The traditional economy has always had a "blind spot" when it comes to jobs. This problem goes back to Adam Smith, who put consumers and not workers on the throne of economic life. He argued that for well-being it is not important how or what we produce, but whether we can consume the package of goods and services that we prefer.
Modern economics has since codified this approach, establishing individual well-being as a preference function determined by our consumer bundle. By choosing the goods and services that bring us the greatest satisfaction, we maximize "utility." Although everyone is a consumer and a worker of sorts, jobs only indirectly enter the equation through the income they provide, determining how much money we can spend on consumption.
However, the nature of the work has implications that go far beyond the budget. Work is a source of personal dignity and social recognition. It helps to define who we are, what contribution we make to the development of society, but also the respect that society, in turn, gives us. We know that work is important, because people who lose it tend to experience a significant and lasting decline in life satisfaction. The monetary equivalent of this is usually multiples of a person's earnings, so compensation through government transfers (such as unemployment insurance) is not feasible for all practical purposes.
In a broader sense, workplaces are the cement of social life. When decent middle-class jobs disappear - due to automation, trade or austerity policies - it has not only direct economic but also far-reaching social and political consequences. Crime is increasing, families are falling apart, the rate of drug addiction and suicides is increasing, as well as support for authoritarianism.
When economists and policy makers think about social justice, they usually concentrate on "distributive" diversity - who gets what? But, as the political philosopher Michael J. Perhaps a more important criterion, Sendel argues, is "contributory equity," which refers to opportunities to gain the social respect that comes from doing good and "producing what is needed and valuable to others."
Although these issues are usually considered in the context of developed economies, they are no less important for developing countries. In rich countries, a good job can be considered one that allows one to reach a middle-class standard of living and that provides basic worker rights, such as workplace safety, collective agreements and the prohibition of arbitrary dismissal. In poor countries, a good job is considered to be one that provides a higher standard of living than that provided by an unproductive and backward farm or a precarious life in the informal sector.
In fact, the transition of people from bad to better jobs reflects the whole process of structural changes that are the driving force of economic development. Unlocking this process quickly and sustainably is key, and industrialization has historically been the main driver of this process.
The problem now is that manufacturing is no longer the labor-intensive sector it used to be. A combination of factors - notably the increased skill and capital intensity of modern production methods and strong international competition to join global value chains - has made it difficult for developing economies to increase employment in formal production. Even countries with strong industrial sectors - not least China - are seeing a decline in the share of manufacturing in total employment.
The inevitable consequence of these trends is that most of the best jobs will be created in the service sector, both in developing and developed countries. But since most services in developing countries are highly unproductive and informal, this change represents a serious challenge. Worse, most governments are not used to seeing the service sector as a growth engine. Growth policies - be it research and development, management, regulatory or industrial policy - are generally oriented towards large manufacturing companies, competitive in global markets.
As difficult as it may be, governments need to learn how to simultaneously increase productivity and employment in labor-intensive service sectors. This means adopting measures that have many of the characteristics of "modern industrial policy", whereby the government, in return for job creation, works closely and iteratively with companies to remove barriers to their expansion.
There are already examples of such a model in the world. Take the Indian state of Haryana's partnership (started in 2018) with taxi services Ola and Uber. This public-private partnership, designed to increase youth employment by making it easier for these companies to find and hire drivers, is based on a clear "service for service" principle. Haryana eased regulations that inhibited the growth of the service sector, shared databases of unemployed youth and held exclusive job fairs for companies, which in turn were (softly) obliged to hire significant numbers of young people.
This agreement is dynamic. The ability to adapt terms to changing circumstances helps build mutual trust, without imposing harsh conditions on companies. In less than a year, the partnership has created over 44.000 new jobs for young Harjans.
Of course, services are a mixture of different types of activities with a great disparity in the size and form of enterprises. Any realistic program to expand productive employment in services must be selective, targeting those firms and subsectors most likely to be successful. Experimentation is necessary, and local governments - municipalities and local governments - will often be in a better position than state officials to implement pilot programs.
Ultimately, economic growth and equity require a job-creating approach to development. Economic growth is possible only if workers move to better, more productive jobs, and equity requires that employment prospects for workers at the bottom of the income distribution be improved. The growing middle class, for its part, will contribute to the growth of domestic demand and encourage the creation of new jobs in the service sector.
A service-based model, when it comes to growth, cannot do the miracles that export-led industrialization has achieved in the past. But it could still lead to higher quality economic growth, to much greater social inclusion and a wider middle class.
The author is a professor of international political economy at Harvard University
Copyright: Project Syndicate, 2023. (translation: NR)
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