How Did They Work That One Out?
A recent UNDP report, reported here in The Guardian, says that trade and globalization are creating unemployment. How did they work that one out?
OK, so it's never a good thing to dismiss a report that tells you something you don't want to hear. But I find it hard to understand how development is creating unemployment.
Technology, on the other hand, does reduce the manpower required - robots, for example, mean that one worker can do the job of 10 on a motor vehicle production line - but the spread of technology is inevitable unless you actually want to go backwards. And I'm pretty sure that a reversion to labour-intensive production is not going to improve poverty, human rights or the economy - it'll probably make it less competitive.
I think that somewhere in the writing of the report some politics have come into play. It's not just the information you find, it's how you present it. The report will probably provide much-needed ammunition for the nostalgic rearguards of the 'Licence Raj' and the 'Planned Economy' in India and China, neither of which did anything for the people but bind them into a poverty trap for decades.
Of course capitalism creates inequality. But eventually, as some grow rich, their capital will create more jobs in service industries and new ventures financed by success. Marx has already been proven to be deeply and utterly wrong - why this enduring affection for his ideas? Development is freedom - it just takes time.
In conclusion though, the article does pick out the good advice buried in the research:
The UNDP human development report calls for greater investment in rural development. It also says that the region's huge foreign exchange reserves - which are seen as protection against another Asian financial crisis - could be better invested in health, education and physical infrastructure, and to help ease the oil price shock in poorer countries.
Exactly. It's not development and trade that are creating unemployment - it's government reluctance to invest in sustaining the boom. China is well ahead of India when it comes to creating masses of jobs in infrastructure: Manmohan Singh needs to utilize the current warmth from the US to attract foreign cash and expertise to build badly needed electricity, communications and transport networks. And education is the real equalizer - give a man a fish and you feed him for a day, teach a man to fish...
Reproduced below: hopefully the report itself will soon become available here.
Growth in jobless a problem for Asia as exports surge
· Switch to hi-tech trade boosts unemployment
· UN report says young and women are hardest hit
Maseeh Rahman in New Delhi
Asia's economic boom may have generated formidable wealth in the region's most robust economies in recent years, but the surge in exports has resulted in a rise in inequality, higher unemployment, and persistent food insecurity, according to a UN report published today.
The UN development programme's report says that trade liberalisation has resulted in "jobless growth" in some parts, particularly in east Asia, and has had a severe impact on agriculture.
The report found that despite formidable growth rates in China and the surge in exports from the region, young people still face chronic unemployment problems. Fewer jobs were created in the Asia-Pacific region in the 1990s - 176m - compared with 337m in the 1980s, the report found. As a result, overall unemployment in the region shot up from 3.9% to 6.3%, even though manufacturing output went up by almost 180%.
The main burden of unemployment has fallen on young people: in 2004, while those aged 15-24 made up one-fifth of the labour force, they constituted nearly half of the unemployed.
Women too have lost out: in most countries their unemployment rates are higher than men's. "The fact that Asian agriculture has not performed well is at the heart of the story," UNDP's Asia-Pacific director, Hafiz Pasha, told journalists in New Delhi prior to the release of the report, Trade on Human Terms, which assesses the impact of Asia's phenomenal export-led growth on people's lives. "Over half a billion people still go hungry in our region, more than in any other part of the world."
At the same time, the problem of jobless growth has been acute in the booming economies of East Asia, with the worst scenario in high-trade countries such as China and Singapore, where unemployment rates have increased substantially. The principal cause has been the shift in manufacturing from low-tech, labour-intensive industries, such as garments and leather, to hi-tech and more capital-intensive ones, such as electronics.
"China's economy grows at 10%; its employment grows at 1%," said Mr Pasha.
Even the IT offshoring boom in Asia has had its adverse effects, the report said, citing the adverse health effects of night work and the way the industry is clustered around certain cities, increasing regional disparity. "The experience of the Asia-Pacific region has clearly demonstrated that trade by itself cannot address inequalities; indeed, it may well make them worse," the report said.
Another disturbing outcome of the rapid increase in trade, says the report, has been the rise in income inequality. "Countries which have grown faster have become unequal faster," said Mr Pasha. "And in China, the rural-urban gap has increased phenomenally. In this context, the redistribution policies of governments become extremely important, but we have not seen the kind of concern that is needed," he added.
