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The fundamental problem that must be solved immediately for the Indian economy to recover from the lock-down is how to employ more people and in more secure jobs. Policymakers were struggling with this even before the Covid pandemic struck. In their academic debates, some economists had valiantly defended the government by doubting, and even hiding, the statistics of unemployment. However, with pictures of thousands of workers abandoned by their employers, who had lost the means to support themselves and their families, now struggling for food and shelter, the need for debating statistics has passed.
In India, unemployment is not merely a pandemic problem; it is a chronic, structural problem. While government is busy with providing immediate relief which it must, it is imperative that policy makers step back to find a new approach to growth and employment to replace the one that has failed.
In India, unemployment is not merely a pandemic problem; it is a chronic, structural problem.
The Economist points out that while the pandemic has devastated economies around the globe, shutting businesses and slowing spending, the fallout has been much more severe in some countries than others. Nowhere is this more apparent than in unemployment figures in the United States and Japan. The U.S. jobless rate increased four-fold from February to April to 15 per cent, whereas in Japan it barely budged to 2.6 percent.
The reason is, The Economist says, “A fundamental divergence in attitudes and policies towards labour. In the United States, when the economy gets bad, people get laid off one after the other, and the unemployment rate shoots up. But for Japanese employers, laying people off is difficult both psychologically and practically. Companies in Japan are more likely than their American counterparts to prioritise employees’ interests over those of shareholders, focusing on the sustainability of their business rather than maximising growth. Naohiko Baba, chief Japan economist at Goldman Sachs, says, “During good times, companies accumulate profits on their balance sheets by restricting rises in worker’s salaries. During bad times, companies refrain from firing redundant workers by using retained earnings accumulated during good times, so that people can have secure jobs.” Violating that social contract can have severe reputational costs. Moreover, pro-labour attitudes have been reinforced by strong legal precedents built up since the end of World War II that prevent companies from laying off employees unless they can demonstrate they have no other choice.”
Employers must change their attitude towards their workers. They must not treat them as undesirable costs, but as necessary assets of their enterprises.
The Indian government has pleaded with employers to pay their employees’ wages during the lock-down, even when their businesses are closed. This was a complete turn-around from its earlier stance of weakening labour laws to make it easier for employers to trim their numbers of workers to improve their companies’ profits even when the economy is growing. The Indian economy is at cross-roads now. Employers must change their attitude towards their workers. They must not treat them as undesirable costs, but as necessary assets of their enterprises.
The philosophy Japanese employers have followed since the Second World War is that humans are the only ‘appreciating assets’ of any enterprise. The value of machines and buildings depreciates with time, whereas the value of human assets can increase. This philosophy created the Japanese industrial miracle. Japan, which did not have any raw material assets, had to import petroleum for energy and its chemical industries, and iron ore and coal for its steel industry. Nevertheless, Japan became the world leader in many industries within two decades—in steel, chemicals, ships, machinery, automobiles, consumer durables, and electronics too. The common resource in all industries was Japanese workers.
Japanese employers and managers guaranteed their workers life-long employment and invested in continuous upgradation of their skills.
And the catalytic ingredient which unlocked the potential of Japanese workers was the orientation of Japanese employers and managers to their workers. They guaranteed their workers life-long employment and invested in continuous upgradation of their skills. Managers and workers worked together to improve production processes, improve quality, and reduce costs, in a quest for continuous improvement of their company’s international competitiveness. This was a win-win social contract between workers and employers. Workers had stable sources of incomes and Japanese firms grew.
In the early 1990s, when Sony, Matsushita, and other Japanese electronics companies, were transforming the consumer electronic industry with a slew of innovative products, like the Sony Walkman, the University of Southern California at San Diego did a benchmarking study for North American electronic companies of conditions for innovation. The hypothesis was that, whereas the Japanese system may be good for continuous improvement of costs and quality in stable production process, it would hamper product innovation, which is a dynamic process requiring greater freedom for managers.
Workers in American companies were fearful of introduction of new products because, with new equipment and new skills required, they could be made redundant.
The insight from the study was counter-intuitive. It revealed why American companies, with excellent R&D labs (and scientists who won Nobel prizes), could not get new products to market as fast as the Japanese companies could. Workers in American companies were fearful of introduction of new products because, with new equipment and new skills required, they could be made redundant. Whereas, in Japanese companies, workers welcomed new products. Their jobs were secure; and they would learn new skills and their companies would prosper too.
US employers do not like labour unions because they hamper their freedom to set the terms of employment. Whereas laws in Japan and Germany, both countries whose manufacturing industries seem to grow stronger through economic recessions, support strong unions. Workers are not burdens and unions who represent them need not be obstructions.
Employers who complain about the poor skills of Indian workers and their poor work culture should look inwards too.
India has a surplus of human power, which could be its source of competitive advantage provided employers in India change their attitudes towards workers and labour unions. Employers must stop pressing government for changes in laws to give them more freedom and workers less security. Employers who complain about the poor skills of Indian workers and their poor work culture should look inwards too. For India to progress, employers’ attitudes towards workers must change, and their management skills must improve. India’s workers and unions must be engaged as equal partners in India’s quest for sustained prosperity for all Indian workers and citizens.
(The writer, a former member of the Planning Commission and former chairman of BCG India, is Chair of HelpAge International. His latest book is ‘Transforming systems: Why the world needs a new ethical toolkit’)