Sustainable Livelihoods

We need jobs that produce, at a minimum, the goods and services required to fulfill everyone’s basic needs. These are jobs that at the same time generate the widespread income – and therefore the purchasing power – necessary to give people access to these goods and services. Such jobs regenerate, rather than destroy, the environment and its resources. Because of the contribution they can make to economic efficiency, social equity and environmental quality, such jobs are today called sustainable livelihoods – best created by very small, local, eco-efficient businesses or sustainable enterprises

Sustainable livelihoods are particularly suited to the needs of women, the poor and the marginalized. By providing people with income and some degree of financial security, they are an excellent means of empowering people within their communities. Most important, together with programmes for education of girls and women, sustainable livelihoods are probably the most effective stimuli for smaller families and lower birth rates.

India now has to create sustainable livelihoods on a large scale. The capacity of agriculture to absorb more labour is rapidly reaching a plateau. To close the unemployment gap by the year 2015, India will need to create 12 to 15 million jobs off the farm — each year. "Modern", big industry is not capable of creating this many workplaces. Today, it can hardly create two million jobs per year.

Economic Growth

The second, and not unrelated, goal for a country like India clearly is to accelerate the rate of growth of the economy. While the nation’s planners debate whether this rate should be 7% or 8% per year, eradication of poverty within a reasonable time frame will need growth rates in the double digit region. China has demonstrated that such a growth rate is not only possible, but that it can be sustained over long periods.

The reasons for both failures lie, ironically, in the very structure of industrial production that has provided so many benefits for so many people all over the world: its emphasis on mechanization, centralization, large scale, and use of energy guzzling and material intensive technologies. The imperatives of competitiveness in the global economy encourage the choice of particular types of production systems. They are mostly complex and expensive. The technology used is generally capital intensive and labour displacing; the fossil fuels, raw materials and components are often imported and their availability uncertain; and the management systems required are sophisticated and costly. Such systems need large investments have long start-up gestation periods and create few jobs.

In small and mini plants, the scarce capital is recovered in a much shorter time, making it possible to reinvest it in further production and job creation. The capital cost of creating one workplace in the modern industrial sector in India is well over $ 100,000 – often including a significant component of imported technology and equipment. At this rate, just the creation of twelve million jobs each year would by itself would cost four to six times the GNP of the country. It simply cannot be done.

Clearly, a better mix of large, small and mini industries is now needed. Given the continued failure of policies to address the needs of the small, mini and micro sectors, a proper balance will require greatly enhanced encouragement and incentives to such industries.

There are, of course, sectors for which the economies of scale favour large, mechanized production units. These probably include steel making, oil refining, petrochemicals and automobile manufacture. But, there are many sectors where economies of scale are not relevant. Most industries producing basic goods for rural populations are commercially viable even at quite small scales. And because of the low capital requirements, they can have high returns on investment – in some cases even double those for their larger counterparts.

Indeed, if the full economic and environmental cost of the processes and resources used in manufacturing and delivering products is taken into account and no "perverse" subsidies are allowed for energy, transportation, financial and other services, small scale production can become quite competitive.

As an evidence of this, "small and medium enterprises" already form the backbone of the national economy. They account for more than 60% of the industrial production in India, and for more than 65% of industrial exports. They account for more than 70% of the industrial employment. When adjusted for the vast subsidies and infrastructure that large scale industry can take advantage of, their real contribution to the economy is even higher.

Sustainable enterprises are usually quite small. They have between one and 100 employees, with an average around 20. They are generally informal and flexible and quite labour intensive. However, being small, dispersed and largely unregulated, mini enterprises can often have environmental and social impacts that are fairly negative. To overcome this, they need access to better technologies as well as other supports.

Many technologies for such enterprises already exist. So does the demand for their products. What prevents the poor from setting up such enterprises is their lack of access to these technologies and their inability to put together the financial capital required. What prevents them, once set up, from becoming profitable is the absence of entrepreneurial and management skills, infrastructure and marketing channels. Much more public investment is needed to provide these, but probably not nearly as much as is being made today for the benefit of large, urban industries.

Several mechanisms are now evolving to help enterprises overcome the barriers to obtaining technology, to using effective transport and communication facilities and to introducing modern management methods. But, credit continues to be the key missing link. Currently, finance is fairly easily available to "small and medium enterprises" that have capital requirements of Rs. 10 lakhs ($ 25,000) or more. Also, increasingly available is finance to micro industries that need capital of less than Rs.10, 000 ($ 250).

However, it is precisely the mini enterprises that fall in the range between these two categories, with capital investments of Rs 10,000 to Rs. 10 lakhs, which optimize the twin objectives of sustainable livelihoods and returns on investment. They are small enough to be responsive to the local economy yet large enough to employ technologies and skilled workers and to maximize labour productivity. At the same time, they are big enough to take advantage of public infrastructure, credit facilities, technology support and marketing channels, provided these are available. There are numerous technology-based mini industries in this range that could be set up today and run profitably.

