The recent elections have shown that economic conditions play a significant role in election outcomes. While religion can be misused to obtain votes, it only works to an extent. Eventually, real economic issues will come back to bite you.1
It is clear that high unemployment and underemployment played a crucial role in the election outcome. There are obvious steps that need to be taken, like filling government vacancies, increasing spending on transfer payments, and raising wages. But there’s one specific policy I want to talk about: a job guarantee.
India has vast labor reserves; it is, after all, the most populous country. Many people see this as a nuisance, calling it ‘overpopulation,’ but to me, it is a gift. It is something we can utilize to transform our country. There has been talk from various business media outlets about India wasting its ‘demographic dividend.’ The thing is, their solutions never involve increasing government spending but instead loosening labor laws so that MNCs and domestic oligarchs can exploit and underpay workers even more than they already do. Clearly, this approach hasn’t worked. Although India has risen many places in the Ease of Doing Business indices, real wages have remained stagnant, and jobs have remained stagnant at best.
Economists from a century ago concluded that unemployment is largely due to deficient demand. However, nowadays, people use the debunked Quantity Theory of Money and Crowding Out Hypothesis to argue against increased government spending. India has progressed to where it is today because of government spending. We wouldn’t be largely self-sufficient in food grains if it weren’t for the Green Revolution, which was funded by the government.
All the major institutions built after independence, like IITs, IIMs, and LIC, as well as infrastructure such as roads, dams, telecom, power, and railways, were developed through government spending. The private sector would have never undertaken projects like these, as they don’t see any return on investment from doing so. The private sector doesn’t run schools because they want to see students learn; they do so because they get more money out than they put in.2
This becomes plainly obvious with the privatization of utilities. Private companies don’t end up improving infrastructure unless the government provides them with money. They know they can then rent-seek and earn a profit.
Back to my original point: If India wants to develop, it will need to increase the purchasing power of its people. The private sector will only expand production if they see it will increase sales and earn greater profits. The private sector is thus only concerned with the demand for their goods and services backed by the ability to pay.
The ability to pay is important. The income and wealth distribution in India is heavily skewed towards the top.3 It is well known that those at the top don’t spend all their income on consumption; they have a low propensity to consume. Conversely, those at the bottom with low incomes tend to spend most of their income because they have nothing remaining after paying for essentials. Sometimes, they even go into debt, which is becoming increasingly common as people turn to less-than-legal loan apps, knowing that banks won’t lend them money.4This shows how Government austerity is squeezing the poor.
What does this mean? The government must increase the purchasing power of people who aren’t in the top 10%-20% income percentile. A very potent policy for this is a job guarantee. India already has a Rural Job Guarantee, but it is extremely flawed and has been crippled in recent years due to inadequate funding, low and delayed wages, and other issues.5
There are various problems with MGNREGS:
- It is not a universal scheme, being restricted to those in rural areas with a job card. Recently, Aadhar linking has excluded even more people from it.6
- The fact that MGNREGS is not universal is highlighted by the existence of a quota for women. A universal scheme must accept everyone. Quotas exist to ensure limited resources (such as government jobs and college seats) are distributed in a way that favors less privileged individuals. A universal scheme, by definition, doesn’t need quotas.
- MGNREGS wages are much lower than the cost of living. The persistent demand for MGNREGS despite the low wages shows how desperate people are for any income. It’s depressing.
- It isn’t entirely funded by the Central Government, relying instead on panchayats and sub-national governments for funding. This is problematic because it diverts money from local issues. The Central Government, as the currency issuer, can easily finance such a scheme.
- The time and day restrictions mean that people are forced into unemployment if they can’t find a job within these constraints. This goes against the ‘Guarantee’ part of MGNREGS.
What is to be done?
I believe MGNREGS must be replaced with a universal scheme with certain modifications:
- It must be a universal scheme, allowing any citizen (or non-citizens, depending on circumstances) to join and leave seamlessly when they find a job. This means it must be easy to join, even for those without an Aadhar card.
- A universal scheme cannot have any quotas by definition.
- Wages must be set to the minimum wage of the location where the person lives.
- It must be entirely funded by the central government, though some management and administration can be delegated to sub-national governments.
- Individuals must be paid according to the hours they work. If someone wants to work 8 hours a day, 5 days a week, for all working days, they must be allowed to do so.
This will increase aggregate demand across various sectors due to the multiplier effect. Capitalists will expand production as they see increased demand backed by the ability to pay.
But what about inflation?
The neoliberal counter against such a scheme would be that the increased spending will create inflation. This is based on the false view that inflation is determined by the amount of money in circulation. In reality, inflation is mainly determined by aggregate demand and aggregate supply. If spending is pushed to such an extent that the economy can’t expand at the same pace, then yes, there will be inflation. But this can be countered using increased taxation to deprive the private sector of access to goods and services.
Higher taxes on the rich would be needed regardless to counter the inequality created by the increased spending. After all, if much of the production is under capitalist control, giving people money will inevitably result in it ending up in the hands of capitalists. Workers get paid, workers spend money at private businesses, and so on. A currency-issuing state can always mobilize the resources it needs within its borders using spending and taxation.
It may be objected that government expenditure financed by borrowing will cause inflation. To this it may be replied that the effective demand created by the government acts like any other increase in demand. If
Michal Kalecki, Political Aspects of Full Employment
labour, plants, and foreign raw materials are in ample supply, the increase in demand is met by an increase in production. But if the point of full employment of resources is reached and effective demand continues to increase, prices will rise so as to equilibrate the demand for and the supply of goods and services. (In the state of over-employment of resources such as we witness at present in the war economy, an inflationary rise in prices has been avoided only to the extent to which effective demand for consumer goods has been curtailed by rationing and direct taxation.)
A job guarantee isn’t a silver bullet
All of that said, a job guarantee is just one of the many policies the government must implement if it wants to improve living standards. Neoliberals will trot out various statistics like GDP growth and trade volumes against anyone talking about poverty and malnutrition in the country.
There must be job creation beyond the Job Guarantee. A Job Guarantee is just one scheme; it doesn’t mean there can’t be other jobs in the public sector. All the vacancies in the government must be filled. Additionally, the government itself must expand and take a greater role in the economy. This includes the nationalization of privatized state assets to fulfill the public purpose. A Job Guarantee should be seen as employment of last resort. The Government must seek to reduce the JG queue to a minimum by ensuring that good jobs are available elsewhere.
A Job Guarantee will surely break down class, gender, and caste barriers due to its universal nature, but that doesn’t mean quotas should be done away with. Quite the opposite. Quotas must be provided in other non-universal jobs to ensure the less privileged have representation proportional to their population.
That’s all.
- https://thewire.in/economy/bjp-narrow-win-anti-incumbency-modi-popularity-anishchit-kaal ↩︎
- https://www.marxists.org/glossary/terms/c/a.htm ↩︎
- https://wid.world/ ↩︎
- https://thewire.in/economy/savings-at-47-year-low-subdued-consumption-low-wages-job-woes-the-troubles-facing-indias-economy ↩︎
- https://thewire.in/labour/in-the-year-of-the-lowest-mgnregs-allocation-93-budget-used-in-just-six-months ↩︎
- https://thewire.in/labour/sharp-fall-in-number-of-mgnrega-workers-in-telangana-after-unions-push-towards-aadhaar-based-pay ↩︎