Anticipating the Unintended #44: Hindi Chini Bye Bye?

This newsletter is really a weekly public policy thought-letter. While excellent newsletters on specific themes within public policy already exist, this thought-letter is about frameworks, mental models, and key ideas that will hopefully help you think about any public policy problem in imaginative ways. It seeks to answer just one question: how do I think about a particular public policy problem/solution?

PolicyWTFs: The Fault in Central Planning for Skill Development

This section looks at egregious public policies. Policies that make you go: WTF, Did that really happen?

— Raghu Sanjaylal Jaitley & Pranay Kotasthane

How about some heart-warming news to begin with?

The National Skill Development Council (NSDC) has identified 116 ‘atmanirbhar districts’ in six states to focus on reskilling of migrant labourers who have come back home. The government plans to map their current skills, reskill them and identify areas where they could be employed. NSDC estimates 6.7 million returning migrants who will need help. The district administration machinery will take this on a war footing. This is nice. The government should always be seen to be doing something.

The news report also has this great line about the real villains in Indian society.

The NSDC estimates that of 420 million Indians in the labour force, almost 360-370 million are already skilled but many face issues of getting hired due to the overwhelming presence of middlemen and fixers.

Sometimes I think the standard Indian greeting should be – aap party hain, ya broker? Once you have got that out of the way, you can have civil discourse with any stranger.

How Omniscient is NSDC really?

Let’s get the obvious question out of the way – If there were jobs available in these 116 districts, why did these labourers travel to distant cities for jobs in the first place?

We have other questions too.

  1. What skills will the government train these migrants on? They seem to have mapped their existing skills. How? What’s the skill of a security guard or someone who tosses bricks on a construction site? What will you do with them further?
  2. The best way to destroy the market for a skill is to unthinkingly train lots of people in that same skill. Does the government have numbers about the market requirements of each skill in these districts?
  3. How does the government know which of these skills have a demand in the market? Now or in future? Did it always know this? If yes, why did it wait for a pandemic to run such programs in these ‘aatmnirbhar districts’? It should have been doing it all along
  4. Who will pay for it? The government? If yes, why only for skill development of people in these districts? Why not for everyone?

I guess some of you will find this line of questioning absurd. Please judge the government by its intentions, you will argue. Well, here’s a quick reminder. The first principle of policy analysis – don’t judge a programme by its intentions. Because intentions are always pure as the driven snow. Judge the policies by their rationale and their likelihood of success.

You aren’t convinced? Let me take this further with an analogy.

Say, you have a daughter who is 12. You want her to pursue a career that will be relevant and coveted a decade from now. This shouldn’t be the only criteria but for a moment, let’s assume, this is your only criteria. You know her interests, her temperament and her current capabilities. After all, she’s your daughter. Would you know for sure what stream should she opt for her graduation five years from now? The short answer, as any parent will attest, is no. Because you have no idea of the hottest jobs ten years from today. So, if you can’t predict what skills your own daughter should train herself on, how do you imagine the government to know what skills are best for millions of migrant labourers in future? The state couldn’t have known it even if it were literally their mai-baap.

That Brings us to Spontaneous Order

The simpler a concept, the harder it is to comprehend. The idea that social order and common good can emerge from free and decentralised individuals acting in their self-interest is simple but goes against our intuition. Why? Because it has been drilled into our heads that we need to sacrifice our self-interest to pursue the greater common good. So, how can any larger good come about if all of us pursue our own agenda?

Hayek wrote about this in Studies in Philosophy, Politics and Society (p. 167):

“Much of the opposition to a system of freedom under general laws arises from the inability to conceive of an effective co-ordination of human activities without deliberate organization by a commanding intelligence. One of the achievements of economic theory has been to explain how such a mutual adjustment of the spontaneous activities of individuals is brought about by the market, provided that there is a known delimitation of the sphere of control of each individual.”

We are always looking for a commanding intelligence that will co-ordinate human activities towards a common goal. Even when there’s evidence around us that spontaneous order works better.

A Short History of Skill Development in India

Skill development in India is a great example of how spontaneous order has worked. There have been three big skilling and employment waves over the last three decades in India. IT services, BPO and logistics (home delivery of things).

