Financial Daily from THE HINDU group of publications
Friday, Aug 27, 2004
Government - Politics
Corporate - Insight
Reservation in the private sector A rational, ritualistic placebo
Authentic governance would have engendered a nation wherein caste is not a barrier to economic advancement. But sociologists, development economists and political leaders have evaluated caste as a probable ally of the privileged and as a definite burden of the economic underclass.
The presence of a very large economic underclass is a threat to rapid economic development, hopes and aspirations, and social harmony in India. Furthermore, an economic underclass of such magnitude is peculiar to India. It is very young. India's demography is distinctly different from that of, say, China. Comparisons with China become inevitable, even if boring, in these circumstances.
First, the ratio of the employed to those that are dependent on the employed is about 50 per cent more in China than in India. Why? Fewer people are employed or self-employed in India; for every employed or self-employed person, more are dependent in India than in China. The dependents in India have impaired access, if at all, to education, health care and any form of social security. The Central and State Governments in India are too poor and helpless to offer any hope or help to the dependents.
Second, the young constitute a very large part of the dependent class. More than 50 per cent of India's population is aged below 25. Their literacy level is just over 74 per cent. More than 65 per cent of the young are `stuck' in the villages.
The Central and State Governments in India are preoccupied high-wage islands that are too saturated to offer any gainful employment to the young. They have little reason to appreciate how they have stymied the hopes of the young.
The young are impressionable. Despair and despondency come as easily to them as hope and optimism. If the young can be nurtured on honest hope, they will make a positive impact on the course of social and economic development.
The key to stoking hope and optimism lies in opening up as many employment opportunities to them as possible. If their hopes are sustained, they will reinforce India's considerable depth in world-class human resources.
It makes no difference if we make an honest beginning with a placebo. Reservation in the private sector could stoke hope and optimism. At its worst, it will be a placebo. A placebo is a medication that is made of an inert substance. Placebos are prescribed to provide mental relief. They are most useful in the treatment of economic disorders and ironies.
Castes originated many millennia ago and were aimed at accomplishing economic objectives. They evolved from authoritarian engagement within society, and as a response to the fulfilment of individual and collective economic needs.
What is peculiar is that the practice of castes in modern times is not based on any "written constitution", police, laws, courts, and rewards and penalties.
Castes propagate themselves. They have been accepted, enforced and practised through a ritualistic system of engagement. As a result, castes require passive compliance.
There is no compulsion for anyone to cling on to any one caste. There are no penalties for crossing over to another caste. Quite clearly, regardless of the burdens and the handicaps that it imposes, the caste system works on voluntary compliance. Nevertheless, so many millions willingly work with the burdensome economic handicaps.
The ritualistic practice of caste is unrelated to the value chains pertinent to modern economic activity. Castes serve no definitive economic purpose in an era of silicon chips, artificial intelligence, robots, unmanned spaceships and aeroplanes, stem-cell research, pasteurised milk and employee-owned companies.
Nevertheless, the government is involved in a struggle with caste-driven poverty. It is perhaps losing too. The irony is that it has access to a range of legitimate powers. But it has been unable to use these powers to use government and public institutions to root out caste-driven poverty.
That it now seeks to reserve jobs in the private sector says much about government's limitations and about the authentic engagement that India's private sector can provide. The private sector could surely regard this as an acknowledgement of its remarkable capability to cope with complexity without losing effectiveness and integrity.
One organic analogy
Energy from organic fuels is released when they combine with oxygen extracted from air. Hydrocarbons locked in organic fuels burn methodically to combine with oxygen. The combustion produces enormous energy; it is characterised by method and science.
Fuels need a `spark' that sets fire to them. Without the spark, the combination of fuel and air will merely be cosmetic and physical. To be sure, the mixture will be inert and useless. The spark makes the vital difference. Hydrocarbons then combine with exact amounts of oxygen drawn from the air.
Every unit of combustible hydrocarbon requires an exact amount of oxygen. If there is too much oxygen, the oxygen is wasted. If there is too little oxygen, the hydrocarbon is wasted. The organic fuel rots.
Starved for oxygen
Government is the principal economic facilitator of every country. It is the oxygen. Households and businesses are the organic fuels. Good policies are the sparks. When households and businesses receive the right amount of oxygen and sparks, they produce dazzling results. Economic output surges. When the supply of oxygen is cut, the economy sags. Households and businesses rot.
Towards growing the aggregate economy, India needs a massive supply of oxygen from the government sector but cannot `afford' it because of the high modal income ratio of 5.08. (For a discussion of the relationship between the modal income ratio and per capita income, see "The DNA of India's poverty", Business Line, August 14.) India's economy is emaciated because it pays a lot more to its government sector than it receives.
India also needs a massive expansion of public infrastructure aimed at growing the aggregate economy but cannot find internal surpluses of a large magnitude. Why? A very large part of the private sector's savings and taxes is utilised towards paying the government sector's present and past employees and towards paying interest on borrowings.
But the private sector cannot grow without the wide range of relevant economic and social services from the government sector. If the private sector could grow on its own, the government sector would have become redundant among the market-economy adherents, and at least in the US. It has not. Its continued relevance and growth serve to remind us of the critical role played by the government sector.
The economic rot
India needs a bigger government sector but cannot afford it. Oxygen from government is very expensive. This explains the massive unemployment and poverty; and why India's per capita income in purchasing power terms is among the lowest in the world. The rot is the result of India's high modal income ratio, the highest in the world.
India employs a very small part of its total workforce in its government sector; which nominally provides a wide and extraordinary range of services, but employs only about 10 per cent of the total workforce.
France, if it were as populous and `efficient' as India, would employ at least 37 per cent of its workforce in the government sector to provide the same range of services. The US would employ at least 24 per cent of its workforce to provide the same range of public services and defence.
Therefore, from the perspective of linear proportionality, India's government sector is the global paragon of efficiency. India accomplishes a whole lot with a very small government sector in terms of headcount.
But there is a catch. India's government sector extracts a whole lot as salaries, perquisites and post-retirement payouts per employee. Employment in the government sector is a privilege. It cannot be expanded because it is very costly. Any increase in the headcount in the government sector could lead to a reduction in the per capita emoluments of employees in the government sector.
Gold for all?
This explains in part why many political parties have eagerly sought `reservation' for the weaker classes in India's private sector. If new job-seekers were absorbed by the private sector, the affordability issue pertinent to the government sector would be obviated.
At the same time, reservation in India's private sector would stir significant hope among the young in the economic underclass. They would root for the rapid growth of the private sector and its stability.
They may begin to appreciate the real causes of poverty and may become the new advocates for expanding the role of the private sector. They may seek a better and larger supply of oxygen from government. Above all, they would realise that breaking the shackles of caste is easier done than discussed.
(The author is a financial analyst. Feedback may be sent to email@example.com)
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