Researchers, Ameya Pratap Singh and Urvi Tembey, have pointed out that way back during the 1980s, China, under Deng Xiaoping had liberalised labour laws by abolishing job security, centrally administered wages, and state appointment of staff and managers. These were subsequently followed by business-friendly labour laws that allowed contractual appointment of low-cost labourers whose share in China’s workforce increased from 4 per cent to as much as 39 per cent between 1985 and 1995 as a consequence, which was a major factor behind China’s astounding rise as an economic behemoth.
Even in Bangladesh, consent of 30 per cent of the staff is needed for forming a trade union, which is high by any standard, unionisation is legally impermissible in export-processing zones and strikes are forbidden for the first three years in factories set up with foreign collaboration. Vietnam’s new labour policy to take effect from 2021 allows complete liberty to private companies to set pay scales for their workers, gives them more flexibility in dispute settlement and requires independent trade unions to operate only with permission from the State.
As we have learnt after 1991, deregulation creates jobs and expands industrial activity, as they have in Bangladesh and Vietnam – an average textile firm in India has 240 employees but 797 in Bangladesh. Our militant trade unionism has destroyed many industries and driven away many others from states like West Bengal, UP etc. Kanpur, once known as the Manchester of India today has most of its industries in ruins. In 2015, as many as 600 textile mills were closed in India due to strikes and lockouts.
Naturally, a foreign investor wouldn’t easily be attracted to India to set up an industry. Deregulation also improves wages, and the higher real labour wages Bangladesh has helped that country to outperform India in respect of health and other social parameters. Other studies have also pointed out that small private firms grow after deregulation, as in Rajasthan. China has placed many restrictions on foreign investors ~ they must employ a Chinese partner but cannot avail Chinese finance, and have to export a substantial part of their output, etc.
Yet China has been attracting foreign investors by the hordes because they can use cheap Chinese labourers as they please, who do not have trade union rights any more than the basic human rights in a totalitarian country, without any fear of state interference, unlike in India. The Chinese model has led to the exploitation of workers and a decline in their social welfare while the industries harvested the profits. Large scale migration of workers from the public to the private sector is nothing new.
It has happened in UK and many other countries in the era of privatisation and globalisation. But the Chinese model has also generated substantial additional employment, redeployed labourers who had lost their public sector jobs as a result of privatisation and restructuring of public enterprises while forcing them to upgrade their skills. The result was a substantial increase in labour productivity and wages. All this while, India remained trapped in its antiquated labour market characterised by low productivity and low output leading to low wages which feed each other in a race to the bottom down a slippery slope.
Research clearly points that both in the developed and developing economies, GDP growth and labour productivity always go together. India’s labour productivity growth peaked at 10.2 per cent in 2010 when the GDP was growing at around 9 per cent; but the productivity has been declining ever since, and now stands at only around 5.5 per cent. This is too meagre to raise GDP and the living standards of people including those of labourers, and this was before the corona crisis.
Labour productivity in India in terms of GDP per hour stood at only $21,181 in 2019, measured in PPP terms at 2011 constant prices as per ILO data, in comparison with $ 116,384 in the USA, $ 96,446 in France and $ 32,002 in China. In certain sectors like construction (0.4 per cent) and agriculture (3.2 per cent), Indian productivity is abysmally low. Low productivity points to inefficient allocation of jobs in the economy, among other causes. There is no doubt that the plight of farmers can only be improved by pushing workers from agriculture to non-agriculture sectors.
Their income cannot be augmented without reducing the size of the labour force employed in agriculture, which calls for serious reforms of this sector too. Some states again have initiated some baby steps in this regard. The new labour laws passed by UP, MP and Gujrat will certainly lead to more contractualisation and casualisation of labour. By curtailing the role of the trade unions, they might increase their vulnerability to exploitation by industrialists without adding much to productivity.
An earlier study by ILO covering 162 countries had failed to find any correlation between trade union rights and trade competitiveness. Indeed, in non-unionised USA and highly unionised France, the difference in labour productivity is insubstantial. Deregulation has also not worked everywhere in increasing employment and had provoked widespread unrest in some countries ~ the 2016 labour riots in France in response to the government’s proposals allowing companies to negotiate their 35- hour maximum working week are still vivid in people’s memory.
But the problem is not unidimensional and there are myriad issues. Even in the formal sector in India, a large number are still employed on a casual basis. A large part of the work is also outsourced over which neither the state nor the entity exercises any control and worker-exploitation is rampant. There is also increasing wage differentials and rising inequality in remuneration between the managers and the workers, as between the agricultural and non-agricultural workers.
Globalisation has made Indian industry capital intensive, and the traditional labour-intensive sectors like jute, textiles and leather have been languishing for long now. Besides, the preponderance of the informal sector also prevents other drivers of productivity ~ technological diffusion and innovation ~ which remain limited to the frontline companies only. Today capital is increasing its share and labour is losing its own; unless productivity increases through higher application of technology, this situation cannot be reversed. This structural lopsidedness cannot be reduced without reskilling the workers for which capital and technology are essential.
This would entail transformation of the first M (Micro) in MSME to the second M (Medium), that is, shifting the informal sector into the formal sector by scaling up, for which these laws may prove to be a great boon, provided also that they are accompanied by the necessary safeguards against exploitation of labour. This can happen only by making the labourers a stakeholder in the process of this transition. It needs to be remembered that the world actually runs on the basis of trade-offs. Economists talk about Pareto optimality, a feature of efficient markets when it is no longer possible to improve the position of some without worsening the position of others. This is when most resources are employed optimally and workers are rewarded according to their marginal contribution in the production process in a competitive market, ensuring equity.
Reality, however, is far more complex. Even before the current crisis was triggered by corona, the global economy was slowing down, including in India. Growth in credit, consumption and export were all decelerating fast, and employment was at an alltime low. Firms were competing by investing in technology and not on labour, which remained characterised by low wage and unfavourable working conditions in the absence of any standards. Increasing informalisation of the economy was taking place in which migrant workers were playing the key role.
Today with millions of them trudging home ~ and they may not return soon after the harrowing experiences ~ industries, as and when they reopen, are likely to face acute labour shortages leading to a steep rise in labour wages. Wellpaid labour is always an asset and studies show that higher wages invariably lead to higher productivity. But along with higher wages must come higher social security. Empowering the management will probably mean curtailing the rights of workers, but in the trade-off, after all the workers might stand to gain in the long run.
It can be hoped that their working conditions, at least in respect of access to quality healthcare, sanitation and hygiene will improve and contract labourers will be compensated reasonably in the event of future layoffs. This is the least the governments can ensure. The architecture of the labour market is changing and in this change, the labourers must be reckoned as important stakeholders, especially when their vulnerabilities are at the worst. More than at any other time in the past, they need a safety net and support from the government.
(The writer is a commentator. Opinions are personal)