Peace and democracy can provide only the foundation for stable and productive social life, not its fulfilment. For that, political security has to be complemented by economic security and a blossoming of individual and cultural potentials. Yet here our optimism seems to flag. Our thoughts of the new millennium do evoke images of greater peace and stability internationally, more individual freedom and democratic rights, growing international co-operation, exciting new technologies, increasing cultural interaction. But they also evoke images of more people and less work meaning fewer jobs! No sooner has the threat of nuclear annihilation receded, than the spectre of chronic unemployment and unrelenting poverty has risen to replace it, giving renewed justification to humanitys deepest anxieties by transferring them to a new source of apprehension.
In recent years, unemployment has emerged as a major cause of concern for governments around the world. In industrial countries, the subject evokes pessimistic prophecies of a fast-approaching future in which tens of millions of people will never find jobs, technology eliminates the need for human labour, cheap imports replace domestic jobs, welfare systems collapse under an unbearable burden, children have less economic opportunity than their parents, a widening abyss divides the rich and poor, and both markets and governments are powerless to do anything about it. In developing countries, it dashes hopes of ever conquering hunger, eradicating wide spread rural and urban poverty, and bridging the gap that separates these nations from the prosperous West.
The very same deterministic mentality that until recently made us feel that a nuclear war was inevitable now leads many to conclude that rising unemployment, chronic poverty and social alienation are unavoidable. Yet the enormous gains of peace and democracy that we contemplate cannot be secured and brought to fruition if this other apprehension is allowed to become a settled reality, as war between nations has been during past millennia. The peace and security we seek internationally depend directly on our ability to promote and maintain domestic peace and tranquillity within nations, which in turn are dependent on the ability of countries to provide food and economic security to their people. Poverty and unemployment are closely linked to most instances of social unrest tribal wars, civil wars, urban crime, drugs and violence. There is clear evidence from the US and UK that crime is economically related to lack of job opportunities. Unemployment is also a major cause of massive migrations, both to urban areas within countries and across borders, which has become a highly destabilizing factor in many regions. Without sufficient purchasing power for food and other material essentials and non-essentials, there can be no assurances of lasting social peace and political stability.
The linkage between peace, political stability and economic development will be even stronger in the future than in the past, due to the democratic and social revolutions that are in the course of encompassing the globe. The greater access to information and freedom of expression which characterize democratic societies and the rising expectations of people at lower economic levels combine to generate a powerful pressure on society to provide economic opportunities as well as social freedoms to every citizen. If the greater freedom and higher expectations are unable to find means for their positive fulfilment, they can lead to rising frustration, tension and violence, which threaten the prosperity of those at higher levels and the stability of the society as a whole. Democracies can only thrive and the revolution of rising expectations can only fulfil itself peacefully, when economic opportunities are provided to every human being. The recent rise of the political right, ethnic unrest and opposition to immigration in Western Europe, and the surge of crime in the United States, are sufficient evidence of the corrosive impact that unemployment can have, even on mature democracies. Increasingly, those excluded from the benefits of modern society reject its standards of justice and ignore its laws.
The end of the ideological confrontation between capitalism and communism leaves the market system exposed at its weakest point its impersonality and insensitivity to human needs and suffering with no longer any lesser alternative to point at in self-justification. Having rejected the inadequacies and abuses of authoritarian socialism as a solution, we are compelled to find other methods to achieve social equity. In the present context, employment is the most effective way to distribute the fruits of development among people. The world is now capable of producing sufficient food and other basic necessities to feed, clothe and house everyone; but without opportunities for employment, people lack the purchasing power needed to buy them. Economic entitlement, rather than a shortage of food or food production capacity, is the key to global food security. Lack of employment opportunities is also directly linked to destruction of the environment, both rural and urban. The destruction of tropical rain forests has been one result. The greatest security challenges of the twenty-first century are economic, not military or political. Employment is a sine qua non for meeting these challenges.
A thorough examination of facts and a dispassionate analysis reveal grounds for hope and opportunities for action. The possibility of more rapid economic growth and rising incomes in both developed and developing countries spurred by further substantial reduction in defence spending, the diffusion and application of new technologies, economic liberalization leading to growth of international trade, the globalization of financial markets, and the emergence of new engines for global expansion among developing countries indicates that our apprehensions need not prove justified, provided society acts courageously and decisively to meet the challenge. A global overview of employment cannot do full justice to the special circumstances, problems and potentials of specific regions and countries, but it can dispel the growing concern that employment has become a problem beyond the means of governments or the global economy to eradicate or even contain.
In the final analysis, creation of jobs for all is not a question of possibility. It is a question of necessity. Neither logic nor self-interest justify a detached attitude or a half-hearted effort to address this issue. As in the case of the recent global response to the threat of global warming from depletion of the ozone layer, it simply is not acceptable for us to remain indifferent or claim that we are powerless to act where the entire worlds vital self-interests are at stake. When war threatens a nations borders, technology threatens its environment or unemployment threatens the livelihood of its people and the fabric of its social existence, there is only one acceptable response that is, action.
