It has been a recurring theme in the political economy. Its two great masters of the nineteenth century, Malthus and Ricardo, believed in the “iron law of wages”.
If the wage is raised above the subsistence minimum, workers would breed too much, and population growth would soon overtake the growth of food production to bring wage back to the subsistence level.
Marx, the other great master of that century gave an insightful twist to that argument by placing it in the context of capitalist development. Its early phase would continue to break down small, pre-capitalist manufacturing to make labour available for the industry which in later phases would continue to be made available through various labour-saving technologies. This would keep wages low with the weak bargaining power of workers, continuously recreating what Marx described as a ‘reserve army’ of labour. Capitalist development did not quite follow this trajectory, and wages did rise along with labour productivity in advanced capitalist countries particularly in the twentieth century. However, in developing countries, things seem to be going another way. The pre-capitalist modes of production have given rise to a vast informal economy which is not just a reserve army of labour.
Informal Economy and the army of Reserve labour
The argument about the ‘reserve army’ contains a deeper argument. Full employment with rising wage erodes the very discipline which capitalists impose on workers under the rules of the game. Neo-liberalism with market-oriented reforms has its appeal precisely for this reason. As a result, all firepower gets concentrated to demolish the idea of a full employment society where labour is also powerful with a relatively neutral state regulating excesses of both sides. Well funded academic research, the IMF, the World Bank as well as the corporate-fed media all join in chorus to argue against the neutral posture of the state that might regulate not only workers but also the capitalists. Full employment as a target achieved through large monetized budget deficit ( i.e. printing notes) to increase employment through massive public works at reasonable minimum wage, subsidy to labour, the imposition of taxes on wealth, a transaction tax on high-frequency speculative stock market transactions become unacceptable. Instead, the imposition of a one-sided discipline only on workers and privatization is considered the only way of reforming the economy.
Notwithstanding seventy years of industrialization, in India, nearly 92 percent of the working labour force is employed in the informal economy. They exist at the margin of organized capitalist industry with much lower earning per hour, long hours of work, no social security, and often self-employed with the whole family rather than one individual working to eke out a living.
Early enthusiasts believed that industrialization would gradually absorb in organized industry all surplus labour from the vast informal sector. They were right only in one respect. Labour productivity which is at least six to eight times higher on a conservative estimate in India means that, for each worker pulled out from agriculture and employed in organized industry, output increases manifold. GDP growth increases. However, not employed sufficiently because the market , domestic and international, is not large enough to absorb all labour at such high labour productivity. The result has been jobless growth.
However, the enthusiasts for industrialization were also wrong in another crucial respect. The process of transfer of labour from agriculture to industry has been a long and tortuous one in history. Britain took approximately hundred and twenty years, the United States about ninety, and countries like Germany no less than sixty years. During most of this period, democracy with universal adult franchise was hardly in place. Such long time periods are incompatible with democratic accountability with elections every five years.
Labour Shift from Peasantry to Industry
The early industrializers had colonies to acquire cheap raw materials, and also sell their products in captive colonial markets. This avenue is not available to a late industrializer like India. If we wish to persist on that path, we have to turn increasingly to internal colonization of our land, water, forest, mountains, and sea-shores destroying the livelihood of many among the poorest, Adivasis, forest dwellers, Dalits, etc. When peasants, tenants, agricultural workers, fishermen among many others lose their livelihood without an alternative, the cost of the brutal process paid by the weakest, not shared among our citizens.
The political precondition for a rapid pace of industrialization in the countries of showpiece South East Asia was under ‘managed democracy’ in addition to preferential trade arrangements with the United States during the Cold war period. More importantly, both capitalist and socialist countries in that part of Asia which succeeded in industrializing had achieved a much higher degree of literacy, health care, and infrastructural development mostly through higher government spending prior to their industrialization process. The one-party system of socialist countries achieved this by mobilizing labour for infrastructural work on an unparalleled scale. India took a hesitant step with MGNREGA with lower than legal minimum wage and an insufficient number of days a year, but did universalize the scheme
COVID19 and the economy
Many had hoped this COVID -19 pandemic would be a watershed. The Central government’s authoritarianism was visible in imposing successive lockdowns causing disproportionate distress and suffering for the poor in the informal sector. And yet, the government has shown no interest in expanding employment in economic and social infrastructure in rural India. Instead empty announcements for financial help through bank loans are thrown at them. Instead what should have been done without display of authoritarianism is direct government spending through local governments like panchayats and Gram Sabhas in consultation with the states. Desperate and starving millions of migrant workers locked out of livelihood at four hours’ notice shows what a determined government can do! Why not take up this challenge instead?
There is a reason, and it is neither inefficiency nor misgovernance nor plain stupidity. It does not want to do anything that will improve the lot and tilt a little the balance of power in favour of the poor!
Under the cloak of a lockdown, the government is applying this same vicious logic even more ruthlessly than just maintaining a reserve army of labour. It no longer even pretends to act as a neutral referee regulating excesses on both sides. Labour is shown its place in the hierarchy of power as labour protection laws are deregulated; small peasants and agricultural labour are made to feel even more precarious with the threat that land will be monetized for easy transfer to private industry and mining. Millions of tons of foodgrains in reserve will be allowed rot and eaten by rats, but not given free to the unemployed.They should be kept on their knees, ready to die humbly as ‘unemployable’. Although the lockdown was meant to prepare better the healthcare system to cope with the pandemic, even temporary nationalization of basic health services in private hospitals is kept out of the policy agenda, and of course no whisper about taxing wealth in this very unequal society. In its place, the platitude: ‘ more wealth must be created before being distributed’. So five zillion GDP is our goal, not full employment.
Economics is neither rocket science nor a number game about the growth rate or fiscal deficit. It concerns ordinary people and their daily lives. We all should insist on three immediate better options available based on three principles. First, apply the basic principle of creating demand which requires expenditure to precede income. So cash must first be transferred directly to the needy (roughly of the order of two lac crores). The demand will drive production of more output from an underutilized productive system which has fallen into a coma in this lockdown. Fortunately, the availability of a large stock of foodgrains also make this less inflationary . Second, concentrate on decentralized labour intensive public works on health care, education and housing as the best route at present for absorbing labour. Let the states, panchayats and gram sabhas take responsibility and compete in this respect to show their relative worth with the money transferred to them. Kerala has demonstrated it in handling the pandemic; let it lead by example in development. Party politics should not blur the picture. Recall the same political party was far less successful in every way in three decades of power in West Bengal; credit must be given when it is due.
Finally, economic performance in India must be judged at the moment by the ability of the government to provide productive employment in strengthening our health, education, housing, and small peasant agriculture through small water management and local storage. Deficit spending, not promises of bank loans to absorb labour in productive employment is the compulsion of our time. It must involve decentralization of power to the gram panchayat level, and let gram sabhas compete in terms of their performance in this respect, to be rewarded or punished at the next round of funding. Growth would have to be the outcome of vigorous employment policy, and not the other way round.
Prof. Bhaduri is currently teaching at Pavia University, Italy. He is a visiting professor at the Council for Social Development, Delhi University.