Let nations trade

Financial Express, August 31, 2008

By Siddhartha Mitra

Globalisation is a much punched bag; the xenophobic traits that all humans possess in some measure actually encourage such punching. Yet most people and the many anti-globalisation bodies they form do not realise that the world and they themselves would be much better off if their punches had been directed elsewhere.

A wonderful actor might be involved in a flop; the problem in most cases is with the plot and sometimes the insipid co-star. Sensible producers still continue to line up outside his door armed with better plots and promises to hire more competent actresses.

Such sensible producers offer a contrast to anti-globalisers who despite the association of trade with rising affluence in many parts of the world focus only on cases where it has been associated with deepening deprivation and indebtedness. They also forget to examine the often naughty and defaulting hand maidens of liberalisation — infrastructure, governance and human capital formation — but take the easy way out to blame liberalisation itself.

All of us trade without realising it. People like me sell our human capital services or skilled labour for a monthly salary. With our salaries we satisfy our varied need for services (that of a cook, a chauffeur, a barber etc) and commodities (food items, durables etc). This in effect is trade in the same sense as that which occurs between nations: we trade our skilled labour for all the items we need. Nobody deters individuals from trading. In fact their very survival depends upon the ability to trade. None of us living in this modern age can even think of producing the hundreds of commodities that we use every month, from staid trash bags to fragrant shaving cream, on our own.

Moreover, despite trade among individuals, there are poor people just as we have poor nations in an interlocked trading world. Most people are poor because they cannot offer anything that is valued by others. The illiterate villager, crowded out of his land by the multiplication of his kith and kin, might have nothing to offer to other rural or urban dwellers and finds himself condemned to poverty.

In certain cases, there are too many people offering services of the same kind (such as cleaning, washing, sweeping, even digging ditches) — life is thus reduced to a cruel lottery with a fraction of those offering a service actually managing to eke out an income through its provision, leaving others unemployed and impoverished.

The argument being made is as follows: just as the essentiality of trade among individuals for their survival is not in doubt, similarly the potential and wide ranging therapeutic effect of international trade on nations should not invite scepticism.

Just as trade among individuals cannot lift everybody of poverty — otherwise India would never have seen 50% of her population living below the poverty line in 1972, trade among countries might not make all countries rich and with good reason. Such inability does not imply that we point our guns at ‘globalisation’ per se; instead it is essential to ensure that the mentioned hand maidens do their job. Trade is a harbinger of development but only when the hand maidens stop sulking and start delivering.

The following example, in the form of a fable, might cure doubting Thomases of some of their scepticism about the benefits of trade among communities/nations:

In the valley of flowers everything else has stopped growing. The human inhabitants, on the verge of starvation, have given up all hope when in walk a bunch of explorers from a neighbouring land laden with food, drink and other provisions. They are quite taken by the wild flowers of different hues and are ready to pay for these in terms of food and drink, which in any case they have in surplus. The flowers they buy enrich their lives; at the same time, inter-community trade saves the inhabitants of the flowering valley from starvation.

This fable, with a Bollywood type saccharine ring to it, nevertheless is both illustrative and representative of the huge potential benefits that might flow from trade — gains that have been exploited by South Korea, then China and finally India and Vietnam to grow and escape from the poverty trap. This is not to say that international trade will be the saviour under all circumstances. As pointed out earlier, the presence of opportunities for trade among individuals, though essential for their survival, is often not sufficient; it is then foolish to expect international trade to have all the answers. Just like poor individuals, poor countries may remain so because they have nothing to offer the rest of the world.

Trade in this case might just become a distraction; it results in no additional income but introduces countries to the attractions of the global market place. Some borrow, spend on these attractions and get mired knee deep in debt. Is this any different from a man borrowing a huge amount from the local money lender and going on a spending spree? Moreover, is this a good reason for every country to close its trading doors to the rest of the world? Of course not; the potential benefits dwarf the losses that might result from misuse of the trading instrument. All of man’s modern inventions—the telephone, television, internet, credit cards to name just a few— can and have been misused. But given the huge benefits that they confer on society and humanity, nobody calls for a ban on these; their use and popularity increase by the month. Why should ‘international trade’ be the odd one out?

The author is Director (Research), CUTS International, a leading research, advocacy and networking group and can be reached at sm2@cuts.org

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