Mute Spectator : Why Reservation in Private jobs is a bad idea
February 19, 2020
The bandh called by several pro-Kannada groups on February 13th in Karnataka, asking the government to reserve jobs for locals in private companies, seemed to have not struck the chord with the public as the day was usual apart from stray incidents in some parts by the group members. This demand for reservation in private jobs however has struck the chord among political parties and pressure groups alike as we can see them taking center stage in states like Madhya Pradesh, Maharashtra with Andhra Pradesh even passing a bill to provide reservation in private jobs for local residents.
The issue of reserving seats in public institutions is a conundrum and is out of the scope of this article, so here we will deal only with the issue of reserving jobs in private companies. The argument against such government intervention is two-fold; moral and practical.
Elephant in the Room
Government is an institution which has been given the monopoly on violence over individuals as long as such coercion is just and reasonable. The power to coerce is always at loggerheads with liberty and freedom of the individual, so it is desirable that a government finds a balance between coercion and individual freedom in order for a just society. Such balance is achieved by using the power to coerce only where there is an absolute necessity and abstaining from unnecessary interventions however noble the ends might seem to be, because if you use force to effectuate, good or bad, there is going to be a loss of freedom and liberty. As economist Milton Friedman says “a society which aims at equality before liberty will end up with neither equality nor liberty”.
The moral case against reservation in private jobs stems from the cynicism against this government coercion. As we all know that power corrupts and absolute power corrupts absolutely, each advance made by the government to increase its power should be met with cynicism. This reservation policy essentially puts a gun on the head of private companies owned by individuals to recruit locals just because they belong to a specific geographical sub-locality irrespective of merit. Thus making the lawmakers, using their coercive power as government, decide on how to run a private company. This flies in the face of freedom and liberty to conduct one’s own business in a free country. To quote Milton Friedman again, it is like A and B deciding what C shall do for D. Citizens should be vigil and aware of such coercion and stop being apologetic and realise the dangers of unnecessary government intervention and coercion which has grown and grown with arbitrariness since independence without being checked and confronted.
Sons of Soil
The government should try to end discrimination in all forms and kinds rather than legislating in effect to discriminate against people of different sub-locality within the same country, even so when nobody can definitively arrive at the question of who a local is. Research and studies show that Indian society is an evolving organism and has never stopped absorbing people into its fold. People migrated within the sub-continent continuously throughout history and in modern times, so it is quite a feat to identify which group belongs where with precision, this is without considering individual migration.
People professing the sons of soil theory are either misinformed or just plain evil. Although closed groups existed in the subcontinent, civilizations have evolved only through different cultures coalescing together in harmony. A legislation against such merging of different people in harmony is against the grain of modern evolution. Let’s take the example of the small group of migrants from Iran into western India, the Parsis. They are probably the smallest community in the whole world but they have an outsized contribution in shaping modern India. From India’s first articulate economic nationalist, Dadabhai Naoroji to arguably the most prestigious business conglomerate of India- the Tata Group and so many others in various fields like Sam Manekshaw in Defence, Homi Bhabha in science, Zubin Mehta in music and Nani Palkhivala in law among others were all from the Parsi migrant community. Are they not the sons and daughters of this land? Studies about migration show that occupation and persecution are the twin reasons for global migration, especially inside the vast land of the subcontinent. Communities move from one province to the other in search for better life and standard of living thus, legislating in effect to curb such movement of free people of the country goes against moral values of the constitution.
Every time an Indian origin person living abroad achieves something significant, there is considerable celebration among Indians. From Nobel prizes to government positions, every feat of achievement receives at least ten forwards on Whatsapp. From neighbouring South-East Asia to the Americas in the other side of the world, Indians have migrated en masse and achieved considerable stability in their respective fields so much so that the Indian Diaspora could be a separate country in the size of some European nation. For instance Chinmay Tumbe, in his book India moving, talking about the Patel community, narrates a story of a local cricket match in Bradford in 2001 where all twenty two players on the field and the scorekeeper were Patels. The score card read Patel c. Patel b. Patel, Patel b.Patel, Patel run-out Patel, and so on.
