<b>Manish Sabharwal & Sonal Arora:</b> Choosing dying over changing

The extinction of trade unions is imminent but hardly inevitable. Here's how it can be reversed

Indian trade union membership – 15 per cent of the labour force – is higher than rich countries (10 per cent in the US and 7 per cent in England) but may peak at levels lower than them (36 per cent in the US and 50 per cent in England). Why? Exhaustion, betrayal or obsolescence? The extinction of trade unions is imminent but hardly inevitable; we make the case for an alternate future because trade unions are an important civil society institution whose decline is not murder but suicide. Just like effective governments are not pro-business but pro-markets, trade unions should focus on employees not employers. This involves forgetting the small labour aristocracy and sustainably raising wages for most workers through formalisation, urbanisation, and skill development.

Rich country trade union decline is often blamed on globalisation. Maybe rightly so; the underestimated costs of trade and immigration on wages of low-skilled and rural populations now manifest themselves in Trump, Brexit, etc. Rich country trade unions are trying to make common cause with poor country trade unions; at an Asian Development Bank panel one of us was intrigued by an International Trade Union Congress leader suggesting their 180-million rich country worker membership ideally positioned them to fight for poor country worker rights. But as she begun elaborating solutions – lower immigration, lower global capital flows, free trade being fair trade, trade deal renegotiation, etc. – it felt like rich country workers’ needs are diverging from poor country workers and sounded like rich country trade union decline came from obsolescence. But Indian trade union decline came from betrayal; putting the needs of the vocal minority (old and formal workers) ahead of the silent majority (young and informal workers). This can reversed in three ways:

Formalisation: India does not have a jobs problems but a wages problem. Our low wages come from low productivity enterprises; our 60 million enterprises have only 1.2 million that pay the mandatory social security and only 18,000 have a paid up capital of more than Rs 10 crore. Formalisation matters for wage premiums; a ranking of manufacturing companies by size suggests a 24 times difference in productivity for companies at the 90th and 10th percentile. Trade unions should have been huge supporters of goods and services tax (GST) and demonetisation and pushed for ease-of-doing business initiatives that make India less hostile for entrepreneurship. They should push for lower foreign investment restrictions because it is irrelevant whether a cat is black or white (India or foreign) if it catches mice (creates jobs). They should push for restructuring of the Provident Fund and Employee’s State Insurance schemes because their monopolies offer poor value for money to employees (one is the world’s most expensive government securities mutual fund while the other has the lowest claims ratio of any health insurance program in India). They should push for a PPC compliance portal (paperless, presence-less and cashless) that would enable application of big data algorithms for enforcement. They should push the consolidation of 44 laws into 1 labour code to avoid endless litigation bred by conflicting statutes. Instead of fighting these good fights, Indian trade unions have been busy positioning job preservation as a form of job creation.

Urbanisation: India only has 45 cities with more than a million people; 200,000 of our 600,000 villages have less than 200 people. Cities – as the work of Ricardo Hausmann and Edward Glaeser at Harvard suggests – are magnets for job creation because of their economic complexity and clustering. Not only is formal employment in villages extinct, they are often stuck in the past — my IAS friend’s father could not get a haircut in his village for decades after independence and went to Jodhpur because he was a Scheduled Caste. Why have trade unions not been pushing urban reform that creates elected, empowered mayors? Why not agitate for low-cost housing and public transport? India won’t be able to take jobs to people and need to take people to jobs – we don’t yet have a migration of Chinese scale where 200 million buy a ticket to go home for the four-day New Year weekend in February – but something similar is emerging in Kerala during the Bihari festival Chhath (9.5 per cent of Kerala may now be Bihari). Given that formal employment economic wastelands like Uttar Pradesh, Bihar and Odisha will account for 40 per cent of our demographic growth in the next 20 years, trade unions must push for urban policies that will enable dignified and efficient, effective and voluntary internal rural migration.

Illustration by Ajay Mohanty

Skill development: It’s impossible to predict where future jobs will be. The only insurance policy against automation, longer lives and faster technological change is skill development. This means complementing the current 10 + 2 + 3 + 2 education system with something more flexible, relevant and self-healing. Trade unions did not originate the formation of the new Ministry of Skills, did not fight the toxic Right to Education Act, and haven’t fought for lifting the ban on online education that will allow learning-while-earning. Wages depend on human capital yet no national trade union has published a rigorous plan for reforming schools, ITIs or colleges. Instead of finding inspiration in Thomas Piketty’s work about inequality – a rant less potent in a zero interest rate world – trade unions should think about the employment exchange implications of Alvin Roth’s Nobel Prize work that highlights how labour markets that clear on information are different from stock markets that clear on price.

In 1920, Lala Lajpat Rai told the first meeting of the All India Trade Union Congress, “Our masters have used us to develop their colonies, cultivate their fields, operate their mines, man their industries and increase their wealth while adding insult to injury by considering us unfit to be accepted as equals”. Trade unions were important in getting us Independence but today India’s workers need freedom. Freedom for workers comes from multiple formal employment choices and high wages. Surely trade unions can find this new cause inspiring enough to change.
 

The writers are with Teamlease Services