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CIAO DATE: 07/05
Jobless Growth and Unemployment: A Global Phenomenon
M Victor Louis Anthuvan
Unemployment is rising worldwide, generally unmitigated and, increasingly made worse by “jobless growth”. This alarming contemporary phenomenon which liberal economists, after M. Friedman have accepted as an inevitable corollary of technological progress spells the doom of the deregulated capitalist system as it operates today.
Rising Unemployment From the Eighties
The world is suffering the worst global employment crisis since the Great Depression of the 1930s, according to the Inter-national Labour Organisation (ILO). For the first time since the Great-Depression, the industrialised nations, as well as developing nations, are facing long-term persistent unemployment.
On February 8, 1994, the Wall Street Journal wrote on the first page, “Unemployment rises around the world, and the outlook remains dim. More people are out of work than ever before.” According to the ILO, some thirty per cent of the world’s labour force is unemployed or under-employed: 120 million people are unemployed and another 700 million are under-employed, says Ali Taqi, the ILO Chief of Staff.
The New York Times reported in that same year (March 14, 1994) that “Seen from Europe, unemployment is the biggest security problem facing the western world today, and the G-7, is simply acknowledging that. Because if we don’t find answers to that problem, our entire system will collapse on itself.”
Since then, the trend has only accelerated with companies compulsively downsizing in the name of efficiency and productivity. The dimensions of what Marx called the reserve army of the unemployed are now staggering. According to the ILO an estimated forty-seven million additional job-seekers enter the already overcrowded labour market every year. Approximately thirty-eight million of them are in Asia, Africa, and Latin America and Asia is struggling with chronic unemployment problems.
From the earliest days of political economy, it was held that over-production and unemployment meant that some-thing was wrong, that the economy was in disequilibrium. Either the Government was playing fast and loose with the money system or prices and wages had got out of line. In the 1930s, Keynes put forth a radically new idea. He stated if the Government could arrange for a rise in effective demand, the economy and employment would bounce back on the track. All that is ancient history. The new economic orthodoxy has taken a 180 degree turn and according to the dominant trend of thought, mass unemployment is a necessary condition for the economy to be in equilibrium. In the absence of sufficient unemployment, inflation will accelerate and financial markets will be disrupted.
Unemployment—Is It Natural?
Milton Friedman, in his presidential address at the eightieth annual meeting of the American Economic Association (American Economic Review, 1968) coined a term for this new orthodoxy. There exists, he explained, a “Natural rate of unemployment”. By this he meant a rate that is built into the structure of the economy. If that is indeed the case, then there is nothing that can be done about it. How much can be tolerated as natural rate of unemployment?
This explanation is amazing. Even in the US, during 1960s, the average annual rate of unemployment was 4.4 per cent while consumer prices increased three per cent per annum. Later on the average annual rate of unemployment grew to 6.2 per cent but the prices shot up by 7.2 per cent a year. Moreover, wages, the presumed root of inflation, actually declined throughout the period. Average real weekly earnings in private non-agricultural industries in the US (in 1982 dollars) were $300 in 1969, fell to $264.22 in 1990 and have kept on decli-ning ever since.
These facts will not stand in the way of an ideology which holds (i) that a high level of unemployment is due to the presence in the labour force of workers, who are prone to unemployment and (ii) that the main cause for inflation accelerating is a leap in wages in a tight labour market. The former is nothing but a smokescreen to divert attention from the market economy’s failure to create jobs, while the latter turns reality on its head. What happens in a spiralling inflation is not prices trailing wages, but the other way around: wages struggling to keep up with prices. Furthermore, all this ideological mismatch ignores that we are living in a period of monopoly capital.
Unemployed–Reserve Labour and Wage Levels
Many regions of the world, although not actively inserted into the global cheap-labour economy, nonetheless contain important reserves of cheap labour which play an impor-tant role in regulating the costs of labour at a world level. If labour unrest, including social pressures on wages, occurs in one Third World location, transnational capital can switch its production site or subcontract to alternative cheap labour locations. In other words, the existence of “reserve countries” with abundant supplies of cheap-labour tends to dampen the move-ment of wages and labour costs prevailing in the more active (cheap-labour) export economies (Michel Chossudovsky, The Globalisation of Poverty, The Other India Press, 1997).
In other words, the determination of national wage level in individual developing countries not only depends on the structure of the national labour market but also on the level of wages prevailing in competing cheap-labour locations. The level of labour costs is therefore conditioned by the existence of a “global reserve pool of cheap labour” made up of the “reserve armies” of labour in different countries. This “world surplus population” conditions the international migration of productive capital in the same branch of industry from one country to another country.
