Universalise Public Services, Fund Job Guarantee, Provide Generous Income Support’
Fadhel Kaboub, Associate Professor of Economics at Denison University.Image Courtesy:Denison University Website
Modern Monetary Theory (MMT) is an alternative economic framework that challenges the conservative neo-liberal narrative of ‘free trade’ and ‘competition’ which has held sway for many
decades as the way to global prosperity. Fadhel
Kaboub, Associate Professor of Economics at Denison University, Ohio (US), and President of the Global Institute for Sustainable Prosperity, and a leading voice in the global MMT community, explains why and how India should urgently pivot to an alternative framework of development that leaves no one behind, in the second part of this interview with Sowmya Sivakumar. “India can ‘afford’ it, he says. Edited excerpts:
Sowmya Sivakumar: You have explained that MMT is about increasing productive capacity and regulating market power. The Indian government is making all the right noises about ‘self-reliance’ in manufacturing, that too high value-added. But it is doing so mainly through incentivising the private sector – and in the case of energy – mainly 2-3 large players. Doesn't that go against the second MMT prescription of reigning in market power?
Fadhel Kaboub: Good observation. India has the advantage of having a large internal market, so manufacturing can be scaled up to the point that per unit cost actually reduces. Industries can serve the internal market primarily, without having to rely on finding export markets and competing with other manufacturers globally.
Which means, the role of the government here is to balance the possibility for manufacturers to reach economies of scale and other efficiencies, without creating monopolies or duopolies. And then, of course, you aim for international competitiveness.
Typically, you see any attempt by the government to create new industries is immediately hijacked by pre-existing business elites that are already established in some other sector, and want to take advantage of this new industry, and reinforce their power and influence in politics and in the economy. That is not what we want to see as progress.
So, it is really a question of democracy and democratic processes. Is the government acting as an arbiter of fair competition? Is Parliament and are the ministries paying attention to the issue of market power and ensuring checks and balances every time a new government programme is introduced? This is where non-profit organisations, pro-democracy watchdogs and transparency organisations have to really double their efforts in this transition to renewable energy or any new industry, to make sure that we're not setting up the system to create a new business oligarchy of corrupt manufacturing in these sectors that simply replaces the fossil fuel oligarchy of the current system.
SS: How can — or can — boosting private sector investment ensure good quality jobs for all workers? Or are the two simply incompatible? Could you tell us a bit about the MMT recommendation of a job guarantee in the context that labour conditions, in the public or private sector in India, are only getting less secure?
FK: Full employment is an important policy goal for any country. So many studies show every time we have mass unemployment, we have increases in depression, anxiety, suicide, health issues, and crime. We pay for the unemployment problem with blood, tears, and money, so to speak.
Now, employment opportunities in the economy are typically either in the private, the non-profit, or the government sector (at the federal/national or local level).
The private sector has certain standards for employment. It will only hire people if it sees profit-making opportunities that require labour to be hired, and at the lowest cost possible. So it's our responsibility as a society to set the minimum standard in terms of wages, benefits and workplace conditions that we would accept for dignified work in the private sector. If you cannot compete with other firms at that level, then you should be out of business.
Same thing in the non-profit sector. Granted, you're not motivated by profit or have a lot of financial resources. But these are the standards we do not compromise on.
And then comes the government. This is where the MMT literature talks about the sovereign government as the ‘employer of last resort’, or the job guarantee programme. In this sector, we have two sub-components: one is the mainline government employment, or standard employment in ministries and different government agencies. That's the existing model. And then comes the next layer which we call the job guarantee, where the government is actually going to absorb anybody who's ready, willing, and able to work, but cannot find work in the private, non-profit, or the mainline government sector.
The job guarantee says we're going to create useful productive activity with a social and economic purpose, meeting the standard in terms of wages and benefits, and developing professional and technical skills that will allow the job guarantee workers to become more competitive, more employable, and more productive, if they choose to transition to the private sector.
So in a way, it is also a service to the private sector, because it now has a choice between a world without a job guarantee and a world with a job guarantee. In the former, you employ workers from an unemployed pool. And long-term unemployment is very detrimental to workers’ skills, productivity, and so on. That's the world we live in.
