Notion that India has peaked in manufacturing & IT employment is at best premature, at worst, dishonest
Einstein said that if you judge a fish by its ability to climb a tree, it will live its life believing it is stupid. Only 0.7 per cent and 11 per cent of India’s labour force work in information technology (IT) and manufacturing and yet, many pundits predict that India’s IT and manufacturing employment has peaked — let’s call it the jobs doomsday prediction — because of automation, robots, the immigration backlash and anti-globalisation driven-trade barriers. I believe this prediction is wrong for a low-income and low-productivity country like India and am willing to wager that in five years, IT employment will rise from the current 3.5 million to 6 million; in 10 years, manufacturing employment will rise from 10 per cent to 20 per cent of the labour force. I’d like to make the case that this jobs doomsday prediction is shallow, ahistorical and impulsive.
The jobs doomsday prediction is shallow because it blindly extrapolates the labour market context of a rich country like the US (with a per capita income of $45,000) to a poor country like India (with a per capita income of $1,500). America is rich because it has highly efficient and productive land, labour and capital markets. India is poor because 50 per cent of our labour force produces only 11 per cent of our GDP and we only have 18,000 companies with a paid-up capital of more than Rs 10 crore. Preventing people from falling into poverty (the US’s problem) is a more difficult problem than pulling people out of poverty (India’s problem).
The jobs doomsday prediction is ahistorical because it suffers from the “presentism” disease identified by historians as a belief that the times we live in are unique. History acknowledges that technological change is powerful but it takes more time than people think. Carlota Perez’s wonderful book Technological Revolutions and Financial Capital says “The full fruits of the technological revolutions that occur about every half century are only widely reaped with a time lag. Usually decades of turbulent adaptation and assimilation elapse, from the moment when the set of new technologies, products, industries and infrastructures make their first impact to the beginning of a ‘golden age’ or ‘era of good feeling’ based on them”. Technological change is not a bulb that goes on but a gentle sunrise.
The jobs doomsday prediction is impulsive because it does not fully process the implications of India’s huge domestic market for manufacturing and the hard-to-replicate ecosystem for India’s IT industry. India retained the top spot globally for inward Foreign Direct Investment because the $60 billion is clustered in manufacturing for areas where domestic consumption is reaching critical mass; Make-in-India could be Make-for-India till the global storm passes.
India’s IT industry has network effects in software that parallel China’s in hardware; we produce more engineers than the US and China combined. Also, the passing shower of H1B visas pales compared to the climate change in technology — all companies are technology companies, all hardware has a layer of software, data and smartphone costs are cratering, etc. And Bangalore and Hyderabad are probably the only cities in the world where you could hire 1,000 Hadoop programmers in a week.
It’s not my case that India is immune to the march of technology or that India’s economic renaissance is a given; just that since we are so poor and come so late to the productivity party, our solutions are more obvious and lower-hanging. Wutburger — the German compound word for angry citizen — is a Western political reality because it’s unclear what can be done about technology deflating employment in countries used to high incomes (video rental chain Blockbuster’s 83,000 employees have been replaced by 2,000 people at Netflix).
Technology’s deflation does raise the question of whether India will ever be able to get to the per-capita levels of America, but India is far from the productivity frontier, policymakers finally have a 10-year plan to create a middle class of 800 million, and many Indians believes that the next generation will have better lives than them. India is more than a country; it is a continent that may already have the world’s highest population. A new book called Scale by Geoffrey West is a wonderful meditation on the non-linearity and exponentiality that arises from size. Scientists experimenting with drugs killed the elephant Tusko because the 297 mg dose they injected was calculated by extrapolating from earlier research on cats. Actually, despite the huge difference in mass, non-linearity meant that the right dose for the elephant was only a few mg more than the cat.
India is an elephant; most data and anecdotes for the jobs doomsday prediction come from countries that are, relatively speaking, cats, if not mice (Rajasthan is bigger than Germany and UP has more people than Germany, France and the UK combined). India’s scale has delivered in the past; remember how the Green Revolution trumped Stanford economist Paul Ehrlich’s suggestion in the 1960s to let Indians die of starvation because the world was running out of food?
We optimists know that pessimists will always get more intellectual respect because they sound wiser. And only a fool would believe India will create enough good jobs without finishing the huge tasks of building infrastructure, reducing regulatory cholesterol and raising human capital. But the jobs doomsday prediction of India having peaked in manufacturing and IT employment is at best premature, and at worst, dishonest. And therefore, it is crucial for policymakers to realise that if we lose our 800 million middle-class-creation battle, it will not be because of automation or protectionism but our own inability to make our land, labour and capital markets more productive.