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Employment and Energy

by Ajay Phatak
Employment and Energy

Dr. Romesh Wadhwani, founder of Symphony Technology Group and a philanthropist addressed the crowd of around 1000 IIT ians at a Global Business forum in Goa on October 16, 2015.  His keynote, just after audacious growth targets and expectations were set by the senior members of the IIT Bombay team and the Government representatives, was grounded in a very important but neglected parameter in India’s growth story, that is employment!

Dr. Wadhwani provided a glimpse of how disconnected the GDP growth and employment growth has been over the last few years.  At 54% GDP growth experienced during the last few years, India has experienced a mere 3% growth in employment in the similar period in the organized sector.  Forecasting this trend for the coming decade, he pointed out that India might just be able to provide  6% additional jobs even if the GDP growth achieved is in excess of 100%.   He further stressed that the key aspect of attaining better living for our large population base is a need to effectively create right opportunities for meaningful employment.

Dr. Wadhwani provided a glimpse of how disconnected the GDP growth and employment growth has been over the last few years.

I do believe that he indeed hit the nail on the head.  To be able to avoid taking the country towards social unrest due to unemployment and create well being for many more of our brothers and sisters, it is indeed the most important area that policy makers must tackle.

He further suggested areas of focus to be able to create employment, the focus was creating employment in the skilled vocational services sector  and on vocational training to fill the gap in skills. Also suggested was change in the educational paradigm to create a vocational stream right from high school level to enable them to be part of the workforce without any need for university education.  Another very crucial suggestion has been that of self-employment and entrepreneurship.  All these are excellent and welcome suggestions.

To further understand the current policy and its implications, I referred to the official policy document of the Government of India.

Moreover, when it comes to manufacturing jobs in the organized sector, it is quite clear that the factories of the future will continue to have more machines than people, more capital than labor.

This document provides a policy for skill development and entrepreneurship in the context of employment generation in coming years.  There is a reference to the demographic dividend that we can possibly derive due to aging population in the developed world and opportunities that therefore will develop for ‘younger’ India.  The issue of labor mobility is not addressed however, especially for such jobs which are overseas.  This is especially important considering many of these jobs like patient care and nursing will require working with individuals requiring such attention in their homes, or hospitals, wherever these might be.  Moreover, when it comes to manufacturing jobs in the organized sector, it is quite clear that the factories of the future will continue to have more machines than people, more capital than labor.  The latest trends in machine learning and artificial intelligence will possibly take away more jobs from the shop floor than create any.   This does not bode well for us, especially from the perspective of new job creation and meaningful employment generation.

Further, I want to provide a very important linkage between GDP growth-Industry growth-employment and energy.   This, according to me is a missing link in the warming world and the world reaching several limits (real planetary boundaries) and the world which seems to have entered the era of sixth mass extinction.

Historically, since economists started tracking real GDP growth, this has invariably tracked the energy use growth, meaning – use of more energy has been a pre-requisite for achieving economic growth. With productivity growth as the mainstay of achieving GDP growth, worldwide and also in India, it has been imperative that Industries go in for automation to produce more goods, achieve high quality at a new scale and that too with as little manpower addition as possible to do so.  This tracks well with Dr. Wadhwani’ s observation.  However this additional automation at all stages of manufacturing and sourcing means that we land up spending huge amounts of additional energy which replaces need for people – that is we trade people for energy.

Aspects of automation and energy use – while are intricately linked can be argued from two perspectives and then integrated.   On one hand automation has led to a reduction in the number of people required to achieve the same level of production and on the other it has pushed for more scale and more production as a necessity for new employment generation.  it is a well-known fact that the goods being produced at increasing scale are largely secondary goods in nature, in spite of the need for primary goods and services required by a very large population in a  country like India which is unmet.  This means, there is a need to assess the scale at which goods are produced, the type of goods produced and the number of people that should be employed at that scale.  This will give us a realistic view of methods we need to employ to grow employment commensurate with the additional need for such goods and services.

This means, there is a need to assess the scale at which goods are produced, the type of goods produced and the number of people that should be employed at that scale.

The other side of the same coin relates to how we are achieving higher production with lower workforce.  It is clear that this is entirely due to additional high density energy input like  Oil, Coal or electricity.  An automated factory needs far more [high density] energy to run than a factory which employs more simplistic methods and employs larger number of people.  What does this mean from an employment perspective? We seem to have two methods of increasing employment – first the current growth model, where we manufacture and sell more goods using automation as the means to achieve that and generate employment which is rather dis-proportionate to the increased scale of operation.  Other way to achieve this is using more fitting technology, which can generate employment equivalent to the growth in production.  It is heartening to note that certain areas where job creation will happen  include industries like handloom, services like education and skill development and personal care.   Having said that this accounts for less than 25% of the total job potential.  The statistic demonstrates that we seem to have a very large percentage of jobs in the energy intensive category.  Energy used per such job created is rather high compared to the other bucket.