We are going to transition to a world in which you, as a private sector employer, have a pool of ready-to-hire workers who are contributing to the economy and society. They're learning new skills. They're showing up to work every day. You can get a recommendation letter from a supervisor. They're technically more ready for employment in the private sector, than in the other world we talked about in which we have mass unemployment.
There's nothing wrong with incentivising the private sector to hire more workers. But we have to provide that minimum standard on which it must compete for workers who are more employable because they have the training and better skills. And one of the best ways to do that is by creating a job guarantee programme.
India has the rural version of it, the MGNREGA programme. But it is not an ideal job guarantee. We need to raise the standards in it so that it actually sets a minimum bar for the private sector, and make it a universal system that applies throughout the year and across urban areas of the country too.
And that is something the Indian economy can afford. But if job guarantee doesn't offer decent wages and benefits, and the level is so low, such as in MGNREGA as it stands, then there's really no competition. There's no threat to the private sector.
SS: Every government has tried to keep MGNREGA from achieving its full potential. Despite that, it has provided some kind of bargaining chip for workers. In fact, farmers opposed the Act more vehemently than industrialists, because it led to an increase in farm wages. The only time the private sector silently thanked MGNREGA, perhaps, was during the pandemic, when factories refused to pay workers and MGNREGA kept their workers alive, so to speak…
FK: You're raising a very important point here that I'd like to emphasise, which is something that I always talk about in terms of economic development, and the fact that you can't just have a silver bullet solution to so many other economic problems.
When you have a MGNREGA programme that provides a minimum wage and employment opportunities for rural workers, farmers complain that it is raising the cost of doing business for them. And while that’s true, it is a desirable effect that we're raising the wages that rural workers are receiving — that should be viewed as a benefit! So, now we have a second problem, which is, farmers are seeing the cost of hiring labour increasing, but the price at which they sell their outputs in the marketplace hasn't changed, so they see themselves being squeezed.
That raises the second question: why is the price of their output not rising in a commensurate way to allow them to operate reasonably? It's because we have other pressures. The rest of the Indian economy requires food to be priced at a low level. So, you squeeze the farmers and farm workers in order to provide food for the manufacturing sector and people in urban areas, at prices that are acceptable.
This raises another question. Why is it that we require food prices to be so low? It's because manufacturing workers are underpaid, because they're competing in the global economy and racing to the bottom. That's one of the competitive edges for countries in the Global South — to keep their manufacturing and labour costs low. And you cannot underpay workers in the manufacturing sector unless you feed them cheap food.
So, now it's the farmers who carry the burden of supporting the manufacturing industry and keeping it competitive in the global economy. All of these points are interconnected.
That’s why you cannot just have a job guarantee in the rural areas without having a corresponding agricultural policy, and an industrial policy that provides decent wages to manufacturing workers so they can afford Indian food, so farmers can afford a decent profit rate, and rural workers in India can have decent wages. It's all interconnected.
So, you need a multi-pronged approach to addressing these economic, social and strategic policy issues. Instead, we see all the blame on MGNREGA and nobody is questioning the rest of the process. We do not have a sovereign economic policy that prioritises the resilience and needs of working class people in India. These are the questions that must be raised.
SS: Even if India decides to produce only for its domestic market, these labour questions will remain? Because there's always an attempt to keep them in their place, otherwise there won't be any cheap labour for the elite to get their work done?
FK: As humanity, we've always made progress by coming up with new technologies that displaced labour. This is the whole point of the Industrial Revolution, and it was viewed as a problem because of lack of creativity and displacement of workers. But it should be celebrated, because we're using robots or machines to do the more precarious, more dangerous, more repetitive work. And we're creating the possibility for workers now to climb up the ladder, so to speak, and be employed in decent, safer working conditions where they can use their creativity and ingenuity in a safer environment that pays decent wages. And we reap the benefits of increases in productivity from the technological innovation to share better working and living conditions with workers. Instead, what do we do typically? We reap the benefits of the technological progress and give more to capital owners, the shareholders and speculators in financial markets, and keep workers either unemployed or in miserable conditions.
This is a bigger, long-term public policy discussion that India in particular, needs to have - what are we striving for as a society? Do we want to keep workers in precarious working conditions, despite technological progress? Or are we willing to set the standard in which we transition to more technologically advanced workplaces and share the benefits of the gains and productivity between owners of capital shareholders and workers, with the government being the arbiter of that distribution of wealth?
