💥Join UPSC 2027,2028 Mentorship (July Batch) + XFactor Notes & Microthemes PDF
Talk to Mentor

Civilsdaily

Login

GS Paper: GS3-02.Inclusive growth and issues therein

  • Telangana’s Dalit Bandhu Scheme

    Telangana CM has recently been informed to spend Rs 80,000 crore to Rs 1 lakh crore for Dalit Bandhu Scheme, touted as the country’s biggest direct benefit transfer scheme, to empower Dalits across the state.

    Dalit Bandhu Scheme

    • Dalit Bandhu is the latest flagship program of the Telangana government.
    • It is envisioned as a welfare scheme for empowering Dalit families and enable entrepreneurship among them through a direct benefit transfer of Rs 10 lakh per family.
    • This is, once implemented on the ground, going to be the biggest cash transfer scheme in the country.
    • Apart from monetary assistance, the government plans to create a corpus called the Dalit Security Fund permanently to support the beneficiary in the event of any adversities.
    • This fund will be managed by the district collector concerned, along with a committee of beneficiaries.
    • The beneficiary would be issued an identity card with an electronic chip, which will help the government monitor the progress of the scheme.

    Where is the scheme being implemented?

    • The CM decided to implement it on a pilot basis in the Huzurabad Assembly constituency.
    • Based on the experiences of implementation in Huzurabad, the scheme will be rolled out across the state in a phased manner.
    • Officials were asked to visit Dalit colonies and interact with Dalit families to find out their views and opinions before preparing guidelines for the scheme.
    • The pilot project will focus on monitoring the implementation of the scheme, evaluating the results, and also creating a safety fund for the beneficiaries with the government’s participation.

    How is Dalitha Bandhu being implemented?

    • The CM has ensured that the Dalit Bandhu is free.
    • The governments in the past came out with some schemes and asked for bank guarantees.
    • This is not a loan. There is no need to repay it. There is no chance of any involvement of middlemen.
    • To promote Dalit entrepreneurship, the government has decided to start a system of reservations for Dalits in sectors where the government issues licenses.
    • The government will provide reservations for Dalits in issuing licenses for wine shops, medical shops, fertilizer shops, rice mills, etc.

  • Microfinance institutions

    The microfinance institutions (MFI) faced several restrictions by RBI which were not applicable to banks, NBFC and small finance banks. This denied the MFIs level playing field. A recent Consultative document by the RBI frees MFIs from such restrictions. The article explains this in detail.

    Background of regulation of MFI’s  by RBI

    • RBI first allowed informal self-help groups to open savings accounts in banks and bank lending to these groups in 1991-92.
    • In 2000, RBI permitted all types of institutions to offer microcredit and bank loans extended to these institutions for on-lending were treated as part of the priority sector lending.
    • Beyond these, RBI was unwilling to bring in any regulations on the plea that as long as these are not deposit-taking institutions there is no need to regulate them. 
    • That was the stand of various RBI-appointed committees too, including the Vyas Committee of 2004.
    • Based on the Malegam Committee recommendations, RBI came out with detailed guidelines for microfinance institutions (not the microfinance sector) in 2011.
    • These guidelines introduced a new category of NBFCs, viz NBFC-MFIs (microfinance institutions).
    • It also set norms for income criteria for clients of MFIs, repayment period, borrower loan limits, interest rate norms and caps, limits on a number of lenders to a borrower and a host of other norms and criteria.

    How these norms created the issue of a level playing field?

    • After 2015-16, the entry of small finance banks, eight of which were MFIs, into the microfinance space started to create issues.
    • MFIs discovered to their dismay that while they had to adhere to a set of regulations, it was a free-for-all for non-MFIs (banks, SFBs and NBFCs).
    • The main issue was that non-MFIs need not adhere to the norm of number of lenders (two in the case of NBFC-MFIs) and per-borrower loan limits.
    • It prompted non-MFIs to target borrowers identified and nurtured by MFIs with higher loan amounts, leading to high levels of borrower indebtedness.
    • In addition, the interest rate cap (2.75 times the base rate declared quarterly by RBI) was squeezing the margins of small and medium MFIs, as none of them get loans from the biggest banks.

