Manufacturing and Jobs in South Asia: Strategy for Sustainable Economic Growth PDF
Preview Manufacturing and Jobs in South Asia: Strategy for Sustainable Economic Growth
South Asia Economic and Policy Studies Sachin Chaturvedi Sabyasachi Saha Editors Manufacturing and Jobs in South Asia Strategy for Sustainable Economic Growth South Asia Economic and Policy Studies Series Editors Sachin Chaturvedi, Director General, RIS for Developing Countries, New Delhi, India Mustafizur Rahman, Distinguished Fellow, Centre for Policy Dialogue (CPD), Dhaka, Bangladesh Abid Suleri, Executive Director, Sustainable Development Policy Institute, Islamabad, Pakistan Dushni Weerakoon, Executive Director, Institute of Policy Studies of Sri Lanka, Colombo, Sri Lanka The Series aims to address evolving and new challenges and policy actions that maybeneededintheSouthAsianRegioninthe21stcentury.Itventuresintonicheand makes critical assessment to evolve a coherent understanding of the nature of challengesandallow/facilitatedialogueamongscholarsandpolicymakersfromthe regionworkingwiththecommonpurposeofexploringandstrengtheningnewways toimplementregionalcooperation.Theseriesismultidisciplinaryinitsorientation and invites contributions from academicians, policy makers, practitioners, consul- tants working in the broad fields of regional cooperation; trade and investment; finance; economic growth and development; industry and technology; agriculture; services; environment, resources and climate change; demography and migration; disaster management; globalization and institutions among others. More information about this series at http://www.springer.com/series/15400 Sachin Chaturvedi Sabyasachi Saha (cid:129) Editors Manufacturing and Jobs in South Asia Strategy for Sustainable Economic Growth 123 Editors SachinChaturvedi Sabyasachi Saha Research andInformation System Research andInformation System for Developing Countries (RIS) for Developing Countries (RIS) NewDelhi, India NewDelhi, India ISSN 2522-5502 ISSN 2522-5510 (electronic) SouthAsiaEconomic andPolicy Studies ISBN978-981-10-8380-8 ISBN978-981-10-8381-5 (eBook) https://doi.org/10.1007/978-981-10-8381-5 ©SpringerNatureSingaporePteLtd.2019 Thisworkissubjecttocopyright.AllrightsarereservedbythePublisher,whetherthewholeorpart of the material is concerned, specifically the rights of translation, reprinting, reuse of illustrations, recitation, broadcasting, reproduction on microfilms or in any other physical way, and transmission orinformationstorageandretrieval,electronicadaptation,computersoftware,orbysimilarordissimilar methodologynowknownorhereafterdeveloped. The use of general descriptive names, registered names, trademarks, service marks, etc. in this publicationdoesnotimply,evenintheabsenceofaspecificstatement,thatsuchnamesareexemptfrom therelevantprotectivelawsandregulationsandthereforefreeforgeneraluse. The publisher, the authors and the editors are safe to assume that the advice and information in this book are believed to be true and accurate at the date of publication. Neither the publisher nor the authors or the editors give a warranty, expressed or implied, with respect to the material contained hereinorforanyerrorsoromissionsthatmayhavebeenmade.Thepublisherremainsneutralwithregard tojurisdictionalclaimsinpublishedmapsandinstitutionalaffiliations. ThisSpringerimprintispublishedbytheregisteredcompanySpringerNatureSingaporePteLtd. The registered company address is: 152 Beach Road, #21-01/04 Gateway East, Singapore 189721, Singapore Foreword The past three decades have witnessed rapid economic growth in South Asian countries, which is impressive in comparison with their own performance in the pastandwithotherdevelopingcountries’performanceinthepresent.GDPgrowth rates in South Asia since the mid-1980s, which provide a sharp contrast with near stagnationinthecolonialeraandmodestgrowthintheprecedingfourdecades,are much higher than those in other parts of the developing world, particularly Africa and Latin America, even if they do not match the performance of East Asia, especially China. This has led to a significant reduction in absolute poverty and some improve- ment in the living conditions of people. Yet, impressive economic growth has not always been transformed into meaningful development which improves the well-being of ordinary people. The underlying reason is the triangular relationship between growth, poverty, and inequality. Rapid growth did help reduce absolute poverty in South Asia but not as much it could have, in part because the initial incomedistributionwasunequalandinpartbecauseofrisingincomeinequality.At the same time, economic growth did not lead to commensurate employment creation.Indeed,employmentgrowthwasdistinctlyslowerthanoutputgrowthand the gap widened over time. In 2016, as many as 24% of the people on earth lived in South Asia, but the contributionoftheregiontoworldGDP,incurrentpricesatmarketexchangerates, was less than 4%. It is no surprise that