The greatest achievement of this century has not been technological, economic or political, but rather the growing concern and intolerance for the slaughter, persecution or impoverishment of other human beings. This marks the awakening of our collective, human consciousness to the full value of human life and the consequent rejection of physical strength, political power and money as the governing values of society. This evolution of consciousness has led to monumental changes in the accepted rules of social existence. Slavery and colonialism were abolished because society evolved to the point where it would no longer tolerate them not for economic reasons, but because they were a disgraceful blot on the conscience of humanity. Similarly, the acceptance of famine, poverty and unemployment as necessary or inevitable by-products of economic life should no longer and need no longer be tolerated. Social charity and welfare were necessary inventions to mitigate the worst effects of economic development over the past few centuries, but they are signs of a defective system that humiliate the recipients and deprive them of self-respect, rather than equipping them with the capacity and self-confidence to help them selves. As freedom has finally been recognized as an inalienable right of every human being, we are fast approaching the time when society must recognize and ensure the right of every individual to gainful employment. Given the right leadership and policies, Jobs for All is an achievable goal for all industrial nations within a decade and for all of humankind early in the twenty-first century. A change of attitude is the prime necessity for this accomplishment.
A survey of unemployment in different regions of the world makes evident the reason for the mounting concern over this issue. Unemployment in the industrial countries is at its highest level since the Great Depression. The official figure is around 6.4 per cent in the United States, but the actual number, including those who have given up seeking jobs, is probably above 10 per cent. More than 35 million Americans, constituting 14 per cent of the population, are living on incomes below the poverty line, including 30 per cent of all blacks and Hispanics. Western European unemployment rates are at the highest level in 30 years. They are projected soon to reach 12 per cent or 18 million people and remain high throughout the decade, prompting the outgoing European Union President, Jacques Delors, to call employment Europes Achilles heel. Youth unemployment rates (aged 1619) in the European Community average nearly 20 per cent and nearly 50 per cent of the unemployment is long-term (more than one year). The emerging situation poses a challenge to the European concept of the welfare state.
Employment in Eastern Europe and the republics of the former Soviet Union has been severely disrupted by the break-up of COMECON, the dissolution of the USSR and the movement of these countries from centrally planned to market economies. From the beginning of 1990 to March 1992, registered unemployment grew from 100,000 to over 4 million and it has continued to rise steeply since then. The unemployment rate for ten Eastern European countries now averages around 17 per cent. Recent projections indicate that jobless ness in Russia could reach 15 million persons or 18 per cent of the work-force in the near future.
By far the most serious problem lies in the developing world, where unemployment rates average 4050 per cent in many countries. In Latin America, 192 million people representing 46 per cent of the population live under the poverty line, and 22 per cent of them are considered extremely poor. Urban unemployment is around 8 per cent, but average industrial wages in the region fell by 17.5 per cent during the 1980s and the number of workers in the lower-wage informal sector doubled. Although population growth has slowed, a 72 per cent increase in labour participation rates for women is causing the work force to continue to expand rapidly. This region needs to double its employment growth rate to create 89 million new jobs during the 1990s in order to provide full employment opportunities for all its people.
In sub-Saharan Africa, home to 20 of the 25 poorest nations in the world, urban unemployment afflicts some 14 million people, representing 1520 per cent of the workforce, and is projected to more than double in the next ten years. Typically, youth comprise 65 to 75 per cent of the total unemployed. With the regions population still growing at 3 per cent annually, these countries need to create 100 million new jobs in the coming decade just to maintain their present levels of unemployment.
High population growth and a severe economic slowdown have generated high rates of unemployment in the Arab countries, estimated to exceed 25 per cent during the early 1990s, in spite of the very low labour participation rates among women in this region. In the aftermath of the Gulf crisis, labour-supplying countries such as Jordan, Lebanon, the Sudan and Syria have suffered the most. Returnees swelled Jordans population by 8.4 per cent and caused unemployment levels to rise above 20 per cent. Unemployment levels among Palestinians in the Gaza Strip and on the West Bank are among the highest in the world.
A dramatic exception to this gloomy trend comes from the countries of Asia and the Pacific, which have made great strides in job generation during the 1980s and are poised to continue expanding rapidly. The Newly Industrializing Economies (NIEs) Hong Kong, South Korea, Singapore and Taiwan-China are all facing severe labour shortages, with Malaysia, Thailand and Indonesia also moving in that direction. But other Asian countries continue to face major challenges in creating sufficient jobs for all. China has created a phenomenal 100 million new jobs since 1985 and continues to grow rapidly, but the country still has a pool of 130 million surplus rural workers. Joblessness in Chinese cities is projected to reach 5 million by the end of 1994. India needs to create at least 100 million new jobs in the next ten years in order to raise all its poor above the poverty line.
Factors Contributing to Rising Unemployment
Although the problem of unemployment is not new, a variety of factors have combined to aggravate the difficulties confronting most regions of the world in recent years.
The major impact of several of these factors has already been felt and is now beginning to subside. Some will continue for several more years. Still others may entirely reverse their direction and contribute to job growth later in the decade. Not one is an irreversibly negative factor that will continue to exert a downward pressure on job growth for the foreseeable future.
Job Creation during the Twentieth Century
A long-term, global perspective is needed to understand fully the employment problem and the prospects for eliminating it. Over the past four decades, the world economy has generated more than one billion jobs, more than were created during the previous four centuries. If past trends continue, it will create another 1.3 billion during the next 35 years. The current anxiety in the West is similar to that which the United States passed through in the 1890s when agricultural mechanization displaced 4.4 million farm workers, generating double digit unemployment and visions of a dismal future. Yet, since then, employment in the United States has expanded by nearly 100 million jobs or 400 per cent. Between 1990 and 2005, it is projected to increase by another 25 million. The same process of structural transition is repeating itself today and raising the same anxieties. Contrary to common belief, the US employment rate, the percentage of total population with jobs, has risen steadily throughout the century from 38 per cent to 46 per cent of the total population and is expected to reach 51 per cent by 2005.