    Way forward

    • The recent Consultative Document by RBI frees MFIs from the restriction imposed by the 2011 regulations and gives them a level-playing field.
    • Another important feature for MFIs is that by doing away with the 50% income generation loans criteria and the repayment period norms.
    • RBI is facilitating credit flow into lifecycle needs like housing, water sanitation, education, health, renewable energy, etc, which are now as important as income generation.
    • On the interest rate front, initially, some upward correction could be there by medium and small MFIs based on their borrowing rates.
    • The document enhances the role for the regulator as the adoption of Board-approved policies to determine the norms of household indebtedness and to fix a transparent rate of interest by each institution and their implementation need a rigorous supervisory oversight

    Conclusion

    Providing a level playing field to the MFI is critical to their development, the document by RBI rightly does that. It will help in providing credit to those who remain outside the formal banking network.

    Source:

    https://www.financialexpress.com/opinion/unfettering-microfinance-recent-rbi-consultative-document-frees-mfis-from-shackles-imposed-by-2011-regulations/2277925/

  • World Employment and Social Outlook: Trends 2021

    The report titled World Employment and Social Outlook was recently released by the International Labour Organization (ILO).

    About the report

    • The report analyses the impact of the crisis on the labour market across the world.
    • It offers projections for recovery and gives details of the unequal impact of the crisis on different groups of workers and enterprises and calls for a broad-based human-centred recovery.

    Findings of the report

    • There has been an unprecedented disruption to labour markets worldwide due to the COVID-19 pandemic, which has affected the lives of the younger generation and brought about disruption to their education.
    • Also made it more difficult for them to enter the labour market and hold on to their jobs.
    • The pandemic worsened long-standing inequalities with many women workers dropping out of the labour force.
    • For informal and low-skilled workers, working from home was not an option.
    • Many had to face huge health risks to keep their jobs, often with no access to social security benefits.

    Major highlights of the report

    • Global unemployment is expected to be at 205 million in 2022, surpassing the 2019 level of 187 million.
    • The jobs shortfall induced by the novel coronavirus disease (COVID-19) pandemic was 75 million in 2021 and is expected to be 23 million in 2022.
    • An estimated additional 108 million workers and their family members now live in poverty.

    The long road to recovery

    • The recovery would remain fragile in many countries due to the uneven rollout of vaccination campaigns and higher levels of public debt and deficits that would make it difficult to tackle the effects of the pandemic.
    • There is an urgent need to build back better — create productive employment opportunities and foster long-term labour market prospects for the most vulnerable.
    • There is a need to strengthen social protection schemes like the MGNREGS in India and make sure nobody is left behind.
    • This would require strong institutions and social dialogue and strong international cooperation to fight global disparities.

  • COVID & Economic Inequality

    Pandemic hit hard the lives, livelihood and the economy. It has also worsened income inequality. The article deals with the issues of impacts of pandemic and suggests ways to revive growth the deal with income inequality.

    Need to address growth and inequality issue

    • The second wave of the pandemic is spreading to rural areas also.
    • It is known that rural areas have poor health infrastructure.
    • Similar to the first wave, inequalities are also increasing during the second wave.
    • The country has to address the issue of rising inequalities for achieving higher sustainable growth and the well-being of a larger population.
    • According to the State of Working in India 2021 report of the Azim Premji University, the pandemic would push 230 million people into poverty.
    • CMIE data shows a decline in incomes and rising unemployment during the second wave.
    • U-shaped impact: The recent RBI Bulletin says that the impact of the second wave appears to be U-shaped.
    • In the well of the U are the most vulnerable — blue collar groups who have to risk exposure for a living and for rest of society to survive.

