Export jobs or import workers

Mature societies will increasingly encounter endemic labour shortages and seek solutions for enhancing supply. Rapidly ageing societies like Japan will do their best to robotise, improve productivity, secure greater female participation in the workforce — even though this is asymmetrically related to improving fertility rates, since working women are averse to increasing family size.

Nonetheless an ageing population has inevitable consequences on consumption demand, loss in productivity and a lower quality of life, apart from growing social problems. The need to care for the ageing and a social security system that is equitous for the old and optimises inter-generational resource allocations poses new challenges.

These are not easy choices. Fortunately, innovation and technology offer some amelioration in the way in which economic activity can be carried out — through aggressive business outsourcing to countries where there is adequate skilled manpower.

By 2020, India is expected to have an additional 47 million people in the working age group (15-59), while many OECD countries (including Japan) will face workforce shortages.

The advantages of such outsourcing are obvious. It enables countries to economise on cost, overcome the demographic handicap, improve productivity by concentrating on higher value-added activities and still sustain GDP growth at high levels.

One may or may not believe the calculations of companies like Mckinsey, which have pointed out that for every dollar of activity outsourced, reckoning all the components, the country outsourcing is a gainer by $ 1.14, while the country outsourced to gains by a modest 33 cents.

The countries to whom the activities are outsourced gain in terms of employment, enhanced earnings through retained income, increased revenue realisation for tax collectors. They benefit from the multiplier effects of rising income and growth.

Indeed, Adam Smith would have revelled in a world truly recognising the gains of trade and a maximisation of comparative factor advantages.

We are, however, witnessing a raging controversy in many countries, with people decrying the sensible economics of business outsourcing and with emotive terms like ‘‘stealing jobs’’ and ‘‘getting inaccurate medical reading’’ being used.

But suppose business outsourcing were to be curtailed. What are the alternatives? Clearly one is to enhance the profitability of capital dramatically, secure increased participation of women in the workforce, postpone retirement beyond present limits and alter the nature of current economic activity.

While all these are possible, singularly or in combination, there will be limits. If productive efficiency and growth is nonetheless to be retained, the only alternative is an aggressive migration policy — what some demographers call ‘‘replacement migration’’.

For instance, even if Japan were to continue with outsourcing, it would require over 600,000 migrants every year to sustain the current “workforce to total population” ratio. Countries like the US, France and Italy would require even greater ‘‘replacement migrants’’.

Is the world prepared for migration on a scale unprecedented?

Further, the migration will not merely be for replacement of mechanical functions but of a kind that can undertake value-added activities like software engineering, R&D, design and planning.

Irrespective of what happens, the time has come to think more coherently on an international code or agreement on migration issues. Eminent economists like Jagdish Bhagwati have argued for a separate international arrangement to address issues of migration, since present UN organisations are inadequate.

The International Labour Organisation is preoccupied with rights of workers. At any rate its tripartite decision-making process circumscribes flexibility. The UNHCR deals with refugees, their rights and obligations.

The WTO, with its focus on GATT, deals with the issue from the viewpoint of supply ability to get users of services. The IOM is outside the framework of the UN.

The new challenges on migration would require addressing the following issues:

• Creation of a multilateral framework in which issues of migration are addressed in a transparent, non-discriminatory manner. Issues of governance, weaving in of bilateral arrangements, harmonisation of regional approaches would need to be addressed.

• Harmonising the economic interest of countries receiving skilled workers/professionals with societies that lose talent.

• The issue of brain drain requires a differentiated approach. Some countries, given their demography and investments in HRD, have an adequate number of talented professionals to meet their own needs and needs of others. In others, the classic consequence of brain drain would apply more rigorously.

Any future arrangement must recognise the need for pursuing a non-discriminatory but differential approach on planned migration.

• Burden sharing as well as social, ethical and moral issues would need to be considered in a more holistic framework. Policies would need to distinguish between refugees, asylum seekers, temporary workers, illegal migrants and planned/replacement migrants.

• Fiscal policies and public investment in HRD need careful consideration. Countries like India, with a young population, make large subsidised investments in HRD by charging low educational fees. But they lose talent that ends up creating wealth in other societies.

Is remittance of income an adequate compensation?

Professor Bhagwati advocated a “Bhagwati tax’’. Countries like the US adopt the practice of imposing tax based on citizenship rather than country of residence. This may require an international code on taxation and reviewing bilateral double taxation treaty arrangements.

These are complex issues. We hope the commission on migration recently created by the UN secretary general will be representative of all principal stakeholders and address their concerns.

The world will increasingly have to accept the consequences of efficient use of factor endowments and skills through aggressive business outsourcing, coupled with planned migration. At the margins, there may be choices. The more countries desist from business outsourcing, the more they would need to accept planned migration.

Alternatively if business outsourcing is aggressively pursued as a policy, it can mitigate need for large and perhaps unsustainable migration, at least in the medium term. This can buy time to redesign production patterns, alter the nature of economic activities, coupled with other measures to diminish impact of demographic challenges.

The author is member, Planning Commission. The article is based on his speech in Tokyo on December 8, at a symposium titled ‘‘India: An Emerging Global Power’’