Columns: ECONOMIC GRAFFITI

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India Today, March 29, 1999
March 29, 1999

ECONOMIC GRAFFITI
Go Globalise

Swadeshi destroys the very people it aims to protect.

By Kaushik Basu

An oft-heard argument in India is that the global marketplace is an unfair playing ground, where the powerful bully the weak and rules are made to the advantage of the industrialised nations. The World Trade Organisation talks about minimal labour standards but these are more often than not designed by lobbies in industrialised nations to protect their own turf.

The inequities of the global system are also notorious. In the past year, the income earned by Hollywood's top 50 personalities exceeded the national income of Burundi -- that is, the total income of its seven million people. If Bill Gates encashed the increase in the value of his assets in the previous year, he alone would be able to consume more goods than what 60 million Ethiopians consumed in the year. Therefore, India should direct its energy to changing the rules of the global game and until that happens refuse to partake in the global economy.

All the sentences in the above paragraph are valid, except the last one. It is based on a bloated sense of national power. The truth is India is not powerful enough on the global economic scene to be able to influence the rules of the game. For the time being our strategy has to be one of doing the best we can, while taking the rules as they are.

We can spend some energy on the margin to buffet the rules, but no more. I shall call this the pragmatic principle. This simple enough principle has -- rather mysteriously -- turned out to be difficult to follow, especially by those whose power of reason is dimmed by the confused fervour of swadeshi.

The pronouncement of a BJP MP -- involved in organising the Swadeshi Mela in Delhi earlier this year -- that Indian industry is "not inferior to anybody in the world" shows how far removed we can be from the facts. Though, of course, this would appear to be the fount of sanity in comparison to the recent claim of a writer that India would be a great sporting nation if it were not for the International Olympic Committee's use of rules and laws that are biased against us.

In this context one cannot but appreciate Prime Minister Atal Bihari Vajpayee's effort not only to open travel and interaction with our neighbours, but more generally to resist xenophobia.

It is frequently argued that since the West does not allow our labour to cross its boundary, we should not allow its multinational corporations (MNCs) to cross ours. Now it is true that the West uses a biased set of rules for the two factors, capital and labour; but if we were following the pragmatic rule, we would not be guided by a knee-jerk tit-for-tat strategy but ask ourselves that, given the bias does exist, what is in our best interest?

The answer we would reach is that in today's world we have to attract foreign capital. One of the main reasons for this is that we need MNCs to market our products in industrialised nations. If our products sell more in the world, the demand for Indian labour will rise and this will raise wages.

One objection to this argument was brought to me by an unusual proponent of swadeshi, who has distinguished himself by shunning narrow chauvinism and doing admirable grassroots work -- Swami Agnivesh.

With the sharpness that one would expect from him, he asked me recently that if the purpose of economic openness was to create greater demand for our products and through that our labour, why can't we simply give our own people more money? They can then create the demand, without our having to step beyond the national boundary.

To give a short answer to a question that deserves more, the difficulty with this strategy is the risk of inflation. When you hand over more money to the people, the demand for goods will rise; but goods can't be produced without a time lag. So prices will rise.

If the injection of initial income is substantial, this can give rise to hyper-inflation. The advantage of using exports to increase income, on the other hand, is that the higher income accrues in dollars, since foreigners typically pay in dollars to buy our goods.

This new income will generate a higher demand for goods, true. But the higher demand can now be met by imports, since the newly earned dollars can be used for this.

Globalisation is a vehicle for progress, which we cannot ignore. So despite my admiration for the work of Swami Agnivesh on this matter I must beg to differ.

There is one reason, however, why the globalisation process has to be gradual. This is because globalisation is bound to bring Indian prices in alignment with prices in the industrialised nations. Given that India has a mass of illiterate people and no system of social welfare worth its name, a sudden lurch in prices to international levels can cause acute poverty and distress to many.

To understand this, consider an illiterate and unskilled person living in New York. The income he will be able to earn will almost certainly be insufficient for buying even the most basic goods and services. In the absence of state support, the chances are that the person will die. In other words, the process of globalisation has to be accompanied by improving literacy and greater provision of social welfare support.

The author is C. Marks professor of economics at Cornell University

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