    K-shaped recovery and rising inequality

    • The recovery seemed to be K-shaped during the first wave.
    • The share of wages declined as compared to that of profits.
    • A large part of the corporate sector managed the pandemic with many listed companies recording higher profits.
    • On the other hand, the informal workers including daily wage labourers, migrants, MSMEs etc. suffered a lot with loss of incomes and employment.
    • The recovery post the second wave is also likely to be K-shaped with rising inequalities.

    Policies needed for higher growth and reduction in inequality

    1) Vaccination and healthcare facilities

    • An aggressive vaccination programme and improving the healthcare facilities in both rural and urban areas is needed.
    • Reducing the health crisis can lead to an economic revival.
    • Vaccine inequality between urban and rural areas has to be reduced.
    • The crisis can be used as an opportunity to create universal healthcare facilities for all, particularly rural areas.
    • Other states can learn from Kerala on building health infrastructure.

    2) Investment in infrastructure

    • The budget offered some good announcements relating to capital investment in infrastructure.
    • The Development Financial Institution (DFI) for funding long-term infrastructure projects is being established.
    • This can revive employment and reduce inequalities.
    • The government has to fast track infra investment.

    3) Safety net for vulnerable

    • The informal workers and other vulnerable sections including MSMEs have been dealt back-to-back blows due to the first and second waves.
    • A majority of workers have experienced a loss of earnings.
    • Therefore, the government has to provide safety nets in the form of free food grains for six more months, expand work offered under MGNREGA in both rural and urban areas.
    • The government also need to undertake a cash transfer to provide minimum basic income.

    Policies for growth

    • Focus on demand: On economic growth, the RBI Bulletin says that the biggest toll of the second wave is in terms of a demand shock as aggregate supply is less impacted.
    • Investment: In the medium term, the investment rate has to be increased from the present 30 per cent of GDP to 35 per cent and 40 per cent of GDP for higher growth and job creation.
    • Export: It is one of the main engines of growth and employment creation.
    • There is positive news on exports as the global economy is reviving.
    • Protectionist trade policy: In recent years India’s trade policy has become more protectionist and the country has to reduce import tariff rates.
    • Role of fiscal policy: In the near term, fiscal policy has to play a more important role in achieving the objectives of growth, jobs and equity by expanding the fiscal space by restructuring expenditure, widening the tax base and increasing non-tax revenue.

    Consider the question “Two waves of the Covid pandemic have worsened the inequality. India has to address the issue of rising inequalities for achieving higher sustainable growth and the well-being of a larger population. Suggest the policies that India should follow for higher growth and reduction in inequality.”

    Conclusion

    Vaccination, expansion in rural healthcare and cash transfers should be part of the strategy to boost demand and address inequalities.

  • Laws that have distorted agriculture and labour markets need to go

    The article suggests the two steps to ensure growth while protecting the poor. The first is the creation of social safety net and next is factor market reforms.

    Issue of farmers’ income

    • An Indian engaged in industry or any aspect of the services sector (this includes a waiter in a restaurant) earns more than an average farmer.
    • This is an anomaly.
    • So, despite all the pro-farmer laws and protection, why do farmers in India earn less?
    • A recent study by RBI showed that across all crops, the farmgate price is 40-60 per cent less than the consumer price.
    • The real challenge is how to encourage growth while protecting the poor.

    Encouraging growth while protecting the poor: 2 steps

    • 1) A social safety net needs to be created to provide direct income transfers to the vulnerable.
    • 2) Factor markets involving labour and agricultural land need to be reformed to ensure productivity-enhancing growth.
    • Only way to ensure growth which benefits the poor is through employment creating in the manufacturing and services sector.

    1) Social safety nets in India

    • Despite a narrow tax base, India has created a comprehensive social safety net, which can cushion growth-enabling market reforms.
    • Accurate targeting under India’s Food Security Act to the bottom 67 per cent through Aadhaar identification and digital ration cards paired with E-POS machines has considerably reduced the leakage of subsidised grains.
    • The National Social Assistance programme intends to provide direct income support to over 40 million elderly landless agricultural workers, poor women-headed households and families with physically-challenged children.
    • India also provides income support annually to 145 million farmers, paying out Rs 75,000 crore.
    • This benefits all farmers while MSP benefits only 6 per cent of farm produce.