South Asia is home to 35–45% of the world’s poor, depending on where we draw the poverty line. For the region as a whole,intermsof2011purchasingpowerparity(PPP)dollars,in2013,16%ofits population lived below the poverty line of PPP $1.90 per day, while 54% of its population lived below the poverty line of PPP $3.20 per day. The former are the perennial poor probably unable to reach the critical minimum even in terms of nutrition, while the latter might have been able to reach the critical minimum in terms offood and clothing plus some basic needs but not an appropriate shelter or adequate health care and education. The people between the two poverty lines, as manyas640millionpeopleinSouthAsia,werevulnerabletoanyshocksuchasa bad harvest, high inflation, jobs lost, or an illness in the family. But that is not all. v vi Foreword Socialindicatorsofdevelopment,onhealthandeducationstatus,arestillamongthe worst in the world, with the possible exception of sub-Saharan Africa. Clearly, we have miles to go in our journey if the destination is the well-being of our people. It is obvious that South Asia has much to learn from the rest of Asia about industrializationasanimperative,thecriticalimportanceofemployment,afocuson human development, and the fundamental role of governments in transforming economies. The social and economic transformation of Asia over the past five decadeshasbeenremarkable.InAsia’sstunningperformance,EastAsiancountries have been the leaders, while South Asian countries have been the laggards, with Southeast Asian countries somewhere in the middle. South Asia has experienced notonly joblessgrowthbutalso a premature de-industrialization. Evenwherejobs have been created, the quality of employment remains poor. What is more, the existingmanufacturingsectorshavenotreallymanagedverticaldiversification(the spread remains horizontal) or technological upgrading (there is little capacity for innovation). In the quest for development in South Asia over the next 25 years, there are manythingsthatremaintobedone.Amongthese,theimportanceofmanufacturing cannot be stressed enough. Economic development is not only about economic growth but also about the capabilities of economies to transform their productive activities. This is simply not possible without industrialization. The economic historyofthenowdevelopedhigh-incomecountriesprovidesconfirmation.Sodoes the more recent experience of the East Asian success stories in development. Indeed, the experience of latecomers to development since 1950 shows that no country has achieved even middle-income status without industrialization. Manufacturing also shows faster growth in lower-income countries, so that it narrows the productivity gap more rapidly, suggesting an unconditional conver- gencetothefrontier.Itmust,ofcourse,berecognizedthattheworldeconomyhas changed. There could be a return to protectionism in industrialized countries. The next industrial revolution on the horizon driven by technological progress— robotics, artificial intelligence, 3D printing, or the Internet of things—that replaces labour in production processes could constrain manufactured exports from developing countries. Even so, the rationale for a renewed focus and emphasis on manufacturing in SouthAsiaisstrong.First,itisthepathtoemploymentcreation.Mostnewentrants to the labour force are unskilled or low-skill workers, whose employment is the only means of mobilizing South Asia’s most abundant resource—people—for development. Second, it is a potential source of economic growth, not only for labour absorption at the extensive margin, but also for labour use at the intensive margin, with a potential for moving workers from lower to higher productivity in manufacturing. Moreover, given the low shares of manufacturing in GDP and in employment, juxtaposed with the large size of the domestic market in most South Asian countries, the potential for growth in the manufacturing sector is considerable. Foreword vii Thisperspectiveprovidestheraisond’etreforthepresentstudy,whichseeksto focus on manufacturing and jobs in South Asia. It analyses past development experience to examine what has constrained the manufacturing sector and why it hasnotcreatedasmuchemploymentasitcouldhave.Theexplanationmightliein structural constraints that are almost folklore: pathetic infrastructure, poor con- nectivity, rigid labour laws, and difficulties of doing business, quite apart from a workforce without primary or secondary education, combined with limited possi- bilitiesforskillformation.Inaddition,thestudysuggeststhatpolicyregimesinthe spheresofinternationaltradeandinternationalinvestmenthavenotbeenconducive to industrialization, while there has been little in terms of trade policy, industrial policy, technology policy, or exchange rate policy that has been supportive of industrialization.ItwouldseemthatSouthAsiahasmademinimalattemptstolearn fromtheexperienceofEastAsiaorevenSoutheastAsia.Notwithstandingthispast, the book