TCS layoffs and the selective implementation of free market rules

In a free market, a firm is free to hire and fire as long as the employment contract and labour laws are adhered to. Thus, TCS' decision to lay off 12,000 mid/senior-level employees after providing a severance package and adequate notice, if done as per the law and the job agreement, cannot be faulted.

But free market principles are not confined to the IT sector. How about another Tata group firm, Air India? Airfares in India, too, follow the free market maxim of supply and demand. Hence, there is no cap on airfares and they are determined by individual airlines. Thus, the government's decision to ignore calls to interfere in ticket pricing when they surge as seasonal demand peaks is also justified.

One other core principle of a free market is the absence of entry barriers into an industry. In such a market, when demand surges, taking prices higher, supply also increases, eventually bringing prices down. For sure, aeroplanes cannot be built overnight and put into service. But even when there are idle aeroplanes ready to fly, airports equipped for more flights and passengers looking to fly, the number of flights doesn’t increase. And therein lies a vivid example of the curious case of selective free markets.

The reason for the number of flights not increasing is an airline industry practice called ‘bilateral air service agreements’. It means the number of flights between two cities in different countries is not freely determined, but is negotiated and fixed by the respective governments. And each country tries to protect its domestic carriers, be it private or state-owned, from international competition by restricting the number of flights foreign carriers can operate. This, in effect, works as disguised tariffs, reducing the number of flights.

But why do the government impose such restrictions? Because domestic airlines lobby for it- fewer flights from foreign competitors mean higher fares and profits for the protected domestic carriers. But the paradox is that when an Air India or Indigo lobbies for protection from foreign airlines in Indian airports, its international rival too might be lobbying to prevent Indian carriers from operating more flights from their airports! Thus, for many businesses, free markets are applicable only when it suits them.

Free markets and labour rights
Let us go back to the labour side. Flexibility in hiring, firing, and pay packages decreases when employees band together under trade unions. Obviously, few firms are fans of unions. But what about industry associations of IT firms (NASSCOM), telecom providers (COAI), banks (IBA), etc., and chambers of commerce and industry that tie together all sectors? They lobby the state for friendly policy, tax breaks and more. They also donate funds to political parties, which could be reciprocated by policy favouritism. All of these reduce competition and harm consumers and is, once again, against free market principles of minimum government.

It is also wrong to think that only employers dislike trade unions. People with professional qualifications and well-paying jobs are the other advocates of free markets. And many of them are against trade unions among blue-collar workers. Until layoffs or labour codes hit them!

Just like any other market, the labour market too moves to the pushes and pulls of supply and demand. In the case of unskilled or low-skilled workers, supply far exceeds demand in India, giving employers the upper hand in terms of pay, working conditions, and hiring/firing. Most blue-collar workers band together to form trade unions to overcome their lack of bargaining power. Even for white-collar jobs, the key determinant is supply and demand. Fortunately, for them, there is no oversupply of highly skilled workers, and hence they don’t need the backstop of trade unions. So, it is talent combined with favourable supply/demand dynamics that helps the white-collar worker, not just talent alone, as many people think.

However, things could change once companies adopt AI, thus creating an oversupply in white-collar jobs too.

In boxing and wrestling, contests take place between those in the same weight category. Thus, a heavyweight boxer won’t spar against a featherweight boxer. A similar situation arises when the privileged compete with the underprivileged in the same market. Many of those in white-collar jobs are from privileged backgrounds, which helps them amplify their potential. But someone from an underprivileged background, with the same potential but without the resources to build on it, often loses out to the privileged. This affects the way each sees the free market - while the skilled and the educated find it full of opportunities, the underprivileged mostly find only jobs with low pay, poor working conditions and limited upward mobility.

To sum up, Indian businesses are facing less competition than they are equipped to face, and a significant section of our labour force is trapped in blue-collar jobs for no fault of their own. No one should be denied access to education and skilling due to a lack of financial resources. That is something India has not solved.

A free market is one where the powerful are not protected and the vulnerable are equipped. By that yardstick, India is not yet a truly free market.