The UNDP Human Development Report in 1992, pointed out the main reasons why the world market would not benefit the poor coun-tries. The report stated, “Where world trade is completely free and open—as in financial markets—it generally works to the benefit of the strongest. Developing countries enter the market as unequal partners—and leave with unequal rewards.”
The Human Development Report of 1993 pointed out, that “many parts of the world are witnessing a new phenomenon, jobless growth”. Even when the output increases, increase in employment lags behind. Even the industrially developed coun-tries have been experiencing this phenomenon. The report stated, “the Industrial countries managed a fairly respectable output growth during 1973–87, but in France, Germany and the United Kingdom, employment levels actually fell”.
In many cheap, labour exporting economies, the share of wages in GDP declined dramatically in the course of the 1980s. In Latin America, for instance, the structural adjustment programmes were conducive to a marked contraction of wages both as a share of GDP and as a percentage of value added in manufacturing. While employee earnings in the developed countries constitute approximately forty per cent of value added in manufacturing, the corresponding percentage in Latin America and South East Asia is of the order of fifteen per cent (Monthly Review, 46, [7], December 1994).
Similarly, the move by many countries towards free-market systems may also have contributed to rising unemployment. According to the ILO, “Workers have had to bear a disproportionate amount of the burden that many nations have endured as they have advanced towards free-market economies over the past fifteen years, which is reflected in their high numbers of unemployed and under-employed. The world needs an international strategy”.
Within the next twenty years, throughout the underdeveloped world, more than 750 million men and women will reach the legal working age and will enter the labour market, adding to the 700 million people currently unemployed or under-employed in poor countries. In those countries, where the population growth rate is high, the labour pool is growing at the rate of three per cent per annum.
“The global job crisis is so profound and its inter-related causes are so little understood that the best of the currently fashionable strategies for creating jobs just nibble at the problem; others likely to make it worse” (Monthly Review, 46, [7], December 1994). From the point of view of capital, the national reserves of labour are integrated into a single international reserve pool where workers in different countries are brought into fierce competition with one another. World unemployment becomes a “lever” of global capital accumulation, which regulates the cost of labour in each of the labour economies. Mass poverty regulates the international cost of labour. Wages are also conditioned at the level of each national economy, by the rural-urban relationship, namely, rural poverty and the existence of a large mass of unemployed and landless—farm-workers tend to promote low wages in the urban manufacturing economy.
The degree and pace of technological change—in industry, services, computers, biotechnology and especially in communications has rendered some jobs obsolete and drastically transformed the way that work is structured. Second, the globalisation of the economy and the mobility of manufactur-ing capacity, capital goods, services and even people, mean that countries and industries are now facing unprecedented competition. One of the results, according to the ILO, is growing pressure on firms to increase productivity by reducing labour costs and investing in new technology.
The high-output, hi-tech economy eats away at labour and makes its consumers redundant. An economic and social earthquake of unheard of dimensions is now looming on the horizon. In the three years from 1991 to 1994, alone more than a million jobs were lost in West German Industry (Neu Kronenzeitung, March 14, 1996). And Germany is still not badly off in international terms. Elsewhere in the Organisation for Economic Cooperation and Development (OECD) the number of well-paid jobs shrank even faster. From the United States to Australia, from Britain to Japan, mass economic prosperity is rapidly disappearing in the foremost countries of the world. The global forces of integration, communication and technological advance have proceeded apace, bringing significant advances to some, but they have passed many others by. Private capital flows now dominate official flows in the world, but while they reinforce positive economic trends they either neglect or punish countries with weak economic conditions.
The Indian Scenario
The number of unemployed was twenty-three million during the Eighth Five-Year Plan and has since reached fifty-eight million. More than thirty million educated youth and four million graduates are jobless. An additional eighty million people had no work throughout the year.
Agricultural labourers do not get work year-round. Gross irrigated area as a percentage of gross cropped area is only thirty per cent. This means that the farmers cultiva-ting sixty per cent of land remain involuntarily unemployed for four to six months.
The planners in India held the view that economic growth would automatically lead to creation of jobs. In the recent past, our experience has not proved this. There has been deceleration in the growth of employment in spite of the accelerated economic growth. This is because there has been a steady decline in the elasticity of employment almost in all sectors except in construction.
It is clear from the table below that employment need not grow whenever there is growth in GDP. The employment elasticity has been declining. Hazari and Krishnamoorthy have clearly explained the conflict between growth and employment inherent in the Mahalanobis strategy which guided India’s development efforts (Misra and Puri, Indian Economy, Mumbai: Himalaya Publishing House, 2001). In the manufacturing sector, decline in employment elasticity has resulted from a rapid decline in employment elasticity of large industry. In the last decade, the accelerated growth in the industrial sector, parti-cularly in the consumer durable industries has failed to generate corresponding employment due to the absorption of labour-saving technology.
