Job planners should watch and learn from local markets

Andrew Sheng says understanding the ubiquitous informal economy will help create employment

PUBLISHED : Saturday, 16 February, 2013, 12:00am
UPDATED : Wednesday, 28 September, 2016, 8:44am

Dawn breaks early in Larantuka, at the eastern end of Flores, 1,600 kilometres east of Bali. The fishermen come early with their catch, the farmers are at the market displaying their vegetables, and the ubiquitous ojek drivers (local motorbike taxis) are already circling the market looking for passengers.

Going to the local market is a good way to assess how a country is doing. Indonesia is a country of 242 million people, with more than 40 per cent under the age of 25. You can see the vigour of the youth, and how globally interconnected they are as they chat on their mobile phones while balancing on their motorbikes. In the buses, women talk on their phones to their grandchildren. Internet use is widespread; Indonesia has the highest number of users on Facebook in Asia.

The market works wondrously even in the most remote regions. Going down a dirt road, we passed a local on a motorbike. Our guide told him we were looking for local textiles. Half an hour later, the local came back with news that someone in his village would sell us some. We stopped by an old woman's home and she showed us two pieces of hand-woven, beautifully dyed cotton cloth. With half the village watching, we clinched a deal at a fair price for all.

Markets thrive on information, and, today, the old lady in the remote village knows the fair price of her labour. But markets also have structure and hierarchy. The best pieces go to Bali to be sold to collectors from Jakarta or Switzerland.

Markets concentrate in hubs, and it is often cheaper to buy direct in Bali than to try to hunt for the artefacts at their origin. Similarly, it is cheaper to buy better quality goods made in China in the US than in China itself.

Travelling in local markets is a better education about the functioning of markets than studying them in Chicago. Peruvian economist Hernando de Soto keeps reminding everyone that theories of markets evolved from developed markets, where they have forgotten how primitive markets work in practice. The majority of the seven billion people on the planet live in the poorer, developing world. Indonesia is an excellent example of the pressure of population growth on employment. Over four million Indonesians are born every year, putting a huge strain on urban infrastructure and job-creation efforts.

The next war will not be about trade or currency, but jobs. Between 1979 and 2007, the US shed nearly six million manufacturing jobs, replacing them with service industry jobs. Most of the manufacturing was outsourced to emerging markets with cheaper labour, principally China. But once the crash came in 2007, the US also began to look for manufacturing jobs, on top of retaining the high value added.

As we begin to move out of the Great Depression, the reality has struck home that, without basic structural reforms, there may be a jobless recovery. According to the latest World Bank's World Development Report on jobs, 200 million people are unemployed around the world, with pressure to create 600 million jobs in the next 15 years.

In addition, an excellent McKinsey Centre for Government study noted that while 75 million youth are estimated to be unemployed, 40 per cent of employers say that a lack of skills is the primary reason for vacancies. This is a serious problem. Countries like China pay huge attention to job creation, because that is the cornerstone of social stability. The Arab spring has reminded us that unemployed youth can be a tinderbox for revolution.

Looking at the number of young men and women who are looking for jobs in Indonesia made me realise that we need creative ways of generating jobs. De Soto is right to say that the economist's textbook is flawed on unemployment. In many emerging markets, jobless figures are low because there are no unemployment benefits and therefore few report their lack of work. They are, as de Soto correctly pointed out, illegally employed in informal sectors and work in informal markets. The rise of shadow banking proves to economists that just monitoring "formal" markets isn't enough. We need to understand how the informal market works.

The young man working in an underground betting shop, selling pirated CDs or helping to collect passengers at a bus terminal for a friend is employed, but no official statistic captures these activities. To ignore these activities and how these fringe markets work is to ignore reality. Perhaps our universities should be teaching less about how the US Federal Reserve conducts (or misconducts) monetary policy and more on how these informal and vibrant markets create jobs and affect consumption.

There's no doubt we need to appreciate how most people live. Despite the prosperity and prospects of rising Asia, many people still struggle to meet basic needs.

Helping people with basic opportunities, such as those brought about by mobile technology, will propel Asia to the next level.

Andrew Sheng is president of the Fung Global Institute