China at 28%, but India is at 11%. Now, I don't think we'll ever get to 45, 33 or 28 because manufacturing has changed. But I think 11% is the wrong number. Make in India might be Make for India. If you look at the $65 billion in foreign direct investment, it is concentrated in areas where domestic consumption is getting to a critical mass—automobiles, washing machines, etc. So, we can get from 11% to 18-20% of our labour force in manufacturing.”
Provided, of course, we reduce regulatory cholesterol, and improve infrastructure and human capital. And break the low-level equilibrium of informality in India.
“Our stereotype when we talk of an enterprise, is not Marico, Lupin or the Tatas. It is an informal micro, small and medium enterprise (MSME). And informal MSMEs can't be productive…. We don't need 63 million non-farm enterprises. … they keep our unemployment at 5% but they keep our poverty alive because they don’t have the productivity to pay the wage premium,” he says.
He adds, institutions, formality, urbanisation, human capital, financialisation are all technologies in the early stages of a country of our scale and size.
So, what can we reasonably expect in 2019?
“Formalisation, financialisation, urbanisation, human capital take a long time to play out. Whoever comes back is unlikely to be that ideological about things if they are improving, which I think they are.
“This racket you are hearing about jobs is that Indians are tired of self-exploitation. Small farms, where you don't have to pay yourself a salary, or rent, has been India's shock absorber for the economy and society since Independence. But Indians are now tired of that. They are saying, I don't want a minimum wage, I want a living wage. Why should I accept subsistence self-employment? Politicians have lost that shock absorber of self-exploitation by Indians.
“India has had a jobs emergency—which is a poverty emergency—since Independence. That has not changed, our patience with the same problem has come down. And I think that's fantastic. It's a rocket fuel for change. Societies only change when your aspirations far exceed the system's current ability to deliver it.”