This trend is true for the industrial nations as a whole. Between 1960 and 1992, total employment in OECD countries rose by 110 million jobs or 44 per cent, including a 22 per cent increase in the participation of women in the workforce. During this same period, un employment rose by 23 million persons, representing a 259 per cent increase in the overall unemployment rate. More people are working than ever before, yet at the same time more people are unemployed, because a larger proportion of the population seek jobs. Growing anxiety about employment prospects in the West were aggravated by a sudden 50 per cent increase in unemployment after 1990, which displaced an additional 10 million workers in the OECD and was equalled only by the previous high of 1983. This increase is now showing signs of reversal.
These average figures disguise significant differences in performance of countries within the OECD. Since 1950, Japans employment rate has risen from 43 per cent to around 50 per cent, while unemployment has remained in the 1 to 3 per cent range. The overall proportion of the population employed in the European Community has declined by 1 per cent since 1965 and is presently just under 41 per cent, but the percentage of the working age population employed has remained more or less constant over the past three decades, at 67 per cent, whereas in other OECD regions it has risen significantly to exceed 75 per cent in North America, Scandinavia and Japan.
Europes lower labour participation rate is attributable to a number of factors. A far higher percentage of the European workforce was engaged in agriculture 25 years ago and has since shifted to non-agricultural sectors, an adjustment that occurred in the United States during earlier decades. During the 1980s Europe chose a high-wage path to growth, passing on the benefits to the existing workforce but creating relatively few new jobs; whereas the United States, with a similar economic growth rate over the decade, showed lower income growth per worker, but a steadily rising employment rate. Europe is now confronted with the need for structural adjustment to compensate. In the United States, the extent of the unemployment problem is partially disguised in the form of low-wage jobs, which distribute total income over a larger number of workers. Twenty per cent of all full-time US workers have incomes that fall below the official poverty line for a family of four, though only a quarter of these live in households whose total income is below the poverty line. Real wages in the United States have not risen significantly over the last 20 years due to the dramatic increase in the supply of labour as a result of a 62 per cent increase in female participation since 1960 and the entrance of the baby-boom generation into the workforce. However, Americas family living standard has still risen by 40 per cent since 1970. Within the next decade, the aging of the population is expected to reduce job pressures and even lead to labour shortages in some European countries.
Job growth has been quite rapid in the developing countries over the last forty years, more than doubling total employment. The single most important factor behind rising numbers of unemployed persons and increasing absolute numbers of families below the poverty line in developing countries has been the 2.4-fold expansion of population in the Third World, and more than doubling of the economically active population since 1950, which have resulted in a 4 per cent decline in the overall employment rate. Population growth rates continue to fall steadily in most countries, with the exception of Africa, providing an opportu nity for economic growth and job growth to catch up with the population explosion of recent decades.
Along with rapid quantitative job growth, the global economy has achieved dramatic qualitative gains in the nature of employment. During recent decades, there has also been a marked movement away from subsistence level manual occupations, primarily in agriculture, to more skilled and remunerative forms of employment. Worldwide, the percentage of the work force engaged in agriculture has fallen by 24 per cent since 1950, from 67 to 51 per cent.
Unemployment is of growing concern today primarily because population has expanded in recent decades even faster than job creation and because a larger percentage of the population, principally women, seek employment now than at any time in the past. The shortages of jobs and the resulting poverty represent the most pressing social problem in the world today. But viewed in historical perspective, it is clear that substantial progress has been made during the post-war period, making humanity as a whole more prosperous than at any previous period in recorded history. Over the past five decades, global GDP has multiplied seven-fold. In spite of unprecedented population growth, per capita income has more than tripled. Between 1965 and 1985, real per capita consumption in the developing world rose by 70 per cent. Despite the paramount concern raised by the persis tence of high rates of unemployment in recent years, available data do not confirm a long-term trend towards rising rates of global unemployment.
Prognosis for Employment in the Twenty-First Century
Although it is difficult to make reliable employment projections based on past trends, we can say some things with a fair degree of certainty.
Our thesis is that there is a great deal that can be done to prevent this outcome and even reverse the trend, leading to sharply reduced levels of unemployment and progressive eradication of poverty over the next decade.
How can we make such an optimistic prognosis in the face of the rising number of unemployed and rising concern of governments everywhere? Before presenting our case, it is necessary to challenge several basic concepts about job creation and unemployment.
Destroying Myths about Job Destruction
Two common, but pervasive, myths have gained ground that add an aura of scientific determinism to the fatalism regarding rising un employment: the first relates to technology, the second to trade. The notion that science and technology will eventually eliminate the need and, consequently, the opportunity for human productive labour has been gaining ground since the early years of the Industrial Revolution, and, with the advent of automated production lines, computers and industrial robots, it has attained the status of accepted truth. Each generation welcomes with foreboding the advent of new technologies, attracted by their potential benefits and frightened by the immediate costs they impose. But contrary to popular conception and empirical observation, there is little evidence to support the thesis that technological development is responsible for rising levels of unemployment in the medium to long term.
