My recent columns have been about coastal economic zones (CEZs). But CEZs are a means to an end—the creation of more good jobs than India is currently generating. “Good” here may not be that good initially, but it is shorthand for jobs where workers are more productive and earn more than in their current occupations. Productivity depends on having complementary inputs and adequate scale, and CEZs are one way to achieve these conditions in a focused, accelerated fashion. Even then, implementation is a challenge that requires careful attention.
A recent symposium on firms and labour productivity on the web portal Ideas for India (ideasforindia.in) teaches us more about the complementary inputs needed, and the challenges faced. The approach there is not specific to CEZs, but would apply to Bathinda and Bareilly as well, and even to Bangalore, albeit at a different level (thinking more about India’s software success in these terms can still be instructive). Seven different pieces in this symposium include an introduction and a little bit of data analysis, which confirms that job growth in India that accompanies output growth is anaemic, although not absent. Two of the other five pieces survey what we know about industrial policy and labour regulation in India, and their economic impacts. In brief, the weight of empirical evidence from the surveyed studies supports the more commonly accepted viewpoint that in this arena, both industrial policies more broadly (including trade policies), and labour regulations specifically, have hampered the entry and growth of firms and the growth of employment. To this list, one can add constraints on exit and financing, which deserve a separate treatment, perhaps.
Another piece focuses on deficiencies in management, which lead to inefficiencies of operations. These inefficiencies persist because of lack of competition, and are made worse by lack of trust, which reduces the use of trained non-family managers in family firms. There are also asymmetries of information, which prevent the adoption of better management practices, since the existing managers do not know what they could do better, or do not know how to implement changes, or do not know the likely impacts. Lack of competition and attention constraints cause these information gaps to persist.
Management deficiencies caused by lack of competition and attention also contribute to underinvestment in skilling workers. An important piece in the symposium marshals evidence that even general, “soft” skills matter for labour productivity. Programmes that teach effective communication, time management, problem solving, and financial literacy can have large impacts on worker productivity. This may be as important as the obvious need to teach specific technical skills such as assembling components or operating machines. Firms may lose some of the workers they provide general training to, but having a geographic and industry cluster increases the overall gains, and the possibilities for reverse flows (hiring someone trained elsewhere). Bangalore thrived by taking graduates of regional engineering colleges, and training them in-house to meet industry-recognised standards. Many large firms provide management trainees with “soft” skills, along with industry and firm-specific knowledge. Indian firms do not do enough for workers lower in the hierarchy.
A final analysis provides evidence that social connections in the workplace improve productivity. Many manufacturing tasks involve complementarities at the worker level (stitching different parts of a garment in the apparel industry, for example), and workers who know and trust each other are collectively and individually more productive. Indeed, the researchers find that social-connection-based incentives work hand-in-hand with monetary incentives, in mutual reinforcement. Bangalore’s software firms probably benefited from being able to hire cohorts from particular engineering colleges. Much longer ago, the Sikh contractors who built New Delhi recruited whole villages of men to work on constructing the monuments to imperial power.
CEZs are one way to provide focus for accelerating job creation. In addition to land, physical infrastructure, finance and good governance, the other complementary inputs that are highlighted in the Ideas for India symposium are management, worker skills, and workers’ social connections. In some cases, multinationals may be good at making sure these complementarities are attended to. In others, domestic firms might. In other situations, additional policy levers might be needed.
Economic development is often conceived of as increasing output per person. Development is also conceived of, more broadly, as building individuals’ capabilities, and directly enhancing their welfare. The missing link in these concepts is often a focus on the process of creating jobs in which workers are more productive, so that they earn more, and the economy as a whole can afford to keep enhancing human capabilities.
And ,of course, higher output per worker also depends on having more and better jobs in the economy, which requires someone to create these jobs in a sustainable manner. Put this way, it is trivial to say that development means creating good jobs, where workers can increase their income (and ultimately have more satisfaction and less drudgery, at least for many). Economists are understanding this process in great depth now, and policymakers can leverage this knowledge in designing CEZs as well as other drivers of growth.
The writer is Professor of Economics University of California, Santa Cruz. Views are personal.