In 1914, Henry Ford startled his industrialist peers in the US. He raised the wages that Ford Motor Company paid its workers to $5-a-day, twice the market rate, on the rationale (or at least rhetoric) that they too should be able to afford the $440 Model-T cars they rolled off its assembly lines—a factory innovation that crushed unit production cost, cracked open a mass market and whose later adoption for military hardware gave the US an edge in warfare that made it the world’s top power.
While Ford’s revolution was specific to its moment in history, paying people more as an act of enlightened self-interest still has advocates. Last week, India’s chief economic advisor (CEA) V. Anantha Nageswaran had this message for India Inc: “The staff cost of private listed companies has been coming down. Corporates have used their profits to deleverage. Now it is time to engage in a good combination of capital formation and employment growth…. Without that, there will not be adequate demand in the economy for corporates’ own products to be purchased. In other words, not paying workers enough will end up being self-destructive or harmful for the corporate sector itself.”
He added that the Centre was doing its best to incentivize job creation, but made it clear that there was only so much public outlays could do.
The CEA’s remarks can be placed in the economic context of weak private investment and consumption, trends that have persisted in spite of state efforts to ‘crowd in’ one to lift the other. Last quarter’s slump in output growth shone a spotlight on how heavily our economy’s expansion still depends on the state as its big spender.
Longer-span data, meanwhile, has shown a covid recovery led by profits over wages, while labour-market readings continue to disappoint on what people at large earn. As for private-sector payrolls, apart from the sector’s patchy propensity to invest, they seem under the pressure of three new forces that go beyond the old grumble of layoff-curbs keeping workforces either skeletal or largely off-rolls.
First, the pandemic placed in sharp relief the hard fact of wage bills being a fixed cost—to be fully borne, i.e., even under a zero-output lockdown. In that war on overheads, staffing was a casualty. Second, no less notable has been the rise of business models based on gig-work.
Their success advertises the benefits of labour deployed mostly as a variable cost, varying in line with revenue to buffer profits against any market slump. Given the uncertainties faced by businesses, minimal overheads is a logical goal. The third force at work is both a real novelty and the most perplexing.
Today’s hype around artificial intelligence (AI) includes the promise of making do with fewer humans employed at every level. Even if its impact is yet to kick in, AI might be deterring corporate recruitment. None of this augurs well for job creation.
While a reasonable response would be for people to seek their own profit slices by buying corporate shares, dividends remain too meagre in the hands of most equity holders to boost overall demand. On their part, as the CEA has urged, companies should not just try to employ more people, but also rebalance account books in favour of employees.
The government cannot enforce this, but boards can surely ask for a longer view to be taken of what’s best for the economy and thus in the interest of every business. As for AI adoption, it’s ideally done to aid rather than replace workers. With inclusive growth turning into an even stiffer challenge, India Inc should step up to the plate.
#Heed #Indias #CEA #Nageswaran #Wellpaying #companies #favour