Considering all that, it seems a little (no! a lot) dishonest and hypocritical that we are legislating to curb movement of people of the same country and race to travel between states for livelihood. Political parties that support such laws to stop others from migrating and stealing away their jobs are banking on the tribal fear of close-knit societies where small dilution from orthodoxy equals to loss of culture. The tribal instinct of othering people of even the slightest difference, although engrained in our sub-conscious, is detrimental to the modern world based on the shared morality and rule of law.
What is Justice?
I’ll end the moral argument with a Thirukkural as is the trend nowadays:
ஓர்ந்துகண் ணோடாது இறைபுரிந்து யார்மாட்டும்
தேர்ந்துசெய் வஃதே முறை.
தேர்ந்துசெய் வஃதே முறை.
Enquiring, favouring no one, being impartial,
Consulting and rendering justice is Just rule.
As Thiruvalluvar says, being impartial and favouring no one are the ingredients for a Just rule. Justice must not only be done but also to be seen as done and the body of government should make sure of it. This legislation essentially favours a group of people over the others thus making it clearly unjust and moreover the government is seen as the villain safeguarding and executing that unjust rule. The flip side of the argument is that it is in interest of the local people of the specific states thereby trying to be moral but we will have to realise that these exclusionary legislation only help in giving teeth to hatred. Consider the plight of the Chettiar community when they were made to leave Burma following government persecution or the Tamil community from Sri Lanka before and after the civil war. All racial persecutions were the result of such discriminatory legislation by governments.
One cannot achieve anything desirable through discrimination. Although increasing job opportunities for local residents seem desirable, exclusionary legislation like these is not the way to go because the bad means corrupt the good intention. When you try to use bad means to achieve good intentions, the outcome is likely to be that the badness of means will triumph over the goodness of the objective.
Build the Wall
It is a known fact that since globalization the Indian economy has grown in all aspects from drastically improved GDP to decreased poverty levels. This is because of India’s assimilation into the global market rather than operating in silos towards self-reliance. The world has become a much more connected place thereby making tussles and wars costly thus providing for a relatively stable and peaceful world. Deviation from this stability can have adverse effects on the world order as can be seen in the case of China-USA trade rifts. Protectionism, among other things, would increase hostility between nations and reduces predictability which is the most important feature for a peaceful world. Reservation policy for locals in private jobs is one such protectionist measure to favour one group over the other. The first practical case against this policy is that protectionism is more harm than good, especially within states of the same country.
Let’s take the example of Andhra Pradesh’s policy. The Act proposes 75% reservation in factories and industries for locals and allows the government to invite penalty if such reservation is not made. In the case of deserving candidates not present, the onus is on the private company to train candidates for three years in collaboration with the government. Let’s imagine an entrepreneur who has a factory in Andhra Pradesh. Due to government coercion, the factory has to recruit 75% from the locals irrespective of other meritorious candidates from elsewhere. So, there is a compromise in quality. Now, the law asks the industry to train candidates thereby giving bad educational institutions a free pass. So, there is increase in the factor cost of output because there is an added cost of educating the non-meritorious. Therefore if an output product of the industry had costed ten rupees earlier, it could cost twelve rupees now, that too for lesser quality. This will eventually make that factory noncompetitive in the global market. Even if the state then compels the public to buy from the same factory by increasing import duties (also Protectionist), each buyer has to spend two more rupees from her pocket for the same product with probably lesser quality when those two rupees could’ve been put into something useful like food, health services, creating other products, etc. Thus we can see that these protectionist policies cater to a small concentrated group of receivers by punishing a large diffused set of consumers.
This policy also lacks industrial knowledge; when most of the unskilled and semi-skilled jobs in industries are being done away with the advent of automation, reserving industrial jobs doesn’t seem significant. It would be interesting if the government decides that factories must use robots and automated systems manufactured only from the state.
