Emigration, Consumption Boom, and the Service Economy of Kerala: Assessing Growth and Development

The podcast session, part of the Vikasarth 2022 conversations, delves into Kerala's economic transformation over the past three decades, specifically focusing on the interplay of emigration, a consumption boom, and the state's evolving service economy. Dr. A. Ruben, the primary speaker, argues that Kerala's shift from an agrarian to a service-based economy, heavily supported by remittances, is a "benign and inevitable transition" given its unique demographic and social characteristics. He challenges the conventional wisdom that service sector dominance or reliance on remittances is inherently problematic, instead highlighting concerns such as environmental vulnerability, short-sighted policies, and the quality of human capital development. The core argument posits that Kerala is well-positioned to capitalize on the global trend towards service globalization, provided it fosters an enterprise-friendly environment and aligns its educational system with modern labor market needs.

Dr. Ruben makes several crucial distinctions. He differentiates Kerala's structural change from that observed in some African or Arab economies, where a shift to services has often been "growth reducing." In contrast, Kerala's expanding service sector, particularly market-based activities, is shown to be *enhancing* aggregate productivity growth. He also distinguishes between "typical smokestack industries" and the evolving nature of manufacturing, which increasingly incorporates service content. Furthermore, he emphasizes that while manufacturing globalization is declining due to various factors like populism and trade wars, service globalization is on an upward trajectory, presenting a unique opportunity for states like Kerala. The discussion also nuances the impact of migration, arguing that the historical export of human capital is not inherently negative, especially given looming labor shortages in Western economies.

For Kerala, the practical insights revolve around strategic policy adjustments. Instead of attempting to attract traditional manufacturing, the state should focus on creating "smart and productive Enterprises" that are locally appropriate and integrate into national and global service value chains. This requires addressing the "politicization and other weaknesses of our educational system" to ensure graduates possess skills complementary to modern labor market demands. The speaker advocates for embracing service globalization by equipping human capital, fostering small-scale businesses, and leveraging remote working capabilities. For Gulf Cooperation Council (GCC) economies, the analysis suggests that job nationalization policies face significant hurdles due to the higher productivity and lower unit labor costs of migrant workers, implying a continued, albeit potentially disturbed, reliance on expatriates.

The broader implications extend to understanding the future of the global economy, which is increasingly shaped by digitization and the globalization of services rather than manufacturing. This paradigm shift necessitates a re-evaluation of traditional development models and industrialization strategies, particularly for regions with high human capital and dense populations like Kerala. The discussion also touches upon the complex dynamics of international labor markets, highlighting the interconnectedness of global talent demand and supply. The challenges faced by GCC economies in balancing nationalization with economic efficiency underscore the intricate socio-economic factors at play in migration policies. Ultimately, the session frames Kerala's economic journey within a larger global context, suggesting that its unique trajectory could serve as a model for navigating the complexities of the 21st-century economy.

Kerala had a very renowned model of development called the model of Kerala model of development which indeed had its limits as well.

since the late 1970s kerala's economy has been supported by remittances and you know as a migration expert and many of you know that primarily from the Middle East and also elsewhere gradually due to several factors the economy has shifted from a farm-based economy to a service-based economy.

I think there is a lot to worry about kerala's economy but that is not necessarily due to the service such as dominance or Reliance on remittances but the environmental vulnerability of the state the short-sighted nature of our policies without considering the global Trends and the local needs and fragilities...

Frankly Speaking I'm not quite worried about the service sector per se I think that is a benign and inevitable transition for Kerala given its unique demographic social and economic characteristic.

the expansion of jobs in the service sector is actually not damaging economic growth and productivity in Kerala rather it is enhancing productivity growth.

personally I think the future of the global economy lies in the digitization of societies which will eventually lead to the globalization of services not manufacturing...

the potential for service globalization is relatively high for a number of reasons actually for instance right now if you look at although three-fourth of workers in the advanced economies United States Europe and all other advanced economies are in the services sector but its trade is only one third of manufacturing trade so that there is much more potential to increase the globalization of services.

migrant workers are about 70 percentage more productive than the native workers across Industries in Kuwait and Saudi Arabia while their wages are only 20 to 40 percentage of the natives that is much much lower.

we do not have to really worry about this I mean it is not a bad thing that we are exporting human capital and we have been doing it historically and we were successful in doing that and we are quite flexible in in that actually.

All that we need is to create an Enterprise friendly Ambience for locally appropriate Industries.