In spite of widespread anxiety that machines are progressively replacing people in the workforce, historically there has been a strong positive correlation between technological development and job creation. It is certainly the case that the commercial application of each new phase of productive technologies displaces people from traditional occupations, reduces the number of workers required to carry out specific tasks, and can in the short term lead to fewer jobs in specific industries. In the process, a larger number of low-wage, unskilled jobs are replaced with a smaller number of higher-wage, more skilled jobs resulting in rising levels of worker productivity and rising personal incomes. But that is only the most direct initial impact of improved technology. Seen from a wider perspective and traced patiently along the course of its myriad consequences, the introduction of new technology acts as a catalyst that generates a positive ripple effect which, on average, results in the creation of many more jobs more skilled, more productive and higher-wage jobs than it destroys. The rising productivity made possible by technology reduces production costs and thereby lowers the price of products and services to customers and consumers. The lower prices result in increased demand, greater consumption, higher levels of production and even greater cost reductions due to economies of scale.
This represents only the first cycle of job creation. While jobs are being eliminated in low-skilled manual or assembly operations, simultaneously they are being created in industries that manufacture and service the more sophisticated machines, as well as in Research and Development (R &D) laboratories that develop the new machines, materials and manufacturing processes. The workers who operate the improved machines require higher levels of skill, which demands more education and training, thus creating demand for jobs in the service sector. The more productive and higher-paid industrial workers utilize their enhanced purchasing power to buy more goods and services than before spending more on travel, consumer goods, housing, leisure, health and the education of offspring, and thus creating demand for more jobs in other industries. Rising incomes generate higher standards and expectations, bringing changes in lifestyle that create new needs and new commercial activities.
This process has led to enormous growth in new jobs. The best documented example of this process is the automotive industry. Inspired by the idea of making a car the working-class masses at the turn of the century could afford, Henry Ford adopted new manufacturing technology, the automated assembly line, to produce the first low-priced automobile. Fords technology increased worker productivity more than seven-fold and reduced production costs by two-thirds. As an immediate result, thousands of small manufacturers of custom-built cars and horse-drawn carriages were put out of business. But the growing demand for low-cost vehicles generated explosive growth for the industry, creating tens of thousands of new jobs in the process. Globally, production rose from less than 250,000 vehicles in 1910 to 42 million in 1980. Nine decades later, the automotive industry is still the largest manufacturing industry in the world and the single largest source of jobs in the American economy. Every job created in automotive manufacturing has spawned roughly ten more in related occupations. Thus, about 9 per cent of the USAs entire workforce is employed in occupations directly related to automotive manufacture, sales and services, road construction and maintenance, and transport of freight and passengers. Globally, 7 to 9 million workers were employed in automotive manufacturing in 1980 and perhaps as many as 50 to 80 million in related occupations. In addition, the spread of automotive technology has had tremendous impact on the growth of other industries stimulated by the greater mobility of the public retail trade, hotels, restaurants, tourism, recreation and indirectly on agriculture, as well as every other service and manufacturing industry that benefits from lower cost and greater speed of passenger and freight transport.
Advances in technology provide society with greater conveniences and in the process endow the society with greater creative and productive abilities. Over time, these new abilities spur the creation of new activities in many different fields distantly related to the original point of innovation. The process results in improvements in health, which raise the level of physical energy; higher standards of education, which raise the level of mental energy and culture; and higher levels of social skills and organization, which raise the energy level of the entire society, making it ever more creative and productive. A comprehensive study of this wider process of job creation and destruction arising from technological innovation is needed to develop specific coefficients for measuring the impact of technological advances in different fields on total employment. Eventually, we may hope to dispel the widespread fear and sense of helplessness that this issue evokes.
The notion that there are a fixed or inherently limited number of jobs that can be created by the economy is a fiction. It is not just advances in technology that work in this fashion. Every major advance in social attitudes, institutions, values and lifestyles has a dual effect on employment, creating jobs in some areas and destroying them in others. Higher standards of education not only raise productivity, but also stimulate higher expectations that lead to greater consumption. Changing attitudes toward the environment have created entirely new industries and generated new jobs in every field where impact on the environment is of concern. New types of organization such as fast-food restaurants, franchising and hire purchase or leasing create new jobs by hastening the growth or expanding the activities of the society. Shifting attitudes toward marriage and the role of women create greater demand for jobs but also more opportunities for employment, because working women consume more and require additional services.
Anxiety regarding the impact of technological development on jobs has been aggravated by the belief largely a hangover from the Industrial Age that in the industrial nations automation is rapidly replacing high-wage manufacturing jobs with low-wage jobs in the service sector. Actually, services have had a dominant place in Western economies for most of the twentieth century. In the United States, they now account for 79 per cent of all jobs, 74 per cent of GDP, and generate a $56 billion trade surplus, compared to a $132 billion deficit for goods. Technological developments, such as advances in computers, telecommunications and medical technology, have played at least as great a role in the growth of the service sector as in manufacturing. New service jobs in banking, foreign trade, research, design and engineering, computer software, education, health, law, finance, business management, communications, transportation, media and entertainment demand higher levels of education and skills and offer higher pay. In 1992 the median manufacturing job in the US paid only $19 per week more than the median job in the service sector. The growth of technology is freeing workers from the drudgery of the production line, while providing consumers with a quality of life previously available only to the most wealthy.
