Terms of Trade | Politics must fight unequal growth, but sincerely

Politics must criticize the failure of the new-economy to solve India’s structural transformation problem, but it will be a half-hearted battle unless its decouples with dirty capital outside the new-economy sectors.

Karnataka is considering making all multinational companies publicly display the number of Kannadigas employed in their offices and a failure to do so can bring punitive action from the government including cancellation of licenses, HT reported earlier this week. While industry bodies have expectedly, and perhaps rightly, criticized the statement by a junior minister in the state government, the political economy of such a nativist turn in economic policy is not very difficult to understand.
States such as Karnataka – its capital Bengaluru has pretty much been the epicenter of India’s march to becoming a global heavyweight in all things IT and knowledge economy – increasingly realizing that the new-economy boom has given very little in material terms to the overwhelming majority of people in their state. In fact, the Karnataka government actually wrote a letter to the Central government last year arguing that a large part of the state’s GDP was being generated in cities such as Bengaluru (to the salaried white-collar elite and companies employing them) and artificially inflating the perceived living standards of poor people in the rural areas. The latest move by the Congress government in the state to ask MNCs to display (and by extensions hire) local employees is nothing but an attempt to push for reservations; de facto or de jure, for locals in private sector jobs.
Karnataka is neither the first not the last state to succumb to this temptation.
Irrespective of whether or not such policies are right, they are unlikely to serve the purpose which is driving their implementation. No amount of reservation, domicile, linguistic or otherwise, can solve the income-gap problem in the state. In fact, one can very well argue that unlike entrenched disadvantages on account of caste-based discrimination, people in southern states has had a relative advantage over their poorer northern counterparts when it came to exploiting the benefits of the private white collar salaried new-economy. Of course, those who did not have the right skill-set at the right time could not ride this bandwagon. And things will get increasingly difficult going forward as technological disruptions such as Artificial Intelligence (AI) lead to large-scale displacement of labour in the new-economy and worsening climate crisis causes large-scale uncertainty in livelihoods of poor people living in ecologically sensitive zones and agriculture.
What does this mean for the country’s political economy at large?
Ironical as it sounds, states like Karnataka are the biggest success stories in post-reform India. Its trajectory has been very different from states such as Bihar or Uttar Pradesh which could not exploit any of the economic growth tailwinds which the reforms brought to the Indian economy. The failure of these states to attract the companies in the new-economy and build an eco-system which has laid the ground for second generation new-economy companies has led to a massive exodus of talent, drain of wealth and of course, failure to raise their own taxes.
In fact, a lot of northern and eastern states are trying very hard to attract new-economy companies which Karnataka is now realising have done little to lift the fortunes of its masses. The question to ask; given Karnataka’s frustration with its success on this front, is whether they pursuing a futile cause?
Answering this question requires taking a slightly more detailed look at the evolution of capitalism over the past few decades. With its fortunes increasingly being driven by finance and new service economy, modern capitalism’s ability to generate employment has increasingly come under squeeze the world over. Even within manufacturing, both the quantity and quality of employment generation is nothing compared to what it used to be in the post-war period. technological innovation leading to higher capital intensity and weakening of labour vis-à-vis capital are the two biggest reasons for this. This is a contradiction which is not just haunting countries such as India but also advanced economies.
While it might appear to a be very TINA-ish (there is no alternative) argument, shunning this kind of capitalist development just because its worse than what was available in the past, or not doing enough to attract it is not going to improve economic well-being of the people at large. This is exactly what differentiates a Bihar from a Karnataka today. Populist nativist moves to browbeat capitalism into being more ‘equal’ through policies such as forcing them to hire more locals, as has been argued above, can only generate political TRP rather than solve the actual problem which is its inability to create enough well-paying jobs. Does this mean political can do nothing to solve the problem of unequal growth?
This question can only be answered by raising another question. Is the new-economy the only source of wealth creation in states such as Karnataka?
Even anecdotally, one can answer this question in a no with a lot of conviction. In fact, one can actually go ahead and make an argument that while the new-economy can be rightly held guilty of not generating employment for a majority of the workforce, what is equally true is that it cannot be held responsible for the contamination of realpolitik by extremely rich players in states such as Karnataka.
Most of the money which has contaminated politics, not just in Karnataka, but large parts of India has come from sectors such as mining, real estate, liquor and other such activities where money making is strongly correlated with complicity of state actors.
In fact, an overwhelming part of India’s political class, irrespective of party affiliation is directly or indirectly from the vested interest club of such economic activities. While big capital and new economy has its structural problems vis-à-vis egalitarian development, the local vested interests are actively plundering the resources of the state as well as poorest people in the country. Of course, for political parties to seriously attack this class and the drain and destruction it is inflicting on the local poor, would be bite the hand that feeds them. It is political struggles and better regulation in sectors like these which will determine the fortunes of the blue-collar workers in India.
To surmise, anybody who argues that the new-economy can solve India’s structural transformation problem is clearly delusional. But what we are seeing in the name of criticizing the unequal traits of the new-economy is an effort to hide the deeper rot in politics which has led to its complete degeneration in terms of fighting for the rights of the poor over and above throwing the fiscal palliatives it offers to quell the economic anger over inequality.
Playing the nativist or welfare game to control this anger could work in the short-term but it will no nothing to solve the problem at large and only generate cynicism towards politics and eventually democracy in the country.
Roshan Kishore, HT’s Data and Political Economy Editor, writes a weekly column on the state of the country’s economy and its political fall out, and vice-versa. The views expressed are personal.

Roshan Kishore is the Data and Political Economy Editor at Hindustan Times. His weekly column for HT Premium Terms of Trade appears every Friday. …view detail