explores future possibilities to emphasize manufacturing as the only way forward that could create jobs, provide decent work, and make growth inclusive. Indeed,theessentialhypothesisisthatmanufacturingwhichcreatesemploymentis the strategy for sustainable economic growth and social progress in South Asia. Theeditorssetthestagewithanoverviewinanintroductionwhichalsooutlines theobjective,structure,andscopeofthestudy.Thebookisdividedintotwoparts. The first part is constituted by country studies on Bangladesh, India, Nepal, Pakistan,andSriLankawithafocusonthemanufacturingsectorandemployment creation in each of the countries. There are, in fact, two studies on India, which consider manufacturing trade and employment linkages, and employment in manufacturing for exports. The second part of the study comprises two cross-country thematic essays. Of these, one analyses the relationship between economic growth and employment creation, to examine the nature of employment challenges in South Asia and stress the need for manufacturing-led growth, while theanotherexaminesskillformation,competitiveness,andindustrialdevelopment, tosuggestthatthetransitionfromatraditionaltoamodernindustrialsector,capable of upgrading and diversification, requires a revamping of national innovation systems. In the concluding chapter, the editors draw together the findings of this study on manufacturing and employment in South Asia, for each of the country chapters and thematic chapters, to highlight the frustrations and the aspirations, many of which are common across these countries, while reflecting on what these countries might learn from past experience to chart a path to a better future. Thisstudyhasbeencommissioned andconductedbytheSouthAsia Centrefor PolicyStudies—SACEPS—asanintegralpartofitsworkprogramme.SACEPSis a network organization engaged in addressing issues of common concern in South Asia. Leading research institutions and think tanks in South Asian countries are actively associatedwithSACEPSaspartnersandstakeholders. Infact,thecountry studieshavebeencarriedoutincollaborationwithitspartnerinstitutions.Forthose who might not know, SACEPS is an independent non-governmental organization working at the intersection of research and policy. The objective of SACEPS is to create a meeting space that facilitates interaction not only between public intel- lectuals, policy practitioners, the business community, civil society, and media viii Foreword persons, but also with an even wider constituency of people, concerned citizens, who are committed to the idea of South Asia. These countries have much in common that is embedded in their histories: languages, cultures, arts, music, and cuisines. Yet, politics creates divides that have become barriers to economic cooperation. Itishopedthatthisstudyonmanufacturingandjobs,bothcriticalforthefuture of South Asia, will be of interest to governments, parliamentarians, policymakers, media, and civil society, as much as it would be to academics, researchers, and citizens.Thereissomuchthatwe—thepeopleofthispopuloussubcontinent—can learn from each other to create a better world for ourselves. New Delhi, India Prof. Deepak Nayyar DeepakNayyarisEmeritusProfessorofEconomicsatJawaharlalNehruUniversity,NewDelhi, and Honorary Fellow of Balliol College, Oxford. He was Distinguished University Professor of EconomicsatTheNewSchoolforSocialResearch,NewYork.Earlier,hetaughtattheUniversity ofOxford,theUniversityofSussex,andtheIndianInstituteofManagementCalcutta.Heserved asViceChancelloroftheUniversityofDelhiandasChiefEconomicAdvisertotheGovernment ofIndia.Hehaspublishedwidelyinacademicjournals.HisbooksincludeCatchUp:Developing Countries in the World Economy, Stability with Growth: Macroeconomics, Liberalization and Development,GoverningGlobalization:IssuesandInstitutionsandTheIntelligentPerson’sGuide toLiberalization. Endorsements “South Asia is the quintessential example of the phenomenon of jobless growth. Thisislargelyduetotheneglectofthemanufacturingsector.Thisbookcontaining case studies of the structure and trend of the manufacturing sector, problems besetting it and, outlining the policy measures to revive it, will, I hope, redirect policy focus to the revival of manufacturing which is job creating, inclusive and sustainable.” —Prof. Muchkund Dubey, President, Council for Social Development, New Delhi “I am happy to commend this book inwhich leading scholars from 5 countries try toanalyzereasonsforarelativefailureofSouthAsiainharnessingthejob-creating potential of manufacturing sectors. Given its rich evidence base covering both internal and external factors, I hope that this book will be read widely for the analytical insights and policy lessons that are offered.” —Dr. Nagesh Kumar, Director and Head of the South and South-West Asia (SSWA) Office of the United Nations Economic and Social Commission for Asia and the Pacific (UNESCAP) based in New Delhi ix
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