Let’s take IT services. In 1990, India had 337 engineering colleges with about 10,000 new students enrolling every year. Of these, the government engineering colleges numbered about 180 accounting for 50 per cent of the enrollment. The IT industry employed fewer than 10,000 people then. In 2018, the total engineering colleges had grown to about 3400 of which the government colleges were 466. The annual enrollments were about 8 lakhs and private engineering colleges accounted for almost 90 per cent of it. The IT industry employed about 41 lakh people in 2018. Besides the engineering colleges, others like NIIT, Aptech and scores of smaller entities trained millions of graduates in coding and testing skills to make them employable.

The government didn’t go about building engineering colleges or training institutes to address the need for IT companies. It didn’t have to. As IT companies grew, the demand for engineering talent grew. This signalled to players in the education sector to increase capacity or to build new engineering colleges. Quite remarkably, the supply of trained professionals kept up with the demand as the Indian IT industry boomed.

Similarly, the BPO industry saw rapid growth between 2005-15. The industry required a legion of English-speaking graduates in a country where this skill was considered elite. The government didn’t set up institutes to train young graduates to speak in English. Millions of them sprang up all over the country in response to the demand for such training. Over time there was an oversupply of these institutes. Many of them shut down and shifted to other businesses. The market found a more efficient avenue for allocation of capital.

In the last five years, the demand for skilled drivers (2 or 4 wheelers) went up as cab aggregators, e-commerce players, e-pharmacies, e-grocers and food delivery companies scaled up their business across India. Neither these companies nor the government had to set up driving schools to prepare people for these jobs. As the demand for driving skills increased, hundreds of driving schools cropped up in villages of Telengana, Odisha and Bihar. In less than 3 years, over 30 lakh ‘driving’ jobs were created and filled up by people who didn’t know driving before.

The Folly of Central Planning

What does this mean? The government has no special powers to predict which skills will be needed in the future job market. In fact, it will get it wrong if it tried predicting. Because it will club together migrants based on some sketchy details of their skills, create a database and deliver skill programmes that have no bearing to what the market needs. As Hayek wrote in Use of Knowledge:

“This is, perhaps, also the point where I should briefly mention the fact that the sort of knowledge with which I have been concerned is knowledge of the kind which by its nature cannot enter into statistics and therefore cannot be conveyed to any central authority in statistical form. The statistics which such a central authority would have to use would have to be arrived at precisely by abstracting from minor differences between the things, by lumping together, as resources of one kind, items which differ as regards location, quality, and other particulars, in a way which may be very significant for the specific decision. It follows from this that central planning based on statistical information by its nature cannot take direct account of these circumstances of time and place and that the central planner will have to find some way or other in which the decisions depending on them can be left to the “man on the spot.”

The Indian state, as we never tire reminding, has low capacity and finite resources. It should use them in areas where it can have the maximum impact. Skill development, as our recent history has shown, doesn’t need its attention or its benevolence. The best way to help migrant labourers is for the government to create an environment for businesses to flourish. Simplify labour laws, reduce regulations, make capital easy to access and stay out of the way most of the times – these will help entrepreneurs. They will create jobs and the market will find ways to skill people and fill up those roles.

That’s spontaneous order in action. No one has to control it. It comes together on its own. It is simple.

PS: Our friend Ameya Naik (@KianAyema) will remind you of Bill Gates’ well-intentioned idea about how chickens can solve world poverty. Chickens are easy and inexpensive to take care of, are a good investment, and keep children healthy, and empower women. So wouldn’t it be great if the Gates Foundation gave chickens to a third of rural Sub-Saharan Africans? Won’t that solve their poverty problem?

The answer to that is obviously no. The price that each egg or chicken earns for a family will drastically reduce if everyone around you is doing exactly the same thing. So is the case with skilling. Too many centrally-planned barbers or plumbers is the best way to destroy the market for barbers and plumbers.

Read the full edition here.

Disclaimer: Views expressed on Anticipating the Unintended are those of the authors’ and do not represent Takshashila Institution’s recommendations.