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(actual) |
(projected) |
| Agriculture |
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| Mining and quarrying |
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| Construction |
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| Electricity |
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| Wholesale and retail trade |
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| Transport, storage and communication |
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| Financing real estate |
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| Social services |
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| All Services |
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Sources:Ninth Five-Year Plan 1997–2002, Vol. l, p. 189.
Today the working class movement is facing massive pressures from different sides. While organised labour finds itself absolutely cornered, there is a massive growth of unorganised work force engaged in the informal sector of the economy. During the Bombay textile strike, the market was flooded with textile goods.
This was possible because today more than forty per cent of the small-scale units in the country are subsidiaries of the large industries. Compared with forty million workers in the organised sector, the work force in small-scale industry is about five times, which is 200 million. The large number of these workers who put in 10–12 hours of work daily get paid, on an average, at one-third the rate of what workers in the organised sector earn. The following issues have been thrown up and we should examine the recent policy changes.
Growing Industrial Sickness and Unorganised Labour
In the old mills, the entire production from spinning to weaving, was done under the same roof. But today several units specialise in any one segment of the production process. Hence if one unit of weaving closes down, the other is readily available to do the job. For instance, it was commonly known that during the Bombay textile strike, the textile production was taken care of by small-scale units on behalf of the leading mills.
It is estimated that more than 700,000 units all over the country were lying sick in August 2001, rendering hundreds of thousands of workers jobless. This phenomenon of industrial sickness has emerged as one of the biggest threats to the workers. Their very source of survival is at stake.
The main reason for industrial sickness is believed to be the stagnation of the local market, and industries not being capable of competing in the international market due to their poor quality product and high cost. To be able to survive in the local market, most of the industries have chosen the short cut of small-scale industries. Besides, production in small-scale industries is cheap due to very low labour cost, almost no overhead cost, and no cost of implementing any rule or regulation on workers’ safety and health. As a result, a number of big units have started their own small-scale units or have a contract with existing ones. With a growing small-scale sector, production in big units has become less attractive to the industrialists.
Today, the growing size of the unorganised workers in small scale units has eroded any bargaining power left with the organised sector workers. Organised workers on the one hand are fighting job losses due to new technology, plant closure, volun-tary retirement scheme, and on the other, losing jobs to workers in the unorga-nised sector (who are cheap to hire and have no bargaining power at all).
Job Loss: Modernisation and Automation
Any technological upgradation, especially industrial technology, always keeps in mind two things. One is to speed up the process of production and the second is to reduce the cost (which is most often the labour cost). The introduction of new technology in Indian industries can be a threat to workers’ right to work.
When we look at the current industrial policy, it becomes evident that the government has given a free hand to industrialists to exploit the vulnerability of labour. This opportunity has been given in the name of productivity, market-oriented economy, cost reduction, etc. One of the most significant effects of the new industrial policy is going to be on the jobs of millions of workers. The threat to existing jobs will add up to the already swelling army of jobless people in this country. Dr L. C. Jain, former member of the Planning Commission, observes, “The gravest crisis the Indian political, economic and social order faces today is the mounting unemployment. Nothing exposes the barrenness of pure growth rate-based development strategies than the empirical results of the past decade in India.”
The voluntary retirement scheme is introduced and the workers are reduced by giving the alibi of surplus workforce. However, most of the workers are again taken back in the company as contract workers with one-third to one-half of the wages paid to permanent employees. It proves that the surplus labour is not surplus in reality but managements are not interested in paying the wages which are due to permanent workers, especially when contract labour for the same job is available on depressed wages. Similar trends are visible in public sector industries also.
By one estimate, 6.6 million jobs were lost during the first year of what goes by the name of economic “reform”. In 2000–1, one million jobs were destroyed in the organised sector through Voluntary Retirement Schemes (VRS), retrenchment and plant closure. Another negative impact on workers is that increasin-gly companies are refusing to come to the negotiation table for revision of wage agreements.
Erosion and the Rights of Workers
As only small number of workers are engaged in highly protected segments, it leaves an overwhelming majority of workers to work in insecure and unprotected conditions in the unorganised sector. This is part of the basic document on labour policy and it argues that the protection to the small number of workers should be withdrawn. In the name of unorga-nised sector, they want to disorganise the organised workers. In no way is this move going to help the workers of the unorganised sector. On the contrary, there will be more and more such areas where workers will be forced to work in inhuman conditions with meagre wages and no protection from harassment by the management.