    2) Factor market reforms

    • If state support for social safety net has to become sustainable, wide-ranging growth, which will broaden the tax base, is essential.
    • India’s growth itself can be designed to reduce the number of people who need state support.
    • The agriculture and labour reforms recently passed create the conditions for productivity-enhancing growth, benefiting millions of small farmers and unorganised workers.

    Let us take a look at what the farm laws achieve and how they will change the status quo

    1) Amendment to Essential Commodities Act

    • The stock limits under the Essential Commodities Act do not enable large tur or moong and rice processors to procure in bulk for their entire season’s processing requirements.
    • This restricts large-scale processing units which can run throughout the non-harvest season.
    • This draconian anti-farmer rule has now been done away with.
    • This will enable the expansion of agro-processing and supply chains.
    • A larger share of the produce procured for agro-processing increases its shelf life, enabling the farmer to retain a greater value.
    •  30-40 per cent of the post-harvest value, particularly in vegetables and fruits, is lost due to inadequate storage, processing and transportation facilities.
    • Removal of stock limits and the accompanying contract farming act will bring in investments to tap the wasted resource.

    2) APMC regulation

    • The second law, removes another distortion: Only traders registered in APMCs can buy farmers produce.
    • Even though conditions for perfect markets exist, the APMC regulation creates this bottleneck.
    • Intermediaries extract a greater share of value as they are price makers while farmers are price takers.
    • This situation is further aggravated as farmers are restricted to selling within the taluka boundaries or limits of the APMC, and if they have to sell in other APMC, they have to pay the APMC tax.
    • The Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Bill 2020 confines the authority of the APMC to levy fees and give trader licences within the boundary of the market yard.
    • Farmers will continue to have the option to sell in APMCs but any private market/non-APMCs registered trader can also set up an agricultural market and compete with APMCs to buy the same produce.
    • Karnataka implemented the Uniform Market portal in 2014, enabling trade across taluka APMC limits without APMC fees.
    • An analysis by researchers at the MIT Sloan School of Management has shown that prices of many agricultural goods increased by 3.5 to 5.1 per cent.
    • Significantly, profit margins of small farmers increased by more than 36 per cent.

    Labour reforms

    • Apart from agriculture, the abundance of labour is the second greatest comparative advantage of India.
    • However, multiple labour laws instead of encouraging employment, have created disincentives for job creation due to high costs of compliance.
    • While India’s employment elasticity with respect to GDP growth is only 0.2, China’s is at 0.44. Even for Bangladesh, the elasticity is 0.38.
    • India’s path-breaking labour reforms leverage the true comparative advantage of the country’s factor endowments to promote growth with higher employment elasticity.
    • The old labour laws protected existing jobs at the cost of preventing new job creation through creative destruction.
    • Bangladesh has shown the way to increase formal jobs by legalising fixed-term employment and banning union activity in FDI industries.
    • Raising the threshold for seeking prior permission for laying off workers will enable capital and land locked in sunset industries to move freely to new sunrise industries.

    Consider the question “An Indian engaged in industry or any aspect of the services sector earns more than an average farmer. What are the factors responsible for this anomaly? Suggest ways to achieve growth that could ensure sustainable safety net?”

    Conclusion

    The need of the hour is to continuously communicate with those unhappy with the reforms to explain how the current status quo is hurting farmers and informal workers.

  • ‘The Inequality Virus’ Report

    The ‘Inequality Virus Report’ was recently released on the opening day of the World Economic Forum in Davos.

    About the report

    • The Inequality Virus Report was released by Oxfam.
    • It inquired into different forms of inequities, including educational, gender and health during the pandemic.

    Highlights of the report

    ‘Rise’ in wealth

    • Indian billionaires increased their wealth by 35% during the lockdown to ₹ 3 trillion, ranking India after the U.S., China, Germany, Russia and France.
    • The wealth of just the top 11 billionaires during the pandemic could easily sustain the MGNREGS or the Health Ministry for the next 10 years, stated the report.
    • A person (no citation needed!) who emerged as the richest man in India and Asia, earned ₹90 crores an hour during the pandemic when around 24% of the people in the country were earning under ₹ 3,000 a month during the lockdown.
    • The increase in his wealth alone could keep 40 crores, informal workers, out of poverty for at least five months, said the report.

