Haryana is the latest addition to the growing phenomenon where Indian states are formulating laws and policies to reserve jobs for locals in the private sector. Other states that have undertaken such measures, though with negligible implementation, include Andhra Pradesh, Karnataka, Madhya Pradesh and Maharashtra. Is it a race to the top or the bottom? It is certainly petty, immoral and may not achieve its objectives.
The Haryana government recently enacted the Haryana State Employment of Local Candidates Act 2020, which requires private establishments that employ 10 or more workers to reserve 75 per cent of new jobs with a monthly salary of less than Rs 50,000 for domiciles of Haryana.
It has resulted in a rift between the state government and the private sector, as evident from the backlash, it has received from private entrepreneurs and industry bodies. Many private-sector firms have threatened to move out.
This practice of regional protectionism has a ripple effect, that is likely to push other states to follow suit due to populist considerations, or a race to the bottom. It will end up restricting the freedom of workers to migrate and access better employment opportunities. It may also push employers to leave places where such laws are applicable. Most critically, it will lead to the erosion of national unity.
The perceived economic rationale of such laws – to generate jobs for locals and boost local industrial ecosystems -- seems to get defeated. To govern a commercial ecosystem, the state government is entitled and mandated to enact laws concerning land, labour, capital and energy.
These laws are meant to ensure smooth commercial activity. Each or both of the objectives forms the economic rationale towards formulation of a law. Additionally, under the new paradigm of stakeholder capitalism, the government, private sector, labour and civil society need to work in a compact over each other’s actions for inclusive and mutually beneficial governance.
While enacting this law, the Haryana government failed to do adequate pre-legislative exercises to test its economic rationale. It also undermined its compact of cooperation with the private sector. The law restricts the opportunities of migrant workers and disrupts the industrial ecosystem of Haryana. It seems like an expression of the state government’s insecurity towards unemployment and a classic example of ad hocism in lawmaking, driven by populism.
There already exists a trust deficit between the government and private sector, as each has avoided accountability towards the other on various occasions. The private sector knowingly failed to adequately distribute its acquired wealth and institutionalise precarious jobs. The government has overregulated the private sector, leading to a high compliance burden. The world is debating stakeholder capitalism vs shareholder capitalism: to ensure that every enterprise works for society, not just its owners.
In both instances of state supervision of business, however, labour has borne the brunt of the adverse consequences. What is unfortunate is that self-interest, rather than mutual interest, drives the solution of modern economic problems.
There is nonalignment between the problem statement specified in the statement of objects and reasons of the Haryana law and its objectives.
The statement specifies the influx of migrants competing for low-paid jobs as the prime reason for the adverse impact on local infrastructure and housing, and proliferation of slums. It further attributes these factors to the rise of environmental and health issues, thus affecting the quality of life and livelihood.
It’s true there is migrant influx for low-paid jobs in Haryana or the entire National Capital Region as it is in Mumbai or Kolkata. There can be two possible reasons. First, availability of abundant work opportunities under different industry segments; and second, lack of work in the states where the workers migrate from.
However, the primary reason for the burden on local infrastructure, housing and proliferation of slums is not the presence of migrants. It can be attributed to factors like lack of state capacity in undertaking welfare measures, non-availability of decent jobs in the private sector. Further, the quality of life and livelihood is affected for the same reasons.
Therefore, the solution to address this doesn’t lie in reserving jobs for locals but in enhancing the investment on local infrastructure, welfare measures and strengthening skill development initiatives. The solution also demands ensuring decent work for low-paid workers in particular. Decent work implies that the primary needs of workers, including health, food, shelter and clothing, are fulfilled. It also places a worker in a position where monetary savings are ensured and there is an opportunity for skill enhancement.
Ensuring decent work is a goal in itself and has an economic rationale of increased productivity and development of human beings. Working towards it requires the efficient performance of the compact between the government, labour and the private sector.
The state governments also need to realise such quota enabling measures are accompanied by newer compliances for enterprises. The proliferation of compliance responsibilities dilute the state’s agenda of facilitating the “ease of doing business” and also reduces the governance deficit.
The policies enabling employment quotas for locals is driven by populism. It has far-reaching consequences which goes beyond the direct impact on labour, the government and the private sector. It adversely affects the investment prospects for a commercial ecosystem, urban mobility of workers and has an immense opportunity cost. Therefore, any state action towards enhancing employment must be anchored through an economic rationale. This will be clear when the compact between the government, labour and the private sector is evidently functional....