The organization of production is also a major determinant of the number of jobs created. The Western pattern of mass production by monolithic corporations that emerged during the first 80 years of this century is no longer the inevitable or even the obvious pattern for either industrial or developing countries in the coming decades. Smaller, technology-intensive firms are faster at adapting new technology, more flexible in meeting specialized customer needs and generate more skilled, better-paying jobs. Recent experience, such as in the Prato region of Italy, indicates that proper blending of new technologies in existing productive sectors can be utilized to preserve a geographically decentralized, small-scale pattern of production and to enable small firms to match the competitiveness of countries with much lower labour costs. This offers an attractive alternative for preserving the small-scale decentralized pattern of production still prevalent in developing countries and for the future development of enterprises in new industries.
Each advance in attitudes, lifestyles, social institutions and forms of commercial organization has ultimately expanded the scope of economic activities and raised living standards substantially. Jobs are created by our innate human resourcefulness and ingenuity, expressed as invention, innovation and social imitation. The ultimate determinant of the number and quality of jobs in future will not be physical or even financial constraints, but science, technology, values and social organization in a word, the human imagination.2
Those in the West who do not blame rising unemployment on technological advancement, usually blame it on trade. Business and economic literature is replete with articles stating that the high-wage industrial nations will suffer rising levels of unemployment due to the growth of imported goods from low-wage developing countries. The completion of the Uruguay round of GATT trade negotiations was delayed for years because this view fostered protectionist sentiment in the bastion of free trade Western nations. This issue elicits heated emotional debate that often overlooks obvious facts. For instance, increasing trade with East Asia and with low-wage developing countries is cited as a major cause of the fall in the wages of unskilled workers in the United States. As in the case of technology, there is evidence that free trade destroys jobs in some industries, especially unskilled or low-skilled jobs in high-wage economies. In some instances the devastating impact of increasing imports may justify a gradual approach to removing trade barriers. However, the overall impact of manufactured exports from developing countries has been vastly exaggerated. Exports by the Newly Industrializing Economies to the United States have risen from 1.1 to 2.1 per cent of US GNP over the past decade. Americas share of trade with low-wage countries represents only 3 per cent of GDP, compared to 2 per cent in 1960. For the OECD as a whole, imports from low-wage countries represent only 1.5 per cent of total expenditure on goods and services.
On the other hand, there is irrefutable evidence that expanding international trade creates large numbers of jobs, even in high-wage economies. The real issue, therefore, is whether the overall balance favours net job creation or net job destruction for each nation and for the global economy. On this issue the evidence is clear. Protectionism reduces overall economic welfare, often hurting those with the lowest incomes. In the long term greater international trade, like technology, expands overall employment opportunities substantially. Trade also counters the tendency of prices to increase along with incomes in more developed countries. Living standards rise as consumers benefit from the availability of lower-priced imported consumer goods.
One of the greatest barriers to solving the worlds employment problem is the perception that trade destroys jobs. As in the case of technology, the interactions are complex and must be viewed in their entirety, rather than in isolated industries. The global economy is not a zero sum game in which increased production by one country must necessarily result in reduced production by another. Trade opens up new opportunities. It permits each country to specialize in industries where it possesses a comparative advantage. This specialization enables it to evolve improved processes to achieve higher levels of quality and productivity, larger production volumes and lower costs. This results in higher incomes for its workers and makes their products more affordable in other countries, which in turn raises standards of living abroad. The resultant rise in real incomes domestically and overseas stimulates demand for more of these products as well as for other products that can be produced locally or imported from overseas.
Trade also tends to raise the quality of jobs in an economy. It forces higher-wage countries and their workers to specialize in technology-intensive and skill-intensive occupations that pay higher wages. At the same time, it also raises the wages of less-skilled jobs in low-wage countries by increasing the demand for workers to produce for overseas markets. The problem in the more developed countries is that the demand for low-skilled jobs declines and the gap in wages between skilled and unskilled jobs tends to increase, resulting in a decline in incomes and employment opportunities for lower levels of the population in these countries. This is a natural, healthy process of social development in which different sectors serve as engines for growth at different stages. The upward job displacement that earlier shifted job opportunities from agriculture to industry now shifts them to higher-skilled jobs in manufacturing and services. The negative side-effects of this process on some sections of the population alert us to areas where society must make special efforts to speed their development. As in the case of technology, research is needed to document this complex process across industries, between countries and over time. One product of these studies could be the development of specific job coefficients measuring the impact of growth in trade in different industries on overall employment.
Trade becomes of even greater potential benefit to industrial nations during the coming decade when economic growth in these countries is expected to be significantly slower than in the developing world. The pent-up demand generated by the destruction of Europe during the Second World War, the rapid expansion of population during the baby boom generation, and the explosion of new technologies in the past few decades, all generated strong internal demand in the OECD countries, resulting in steady economic growth. The slow growth of population and productivity in more recent years means that these factors cannot be expected to drive further economic expansion at the same rate. In contrast, average growth rates in developing countries are expected to be two to three times higher than in the industrial nations. The increase in the dollar output of developing countries was actually bigger than that of the most economically advanced nations in 1992 and 1993, and this trend is expected to continue. Measured in terms of purchasing power parity, developing countries now represent more than one-third of the world economy. More than 40 per cent of US exports now go to developing countries and two-thirds of the increase in US exports in recent years has gone to these nations.