    Observations made

    Health: Only 6% of the poorest 20% have access to non-shared sources of improved sanitation, compared to 93.4 % of the top 20 %.

    Education: Till October, 32 crores students were hit by the closure of schools, of whom 84 % resided in rural areas and 70 %attended government schools. Dalits, Adivasis and Muslims were likely to see a higher rate of dropout. Girls were also most vulnerable as they were at risk of early and forced marriage, violence and early pregnancies, it noted.

    Gender: Unemployment of women rose by 15% from a pre-lockdown level of 18 %, which could result in a loss of India’s GDP of about 8 % or ₹15 trillion. Women who were employed before the lockdown were also 23.5 percentage points less likely to be re-employed compared to men in the post lockdown phase.

    Recommendations

    • It recommended reintroducing the wealth tax and affecting a one-time COVID-19 cess of 4% on taxable income of over ₹10 lakh to help the economy recover from the lockdown.
    • According to its estimate, a wealth tax on the nation’s 954 richest families could raise the equivalent of 1% of the GDP.

  • What is The Great Reset?

    This news card is an excerpt from the original article published in The Indian Express and is articulated by C. Raja Mohan.

    The Great Reset

    • The Great Reset is a proposal by the World Economic Forum (WEF) to rebuild the economy sustainably following the COVID-19 pandemic.
    • It was unveiled in May 2020 by the United Kingdom’s Prince Charles and WEF director Klaus Schwab.

    The basis for the said reset

    • It is based on the assessment that the world economy is in deep trouble.
    • Schwab has argued that the situation has been made a lot worse by many factors, including the pandemic’s devastating effects on global society, the un- folding technological revolution, and the consequences of climate change.
    • He demands that the world must act jointly and swiftly to revamp all aspects of our societies and economies, from education to social contracts and working conditions.
    • Every country must participate, and every industry, from oil and gas to tech, must be transformed.

    Agenda behind

    The agenda of The Great Reset touches on many key issues facing the world a/c to C Raja Mohan. Three of them stand out as:

    First is the question of reforming capitalism

    • The WEF has been at the forefront of calling for “stakeholder capitalism” that looks beyond the traditional corporate focus on maximizing profit for shareholders.

    Second, it is certainly right to focus on the deepening climate crisis

    • Climate skeptics have been ousted from Washington and President Biden has rejoined the 2015 Paris accord on mitigating climate change.

    The third is the growing difficulty of global cooperation

    • The era of great power harmony that accompanied the liberalization of the global economy at the turn of the 1990s has yielded place to intense contestation. The contestation is not just political but increasingly economic and technological.

  • PM-KISAN payout wrongly made to ineligible beneficiaries

    PM-KISAN payments worth ₹1,364 crores have been wrongly made to more than 20 lakh ineligible beneficiaries and income tax payer farmers.

    Try this PYQ:

    Q.Under the Kisan Credit Card Scheme, short-term credit support is given to farmers for which of the following purposes? (CSP 2020)

    1. Working capital for maintenance of farm assets
    2. Purchase of combine harvesters, tractors and mini trucks
    3. Consumption requirements of farm households
    4. Construction of family house and setting up of village cold storage facility
    5. Construction of family house and setting up of village cold storage facility

    Select the correct answer using the code given below:

    (a) 1,2 and 5 only

    (b) 1,3 and 4 only

    (c) 2,3,4 and 5 only

    (d) 1, 2, 3 and 4

    PM-KISAN

    • The Pradhan Mantri Kisan Samman Nidhi Yojana (PM-Kisan Yojana) is a government scheme through which, all small and marginal farmers will get up to Rs 6,000 per year as minimum income support.
    • Under the PM-KISAN scheme, all landholding farmers’ families shall be provided with the financial benefit of Rs. 6000 per annum per family payable in three equal instalments of Rs. 2000 each, every four months.
    • The definition of the family for the scheme is husband, wife, and minor children.
    • State Government and UT administration will identify the farmer families which are eligible for support as per scheme guidelines.
    • The fund will be directly transferred to the bank accounts of the beneficiaries.

