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Neoliberalism and Labor

Updated: Aug 24, 2021

An analysis of India’s labor market in the Neoliberal era

When we look at the world around us and observe the complex entanglement of money with human life, we might be tempted to believe that greed and selfishness are traits innate to human nature, a belief that’s widespread in the real world. We’ve almost universalised the idea that individual prosperity is the purpose of human life. However, it might be surprising to a lot of people that an idea like that has gained prominence only in the past 50 years or so, and life before that was guided by more unselfish principles.

Economics, a subject focused on studying human behavior, is also thus a reflection of the guiding principles of human life. Hence, the economic policies half a century ago were also more in line with the welfare of all, and espoused the gain of all against the gain of one or a few. This was the post-second world war world which was characterised by widespread decolonisation, government intervention to protect the welfare of citizens, and progressive policies in general. The dominating school of economic thought was Keynesian, with Marxism existing in the fringes, and what is known as a Neoliberal approach today was almost non-existent at that time.

Capitalism was very much the primary mode of production in that world too but it was different from the Neoliberal capitalism that we’re a part of today. In essence, Neoliberalism is an ideology that espouses for the benefits of a few at the cost of others, which is also what traditional capitalism was, but with a much higher intensity. In simple terms, Neoliberalism believes in the supremacy of the market, emphasizes cut throat competition and is against the interference of the public sector with the economic process, all in the name of achieving efficient allocation of resources. Neo-liberalism comprises two words: ‘Neo’ which means new, and ‘Liberty’ which means to be free. Hence, this new form of freedom that Neoliberalism espouses is essentially the Freedom of Markets.

This ‘freedom of market’ manifests in a lot of forms, like widespread privatisation, low taxes for the rich, curtailment of public sector intervention, uninterrupted flow of finance across borders, disregard for the environment, and basic movement of wealth from the bottom to the top. Neoliberalism loves efficiency and hates equity, and hence justifies widespread inequality on the pretext of ‘merit’ and ‘survival of the fittest’.

However, an ideology requires a superstructure for its promotion and sustenance, and that’s where the State comes in. A Neoliberal state is one that upholds the principles of this idea and creates an environment for the implementation of neoliberal policies. A neoliberal state is a partnership between the Government and the Bourgeoisie (both domestic and international), where the authorities become the servants and the market becomes the master. A neoliberal state limits its active role in the functioning of the economy, and takes on a passive role instead, which is implementing policies and reshaping institutions to create a more conducive environment for the market to function. A neoliberal state privatises the welfare of its citizens and helps in the transformation from a ‘Market Economy’ to a ‘Market Society’.


Neoliberalism as an idea was first incepted by Fredrick Von Hayek, who was a professor of economics and philosophy at the University of Chicago. The idea was carried forward by his students, one of whom was Milton Friedman, who went on to become one of the most famous American Economists and the flagbearer of neoliberalism in the Post-war Keynesian world. However, the world in which this idea was incepted was one where people would find the idea of complete market control quite amusing. It took years of work in scholarly publications, research, and formulation of national and international networks for the idea of Neoliberalism to become presentable.

Until the late 1970s, the world order was dominated by Keynesian economics and state intervention was not considered illogical, like it is today. However, in the mid-1970s, the Western world underwent a recessionary phase, which was characterised by high inflation and high unemployment, thereby pushing the economies into ‘Stagflation’. This widespread crisis marked the end of the Keynesian era and revived the classical ideas of the ‘Invisible hand’ and ‘laissez-faire’, in a much more refined outlook, thereby giving birth to the era of Neoliberalism.

The onset of Neoliberalism in the Western world was marked by a change in governments in the two largest economies of the world, the UK and the US. Margaret Thatcher took over as the Prime Minister of Britain in 1979 and Ronald Reagan became the US President in 1981. Thatcher and Reagen brought about economic reforms in their respective countries that changed the course of world economics for many years to come. They were complemented by the policies of Alan Greenspan as the Chairman of the Federal Reserve and the economic reforms of Antonio Pinochet in Chile. The economic reforms focused on reducing the rate of direct taxes, controlling the money supply to lower inflation, decreasing the rate of government spending, and reducing government regulation in the affairs of the economy. These policies were justified on the pretext of increasing private investment, which in turn would increase the growth and employment in the recessionary economies. On being asked about the justification of her neoliberal policies, Thatcher remarked that ‘THERE IS NO ALTERNATIVE’. Reagan popularised the idea of the ‘trickle-down theory’ which believes that benefits to the top section of the society would trickle down in the form of employment and income, to the lower sections of the society. However, through years of observation and empirical research, we’ve found that to be false, just like all other benefits that neoliberalism claims.


In the late 1970s, when the world was transitioning to a new accumulation regime, India was still a relatively closed economy with a high degree of state intervention and regulation and was yet to undergo major economic reforms. By the mid-1980s, the Indian state had started to implement certain pro business policies and deregulating specific sectors of the economy, thereby showing an inclination towards the larger world order. By the late 1980s, the Indian economy underwent a major balance of payment crisis, and it was followed by the economic reforms of ‘Liberalisation, Globalisation, and Privatisation.’ The Indian state had to borrow a humongous sum of money from the twin Bretton Woods institutions, the IMF and the World Bank (which in the contemporary world function as the machinery for the production of Neoliberal thought), and in exchange, India had to open up its economy to the world, thereby exposing it to the perils of a free market economy. India provided a large market for western commodities and also a pool of cheap labor for multinational corporations to take advantage of, and thus these reforms had major implications for the Indian labor market.


