Monday, February 1, 2010

The challenge of job creation

Every nation is battling with this problem – how to create jobs for its people. Growth is all fine, but without jobs, there cannot be real progress. The problem with much of capitalism and economic development in the last decade has been that job creation has lagged behind growth. By definition, this leads to inequality, resentment and ultimately a backlash. The recession last year exacerbated the problem through significant job losses, especially in the developed world.

The single most important economic challenge for nations is job creation. Being unemployed is one of the most demeaning of situations for any human being. A lot of the world’s ills can be attributed to joblessness. Create full employment and hunger will largely go away, terrorism will subside, lifespans will increase, the quality of life will transform and the world will be an altogether nicer place.

But how ? A problem everybody has grappled with for a long time. Some thought socialism was the answer – only to be proved completely wrong (that hasn’t deterred many people from dreaming of it again). Does capitalism inherently not care about jobs ? What sort of policy initiatives would be sensible for nations to undertake.

This blogger strongly believes that the route to job creation is through capitalism. Many learned experts have propounded many excellent theories. I am no learned expert, but blogging is all about airing one’s views, however ill informed they may be. So, with all humility, here are some thoughts for policies that will aid job creation.

Manufacturing is key. This is the sector that has the maximum potential for job creation. Services may be sexy, but doesn’t create the same number of jobs.

Labour pricing has to be sensible. High labour cost coupled with social tariffs by governments is actually more harmful to labour than beneficial. Labour must not price out enterprise.

Labour flexibility is fundamental to job creation. Protecting jobs protects a few and excludes many, Paradoxically allowing companies to shed people, actually creates more jobs. Organised labour just does not get this.

Governments must incentivise employment, as much as they incentivise investment. Today most government policies encourage investment. But they are neutral, or even negative, towards employment.

A massive investment is called for in vocational training. In training specific skills for specific jobs. And efficient reskilling and retraining opportunities for people who lose jobs to be employable elsewhere.

Infrastructure development is a great way to create jobs. Both hard and soft infrastructure. Hard such as upgrading roads, railways, bridges, ports and soft such as education, health care, etc.

Entrepreneurship is a magic bullet. Not necessarily big start ups. The corner store, the self employed artisan, the trader, the maid – these are true entrepreneurs who create jobs for themselves. There are more jobs created this way than in the industrial sector.

Over the next few days, I'm hoping to explore each of these areas in separate posts.