    Why in news?

    • When it was launched just before the general election in 2019, it was meant to cover only small and marginal farmers who owned less than two hectares.
    • Later that year, large farmers were included in the scheme as the government removed land size criteria.

    Certain exclusions

    • However, certain exclusions remained.
    • If any member of a farming family paid income tax, received a monthly pension above ₹10,000, held a constitutional position, or was a serving or retired government employee, they were not eligible for the scheme.
    • Professionals and institutional landholders were also excluded.

    Who are NOT eligible for PM-KISAN?

    The following categories of beneficiaries of higher economic status shall not be eligible for benefit under the scheme.

    • All Institutional Landholders.

    Farmer families that belong to one or more of the following categories:

    • Former and present holders of constitutional posts
    • Former and present Ministers/ State Ministers and former/present Members of Lok Sabha/ Rajya Sabha/ State Legislative Assemblies/ State Legislative Councils, former and present Mayors of Municipal Corporations, former and present Chairpersons of District Panchayats.
    • All serving or retired officers and employees of Central/ State Government Ministries
    • All superannuated/retired pensioners whose monthly pension is Rs.10,000/-or more. (Excluding Multi-Tasking Staff / Class IV/Group D employees) of the above category
    • All Persons who paid Income Tax in the last assessment year
    • Professionals like Doctors, Engineers, Lawyers, Chartered Accountants, and Architects registered with Professional bodies and carrying out the profession by undertaking practices.

    Note: It is not so easy to remember all such exclusions. But one must be able to recognize them by applying pure logic and thumb rule. This can be well understood from the PYQ given.

  • Putting India-U.S. trade ties on new footing

    After tumultuous years of Trump administration in trade policies, the article examines the new possibilities under the next U.S. President in trade ties with India.

    Approach towards WTO and India

    • The new U.S. administration will have more constructive stance on multilateral issues in the World Trade Organization (WTO).
    • The Trump administration went out of its way in seriously undermining WTO institutions when the organisation was already in need of reform and new direction.
    • The Biden administration is less likely to engage in unilateral tariff increases and more likely to pursue remedies in the WTO.
    • In case of India, the Trump administration it pursued an aggressive approach to resolve market access concerns through threats to eliminate India’s benefits under the Generalized System of Preferences programme.
    • However, the follow-through was weak.
    • The administration was on the brink of concluding a historic bilateral trade deal, yet it lost focus.

    5 likely developements

    • 1) It is clear that Mr. Biden plans to focus on domestic concerns first.
    • There may be trade aspects to some of these efforts, but they may have limited early relevance for a future U.S.-India trade policy.
    • 2) Two, as it turns to trade policy, the Biden administration is not likely to place India among its top few priorities.
    • Among top priorities will include formulating its approach with China, such as finding alternatives to the Regional Comprehensive Economic Partnership to set new global standards that address China’s practices.
    • That said, India should be among the priorities at the next level down.
    • 3) The trade deal still pending with the Trump administration remains compelling.
    • There could be an early opportunity to conclude these negotiations and for the Biden administration to get credit.
    • A bilateral deal will not lead to serious consideration of FTA negotiations any time soon.
    • But this first trade agreement could pave the way for later additional small agreements.
    • 4) The existing Trade Policy Forum (TPF) met only once over the last four years.
    • It seems likely that the Biden administration will see the TPF’s value as a venue for more regular discussions on a range of trade issues.
    • 5) A reinvigorated TPF will present new opportunities for the two countries to take up a range of cutting-edge trade issues that will be critical in determining whether the U.S. and India can converge more over time or will drift further apart.
    • These include digital trade issues, intellectual property rights and approaches to nurturing innovation, better health sector alignment, and more regular regulatory work on science-based agricultural policies.

