Vol. XLIII No. 12 March 24, 2019

Neoliberalism and Unemployment

Prabhat Patnaik

WHENEVER the unemployment problem is under discussion a common response is that overcoming it requires an even higher GDP growth rate than we have been having. This completely misses the point. Unemployment is the manifestation of certain social relations; unemployment will continue to grow, no matter how high the rate of growth of GDP within those social relations. True, the unemployment rate will grow faster when the GDP growth rate slackens in an economic downturn compared to when the GDP growth rate is higher; but it will continue to grow as long as those social relations, namely the social relations underlying neoliberal capitalism, prevail.
The reason is simple. Since neoliberalism entails a squeeze on petty production, including peasant agriculture, per capita foodgrain output can scarcely increase within a neoliberal regime in any economy where the agricultural sector is dominated by peasant production. With a growing share of this more or less stagnant per capita output being absorbed in the form of processed food, and feedgrains that go into animal products, by the richer segment of the population, the per capita output left for the working population tends to decline over time. And since inflation is anathema for finance capital (as it reduces the real value of all financial assets), per capita demand for foodgrains of the working people has to be restricted to a level even below this falling amount of per capita leftovers of foodgrains for them. This necessarily requires a decline over time either in the employment rate or in the wage rate or both (indeed the two necessarily go together and are even conceptually indistinguishable if we define employment, as we should, as earning a certain level of real income through work).
The fact that labour productivity growth under the neoliberal growth process is so high that, despite rapid output growth, employment growth (which is the difference between output and labour productivity growth) remains limited, or, the fact that the “elasticity of employment with respect to output” remains extremely low (which is another way of saying the same thing), is the actual empirical mechanism through which this desideratum, of preventing any possible inflation arising from an excess demand for foodgrains, is achieved. But this being only a mechanism we should not get the impression that a growing rate of unemployment is simply a happenstance, a mere accidental outcome of two different growth rates (of output and labour productivity) having some particular numerical values. To think so is a mistake. A growing unemployment rate under neoliberalism is not an accidental phenomenon; it is an immanent tendency.
This is confirmed by the Indian experience. At present of course the unemployment situation, as we shall see, is extremely grim. But even before the Modi government took over, there was a secular increase in the unemployment rate. Ironically, while the rate of growth of GDP was about 3.5 to 4 per cent under the dirigiste regime prior to “liberalisation”; the rate of growth of employment was about 2 per cent per annum. Under neoliberalism while the rate of growth of output has doubled to around 7-8 per cent, the rate of growth of employment has halved, to just 1 per cent per annum.
More specifically if we take the period 1972-93 the annual rate of employment growth was 1.6 per cent; if we take the subsequent period 1993 to 2015, which ends just around the time that the Modi government came to power, employment growth rate had slowed down to 1.1 per cent per annum which was well below the rate of growth of the work-force. Unemployment in other words was worsening even before Modi came to power, as a consequence of the neoliberal strategy.
But matters have become much worse in the years of the Modi government which ironically had come to power with the promise that it would get rid of unemployment. Indeed so bad has the situation become that the Modi government has suppressed the information about unemployment which has been obtained by the National Sample Survey in 2017-18. But some information from the NSS has leaked out and has appeared in the Business Standard of January 31, 2018. One can get an idea from that about the gravity of the situation today.
The unemployment rate in India does not adequately capture the unemployment situation, because most people are underemployed rather than fully unemployed. Employment rationing in other words takes the form of work being shared out among numerous persons rather than only some working and others not working. This is why the open unemployment rate has generally hovered around 2 per cent even in this country of acute unemployment. But the NSS figures show that the open unemployment rate has climbed up from 2 per cent a decade ago to as much as 6.1 per cent in 2017-18.
The spike is particularly acute for the youth. Taking four years when the NSS large sample surveys occurred, namely 2004-05, 2009-10, 2011-12, and 2017-18, the unemployment rates among the youth (those aged between 15 and 29 years) stood as follows.
Rural Males: 2.9; 4.7; 5.0; and 17.4
Rural females: 4.2; 4.6; 4.8; and 13.6
Urban males: 8.3; 7.5; 8.1; and 18.7
Urban Females: 14.9; 14.3; 13.1 and 27.2
What is remarkable is the extremely steep increase in the year 2017-18 compared to all previous years including 2011-12. It now becomes clear why the Modi government decided to suppress the results of the 2017-18 NSS survey on employment and unemployment.
Those who argue that the unemployment situation in the country has not been as bad as it is today at least over the last 45 years, have obviously a valid point; and 45 years ago the country had been hit by the double blow of a bad crop and the first oil shock which had together pushed up the inflation rate to 30 per cent! Today there have been no such sudden external shocks. How then can we explain this sudden upsurge in unemployment?
One part of the explanation is certainly the crisis in the world capitalist economy which has hit India somewhat belatedly and which also manifests itself in a slowing down of GDP growth. The effects of this slowing down have been further compounded by the protectionism being followed in the US which adversely impacts service sector activities here that had thrived on the basis of outsourcing from that country. Though such protectionism has been escalated by Trump, it predates him. It had already made an appearance in the Obama years when companies outsourcing activities were taxed more heavily than those not doing so.
But the most powerful and obvious reason for the dramatic increase in unemployment in 2017-18, which is particularly embarrassing for the Modi government, is demonetisation. Demonetisation dealt a body blow to the petty production sector, including peasant agriculture. It is not just vast numbers of peasants who became impoverished by getting into debt, for buying inputs when the cash in their pockets became worthless overnight, or when they had to sell at “distress prices” because their markets were starved of cash; it is not just other petty producers who were placed in a similar predicament. It is also the workers engaged in this sector; and this sector incidentally employs over three quarters of the country’s total work-force. 
In fact several studies have narrated the woes of migrant workers, in sectors like construction,who were suddenly denied wages because of the shortage of cash. Many had to return home because of the halt to the activities in which they had been engaged.
Demonetisation was the single most foolhardy government decision in India in recent memory. It not only caused a slump in activity and hence a spike in unemployment at that time; it continues to affect many sectors to this day, since the increase in debt incurred then owing to a shortage of cash has left a lasting legacy.
But the foolhardiness of a Modi should not blind us to the fact that the unemployment problem has been building up for quite some time. It is an essential fall-out of neoliberalism; and it gets accentuated by the crisis of neoliberalism. In fact the Shimla Labour Bureau data on unemployment rate (which are not comparable with the NSS results) show an increase in this rate as follows: 3.8 per cent in 2011, 4.7 per cent in 2012, 4.9 per cent in 2013, and 5 per cent in 2015. On this rising trend of unemployment we have the additional imposition of demonetisation; little wonder then that the country is witnessing an unemployment crisis of unprecedented magnitude.