How can India create Employment in the digital age?

The global window for export- and manufacturing- led development is closing

Marc Saxer Delhi

Ever since the Second Industrial Revolution started to peter out in the 1960s, global capitalism has faced a crisis of demand. Ironically, the strategies put in place to restore profitability largely aimed at the supply side: 1) the Rationalisation of production through technological automation aimed at increasing efficiency; more recently the digital revolution as the latest attempt to tackle the consumption crisis by rationalising the consumptive and distributive apparatus. 2) the Globalisation of production by offshoring, profiting from cheap labour cost in developing economies; 3) the Neoliberal approach to free the supply side from any “political cost,” such as by lowering taxes, cutting back welfare and depressing wages; 4) Financialisation as a strategy to sidestep the crisis by looking for profits in the financial markets; 

It is therefore not surprising that none of these strategies succeeded in resolving the underlying demand crisis. On the contrary, by fuelling un- and underemployment in the old industrial countries, automation and deindustrialisation have contributed to the crisis. Now the de-globalisation and automation trends seem to be accelerating. In the following, I will try to assess their impact on the ability to create employment in emerging economies in Asia, with a particular focus on India.

The digital revolution is just taking off. Artificial Intelligence, robots, smart grids and 3D printers will revolutionise the way we live, work and commute. Decision makers see rising productivity as the only way to survive the breakneck global competition. In the absence of political pushback, technological rationalisation is bound to accelerate.  

Higher productivity means that less workers can produce the same output, leading to the need to cut jobs. Already today, factories are populated with robots. In the factories of tomorrow, a few hundred workers will be enough to produce the same output where tens of thousands would have been needed before. The jury is still out if the history of prior industrial revolutions repeats itself, and the loss of jobs will be compensated by new jobs. However, it seems reasonable to assume that at least in economies with high labour cost, the times when the manufacturing sector created mass employment are over.

Digital automation has also started to replace workers in the service sector. So far, the flexible and decentralised nature of many low-skill service jobs made them relatively resistant to automation. Frey and Osborne, however, believe that this resistance to rationalisation may end in the current wave of digital automation. Major breakthroughs in big data, sensors and intuitive programming allow machines to take over tasks that seemed to be off limits only a short time ago. Artificially intelligent robots will replace service sector employees with highly repetitive tasks like tax consultants, travel agents, legal clerks or call service providers. Digital platforms are likely to disrupt service industries from pharmacies to logistics and retailers. This is a reminder that digital automation may also limit the ability to create employment in the service sector.

Globalisation seems to be going into reverse. In 2016, global trade has been growing slower than global GDP, only the second time since 1982. The global capital flow slowed down. Some have even argued that we see the beginning of the disintegration of global supply chains. While many factors contribute to this de-globalisation trend, digital automation may be the decisive one.

While labour costs are rising in many emerging economies, digital automation is increasing productivity in the old industrial countries. This is particularly significant in those countries which have already passed the Lewis turning point, and the reserve army of cheap labour in the agricultural sector has dried up, as well as in ageing societies where the total labour pool is shrinking. Some of this cost has been offset by rising labour productivity. Still, the total manufacturing cost in some emerging economies are approaching those of the United States. All things considered, manufacturing in the United States is only 5% more expensive than in China. The shrinking differential between total manufacturing cost in developed and emerging economies erodes the incentives for offshoring, one of the major drivers of globalisation over the last decades. 

The de-globalisation trend is accelerated by the need to react quicker and more flexibly to the demands of consumers. In the clothing and garment industries, shelf lives are getting increasingly shorter. Accordingly, the time it takes to ship from factory to shelf will increasingly rival labour cost as the main motivator in the inventor’s calculus. Consequently, there is a trend to reshore production facilities closer to the home market.

This reshoring trend could be accelerated by the revolt against globalisation in the West. Right-wing populists promise to “bring back jobs”. Politicians across the political spectrum will be tempted to play with the protectionist toolbox. The United States has already withdrawn from the Trans-Pacific Partnership. The United Kingdom needs to re-negotiate existing trade agreements. Others may follow suit.   

The race for development in Asia

What are the implications of these trends for the future of work in Asia?

First, it can no longer be taken for granted that Western markets will stay open for Asian exports. This means the global window of opportunity for export-led growth could be closing.

Second, digital automation is eroding the comparative advantage of cheap labour. Consequently, notorious headaches such as quality, workforce skills, shipping lanes, local corruption and political interference will gain greater importance in international investors’ minds. Manufacturing moves on as soon as wages start to rise, leading to premature deindustrialisation in newly industrialising economies. Economies with lower and stagnating manufacturing costs like India may stand to benefit from the shift in production facilities. In upper middle income countries, however, the offshoring trend may already begin to reverse.

