Talcott Parsons, a leading sociologist, advocated that United States of America should be seen as a ‘Lead Society”. Lead Society, in simple terms, refers to a society that is materially and culturally advanced and provides a guidance to other societies to follow. Thus, according to Parsons, United States of America is ahead of other societies on an evolutionary scale and other societies are likely to follow its path in their future evolution. Undoubtedly, USA is seen as a benchmark for most of the democratic nations trying to modernize themselves. And this benchmark is not without a merit. USA has created enormous wealth which has made its citizens enjoy a qualitatively different life than those belonging to other countries. As measure of comparison, USA ‘s GDP is 15 times that of India and boasts of one of the lowest unemployment levels in the world. So, looking towards USA for good practices is a natural corollary.
The major contributing factors to USA’s enormous wealth creation is free market principles, corporate structures and fine regulatory environment. While free market principles and fine regulatory environment can be created with statutory interventions, it is the corporate structures which take their own time to evolve and are key driver for wealth creation. Corporations are rational entities and definitely have superior efficiency levels. They are structured to achieve their goal and continuously calculate ways and means to achieve their pre-determined target. Due to their organized nature, they are well positioned to capture the market compared to non-formal entities. Corporations, indeed, are much smarter than many other structures available like proprietorship, partnership firms and can also lead to value addition in the sector as their margins get bigger with economies of scale.
Policy makers world-over including India have taken this leaflet out of USA’s growth story and are applying it classically to most of the sectors. And it has worked well in many of the sectors where policymakers have applied them. Aviation, telecom, information technology etc. have all benefited immensely from arrival of corporate structures and private enterprise and fueled India’s growth story. But can the achievements in aforementioned sectors be generalized to apply this principle to all the sectors? The answer is a categorical ‘No’. The way Corporatization behaves is highly dependent on the kind of sector in which it is applied and the kind of demography in which it operates. It can be generalized that Corporatization achieves efficiency but whether it generates employment or unemployment remains an open-ended question.
20th century has seen massive growth in manufacturing and services sector and diminishing relevance of agriculture sector. The contribution of agriculture has not only decreased as a proportion of GDP and but its share has also decreased from employment perspective. For example, In 1870, 50 percent of US population was employed in agriculture and as of 2012, only 1.1 percent of US population is dependent on agriculture. Around 79 percent of US population is dependent on services sector which shows that services sector has created enough jobs to pull people out of agriculture. Thus, agriculture naturally has to depend on mechanization and corporatization to keep up the production levels. But is the story same in India?
India’s population is a great determining factor in the employment scenario of the country. 50 percent of India’s population is still dependent on agriculture. Interestingly, this is co-existing with the increase in share of services sector to 61 percent in Indian Economy. Thus, even when services sector has increased rapidly, agriculture continues to be a major employer in the country. This is a paradox situation but a reality directly resulting from high population of India. Now the question is that which are the sectors in which corporate structures will improve efficiency and generate employment and which are the sectors where efficiency will be accompanied by pain of unemployment?
Undoubtedly, government’s attempt of creating corporate structures in sectors like railways is going to have a positive effect on both the GDP and employment levels. This is because railways is a service-based organization and still has lot of areas where private and state owned corporations both can create value added services. India’s big consumption market will ensure that any attempt to create corporate structures and free market environment will keep on generating good number of jobs in the services sector and thus, introduction of corporate structures in manufacturing and services sector should remain India’s focus. But what happens if corporatization comes to agriculture?
Corporatization of agriculture in India on lines of USA can lead to massive unemployment which can continue for generations to come till services and manufacturing sectors are able to create sufficient jobs to absorb these people. Imagine, if India’s employment in agriculture falls to 5% of India’s population, then where will the rest 45 percent i.e. 54 crore people go? Do we have capacity to absorb even 50 percent of 54 crores. We don’t have and over-optimism won’t serve any purpose. Agriculture in India has witnessed co-operatives and farmer producer organizations not because corporatization was not available but because it was not suitable. Corporatization is means to an end and not an end in itself. The end of our economic efforts is both creation of jobs and optimum resource utilization and one cannot be chased on the peril of other. Thus, the development of corporate structures in India along with free market has to be in tune with the ground reality otherwise it can create an unmanageable situation which can undo many good things done so far.
Great analysis and well presented
Wonderful articulated the problem of blinding aping the economic models of West. What worked for them wont work for us. The contexts are different. Quoting my favourite lines from your piece:
“Corporatization is means to an end and not an end in itself. The end of our economic efforts is both creation of jobs and optimum resource utilization and one cannot be chased on the peril of other.”
– Manish (NSIT)