SS: How does MMT view private-public partnerships (PPP) in manufacturing or services and privatisation of public assets?
FK: The overarching theme of PPP, a core component of the neoliberal programme often advocated by the World Bank, is privatisation of public services, but under a different name; because it is ‘PPP’, so technically the government sector still has some say in the process. But given what we know about the weakness of the democratic process and the lack of transparency, we end up essentially with governments giving the private sector whatever it needs to reap its benefits. And it is always at the cost of the public, and at the risk of socio-economic exclusion from services, be it health, water, roads, schools and so on, because they are now paid services.
That doesn't mean that the State cannot partner with the private sector. What is important in my view is the State establishes long-term strategic goals for the country and then sets guidelines with minimum standards to incentivise strategic investments by the private sector in a particular area. For example, in a lot of countries in the Global South, some of the big challenges are food and renewable energy sovereignty. So one of the things the government can do is to say, we are going to decarbonise the electricity system. We're going to incentivise as much rooftop solar or renewable energy, and improvement in insulation and efficiency as possible. We're going to invite the private sector to unleash its competitiveness in this particular direction.
That's very different from saying: we're going to let the private sector own and operate the electric utilities in the country and price electricity for the rest of the country, and reap the benefits of it.
SS: India has supposedly overtaken the UK to become the fifth largest economy, and is once again the fastest growing major economy in the world. But sadly, it ranks something like 132 out of 191 countries on the Human Development Index. We have also increasingly seen cuts in social welfare spending. What would MMT say on state support to social welfare schemes?
FK: Most people in the MMT community would agree that for a sovereign government with monetary sovereignty, with the capacity to actually fund public services, create jobs, and fund a job guarantee, here's what the national priority should look like:
First, you create universal public services that include education, health, sanitation, water, transportation, all of these as universal services that are available to all people whether employed, not employed, healthy, not healthy — these are universal human rights, right? These universal services will also absorb quite a bit of employment. But this is mainline government employment, not job guarantee, temporary or transition jobs.
The second layer is a job guarantee. It takes any worker anywhere, anybody who's ready, willing and able to work is able to find decent employment, allows them to have decent wages and access to retirement fund and so on, and builds their technical and educational skills to transition in the private sector that pays them hopefully higher wages and higher benefits.
The third layer is a generous income support programme targeted towards people who cannot work for health reasons, physical or other reasons. And that generous income support programme would include supporting family members who are staying at home because they have to take care of children, or an elderly or sick family member, because that is technically a job, it's just that in our society we don't declare it as a job. It's unpaid work, mostly done by women in households. So you can think of it as a sub-component of the job guarantee. That is one way for us to include this as part of recognising the important economic and social contribution that is neglected by the official statistics and economic standards that we currently have.
So this way, nobody's left behind. And this is something that the Indian economy can afford.
And the stronger that support system, the more productive the private sector will be, because there is this fear that oh, if you provide all these universal services, nobody will want to work. Well, yes, nobody wants to work in miserable conditions. We're setting the standard that says, if this is the minimum standard that we, as a society, agree to, then the private sector should be offering slightly better in terms of upward mobility, incomes, benefits and perks.
So now you start to race to the top, not to the bottom. But that requires rewiring an entire economic policy system, especially when it comes to international trade, because we've wired the international trade system and the Ministry of Commerce in India to think about lowering the cost of labour so that we're more competitive internationally. And once you start on that slippery slope, you lower the cost of labour, you lower the standards, force people into unemployment, poverty, and miserable conditions – it's all one connected piece.
So which is it that the Indian economy and society is going to choose? A ‘race to the bottom’ system to economic growth like the US and Western Europe have followed in the past 50 years — with neglect, abuse, violation of decency, human livelihoods and conditions? Or a ‘race to the top’ system, something like what Japan has done, where we lift everybody up to higher grounds and compete on different terms, and not on the backs of people?
That’s a critical and immediate pivot that India must make, and set a new path for the Global South to develop on new terms.
Sowyma Sivakumar is an independent journalist.
Get the latest reports & analysis with people's perspective on Protests, movements & deep analytical videos, discussions of the current affairs in your Telegram app. Subscribe to NewsClick's Telegram channel & get Real-Time updates on stories, as they get published on our website.