Nevertheless, the report shows a substantial decline in poverty. Between 1990 and 2001 the number of people living on less than $1 a day dropped by nearly a quarter of a billion. But less developed countries such as Laos or Nepal have had less success on this front. Thirty-eight per cent of the population in these countries lives below the poverty line, compared with 22% in the more developed ones.
The UNDP human development report calls for greater investment in rural development. It also says that the region's huge foreign exchange reserves - which are seen as protection against another Asian financial crisis - could be better invested in health, education and physical infrastructure, and to help ease the oil price shock in poorer countries.
Comments
Philip,
I found the report online here. I know you were writing this based on a press story of a discussion of the report, so some of this is clarification and some of it is response to your thoughts.
1) First, I don't think the report is calling for a closing of borders or end of trade, simply a closer examination of "what impact will this have on people’s lives – on their incomes, their health, their levels of education and their future prospects, on who they are and what they can become?" It also - like you - notes that "globalization will continue to power ahead" and is attempting to begin thinking about how we manage that impact, not overturn it.
2) You are right to note that it is "hard to understand how development creates unemployment." Trade however is another story (you should ask someone in Ohio their view on the issue), and while it may seem "hard to understand" from an econ 101 perspective, the reality is that despite sustained per capita growth unemployment in Asia has gone from 3.9% to 6.3% - a 50% increase - over the last decade. Of course, if we assume as you do that trade creates inequality (which happens to be a position I share), then I am not sure why it would be counterintuitive or even matters that unemployment is growing.
3) "The report will probably provide much-needed ammunition for the nostalgic rearguards of the 'Licence Raj' and the 'Planned Economy' in India and China, neither of which did anything for the people but bind them into a poverty trap for decades." First, I think you need to stop giving the nostalgic rearguard in China ammunition by suggesting that India should follow their 'planned economy' lead of "creating masses of jobs in infrastructure". Second, while the authors may be constrained from directly calling out certain governments and their policy, the report clearly states that it is globalization which has created their recent growth. As far as supporting state manipulations, the report lists seven recommendations: investing in the future, strategic trade policies (like the US and UK have), focus on agriculture (like the EU does), combatting joblessness, new tax regimes, realistic exchange rate regimes (yes they're talking to you China), sticking with the WTO and regional agreements to continue opening trade. Which of those would Adam Smith or David Ricardo oppose?
4) The "it just takes time" approach to development sounds great, but a) the people who are unemployed tend to disagree, and b) for those with an interest in global security, the last thing anyone wants to see is China or Pakistan trying to figure out what to do with 100m angry and unemployed teenagers.
*full disclosure: I work in international development on projects in central Africa and Pakistan, and admit a bit of bias towards over valuing the here and now.
Posted by: David | June 30, 2006 4:30 PM
Firstly, many thanks for your lengthy comment on my blog - it's extremely useful to learn another angle on what I was discussing, and also very flattering that you took the time to write such a long retort.
It seems, if anything, that we are broadly aligned. Admittedly it was very restrictive trying to analyse the report through the Guardian's biased lens so I stand corrected on some of the points you raise. However, on a couple I'd like to defend myself.
For example, when we consider the term 'unemployment', what does it really mean? It's fairly clear in Europe and the US, but there are ways of massaging the rules - eg. perhaps one year a rural labourer who works two hours a day is considered employed and another year he is not. Globalization not only creates and destroys jobs but it also changes job patterns. So what do the figures really mean? That's one thing I'd like to clarify for myself by reading the report properly.
On point 3 I think you misunderstand. I'm not calling for India to follow a planned economy at all, but merely for it to actually kill two birds in one stone: sort out the painfully poor infrastructure, something it has to do if it wishes its development to continue further, and create millions of jobs in the process. I speak as the son of a man who is dedicating his post-retirement career to realising this ambition, and I've seen India's infrastructure for myself several times in the last 20 years - it's got to be done. China's cities, on the other hand, may not be perfect but they are a damn sight better than India's - again I speak from experience having lived in China for a couple of years.
However, the rest of what you say I agree with entirely - development does take time but there are things that governments could be doing in the interim to improve the lot of the people. And the recommendations, which I have not read before, are all completely sound.
Posted by: Philip Sen | June 30, 2006 11:47 PM