The rising expectations and upward mobility of millions of people in developing countries represent a vast potential source of demand, higher incomes and jobs for the West. Increasing incomes among the poorest countries has the greatest multiplier effect on global aggregate demand, because even small increments in per capita income can lead to large increases in the number of households with incomes above the threshold for buying consumer goods. Asia is expected to generate half the growth in gross world product and world trade during the 1990s. This region will have one billion consumers of televisions, refrigerators and motor vehicles by the year 2000 and a rising appetite for both imported consumer and capital goods. East Asia alone, excluding Japan and China, will spend about $900 billion on infrastructure between 1992 and 2000. During this decade, China and India will add 21,000 megawatts of electricity generation every year and more telephone switching capacity than the United States and Japan combined. Latin Americas annual requirements for investment in power, water and sewage, telecommunications and transport infrastructure are estimated at $60 billion. Rising incomes and increasing exports to the dynamic economies of Asia and Latin America could generate as many as 1.7 million jobs by the end of the decade in the United States alone.
The growth of the developing economies could provide the major impetus for economic expansion and job creation in both developed and developing countries. Government policies based on recognition of this fact can considerably improve the climate for development of these nations and correspondingly stimulate further growth in the West. Freer international trade will generate a flood of cheaper goods from the developing world that will give rise not only to greater purchasing power and higher standards of living for the Western consumer, but also to a demand boom for sophis ticated Western goods and services to improve infrastructure and meet the needs of billions of consumers in developing countries. The vast inequalities in living standards that persist within both developing and industrial nations, and between the most and least economically developed countries, result in an enormous global loss of incomes and jobs. Accelera ting the development of poorer nations and poorer sections of the population in each country is the most powerful instrument and the surest guarantee of continued growth of jobs and incomes for everyone in the next century.
Strategies for Developing Countries
For the developing countries as a whole, the most critical question is how to create quickly hundreds of millions of jobs for the poor with limited purchasing power and limited capital for investment. The idea that most of these jobs could be created in the corporate sector or by government-sponsored activities has been put to rest. Currently, there are nearly one billion self-employed and unpaid family workers in the world, most of them self-employed farmers in developing countries. The self-employed represent 48 per cent of the workforce in low-income economies (less than $500 per capita GDP). For any strategy to be successful, it must give central importance to self-employment and entrepreneurship, with emphasis on agriculture, agro-industry and small firms in the informal sector. While a single approach will not be applicable to countries and regions of the world in different stages of development, a number of common principles and strategies are widely applicable.
Agriculture as an engine
Slightly more than half the worlds workforce, of whom 30 per cent are women, are still engaged in agriculture. Agriculture will remain the largest single occupation for the foreseeable future. For too long this sector has been regarded by planners primarily as the source of essential food production. Historically, agriculture has also played a major role as an engine for economic growth and employment. The Industrial Revolution in nineteenth-century England was spawned by rising productivity and incomes in agriculture that increased demand for manufactured goods. In post-war Japan, South Korea, and more recently Thailand, rising agricultural productivity and a shift to commercial crops have been dynamic engines for economic growth, job creation, higher incomes and rural purchasing power, wider markets for produce, and the growth of downstream industries. In Taiwan, this was the result of a conscious strategy to utilize agriculture to stimulate job creation and domestic demand.
The vast technological gap between the levels of agricultural productivity achieved by most developing countries and the highest yields achieved globally represents an enormous untapped potential for stimulating economic growth and job creation. The reduction in agricultural subsidies to farmers in industrial nations called for in the recently signed GATT trade agreements will generate far higher international demand for agricultural exports from developing countries. In the next chapter, we argue strongly for an agriculture-led job creation strategy and cite evidence to show how it can generate sufficient jobs to eradicate poverty in many countries.
New deal for the self-employed
Excluding agriculture, there are 104 million self-employed and unpaid family workers in developing countries, representing 37 per cent of the non-agricultural workforce. Self-employed persons and the small firms which they establish have enormous potential for rapidly generating large numbers of new jobs and raising productivity to increase incomes, provided the right policy measures are in place to support them. Japans economic growth has relied heavily on the proliferation of small rural enterprises. Today, 74 per cent of the Japanese workforce is employed by small and medium-sized firms. China created 101 million jobs between 1985 and 1991, 70 per cent in township and village enterprises, of which nearly half are privately owned. In many countries, a large proportion of small enterprises are established by women and employ predominately women. An appropriate mix of policies focusing on access to technology, training, credit, marketing and distribution channels can substantially accelerate self-employment, particularly in the informal sector and rural areas, and among women.
The service sector represents only 25 per cent of the labour force in developing countries compared with more than 67 per cent in the industrial nations. Contrary to common conception, services can be a major contributor to job growth even in countries at earlier stages of development. This sector is as amenable to stimulation by government policies as agriculture or manufacturing, and it also provides impetus for the growth of other sectors. Supportive policies have enabled trade, transport and other services to generate more than 50 per cent of all jobs in Japan, Hong Kong, South Korea and Singapore. Services have produced more than half of all job growth in many other Asian nations, including private day-care centres, nursery schools and computer training institutes, which are multiplying rapidly in many countries, but can be expanded much further. India has adopted an innovative, low-cost, self-employment strategy to expand availability of long-distance telecommunications services by setting up small private telephone and fax centres throughout the country. Informal private service enter prises in construction, commerce, food catering, repair and transport have vast growth potential. Rapid expansion of education, training and public health, especially rural health and education, can also serve as a conscious strategy for employment generation.
