A new labour productivity triad

A new labour productivity triad

In the late 1970s, China decided that the best way to reduce poverty was by exporting manufactured goods. So it created a business environment where one could take land without asking, true labour unions were prohibited, wages were capped, people needed licences for urban migration, multinationals were serenaded and there was over-investment in world-class infrastructure. Given that the size of China’s economy recently crossed Japan’s, the results are obvious.

India’s performance at exporting goods hasn’t been exciting, and we need to fix our low investment and employment in organized manufacturing for exports. However, while the jury is still out, there is interesting early evidence on whether India’s domestic manufacturing and consumption can be called a model and will be as effective in reducing poverty as China. As my favourite communist said, it does not matter if a cat is black or white if it catches mice.

Political, economic, non-governmental and business actors all seem to agree that the only sustainable way to reduce poverty is through improving individual productivity. I will argue that the last two political reform triads of roti-kapda-makaan (food-clothing-shelter) and bijli-sadak-paani (electricity-roads-water) did not increase individual productivity as much as a current triad—the unique identity (UID) database, cellphones and bank accounts— will.

There are two reasons for this. The first is obvious: the two earlier triads were elegantly and intellectually conceived, but poorly executed. They failed because of the small role allowed for the animal spirits of private entrepreneurship. Consequently, the long tail of India’s geography of work—more than 4,000 towns and 600,000 villages—did not become fertile soil for non-farm job creation of any globally competitive standard.

But India’s labour market has transformed substantially over the last 25 years. In fact, to paraphrase Rama Bijapurkar—we now have three Indias—India I is lucky; India II serves India I; and India III is unlucky. I am intimately familiar with the first India because I belong to it—I chose my parents wisely: They live in a city, taught me English, got me an education, fed me and kept me healthy. I am now intimately familiar with the third India because my livelihood depends on creating transitions or pathways for labour market outsiders—less-skilled, less-educated people trying to move out of agriculture or subsistence self-employment, people from small towns, women coming back from a maternity break, and so on. But I only became aware of the reality of India II on my latest trip to my parents in Kanpur.

Kanpur has almost no organized employment. But while transferring my mother’s phone number directory to a new phone, I found she had two different numbers each for a generator mechanic, plumber, water tanker, electrician, driver, carpenter, compounder, milkman, florist, air conditioning mechanic, as well as for a security firm, housekeeping, laundry, vegetable delivery, grocery delivery, medicine delivery, fridge service, mobile recharge and much else. My mother insisted that she had negotiated a two-hour turnaround —we corporate types would call it a service level agreement—with all these people: If the primary vendor goofed up, she could always call the secondary one.

As you can see, India II is highly labour-intensive. It is also, unfortunately, unorganized—India UnInc., as Professor R. Vaidyanathan of IIM Bangalore calls it. But the new triad of UID-cellphone-bank account substantially increases its productivity.

More importantly, this triad enables individual transitions from India III to India II, and from India II to India I. Cellphones massively enable personal productivity. Third-generation (3G) mobile services, the UID project and a mindset change at the Reserve Bank of India (RBI) will enable mobile banking. UID will allow employee benefits such as pensions and health insurance to be linked to a person rather than an employer. It will enable the creation of a loan market for vocational training, or government skill vouchers, that will enable workers to upgrade their skills. Most importantly, UID will hopefully convince RBI to replace its good-intentioned but disastrous know your customer (KYC) norms that lock out migrants and poor people from opening bank accounts. For them, KYC norms are “kick your customer" norms.

Our demographic dividend hoopla has focused on more youth entering the labour market. But we won’t reduce absolute poverty unless we raise the productivity of existing workers and informal employers. The biggest innovations around UID usage will emerge from private energy in financial services, telecom, education, employment, employability, healthcare, services and benefits. This grass will grow at night while the government sleeps. In fact, UID has the potential to create or enable an application library that can beat the Apple App store in terms of impact.

So, unlike the triad of bijli-sadak-paani, where the state played the pivotal role in delivery, regulation and financing, our new triad of UID-cellphone-bank account will be enabled by government regulation and supervision, but will largely be driven by private entrepreneurship. This triad is India’s most effective public-private partnership; it not only gets government money to those who deserve it, but also increases the productivity of our labour force gracefully, substantively and immediately.

Manish Sabharwal is chairman,TeamLease Services

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