Such enterprises can create, directly, several workplaces, each at a capital investment of Rs.20, 000 to 50,000. In addition, they indirectly lead to the creation of several more jobs (Upstream or downstream), usually at an even lower capital cost. Such workplaces, in the village or small town, yield incomes for workers whose purchasing power is comparable to, if not better than, those created at hundred times the cost in large urban industries. At the same time, they permit very high returns on investment, sometimes with payback periods of less than a year.

The paradox of our economy is that there is virtually no source of funding today that can actually deliver adequate financial credit in this intermediate range (which might properly be termed "mini credit") where it has greatest potential impact, both on the generation of employment and on the national economy. Nor are there any support systems to provide technological, managerial or marketing inputs to help them become profitable. It is here that new kinds of civil society organizations – "social enterprises" – are needed. These enterprises are themselves not-for-profit but serve the purpose of creating widespread wealth through the creation and sustenance of large numbers of mini-enterprises.

Creating livelihoods and jobs is not the job of government. Despite its cancerous growth to the 20 million employees and 15,000 crore yearly pension bills it has at present, the real role of governments is to govern: to set policies and to facilitate the orderly performance of the other sectors – whose job it is to create jobs and deliver services. Establishing the conditions under which livelihoods and jobs are easily and plentifully created is the job of government. To create such conditions, governments should have their hands full designing and implementing policies, fiscal measures, institutional frameworks and all other means that encourage other sectors to produce the goods and services people need and to generate the incomes with which they can  fulfill these needs these needs.

Creating livelihoods and jobs should largely be the job of the private sector. Unfortunately, large businesses have not demonstrated the ability or willingness to do this job. In the twelve years since the introduction of economic liberalization, the number of jobs in the formal private sector has actually gone down. Today, the formal sector employs less than ten million people – less than two percent of the country’s workforce.

Jobs in India, as in all other economies, are actually created by the small and medium (SME) sector, by the "informal" sector and – most of all — by the mini and micro enterprises that dot the countryside. Since rising productivity in agriculture means that the bulk of the 15 million livelihoods and jobs we need to put in place each year will have to be off-farm, it is these sectors that will have to take responsibility for getting our country to work.

The largest potential for livelihood creation, particularly for women and the marginalized, lies in the mini and micro enterprise. Micro enterprises, with one to five workers, and a capital investment of ten thousand rupees or less are suited to household industries that largely produce items for use in the local community. Mini enterprises, with five to fifty employees (and capital investments of several lakhs) are capable of using technology and marketing methods to reach beyond the needs of the local community and generate surpluses that enable them to grow and invest in further growth.
               To be successful, micro and mini enterprises need a variety of support systems. And herein lies a fundamental contradiction.

After all, the very best in creativity and management expertise comes at a price – a price today determined by the interplay of economic forces in the so called global economy. Mechanical engineers, software designers and MBAs are, nowadays, commonly starting their careers with salaries approaching $ 30,000 a year, even in an economy like India’s; and twice that on overseas assignment. The cost of office space, computers, equipment, travel and other operational expenses is comparable to that in industrialized countries, and often higher. And these are the kinds of costs faced by any meaningful initiative to create sustainable livelihoods and implement programs to bring them in large numbers to rural India.

It is not only that the cost of creating products needed in the countryside is high. The cost of delivering them is even more exorbitant because of inadequate infrastructure: few roads, little power and no connectivity. The rural customer faces a market in which already expensive products are made even more expensive because of the lack of infrastructure – most of which has been made available at public expense to her urban counterpart at virtually no charge.

An Internet facility like TARAhaat, which wishes to cater to the needs of the rural public (which does, after all constitute three quarters of the country’s population), has to include the costs of generating power and establishing connectivity in the business plan, factors that are available at little or no cost in the city.

In the industrialized economy, the prices commanded by the outputs of activities based on such costs can easily be paid by customers, who also earn comparable incomes – that after all, is the basis of the closed loop of household incomes and corporate expenditures that is explained in Chapter one of every economics textbook. And most of the infrastructure cost has already been paid for.

But in a rural economy like that of India, the customer earns less than two dollars a day.
Clearly, there exists a massive disjoint between the cost of the goods and services needed by the poor and the prices they can pay for.

A solution often suggested, not just by the private sector but also by many in public agencies, is that the rural market is best left alone until it has generated the purchasing power and been "given" the requisite infrastructure to attract purely commercial ventures to provide the products and services it needs. (Thankfully, the development economists of old, with their give-away approaches to redistribution are no longer credible, though the massive,boondoggle and pork barrel "poverty alleviation" programs of government have still to be dismantled). A variant of this is "let them move to the city." But, of course, these are no solutions at all: they are simply an admission of defeat. They are no better than consigning the rural poor to oblivion of endless cycles of poverty-hopelessness-high fertility-poverty – whether in the village or in the city slum — out of which they can never emerge.