There is a lot of talk about reforms, and the new government has a lot to do. Last month, I wrote about getting rid of the things that lead to poverty. I do not think that anyone feels this is a great insight; indeed, most will find it an obvious thing to do. However, what is not so obvious is the mindset change that is required to hunt for policies and institutions that do precisely that.
To understand this, let us begin with what is being reported in the written and visual press about the new state of Telangana. There are many entrepreneurs who are relocating from Telangana to Andhra Pradesh. Among the many reasons, one is their fear that there will be restrictions on who they can employ. Indeed, the official stand is that about 70 per cent of semi-skilled and unskilled labour must be local people. The demand for employing the locals at lower levels of the employment ladder is not new; nor is it restricted to Telangana. We hear it every now and then from the Shiv Sena, from activists opposing land transfer to manufacturing or mining units, as well as from political parties and intellectuals who - often, correctly - sympathise with the protesters.
It is true that unskilled and semi-skilled labourers are the most likely to be poor. However, it is also true that there are no godly, or ungodly, reasons for employers not to hire unskilled local labour. It is actually cheaper to do so, as many of the transaction costs of having to make labour move residence to the work-site are avoided. So unless entrepreneurs or employers are not profit-motivated, they will hire locally - whether skilled or unskilled.
In other words, the mindset change that is required is to stop blaming one group for another group's poverty status. The local unskilled and semi-skilled labour households are poor not because employers - especially from other states - are bad and discriminating against the local population. They are poor because they lack the skill for productive work. As far as people are driven by the desire for a better quality of life, the lack of skill requires a "collective" solution and cannot be solved by diktats thrust upon employers. By "collective" solutions I mean the institutions that generate skill - and governments are elected to provide such solutions.
How is being forced to hire locally going to help the local population, especially if every state and region in the country is implementing such policies? First, labour's incentive to move to where they will be most productive is dented. Second, the incentive to invest in skill is also dented, since they will get a job in the local market in any case. And, the local government, whose job it is to ensure that their (taxpaying) people are well fed, well nourished and well trained, will stop looking for longer-term solutions. All that we will generate is competition among myopic governments raising cut-offs for the minimum amount of local labour in semi-skilled and unskilled jobs.
As a thought experiment, suppose that the cut-off was not for semi-skilled and unskilled labour but for skilled and highly skilled labour. Most of our leaders are from such households, even though they may not have done much "labour" in their lives. So, a Bihari trained at the Indian Institute of Technology (IIT), Kanpur, will have better opportunities for a job in Bihar than, say, in Bangalore (Karnataka). The same holds true for a Tamil from the IIT, Kanpur, who would be stuck in Tamil Nadu. We would not want that. Why? However, what is patently good for us does not seem to be good for the poor. It is exactly this mindset that needs to change.
We need to ask why it is that the rich have more skills than the poor, instead of asking why the unskilled are poor. The reason is simple - it is known that being skilled has better chances of avoiding poverty. So if people are trained, the chances of them being poor are lower. And even smaller are the chances of the Andhra Pradesh entrepreneur who has a factory in Telangana discriminating against the locals.
Since Independence we have been trying to help the poor, knowing full well that we will never be among them. The moment we start realising that we could become poor too, we will start ensuring that people do not stay poor or become poor. Indeed, in a mature market society, anyone can become poor. Hence, social security institutions are developed to help people when they are poor and, most importantly, help them come out of poverty without having to wait for some smart leader to issue diktats to employers.
The mindset change being referred to here is a change from helping the poor to helping ourselves. The mindset change we are talking about involves moving away from policies for the poor to policies for us. We need to ask why the rich are not poor, rather than why the poor are poor. We will immediately understand the huge expenditure that the government incurs in the education, training, health and communication of the rich.
Think about the wonderful roads being built with no public transport so that private cars can go from place to place - so that their occupants can go to their places of work but not those who do not own cars. Look at the Delhi Metro. It is air-conditioned, has the latest technology and is highly reliable. The poor do travel on it. And so do the chief executives of many companies. Imagine what would have happened if the purpose of the Delhi Metro was to ferry the poor. We would have recreated the notorious Blueline bus experiment - only this time on tracks. The first step, therefore, is to get rid of policies targeted at the poor and make policies for citizens, whoever they may be.
The writer is research director of IDF and director of the School of Humanities and Social Sciences at Shiv Nadar University
Disclaimer: These are personal views of the writer. They do not necessarily reflect the opinion of www.business-standard.com or the Business Standard newspaper