Technology of organization
Much emphasis is placed on the widening gap in technology between North and South, but the gap in the technology of organization is even greater. Creation of new types of systems and organizations can create markets and jobs in many ways. The Dutch system of flower auction co-operatives is so successful that 68 per cent of the entire worlds exports of cut flowers pass through markets in the Netherlands. The franchise system has led to a rapid proliferation of new businesses and new jobs in the West in such widely diverse fields as food services, home remodelling, dry cleaning and real estate. Industrial estates, export processing zones, export promotion councils, export insurance, warehouse receipts, quality standards, and thousands of other organizational innovations have been either created or borrowed by developing countries to accelerate social progress. A comprehensive study of successful systems and institutions that can be transferred and adapted to local conditions will document the enormous untapped potential for stimulating faster economic and job growth by inventing, imitating and further improving social systems.
While most of the prescriptions listed above are known to all, very few are systematically and efficiently applied. Africa can benefit enormously by applying strategies that have worked in Asia. The Prosperity 2000 programme evolved by ICPF for India and presented in the next chapter seeks to utilize a combination of these strategies to generate 100 million new jobs within a decade or less, which will be sufficient to raise 25 per cent of the worlds poorest billion people above the poverty line. Given a comprehensive approach, the right mix of policies, good government and a conducive international environment for trade, technology transfer and investment, every nation has the capacity to develop and meet the employment needs of its people within the next one or two decades.
The Right to Employment
The transformation of social life in this century has drawn hundreds of millions of people away from a subsistence level existence in agriculture to urban areas and industrial employment. In the process it has brought about an unprecedented advancement in living standards around the world. But it has also engendered a way of life in which the livelihood of individuals is far more dependent than in the past on external conditions the state of the national and global economy, trade policies, interest and exchange rates, levels of military spending and overall consumer demand. Modern society, even in the most liberal democracies, has become so structured that it leaves less and less freedom for truly independent individual initiative. Today, government intervenes in virtually every aspect of societys economic existence, restricting the freedom of the individual to seek his or her own livelihood and determining the type and number of job opportunities available. Employment opportunities are directly linked to government tax policy concerning capital gains, depreciation, energy, wages and salaries, as well as by policies governing minimum wage laws, interest rates, budget deficits, imports and exports, environmental regulations and restrictions, defence spending, immigration, industrial development, investment, licensing of practitioners, zoning laws and countless other public policy issues.
Without access to jobs, people lack the ability to ensure their own survival and support in modern society. As government has assured the right to education indeed, compels it it can and must also ensure the right of every person to gainful employment. Our very concept of the rights of the individual and the responsibilities of the society must undergo radical change. UN Secretary General Boutros Boutros-Ghali has called for a broader definition of human rights to include economic as well as political rights. The essential basis for meeting the worlds employment needs is the realization that employment is an absolute necessity for survival in modern society and must be recognized as a fundamental right of every human being. Pragmatism as well as idealism compels this step. Recognizing the right of every citizen to employment is the essential basis and the most effective strategy for generating the necessary political will to provide jobs for all.
What is needed is not another job generation programme, but a change in social values that will accelerate the natural and inevitable evolution of society, from one in which labour is regarded as a dispensable resource to one based on full human rights and the enormous productive potential of the human being. The type and magnitude of change needed today is comparable to that embodied in President Roosevelts New Deal for the American people during the Great Depression, at a time when 25 per cent of the workforce was unemployed: to the Indian governments decision to launch the Green Revolution in the mid-1960s to achieve self-sufficiency in foodgrains, at a time when the country was highly dependent on imported food to stave off famine: and to Mikhail Gorbachevs initiatives late in the 1980s to end the Cold War and transform Soviet society.
Is Full Employment Possible?
Few will argue with the compelling logic, justice and idealism of this view, but many will question the feasibility of practically implementing it. As long as we continue to believe that society is truly helpless to manage job growth, there will be strong resistance to the full employment goal. We must recognize that the present status and functioning of our economies is the result of specific choices that have been made in the past, based on priorities and values that were relevant or dominant at the time, but which we certainly are not obliged to live with indefinitely and, in fact, are continuously in the process of discarding in favour of new values and priorities. The rapid adoption of environmentally friendly policies around the world is positive proof of how quickly the rules, even economic rules, can change when there is a concerted will for a breakthrough. So too, the welfare policies of the European Union that have resulted in a 70 per cent rise in national income over the past two decades, but only a 9 per cent increase in the number of jobs, were due to conscious choices that favoured the employed over the unemployed, not the inevitability of the market.
Recent economic debate in the United States has brought this truth to the fore. At a time of historically low levels of inflation and high levels of unemployment, the US Federal Reserve has pursued a policy of raising interest rates in order to prevent a potential rise in inflation at some time in the future, which has had the immediate effect of dampening growth and slowing job creation, just at the time unemploy ment rates were beginning to fall towards normal levels. This has prompted some economists to question the notion of a natural rate of unemployment. The current high level of structural unemployment is the result of policies that can be changed.
Every social condition is the result of current social values, attitudes and policies. The values, attitudes and policies underlying the present state of the US economy give highest priority to conserving the value of existing wealth, rather than creating new wealth through faster economic growth and higher rates of employment. The apparent obsession of central bankers supported by international financial institutions to raise interest rates in anticipation of rising prices, thereby sacrificing job growth in order to prevent even modest levels of inflation, illustrates negatively to what extent it is human choices based on superstitious fear and a clinging to money value at the expense of human value that prevent us from resolving this crucial problem. The current level of unemployment is one among several of its natural results. Peoples jobs are a variable being manipulated in the operation of economic policy. Through its acceptance of government policy, society has chosen the present system and, if it chooses, can alter it in preference for another.
