First off, let me start with explaining a little about the title of the post. The old lame lion in the jungle. It does not exist. And its the classical validation of the Darwinian law of "Survival of the fittest". If its lame, a lion however fearsome wold not survive into pensionable age. Nature would ensure that. Now it a valid question on why I should be pondering about geriatric felines. The train of thought chugged out of the station when I saw a news article on the proposed labour reforms. I know capitalism is going through its mid life crisis and is still figuring out what has and could have gone wrong. There is enough articles, thesis and sundry kind of self employment generating output that academia are wont to create. Joseph Stiglitz's views about the reform required in capitalism and Paul Krugman's scathing commentaries comes to mind. And they are very valid and pertinent observations. One of the keystones of capitalism is "creative destruction" as articulated by Joseph Schumpeter. I am no economist but what I could discern was that capitalism as much as it enables new enterprises also facilitates destruction of failing enterprises. And the ingrained logic is that by killing of failing enterprises it releases resources to create new efficient enterprises. Now I agree there is a social angle to this destruction and it could be potentially traumatic at best and catastrophic at worst but I intend to address that later.
One of the unwritten laws of nature is that inherently there are resource constraints. So it does make sense for these resources to be deployed optimally. If an enterprise is failing because of inherent systemic issues ( bad business model, huge unsustainable resource drain) and it continues to live on artificial support, it is diverting scarce resources from other requirements to make its transition into the above mentioned geriatric flatfooted feline. At a micro level, there could be sufficient motivation to keep it going (emotional , local relevance etc). But at a macro level, it could be bad logic.
To illustrate it let me recount an oft repeated story that only economists can conjure up.
Long long ago in a far far away land ( Spoiler alert: No Shrek here), there was a small town whose houses were all mandated to have glass windows as per the housing regulations. An ingenious enterprising father-son duo came into this town and saw an opportunity. The son would throw stones on the windows and the father would duly replace the glass and charge a small amount for the same. Now one may argue that this enterprise generated income for the father-son duo who in turn would spend this money in the town and thus boost the local economy. The economist's theory is contrarian. His supposition, and to which I agree, is that at the end of the year, the town has not added any new assets to its kitty since its scant resources (money) round tripped through many hands to maintain the status quo.
And that is why I think labour reforms are critical to growth and employment. You may argue how does hire-and-fire policy increase employment. There are enough studies to indicate that it actually increases employment. Eventually, enterprises becomes efficient, grow and employ more people. The ones that are bound to fail atrophy and do not grow but drain resources.
But humans do not live in the jungle. Differently abled geriatrics rightfully survive and thrive because humans can operate at a different level of abstraction. The need for a safety net is paramount when India moves to the new labour regime. And that would be really a challenge given the economic realities of India and the propensity to leak public resources which is just another fancy euphemism for corruption. But it is a road that one needs to take. If India needs to grow it needs to unleash the animal spirits through enterprises and start up. Having worked and helped some of them, I can with some semblance of authority say that it is now or never. Labour reforms are but one component but critical nevertheless.
One of the unwritten laws of nature is that inherently there are resource constraints. So it does make sense for these resources to be deployed optimally. If an enterprise is failing because of inherent systemic issues ( bad business model, huge unsustainable resource drain) and it continues to live on artificial support, it is diverting scarce resources from other requirements to make its transition into the above mentioned geriatric flatfooted feline. At a micro level, there could be sufficient motivation to keep it going (emotional , local relevance etc). But at a macro level, it could be bad logic.
To illustrate it let me recount an oft repeated story that only economists can conjure up.
Long long ago in a far far away land ( Spoiler alert: No Shrek here), there was a small town whose houses were all mandated to have glass windows as per the housing regulations. An ingenious enterprising father-son duo came into this town and saw an opportunity. The son would throw stones on the windows and the father would duly replace the glass and charge a small amount for the same. Now one may argue that this enterprise generated income for the father-son duo who in turn would spend this money in the town and thus boost the local economy. The economist's theory is contrarian. His supposition, and to which I agree, is that at the end of the year, the town has not added any new assets to its kitty since its scant resources (money) round tripped through many hands to maintain the status quo.
And that is why I think labour reforms are critical to growth and employment. You may argue how does hire-and-fire policy increase employment. There are enough studies to indicate that it actually increases employment. Eventually, enterprises becomes efficient, grow and employ more people. The ones that are bound to fail atrophy and do not grow but drain resources.
But humans do not live in the jungle. Differently abled geriatrics rightfully survive and thrive because humans can operate at a different level of abstraction. The need for a safety net is paramount when India moves to the new labour regime. And that would be really a challenge given the economic realities of India and the propensity to leak public resources which is just another fancy euphemism for corruption. But it is a road that one needs to take. If India needs to grow it needs to unleash the animal spirits through enterprises and start up. Having worked and helped some of them, I can with some semblance of authority say that it is now or never. Labour reforms are but one component but critical nevertheless.