For centuries, people have assumed that the jobs of the future lie in industry. In fact services have long replaced industry as the locomotive of growth in developed countries. In the USA, almost 75 per cent of the workforce is already in services. In no developed country, according to Peter Drucker, will industry account for more 6 to 8 per cent of the total workforce by the end of the century.
Why? One reason is the increasing mechanisation of production by new technology, another is the relocation of low-tech factories in Third World countries with cheaper labour. Modern technology requires fewer and fewer workers but higher skills. So small numbers of skilled workers are replacing the unskilled industrial armies of old.
Let nobody think this pattern is confined to highly-mechanised rich countries. It is already here in India. Take a look at Maruti Udyog, which works in what is universally regarded as a labour-intensive industry (auto production is largely an assembly business). Maruti boasts that labour costs now are no more than 2.3 per cent of sales. If we look only at staff on the production line, wage costs are perhaps 1.6 per cent of sales. Even so, Maruti’s labour productivity is lower than Suzuki’s in Japan. So, if all Indian engineering companies rise to the standard of Suzuki, many will find that labour accounts for no more than one per cent of production costs. Chemical industries will be even less labour-intensive. There will remain some areas where technology has not changed (like garment-making), and labour-intensity remains high. But on average, labour may accont for no more than 5 to 10 per cent of costs in the modern
factories that are now coming up.
CHEAP LABOUR: This has several major implications. First, cheap labour is no longer much of an advantage for poor nations like India. Consider an industry where labour costs are 5 per cent of total costs. If this industry shifts from the US to India to take advantage of workers getting one-tenth the US wage, the reduction in total costs will be only 4.5 per cent, even if Indian workers are as productive as American ones. In practice Indian labour may be less than one-tenth as productive. So the notion that Indian labour is cheap is largely mythical. It is certainly cheap in unorganised sweat-shops in non-mechanisable areas like garments and diamond polishing. It is not cheap in most of organised industry, where overmanning is chronic.
Besides, India has greater hassles and red tape, higher taxes and poorer infrastructure than even East Asian countries, leave alone the US. So industries will shift from richer countries to India only if we greatly improve our skills, procedures and infrastructure. And even if we do all that, fresh investment will not create a huge number of new jobs. It will certainly create a modest number of high-productivity, high-wage jobs, but will not accommodate armies of unskilled workers.
A second implication is that India needs to greatly improve both primary education and technical skills. No longer is it very relevant to have cheap unskilled labour. Our comparative advantage will lie increasingly in cheap engineers, technicians, computer software producers, marketing whizz kids, and the like. and this means investing huge sums in
technical and managerial institutes. Shopfloor workers will not disappear, but will need increasingly to be well educated. capable of reading and following manuals, capable of suggesting ideas for improving production (Toyota gets more than 10.000 worker suggestions per year, and this greatly enhances its productivity). So we urgently need to improve and expand primary education.
WORK CULTURE: A third implication is that we need to transform our work culture in existing, old-time factories, which are greatly overmanned. Where workers have got used to doing very little, where productivity is considered a dirty word by old-time unions, it is very difficult to raise productivity (it is far simpler to do so in a new factory). Mahindra and Mahindra has sought to solve this problem by taking its trade union leaders on a world tour to see the changes taking place there, and feels the message has gone home. Maybe more companies should do the same.
Fourth, we need to pay far more attention to services, which will produce the vast majority of jobs in the future. Here again we need a great expansion of vocational training institutes. We need far better rural infrastructure, especially electricity and roads since these spark demand for, a variety of new services. These services will typically yield lower wages but far more jobs than industry. Bank credit is attuned to financing industry more than services, and this must change. In important areas like construction. our technology and work-practices are light-years behind the rest of the world (the doubling at the Delhi-Agra highway is years behind schedule, a job that would have been completed in six months in other countries).
There is no time to waste. We may be industrially backward. but already services account for 45 per cent of India’s GNP, while industry accounts for only 26 per, cent. By this measure India is already in the post-industrial, phase. But it has not prepared itself for the transformation, and must do so.