    Conclusion

    The future looks bright for U.S.-India trade under a Biden administration, but that does not mean it will be any easier. It will be critical for leadership on both sides to commit to strong efforts to put the trade relationship on a new footing, which will have to involve a ‘can-do’ attitude to solving problems.

    Back2Basics: Trade Policy Forum

    • It was established in 2005.
    • The Forum is part of the overall United States-India Economic Dialogue, replacing the Trade Policy Working Group pillar.
    • It  convenes on a regular basis.
    • The Forum provides an opportunity to work together to expand trade between the two countries.
    • The agenda could cover the following subjects: tariff and non-tariff trade barriers; foreign direct investment; subsidies; customs procedures; standards, testing, labeling and certification intellectual property rights protection; sanitary and phytosanitary measures; government procurement; and services.

  • Fixing the rules of economy

    The article discusses the three fundamentals which need an examination to fix the issues faced by the economy. 

    Re-examining the fundamentals

    • India has an incomes crisis: incomes of people in the lower half of the pyramid are too low.
    • The solutions economists propose are: free up markets, improve productivity, and apply technology.
    • These fundamentals of economics must be re-examined when applied to human work.

    Three solutions and issues with them

    1) Freeing up the markets

    • It is suggested that markets should be freed up for agricultural products so that farmers can get higher prices; and freed up for labour to attract investments.
    • Without adequate incomes, people cannot be a good market for businesses.
    • In fact, it is the inadequate growth of incomes that has caused a slump in investments.
    • Ironically, the purpose of freeing up markets for labour is to reduce the burden of wage costs on investors just when wages and the size of markets must be increased.

    2) Increasing productivity

    • Productivity is a ratio of an input in the denominator and an output in the numerator.
    • The larger the output that is produced with a unit of input, the higher the productivity of the system.
    • Improvement of ‘productivity’ is key to economic progress.
    • Economists generally use labour productivity as a universal measure of the productivity of an economy.
    • Humans are the only ‘appreciating assets’ an enterprise has. They can improve their own abilities.
    • The values of machines and buildings depreciate over time, as any accountant knows.
    • Whereas human beings develop when they are treated with respect, and are provided with environments to learn.
    • For capital-scarce and human resource-abundant countries, such as many developing countries, the correct ratio of productivity is output per unit of capital.
    • This must be the driver of business as well as national strategies.
    • This was the strategy of ‘Japan Inc.’ to make Japan an industrial powerhouse.
    • This was E.F. Schumacher’s insight also.

    3) Use of technology

    • Schumacher, best known for his seminal idea ‘small is beautiful’ understood where capitalism powered with technology would be heading.
    • In his essay he wrote: “If we define the level of technology in terms of ‘equipment cost per work-place’, we can call the indigenous technology of a typical developing country (symbolically speaking) a £1-technology, while that of the modern West could be called a £1,000-technology.
    • The current attempt of the ‘developing ‘countries, supported by foreign aid, to infiltrate the £1,000-technology into their economies inevitably kills off the £1-technolgy at an alarming rate.
    • This results in destroying traditional workplaces at a much faster rate than modern workplaces can be created and producing the ‘dual economy’ with its attendant evils of mass unemployment and mass migration.
    • Schumacher had warned there was a malaise brewing beneath the drive to ‘Westernise’ and ‘technologise’ economies.

    Way forward: Social contract between society and workers

    • Workers provide the economy with the products and services it needs.
    • In return, society and the economy must create conditions whereby workers are treated with dignity and can earn adequate incomes.
    • Good jobs require good contracts between workers and their employers.
    • Therefore, the government should create a good society for all citizens, must regulate contracts between those who engage people to do work for their enterprises, even in the gig economy.
    • Goverment should push innovation in socially more beneficial directions to augment rather than replace less skilled workers.

    Conclusion

    The power balance must shift. Small enterprises and workers must combine into larger associations, in new forms, using technology, to tilt reforms towards their needs and their rights.