In India, the huge increase in university graduates has not been equalled by an equivalent rise in the number of jobs to absorb them, resulting in a large number of unemployed educated.
The organised sector is not expanding—in fact it has started to contract; public investment in agriculture as a proportion of GDP has been falling, and cottage and small-scale industries are not growing. Rural infrastructure has not been expanding. These reasons are responsible for unemployment, apart from natural disasters and slow growth in agriculture.
The economy’s failure to create jobs has been obvious for a decade. During the last thirty years, India became the only deve-loping country that systematically ignored the creation of jobs. Employment in the state sector grew from seven million in 1961 to 11 million in 1971, fifteen million in 1981 and nineteen million in 1991. Then, after the crisis of 1991, it stopped growing. The explosion in private sector growth has only taken up some of the slack.
Overflowing Granaries and Empty Stomachs
Sixty-one million tonnes of grains in the government kitty and 300 million underfed people—this is the paradox that characterises Indian society today. The holding cost of this stock will exceed Rs.12,000 crore (or about $3 billion). Why don’t we use the bulging stocks of grains to create physical and human assets through programmes like “food for work” to build rural infrastructure and “food for education” to educate the rural masses? Why is it that we have failed to take advan-tage of the surplus food stocks lying in the godowns?
The governments have to create conducive environment for the poor to get jobs to build infrastructure. India has enough food and surplus labour. The institutional structures should be used to implement schemes in every corner for rural housing, desilting canals, rejuvenating forests, and finally feeding the minds through midday meals for school children. Food supply alone will not combat hunger without adequate employ-ment creation.
The End of Work
Organised labour is under attack. “downsizing”, “right sizing”, “outsourcing” and “sub-contracting” have come to stay and casualisation of labour is taking place. Wages are falling, permanent workers are dismissed and they are appointed as temporary workers. Labour laws are repealed or amended so as to make labour “flexible”. Social security measures are criticised and dismantled while “capital” is given more and more concessions and tax exemptions.
In the twenty-first century, twenty per cent of the population will suffice to keep the world economy going. This twenty per cent will actively participate in life, earnings and consumption. And the rest? Will eighty per cent of those willing to work be left without a job? “Sure”, says Jeremy Rifkin, author of the book The End of Work.
Unemployment means the denial of right to live, to the poor, particularly in the developing countries where the social security system is absent. Unemployment also implies the denial of human rights to the poor who have nothing else to fall back on except their human capital.
Finance capital which is going round the world at the rate of $1.5 trillion per day is not entering into the real sector or real economy and it has been strengthening the hands of speculators. Speculation has already caused major financial shocks in Mexico, Thailand, South Korea, Indonesia, Russia, Argentina and Turkey. Wherever there has been a financial/currency crisis, labour have been hit by unemployment and price rise. “Flexibility” of the “labour market” has already resulted in temporary appointments, long hours of work, low wages and the absence of welfare measures.
The world has deep poverty amid plenty. Of the world’s six billion people, 2.8 billion—almost half—live on less than $2 a day, and 1.2 billion—a fifth—live on less than one dollar a day, with forty-four per cent of these people living in South Asia. While in rich countries fewer than five per cent of all children under five are malnourished, in poor countries as many as fifty per cent are. This destitution persists even though human conditions have improved more in the past century, than in the rest of history—global wealth, global connections, and technological capabilities have never been greater, but the distribution of these global gains is extraordinarily unequal. The average income in the richest twenty countries is thirty-seven times the average in the poorest twenty—a gap that has doubled in the past forty years according to the World Bank’s, World Development Report (2001).
The World Development Report (1990) proposed a two-part strategy: (i) promoting labour-intensive growth through economic openness and (ii) investing in infrastructure and basic services for poor people in the areas of health and education. The World Development Report (2001) has some policies to suggest: Expand the economic opportunities for the poor by stimula-ting overall growth and by building up their assets and increasing the returns on those assets. Facilitate empowerment by making the state institutions responsive to poor people. Enhance secu-rity by reducing the vulnerability of the poor people to ill health, economic shocks and natural disaster.
Jobs should be created for the poor; credit, roads and electricity should be provided for the benefit of the poor. Water, sanitation and health services should be provided to the poor. The participation of the poor should be strengthened in political processes and in local decision-making. Social and institutional barriers should be removed. The security of the poor should be enhanced by reducing their vulnerability to economic shocks, natural disasters, ill health and personal violence (ibid.).
Core policies and institutions should be built for creating more opportunities to involve complementary actions to stimulate overall growth; make markets work for poor people, and build their assets, and address deep-seated inequalities in the distribution of endowments such as education (ibid.).