If we observe the growth of energy use since 1960 in the graph provided below (Figure 1):

Figure 1:Ref: World Energy Consumption by Source, Based on Vaclav Smil estimates from Energy Transitions: History, Requirements, and Prospects together with BP Statistical Data for 1965 and subsequent years.

We easily observe that 1960 seems to be a point of inflexion when world experienced GDP growth at an accelerated pace, riding on the underlying accelerated growth in energy.  We also know that this growth is largely powered by fossil fuels and hence C02 emissions growth and pollution, things we do not want more of.

Other way to achieve this is using more fitting technology, which can generate employment equivalent to the growth in production.

Also observe the per capita increase in energy consumption below:

Figure 1A: Per capita world energy consumption, calculated by dividing world energy consumption shown in Figure 1 by population estimates, based on Angus Maddison data.

Interestingly, India – with 4 times the population of the US wants to emulate the US of the 1960’s and 70’s in terms of Industrial growth in the same fashion.  Please refer to the chart below (figure 2) which gives a glimpse of the challenge ; between 2003 and 2011 – just about 8 years – India almost doubled the use of energy.  If the same compounded growth continues, the next doubling will happen in less than 8 years.   And we have already seen that this growth has not been accompanied by corresponding increase in employment.  For that matter only 3% (or so) employment was added according to Dr. Wadhwani in this process of more than 100% growth in energy use as we can easily see from figure 2.  For me, this is a very troublesome statistic.  This does not seem to be the right approach to job creation, considering that job creation indeed must be the primary driver to ensure a functioning nation of happier people.

One suggestion is that we must move towards a service economy.  This model, if at all India can consider, only shifts the energy use somewhere else in the world.  Like US is exporting its CO2 emission to China by china producing what US produced in the 70s and US just importing the goods.  US is moving to a service economy at the expense of the world and in fact consuming more goods at less direct energy consumption and claiming credit for this as well.   The reason for this digression is to ensure that we understand the impact of moving to a service economy and that this cannot really be a solution to creating jobs, seemingly de-coupled from excessive energy use.  Having said that, there are and will be genuine service businesses which consume far lower energy than the usual manufacturing jobs.

Figure 2 Source: U.S. Energy Information Administration, International Energy Statistics, and Oxford Economics.

Every added job in the current growth oriented economic system apart from consuming substantially more energyis bound to add directly to material consumption and hence to depletion of natural resources in some way or the other.  In the process such a job is more likely to violate more boundaries and natural limits.

This means that we need to think more creatively.

Can we think of jobs which can actually build back the resources – at the very least the biotic resources?  Can we start investing in restoration of everything that we have – whether built environment or letting the ecosystems restore?

These will not only create some interesting low energy footprint jobs, but also help restore some of the nature’s key services, which can be enjoyed by the masses at a very small cost.

Now, the key question is, who will pay for these jobs?  If the government intends to provide the basic primary needs of say clean water, clean air and high quality soil, there is and will be good outlay already available with the government for these sectors.  Today, much of this money goes into trying to solve downstream problems rather than going towards the root cause.  If we decide to take the approach of re-creating, regenerating and restoring the natural capacity to provide for these needs as an important aspect of our policy for funding, there should be enough direct government funding available to be able to support such efforts on a large scale.    Funding for developing capable people, who understand the approach, the need for going to a root cause, solving the problems upstream in various regions, and have the basic skills to undertake such projects will go a long way in providing an impetus to generating significant employment largely in rural areas.

In summary, I would like to state the following:

  1. Dr. Wadhwani is absolutely right in suggesting focusing on creating meaningful employment to a very large population of working age in India.
  2. A few of his observations which reveal a stark disconnect between the GDP growth and employment growth are very valid and suggestions very useful
  3. in the current economic and industrial model any addition to the number of jobs available is strongly coupled with an increase in energy use
  4. Increasing energy use which includes a very large portion of fossil energy use (Coal and Oil) has severe side effects in terms of Global warming potential and pollution
  5. Creating a model of service economy does not really help as countries who have adapted this model only export the CO2 emissions and pollution to other countries which actually produce and export goods.
  6. We must explore a model of ‘restoration’ of nature and possibly the built environment as well, to create jobs. These jobs are likely to be larger in number and much less energy intensive.  (Ref: Restoration economy)
  7. These jobs will help restore ecosystems and hence ecosystem services, which will make these services available to the masses at a very low cost.
  8. Numbers of such employment opportunities in India are plentiful, considering we already have degraded our environment and ecosystems to be great degree. We can look at this as an opportunity to work in restoring these for economic and social benefits.

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