By Gary Marbaniang
Economic activities have come to a standstill the world over. In the secondary sector, production of goods also means job creation. Even in a developed country like the United States, the job situation is really grim. The unemployment figures show that the unemployment rate is currently around 14.7 percent, the highest since the Great Depression. Over 20 million Americans lost their jobs in April alone in the US. During the global financial crisis of 2008, over 8 million Americans lost their jobs. The US is a capitalist economy so the different phases of the business cycle play an important role in job creation. In October 2019 the unemployment rate of the US stood at around 4.8 percent, the lowest in nearly 50 years. So it means that the economy was at the prosperity phase of the business cycle. But now the economy has fallen into depression. When people are unemployed in the US they get unemployment benefits. Unemployment in a developed economy like the US is mainly of two types, frictional unemployment and cyclical unemployment. In normal times if you are unemployed for a long time it can lower a person’s self esteem because depending on the government for unemployment benefits is just not part of the American way of life. Most Americans believe in the maxim of minimum government and maximum governance.
Frictional unemployment means people are unemployed because they are looking for jobs that suit them. They are weighing their options and it is only temporary. Cyclical unemployment means unemployment which occurs during the different phases of the business cycle. It is more serious than frictional unemployment and people can be unemployed for a longer period. During this current crisis, most unemployed Americans are surviving by depending on food stamps and unemployment benefits which is alien to the way of life of many Americans. They’re just not used to depending on the government. Hence they are coming out to the streets to protest because work is a matter of life and death for them.
In a developing country like India on the other hand, unemployment is of two types: structural unemployment and seasonal unemployment. Such types of unemployment are signs that the economy is not developed. Leaving aside the salaried class, the majority of Indians are employed in the unorganized sector and are paid wages. If they don’t work they don’t get paid. If over 80 percent of the Indian workforce are employed in the unorganized sector, then the current crisis is more grim for India because there is no concept of unemployment benefits. If there is no production it literally means no wages at all for majority of Indians. While the lockdown is imperative during this crisis because this pandemic can spread like wildfire but opening up the economy is equally important because majority of Indians don’t have any safety nets.
The Government of India has divided the country into Green zones, Orange zones and Red zones. In the Green Zones the economy must get going but precautionary measures should be taken. But in the Orange and Red zones, if production needs to be stopped to contain the pandemic, then it should definitely be stopped.
Most developing countries today depend heavily on foreign investment for their development. Multinational corporations set up their bases in a developing country with the sole intention of maximizing profits. The cheap labour that a developing nation offers is a temptation that’s hard to resist for multinational corporations since they realise that cheap labour enables them to maximize profits. But having said that, some multinational corporations also bring with them valuable human resource in the form of technical knowledge which can kick- start the nation’s growth engine.
Let’s take the example of a company like NIKE. If NIKE decides to set up a manufacturing plant in Meghalaya, it will be the best thing that can happen to us. Imagine a situation where our local labourers start making shoes for a company like NIKE. The skills they will gain will do them good for the rest of their lives. Now NIKE has set up manufacturing plants in Vietnam – a country that was ravaged by war and used to be one of the most impoverished countries in Asia a few years ago. Now it is a middle income country and its nominal GDP per capita is higher than India’s. The economic transformation is simply stunning. Even the minimum wage rate is higher than India’s. This means that the standard of living of an average worker in Vietnam is better than that of an average worker in India. Even if companies like NIKE eventually decide to leave Vietnam, the workers there would be self-reliant because of the skills they acquired by working for one of the best companies in the world. So it’s a win-win situation for both NIKE and the workers in Vietnam.
The situation in India is different. Most of the foreign direct investment in India is in the services sector. So if an American company decides to set up a BPO in India it will employ our youths as long as they are stationed here. If the BPO decides to leave abruptly, it will leave the workers stranded since all they gained is work experience which might not come in handy during times of economic hardship.
No country has developed without first developing its manufacturing sector. The normal pattern of development is to move from the Primary to the Secondary sector and then to the Service Sector. A strong manufacturing sector is like a strong pillar. Without it the economy will crumble if there are ruptures in the global economy. India’s manufacturing sector is weak. That means the pillars of our economy are weak. Hence it’s important to correct this anomaly. The Indian economy is like a house built on sand. If a financial storm comes it will be easily swept away but an economy with a strong manufacturing base is a house built on a rock. Even if a storm comes, it will survive.
The point here is that not all foreign investment is bad. Foreign investment in the manufacturing sector is a blessing if the workers acquire skills that will make them competitive in the global market. In fact we desperately need foreign investment in the manufacturing sector since the technical expertise that comes with it can improve the quality of our goods. This will give us a competitive edge in the global market and our manufacturing sector will grow. So we cannot paint all multinational companies with the same brush. Some multinational companies can do us more good than harm. Building a strong manufacturing sector is the need of the hour.
India has sufficient food grains in its godowns to feed its people during this time of crisis. If the need arises, the government will have to distribute the food-grains to people. What people lack is purchasing power because they are poor. There is seasonal unemployment in India because Agriculture cannot sustain the farmers through the whole year. Therefore India has a large number of migrant workers because people move into the cities in search of jobs during the lean season. If Agriculture becomes highly mechanized then more people will have to look for jobs in the manufacturing sector. Even now there is disguised unemployment in Indian Agriculture. More people are employed in Agriculture than is actually needed. If 4 people are needed, there may be more than 8 people available. So Indian Agriculture in its current state is characterized by low productivity because of disguised unemployment and lack of mechanization.
In a country of over 1.3 billion people not everyone can be a farmer. An agrarian economy alone will not sustain us in the long run. In almost all developed countries, those employed in Agriculture are less than 5 percent. Agriculture is highly mechanized and productivity is also high. So even if only 3 to 4 percent of the population is employed in Agriculture, food production is sufficient to feed the entire country. There is also the problem of land holding in India where small farmers have small and marginal land holdings. Hence we cannot expect Agriculture to be mechanised. In a developed country, each farmer owns large plots of land and heavy machinery can be used. This is why productivity is high.
In Meghalaya the majority of farmers are struggling to make ends meet. The average farmer in Meghalaya faces the same problems as any other farmer in the rest of the country. Agriculture in Meghalaya is characterized by small and marginal land holdings, low productivity, disguised unemployment and subsistence farming. The secondary sector also does not offer much hope at the moment. Most of the rural youths migrating to urban areas are engaged in the construction industry. The manufacturing sector in our State needs a tectonic shift and the shift should be towards environment friendly labour-intensive manufacturing units that will generate gainful employment for the burgeoning unemployed youths. Otherwise the future is bleak for our young people since all the main sectors of our economy do not offer young people opportunities at the moment.