The commitment to jobs for all is also undermined by the false impression that the total employment available in society is inherently limited by the finite, material needs of the community. Modern economic history is witness to an ever-expanding growth in human needs to match the ever-increasing productive capacities of the post-industrial age. Creating more jobs is an expansive movement that generates more purchasing power, increases aggregate demand and consumption, stimulates further job creation, and moves the whole economy towards higher rates of growth. The expansion is not merely horizontal. It also involves the emergence of higher-order, non-material needs for education, health, recreation, entertainment, environmental protection and artistic fulfilment. The entry of women into the workforce has substantially increased the demand for day-care and house-care services, travel, recreation, automobiles, fashion and consumer goods. The raising of environmental consciousness has led to a rapid proliferation of new technologies, products and services.
A radical change in values, priorities and policies at count less points is required. It can only be done by the conscious initiative of government compelled by the expectations and demands of an electorate educated to understand the impact of government on economic life and the scope for increasing employment opportunities in a market economy. If society decides that useful jobs must be created, then they will be created. Full employment can be achieved by any country that has the will and determination to achieve it.
This does not mean that every country can accomplish the goal immediately. Nor does it mean that governments should try to spend their way out of unemployment by creating artificial jobs for all who seek them. But the high current costs of the unemployed certainly suggest that there are more constructive ways to spend available resources to solve the problem. Instead, a commitment to self-employment should lead the government to reexamine and where necessary alter the nature of its priorities and policies and the structure of its economic system in order to make achievement of this goal possible. The magnitude of the task and the prescription may vary, but the goal and determination can be shared by all.
Employment Strategies for the Industrial Nations
In the industrial countries, the phenomena of jobless growth coupled with persistently high rates of youth unemployment and of chronic unemployment among the poorer sections will not be eradicated by even the most optimistic rates of economic expansion or mere incremental adjustments within the context of present attitudes and policies. Although the problem has been aggravated by a variety of short- and medium-term factors whose effects will gradually dissipate over time defence cuts, recession, East European economic crisis, German reunification, etc. the present job crisis among Western nations is largely structural in nature. Although conditions vary from country to country, the crisis impacts most heavily on the unskilled, young people, urban poor, ethnic minorities and older workers. Specific programmes to effect structural changes will have to be introduced in order to ensure a fair opportunity to all, especially minority youth, to lead economically active lives. It is in this context that the European Union, the United States and other Western governments have been considering ambitious proposals for addressing this issue. The Australian government has unveiled a $4.6 billion jobs package to reduce unemployment from 10 per cent to 5 per cent by the end of the decade by encouraging training for the young, the unskilled and the long-term unemployed. Recently the OECD has presented the main planks of an employment strategy to stimulate economic growth in the industrial nations, make labour markets more flexible, increase productivity, and revamp employment and unemployment security provisions.
The relative success of the US economy in creating jobs during the past decade has prompted other countries to emphasize the importance of policies to increase the flexibility of wage rates and bring down the price of labour by reductions in the statutory minimum wage. The main effect of this policy is likely to be a movement of jobs between nations, however, not a significant increase in the total number of jobs available. In fact, measures which reduce wage incomes could have the perverse effect of reducing aggregate purchasing power and employment.
Economic growth is recognized as an essential, though not sufficient, condition for higher rates of job growth but fears of inflation constrain industrial countries from trying to stimulate faster expansion of their economies. The primary impact of moderate levels of inflation would be to encourage an outflow of investment to more stable currencies. How ever, if the industrial nations all agreed to relax their monetary policies, this effect could be minimized.
The real constraint on job creation in the industrial nations is not the price of labour, but the need for increased capital investment, partly to counter the effects of reduced military spending and the drastic fall in output and demand in Eastern Europe. Increasing public investment to stimulate employment is constrained by widespread concern about rising levels of public debt. Recent reports state that the gross debt of OECD countries has risen from 35 per cent of GDP in 1970 to 70 per cent in 1993. But this figure is of questionable significance. The gross debt includes the debt held by government departments and public agencies as well as by private institutions and individuals. When the government-held portion is deducted, the actual net debt of these countries is approximately half the gross debt, which means the net interest burden for servicing the debt is also only half. Furthermore, it is not clear that a comparison of debt to GDP is a very meaningful index. Debt is a cumulative measure of stock, while GDP is an annual measure of flow. When the total debt of OECD countries is compared to the total capital stock of these countries, the debt is equal to a relatively modest 15 per cent of the current capital stock of these nations.
In contrast to the recommendations made by the OECD, the Delors Plan for stimulating employment in Western Europe, which was recently rejected by member countries of the European Community, called for a large increase in public investment in expensive communication and transportation infra structure projects as a means of creating more jobs in the near term and increasing the competitive ness of European economies by improving their infra structure. Instead of investing in ambitious, high-tech projects whose future impact on job creation is unclear, the industrial nations should make sub stantial increases in public investment to improve the tools of the work force by lending to promote small enterprises together with increased public investment in education and training, which will stimulate short-, medium- and long-term job growth.
The recommendations set forth in this report are based on the conviction that nothing less than a legal commitment of the society to guarantee employment is justified and nothing less will be sufficient to solve the problem. Only then can the requisite political will be generated to push through effective measures. We do not advocate a return to state socialism or expansion of the public sector. As in the case of the environment, the changes needed are in the priority given to achieving different social objectives in the formulation of government policy.