Ripples of Failure
Private companies are dynamic in their working which makes them competitive, failure to realise this character of the private sector is the second practical case against reservation. Policies like reservation may be suited for public institutions where permanent jobs are available irrespective of performance but private companies have no moral obligation to hold on to an employee if she is bad. This reservation policy would make letting go of a person complicated for the company. It might also lead to suit against the company thereby making firing a person very costly. The private players would be pushed into the judicial machinery like a pinball which is pushed and bounced away by random cogs eventually going under and thus out of business. If at all there is smooth removal of a person, filling that vacancy would become another headache because recruitment should again be based on government prescribed order. This may also ripple towards reservation for locals in promotions in the future, which is abhorrent to say the least.
The policy also does not take into account the incentives for people and companies. More regulation means companies have no incentive to invest more. One has to realise that one state, say Andhra Pradesh, is not an isolated silo, so existing companies have the liberty to move campus or invest elsewhere where there is less regulation. This ripple effect could be detrimental to the economy and also to the protected locals who may not have a job altogether. New companies would obviously pick to invest in a place where the government is not breathing down their neck watching every step of business. As far as workers are concerned, more meritorious workers would prefer not to migrate to that state because why try hard to secure a place in the 25% when you can compete for the entire 100% elsewhere. Then the company has to offer more money in order to woo in meritorious workers from other states thereby again increasing factor cost thus making the company unviable. This artificial curb of migration could potentially make the industry slow and out of touch with others outside where there are no restrictions on recruitment policy.
Even if everything is justified somehow, does the Indian state have the state capacity to follow through each company and industry in every recruitment and dismissal? A big No!
One Nation One Market
The buzz word for growth nowadays is Ease of doing Business, Indian economy has made decent strides in making business easier to operate. From being 142nd in the Ease of doing Business index by the World Bank in 2014, it has improved to 63rd in 2020, thanks to optimal usage of technology. Even though there is tremendous room for improvement, the efforts by the government in relatively freeing the businesses from bureaucratic red tape should be commended. But policies like reservation for locals stand a full 180 degrees opposite of such efforts. This is the final practical argument against the policy.
The Goods and Services Tax was rolled out, albeit hastily, for furthering the idea of one nation one market. It made sense that a single country should have a rational single tax system thereby making it easy for businesses to operate between states without much hustle. The single window e-way billing system for cross-state trade was also a move in that direction. Throwing all useful freedom-oriented ideas to the bin and moving towards regressive reservation policies would only end up stifling the market thereby reducing growth. Researchers from the Takshishila Institution, in a paper titled Reducing Poverty in India: Role of Economic Growth, argue that for every 1% additional GDP growth, poverty is reduced by 0.78%; or 1.7 million people will get out of poverty. So it is incumbent upon us do things that would get the economy growing faster; and reservation in private jobs is definitely not one of it. When economists are advocating for labour reforms in order to ease regulation on labour, one more additional regulation by the government does not seem to be advisable in the slightest.
The society should try to emulate inclusiveness and reduce hatred in irrational ways. The government should realise the unintended consequences of its intervention and the impact it has on peoples’ lives. It should not give way to pressure groups with their narrow simplistic thinking of economics. It should also understand that the end consumer should be the one who benefits rather than concentrated special groups which seem to have the loudest voices. It is important to remember what the great economist Adam Smith said while discussing protectionist policies “in every country it always is and must be in the interest of the great body of the people to buy whatever they want of those who sell it the cheapest. The proposition is so very manifest that it seems ridiculous to take any pains to prove it nor could it ever have been called in question had not the interested sophistry of merchants (pressure groups) confounded the common sense of mankind; their interest is in this respect directly opposite to that of the great body of people”, and realise that reserving jobs for locals in private jobs is a bad idea.
By Benolin
Mute Spectator is the primary series of the blog where we post our thoughts on current affairs.
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