Digital economy

Dr Bharat Jhunjhunwala
Apple CEO Tim Cook has said that he was hopeful of turning India into “next China” for his company. “Our iPhones sales in India were up over 50% in 2015-16… and we believe we’re just beginning to scratch the surface of this growing market opportunity,” he said. This enthusiasm indicates that India is fast moving to embrace the digital economy. These days one can see fellow travelers in trains glued to their mobile phones throughout a 3-4 hour journey. Even unemployed youth have found a source of entertainment in the mobile phones. One said, “I can do without a meal as long as I have the net.” However, the deep impact of digital economy is just beginning to unfold and it will take decades for it to work out completely. We need to take a step back to understand the contours of the change that is afoot.
Three centuries ago the industrial revolution took place. James Watt invented a steam engine that could pump out water from deep mines and pull out the coal in trolleys. That led to a steep increase in the production of coal and a corresponding reduction in its price. Businesspersons began to run the looms with steam engines. The amount of cloth produced in a day by one worker increased many fold. The cost of cloth declined. British traders imported this cheap cloth into India. Indian weavers who were still weaving with their hands could not compete with the cheap cloth made in Manchester. They began to lose their jobs. Thus, Gandhiji gave the slogan of Khadi. In due course of time, Indian businesspersons also set up textile factories run by steam engines. Few workers were employed in these factories in comparison with the large numbers of handloom weavers. The numbers of workers employed in the weaving of cloth in India declined drastically. These workers did not die though. Invention of electricity and the internal combustion engine followed the steam engine. Electricity made it possible to draw out water from deep for irrigation. Tractors using internal combustion engines made it possible to cultivate larger areas. The crop production increased drastically. Farmers reemployed the workers who lost their jobs in handloom weaving as agricultural labour to undertake operations like weeding and harvesting that depended on human labour. The wages of the agricultural labour, however, did not increase much because a huge army of unemployed was waiting for jobs. The result was that large farmers became immensely rich. They started large-scale cultivation of sugarcane with tube wells and tractors. The standard of living on the agricultural labour also improved even though wages remained low. He got electricity, TV and bus. This improvement took place from the access to new technologies rather than an increase in his incomes. Conclusion is that the industrial revolution provided huge incomes to the upper sections of the society while incomes of the poor remained stagnant though they got access to some new services. This access to services compensated a little for the stagnation in the wages.
A similar transformation is underway in the ongoing Information Technology Revolution. Large numbers of jobs have been lost in accounting, photocopying, call centers, and the like. The wages of the common person have remained stagnant though. The house helper was earning Rs 600 ten years ago. She is earning Rs 1200 today. Her wages have doubled but the price of goods in the market has increased threefold in this period. She is poorer today in terms of real income.  Indeed, she carries a mobile phone today. However, she has no money to top it up with. She uses it only to receive calls. She also has electricity, fridge and TV. The increased access to these services only partly compensates for the loss of income.
This loss of income of the poor is a global phenomenon. A report by the U.S. Agency for International Development published in 2014 says that the “impact of the innovation-driven economy has led to a surprising economic paradox… the median income of the American worker has stagnated and unemployment has risen.” The World Bank in its World Development Report 2016 says, “Digital expansion helps rich more than poor… the anticipated dividends of higher growth, job creation and better public services are well short of expectation… And, rather than the poor, the more affluent sections have garnered a disproportionate share of the benefits of rapid digital expansion.” A Policy Brief from the Organisation for Economic Co-operation and Development, an intergovernmental economic organization of the developed countries says that the digital economy is leading to polarization of jobs between high-paying and low-paying jobs. A report by a Delhi-based NGO states that 900,000 jobs were created in the Indian economy in 2011. This job creation has since slowed down. Only 135,000 jobs were created in 2015. It is clear that the digital economy is eating up jobs just as the steam engine had eaten up jobs centuries ago.
Some believe that improving the e-skills of the workers will help them log on to the digital economy and raise their incomes. Education was similarly though to be the path to raising incomes of the poor few decades ago. We have before us a huge army of educated unemployed today. Education has increased the supply of educated workers. However, the demand for educated workers has not increased proportionally. The supply of educated workers is more than the demand hence their wages are falling. An accountant or a MBBS doctor is willing to work for about Rs 10,000 per month which is nearly equal to the income of an unskilled worker. The more skilled get the few highly skilled jobs while the less skilled ply cycle rickshaws. Imparting of e-skills will not help raise incomes of the common man just as imparting of education has not done.
Root of this problem is that labour is becoming redundant. Computers and robots are taking over the jobs. This is happening both for the unskilled and less-skilled workers. We do not have a solution to this redundancy of labour. The way forward is to provide a basic income to every citizen from the taxes paid by the fewer numbers of rich people. Let us turn absence of work into an asset. Let the common person be free to use his day to stroll in the park, watch TV or undertake meditation. We must provide a basic income to all citizens and encourage them to use their lives for self-fulfillment in whatever way that appeals to them. In absence of such basic income, the same redundancy will lead to the unemployed taking to crime in revenge for inequality, and joining terror organizations as a path for self-affirmation.
(The author was formerly Professor of Economics at IIM Bengaluru)
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