Third, digital automation may lead to jobless growth. Already today, many Asian factories and workshops are automated. In the future, artificially intelligent robots will not only populate Asian manufacturing, but start to replace workers in all sectors. A World Bank study estimates that the proportion of jobs threatened by automation is 77% in China. The ILO estimates that 56% of jobs are at risk of being automated in the ASEAN-5 countries. The difference in labour cost, especially in sectors which are not subject to international competition, makes it unlikely that workers are being replaced with machines anytime soon. Still, in some Asian economies, the spectre of jobless growth is looming large.

Finally, digital automation changes the quality of employment generated. New technologies like robotic automation, Internet of Things, 3D printing, sewbots, cloud computing and software robots are changing the skill set required from workers. While new high-skilled jobs are created to work with machines, low-skilled labour is increasingly being replaced. Engineers and technical experts are needed in the automotive, electronics and textile industries. Highly educated employees with certificates in medicine, business, law, and data analysis have good chances in business process outsourcing. Employees in the retail sector will need skills in data management, digital marketing and social media.

In addition to these domestic jobs, global crowdsourcing platforms allow high-skilled workers in Asia to compete individually to perform outsourced tasks. Aneesh Aneesh sees opportunities in research and development of software, engineering and design, animation, geographic information systems, processing of insurance claims, accounting, data entry and conversion, transcription and translation services, interactive customer services, finance and credit analysis, market analysis, archive administration and website development and maintenance.

How can India create employment?

With its abundance of cheap labour, India is still in a strong position to compete for labour-intensive low skill manufacturing vacated by China. However, breakneck international competition will increase the pressure to automate. India’s shiny automobile or smartphone factories are already populated with robots. For the future, the World Bank gloomily predicts that a whopping 69% of jobs across all sectors could potentially be automated.

Every month, one million job seekers enter the job market. However, even in a benign global environment, India’s track record in job creation has been disappointing. In fact, despite being an international investors’ darling, India loses 550 jobs per day. With digital automation set to accelerate, the spectre of jobless growth looms large.

Worried what will happen if the aspirations of millions of job seekers remain unmet and frustrations rise, President Pranab Mukherjee attributed the slow employment generation to machines fast replacing men, and called for a paradigm shift.

With the traditional route to development closed, the search for alternative development models is in full swing. Former central banker Raghuram Rajan warned against an export and manufacturing led model, and advocated to move the focus on the domestic market instead. Should digital automation indeed lead to jobless growth, however, a domestic demand-led strategy would face severe limitations in a low income country.

Some have pointed out that the bulk of Indian workers is still in the agricultural sector. However, the need to increase productivity in the agricultural sector would only accelerate the freeing up of surplus labour, and increase the migration pressure on the urban centres already bursting at the seams.

Green growth offers new opportunities for development. Reaching the government’s goal of 100 GW through photovoltaic source by 2022 could generate 1.1 million jobs in construction, project commissioning and design, business development, and operations and maintenance.

The blue economy promises to create jobs in coastal areas by jumpstarting fishing, blue water farming, offshore harvesting of mineral resources, boosting pharmaceutical and cosmetic industries, and building up coastal infrastructures.

Finally, India could leapfrog into a service-led economy. With its millions of highly educated workers, India is in a good position to compete in the globalising service markets. The National Association of Software and Services Companies suggests that India aims to capture 20% market share in Internet of Things sector, worth $300 billion. India aspires to build a cyber-security product and services industry of $35 billion by 2025, and generate a skilled workforce of one million in the security sector. Following the path its IT industry has already taken, there is ample opportunity for English-speaking, highly skilled workers to create income in the crowdsourcing industry. For low skilled labour, app companies are expanding between 20%-60% month-to-month, bringing together households with domestic workers, at least those who have access to mobile technology and banking. However, the extreme competition between the labour reserve armies with vastly different wage levels drives a global race to the bottom, where only the lowest wages can prevail.

The Human Economy

In the digital economy, humans are needed to cater to the hopes and needs of humans. The human economy, from tourism to entertainment, from design to fashion, from health services to elderly care, from food to arts and crafts, has enormous growth potential all over Asia. India has not even begun to explore these opportunities. Especially care work has primarily been provided by (female) family and neighbours, and remains largely without remuneration. In other words, the human economy will not emerge by itself, but needs to be jumpstarted and shaped by policy making.

Creating the human economy means to put humans front and centre. This means first to reverse the neoliberal paradigm of suppressing social cost for health care, social security and public goods. Second, it means to boost those jobs which are not prone to automation, and to invest in the skillsets needed to work together in human robot teams. Third, it means to create livelihoods in the digital economy by providing full capabilities to all humans to develop their essential talents: creativity, innovation, and the social touch.

To level the playing field for human workers, innovative policies like robot taxes should be considered. Policies to boost consumption demand are needed. Schemes like the Universal Basic Income scheme, however, need more careful consideration to avoid unintended side effects. In order to remunerate care work, cultural stereotypes and gender roles need to be tackled. More pointedly, building the social and political platform for the human economy is the quintessential task for policy makers in the digital age. 

This story is from the print issue of Hardnews: MARCH 2017