In the interest of the capital, a neoliberal state pushes for the commodification of labour, which leads to the dehumanisation of its workforce, and persistent degradation in their living standards. The economic reforms of 1991 thus set out to expand the regime of capital in India by allowing for a free flow of capital across borders and deprioritising employment generation as an economic policy. The pre-reform economy was led by the agriculture and manufacturing sectors both in terms of growth and employment, and the contribution of the service sector remained limited. However, post-reform growth for the Indian economy has primarily been led by the service sector without an increase in the share of the sector in employment generation. The low employment elasticity of the service sector has been one of the major reasons for the growing unemployment rate in the economy since the impetus to the manufacturing sector (which is a primary source of employment generation in an economy) is often curtailed by the demand of the global finance capital to invest more in tertiary sectors. The manufacturing sector underwent a period of ‘jobless growth’ and the primary sector was still the largest employer of the workforce, which contributed to lower living standards for a vast majority of the population.

The implications of the neoliberal reforms on the Indian labor market can be understood by the following three categories :

  • INFORMALISATION OF LABOR – In the conflict between capital and labor, a neoliberal state aims to strengthen the former and weaken the latter, which in turn decreases the bargaining power of labor and increases the profits accrued to corporations. The informalisation of labor is a systematic process to make cheap labor available to transnational corporations and to reduce their opportunities to organize, thereby increasing the level of exploitation. The informal sector is characterised by low wages, absence of social security, negligible mechanisms for grievance redressals, temporary jobs, and lack of organised representation for labor. With that background in mind, close to 90% of the new jobs created after the economic reforms have been informal jobs, thereby reducing the protection available to labour and exposing it to higher levels of exploitation. Informal labour is cheap labour, which is attractive to the corporations of the Western countries, and hence a source of FDI for the domestic economy.

Although most of the informal jobs are created in the unorganised sector, the organised sector under the neoliberal state has also undergone the process of contractualisation and casualisation. Contractual workers have lower job security and are less costly to the industrialists, thereby helping with the profit motive of the firms. The neoliberal state, to enhance the growth and investment in the economy, the benefits of which largely accrue to a select few, does not hesitate in depriving a large majority of its populace of the benefits of the prosperity.

  • LABOUR LAW REFORMS – The primary way for the state to weaken the strength of labour is through labour laws. The Indian labour market has traditionally been considered rigid and inflexible due to its stringent labour laws, hence unattractive to private investors. Therefore, to make the economy more ‘investment-friendly’, the Indian state has landed several assaults on its workforce by tweaking the labour laws, which in effect reduce the strengths of unions and labour collectives, thereby decreasing their bargaining power. The Second National Labor Commission which was established in 2002 recommended multiple changes in the labour laws which would reduce the role of governments, make the labour market more flexible, and therefore make the workers more prone to exploitation. It recommended derecognition of unions and easier permissions for industries to shut down without proper compensation to its employees, thereby giving employers an advantage over the employees in functional decisions.

The code on industrial relations was another attack on labour rights, which espoused giving individual states the right to amend major labor laws, made unionisation more difficult, and tweaked the laws in a way that would exclude a large chunk of the workforce from the purview of labor laws. The laws over three decades have been made weaker and have put the labour in a more disadvantaged position.

  • EMPLOYMENT GENERATION – The focus of the Indian state on employment generation has been considerably low since the 1991 reforms, which is evident from not only the decline in the quality of jobs available to its workforce but also the quantity. The labour force participation has witnessed a decline from 60% in 1995 to 52% in 2016. The absolute number of people employed in various jobs has also registered a decline. These results are not surprising since the budgetary allocation to employment generation schemes has been also declining. The focus of the government in the past two decades or so has been to encourage self-employment, which in turn is also dependent on the amount of private investment in that sector and also rids the state of its responsibility to provide for quality work. The skill-enhancing scheme of the government has also been a way to prepare cheap labour with a low level of skills available for the service boom in the post-globalisation economy. The disinterest of the neoliberal state in the welfare of its workforce is no longer a secret and is evident from the anti-worker and pro-capital policies.


"To allow the market mechanism to be the sole director of the fate of human beings and their natural environment...would result in the demolition of society”, said Karl Polanyi, 50 years ago, and his nightmare has come true presently. The expectation from a neoliberal state to make better policies to help its workforce would be an irrational one, and hence we have to find our ways around this system. The abysmal conditions of the workers in the past three decades or so have not only made the evil nature of neoliberalism evident but have also indicated a failure of our traditional unions in working for the benefits of the workforce. We have to make our unions more inclusive and far-reaching, with the inclusion of rural informal workers, female workers, and all other sections which have historically been kept out of the purview of organisation. Since capital in the neoliberalism era is becoming international, we also need to strive for international associations and networks of labour organizations to counter the effect of geographical exploitation by capital. The neoliberal state needs to realise that it’s not capital but labour that is the backbone of any economy and the latter is therefore the most important factor for achieving a high rate of growth for the economy.


  1. Neoliberal state, austerity, and workers’ resistance in India - Kanchan Sarker

  2. Perspectives on Neoliberalism, Labour and Globalization in India

  3. Labour Market Flexibility: An Empirical Inquiry into Neoliberal Propositions – Atulan Guha

  4. Critical Observations on Neo-liberalism and India’s New Economic Policy – Raju J. Das

  5. Capital, the State, and Trade Union Rights – Rohini Hensman

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