India’s Growing income crisis

Context: India has an incomes crisis: incomes of people in the lower half of the pyramid are too low.

What are the solutions to this income crisis?

• The solutions economists propose are:
  • Free up markets: Markets should be freed up for agricultural products so that farmers can get higher prices; and freed up for labour to attract investments as without adequate incomes, people cannot be a good market for businesses.
  • Improve productivity: Improvement of ‘productivity’ is key to economic progress.
    • Productivity is a ratio of an input in the denominator and an output in the numerator. The larger the output that is produced with a unit of input, the higher the productivity of the system.
  • Apply technology

These fundamentals of economics must be re-examined when applied to human work.

• Strategies for improving labour productivity:
  • Labour productivity as a universal measure of the productivity of an economy: The number of people in the system (the country/ the economy) is the denominator, and the gross domestic product the people produce is the numerator.
    • They can take the organisationally more difficult route of increasing the total output of the factory while maintaining the number of workers. This may require adding more machines and technology to increase the capacity of workers to increase total output.
    • Employers can enhance their workers’ skills and create a culture of improvement in the factory, where workers and managers cooperate to improve the capability of their system, and squeeze more output from limited capital resources.
    • This is the strategy of ‘total quality management’, with which Japanese companies reduced their costs and improved the quality of their products.
    • Japanese invested in their workers; and the workers were the companies’ ‘appreciating assets’ as they grew their capabilities as well as contributed to the improvement of the total productivity of their enterprises.
  • The lazy management strategy for improving productivity is to reduce the denominator, i.e. the number of workers. Hire them when times are good, and fire them when the company cannot compete any more.
  • Governments of countries cannot apply the ‘hire and fire’ strategy to improve a nation’s productivity that companies can.

What are the steps to be taken?

• Workers provide the economy with the products and services it needs. In return, society and the economy must create conditions whereby workers are treated with dignity and can earn adequate incomes.
• The government must regulate contracts between those who engage people to do work for their enterprises, even in the gig economy.
• An authority on industrial policy and international trade, advocates reforms that will induce firms to employ more numbers of less skilled workers is required.
• The government should push innovation in more socially beneficial directions to increase rather than replace less skilled workers.

Way forward

• The power balance must shift. Small enterprises and workers must combine into larger associations, in new forms, using technology, to tilt reforms towards their needs and their rights.