The huge problem of poor labour quality in India #3. A proposal to fix the problem.

Rajeev has high standards. Microns matter. He compares his products with the output of the world’s best craftsmen of Germany and Switzerland.

And that’s the precise goal India should have. Every manufacturer like Rajeev should aim for the world’s best. And better. 

That India can do this is proven. The levels of metallurgy in ancient India were beyond what the world has ever seen – till today. There is none in the world who can build a non-rusting iron pillar of the type that stands at the Qutb Minar. India’s swords were highly valued across the entire world, being of unparalleled quality. And India’s textiles were better than any loom can make (even today). Dacca Muslin comes to mind, but even other textiles were superlative. And art was stupendous. The minatures, the sculptures.

India was the world’s Switzerland (in terms of outstanding crafsmanship) for most of the past 2000 years.

Then something happened.

It is very hard for me to figure out what precisely happened but the finger of suspicion must point to the British. They perhaps did not consciously displace India’s skills, but the institutions they established probably played a part. I’m not quite sure how and why this happened. My sense is that when the institutions of Hindu capitalism (which depended on trust, integrity and quality) were replaced with the modern joint stock company and its associated “limited liability” provisions, numerous principal agent problems were created. Cheating occurred. Just like limited liability banks cheat their customers today (that’s why I oppose limited liability banking).

But this is only a hypothesis (I’d appreciate your thoughts on it).

The undeniable fact remains that Indian craftsmanship plummeted over the past 200 years. And remains very low even today.

There is a bright spot, though. A new skills model seems to have matured. The Tatas started this trend late in the 19th century with their Jamshedpur steel plant which maintained the world’s highest standards. Later the IITs, established in collaboration with MIT, raised standards of modern technology across India. Today we have the managerial ability to manage large diversified production projects, such as automobiles. (Not yet passenger planes, unfortunately.)

Even though productivity per worker remains low, Indian engineers and managers extract the best possible levels from labour (under a highly restrictive labour law environment).

Theodore Dalrymple recently wrote that India is “now a country with more technological prowess than our own“. This is not exactly right, but is partially true.

The demonstration is occurring as we speak, with the iconic Jaguar Land Rover, now in Indian hands. From latest reports, Jaguar been turned around despite the weak financial conditions prevailing across the West.

When Tata took over Jaguar Land Rover by buying the double-headed bastion of Britishness from Ford for $2.3 billion in June 2008, few western analysts gave the company a chance of succeeding where a huge American auto company had not been able to. But Tata Motors has confounded those skeptics.

For one thing, the brands have recovered in the U.S. market, where Jaguar Land Rover today reported an overall 31-percent increase in August sales over a year ago — up 27% for Jaguar, 33% for Land Rover, driven by the Range Rover Sport and the Range Rover Evoque — for its best August in five years.

Meanwhile, Jaguar Land Rover is cranking up production in the U.K. these days to help meet demand for its hot-selling, Victoria Beckham-enhanced Evoque model even as it readies the release of the much-anticipated Jaguar F-Type roadster. [Source]

The Tatas, with a long history of employing the best managers that India produces, the best engineers that money can buy, and building the best systems in every field of their activity, are close to the word’s best in automobile technology [Despite my issues with Ratan Tata for his not doing anything to resolve India's governance issues - like JRD did - he was a high quality manager.]

But that’s the problem. Where Dalrymple is wrong is about the rest of industry, including medium and small industry. After the atmospheric heights achieved by a handful of Indian companies, quality plummets. Dives.

That’s the precise sweet spot for China: globally demanded mass manufactured commodities of good (not great) quality at low price. That’s what’s driving Chinese per capita income growth. Virtually everything in every shop across the world is made in China.

That’s being driven by a system that ensures high quality labour.

That’s what India is missing.

Consider the deterioration of quality in white goods. Bajaj (a well known Indian brand) produces “mixies”. We bought one recently from India because it has attachments for masalas. But the moment I used it I realised its quality was third rate. Its cover didn’t fit. The rubber gaskets were third rate. Yes. It worked, but the masala spilled. So far I was using a French mixie which grew old and had to be thrown. But this Bajaj product is really shabby in comparison.

The demand for high end products in the world – of the sort that the Tatas provide (or Infosys) is high but limited. This demand can’t sustain the growth of incomes across every household in India. For that to happen we need a mass upskilling program.

This is not a side issue, but a core issue for India. Freeing the markets alone won’t fix this problem. It must become front and centre as the major reform issue for India.

Gregory Clark in A Farewell to Alms pointed out that this was one of the key obstacles to India’s progress even during British rule when management was entirely mobile. Even the world’s best textile managers managed to obtain astonishingly low labour outputs in India. We are talking about private industry here, not public sector. Even today Indian textile workers (private sector!) are producing about half, per person, than what American workers produced 100 years ago.

India’s manufacturing productivity must achieve global benchmarks else India has no hope of catching up (or doing better). This is not merely a labour law issue, not merely a labour training issue. It is a more fundamental issue of dignity (Deirdre McCloskey). Since the government can’t readily address the issue of dignity, it should address both labour laws and labour training.

In terms of labour training, enabling foreign training institutes to come into India in a big way is crucial (recall how IITs were created by MIT?). [Although I oppose the idea of subisdies for higher education; but support low interest loans] Even subsidising foreign training institutes initially (same level of subsidy per student that is given to Indian institutes) should be considered so that India starts getting highly skilled people in all vocations.