Not a Zero Sum Game

In the last 20 years the warriors of globalisation have been fighting for free trade and business policies against various protectionist arguments from both sides of the globe. The western protectionists and labour groups say that globalisation is exporting their own people’s jobs and livelihoods, leading to unemployment and some argue even the recession of 08’ is in-effect the result of jobs being shipped to China and India, the kind of jobs “sub-prime” Americans would have. The Obama Administration has been opposed to IT and manufacturing jobs and has increased visa restrictions, giving heed to the popular demand. On the other side the eastern politicians believe that foreign companies setting shops near their homes would be “Colonialisation part 2”. These companies would displace their domestic counterparts which can’t compete; many fearing “what the East India Company did two hundred years back would happen again if these Multinational Corporations would be allowed in India”. The recent debates on FDI in multi-brand retail brought up the dangers of destruction of the indigenous retail sector – the small scale kirana stores.  Even free market supporters oppose these measures saying that first the Indian Industries need to be developed and be made competitive before opening up the Economy to the competition from the foreign giants like Wal-Mart, Carrefour etc. Summing it up, the socialists in the developed world argue that their labour cannot compete with the cheap labour from India and China, and the ones in the developing world argue their indigenous industries cannot compete with the advanced and cash rich companies from the other side of the globe. Basically the rich say they cannot compete with the poor and the poor say they cannot compete with the rich!

I really want to ask these people that how can free and voluntary trade and commerce be detrimental to both the developed as well as the developing economies? I mean after all when both parties trade for goods and services they both mutually and voluntarily agree to trade because they both are better off after the agreement. No one party, the buyer or the seller is the beneficiary of the transaction, in fact they both are. This should also be the case when these parties are different countries with specialised strengths in certain industries. And this is exactly what happens but the policymakers cannot see. World trade and commerce is not a zero sum game. When cheaper Chinese exports flush the world markets people as well as policymakers tend to think that their own manufacturing industry is at a competitive disadvantage. Yes it is, indigenous manufacturing gets shipped to locations with cheap labour advantage. However this is because relatively unproductive jobs gets transferred to developing nation and new much more productive jobs like of programmers are created. People simply climb up the productivity ladder. Previously agrarian economies are now becoming more productive manufacturing economies and previously manufacturing economies are becoming “Knowledge economies” thereby increasing productivity.

The graph shows annual growth in labour productivity in United States during certain periods.

It shows growth being averagely high during periods of commercial realisation of rapid technological developments. During 1947-73 post WW2 technological advancement had helped increase labour productivity greatly for over a long period of time. The US economy was generally open promoting free international trade.  Contrary to popular beliefs, even during the years of the worst recession since 1929 the 2007’-10’ had again seen exceptional productivity growth despite a slowing economy and large concerns over outsourcing of both service and manufacturing jobs.  Obviously the internet and other computing technologies were increasing labour productivity mostly because of the access which was available to large majority of the population as against the developing economies where only the elite had access to it.

Coming back to India, due this approach of “protecting against the next East India company” we have already lost 65 years of productivity growth and economic development. Most of the development that has taken place has been in the last 20 years after the forceful opening of the economy. As a comparison of the two nations in today’s scenario where our Government says that India has been relatively insulated from the worldwide economic slowdown with much higher growth rate around 6.5% in the current fiscal than the west’s 2%. As estimated Indian economy would grow at 6.5 % meaning an addition of 117 billion dollars in production of goods and services  with per capita increase in productivity of around $93, the American economy on the expected lines after the recession growing at a slow 2.5% would add 380 billion dollars in production of goods and services  with per capita increase in productivity of around $1214 per person, 13 times more than that of India even after a full blown economic recession. This is because of the productivity ladder the American economy has climbed due to their competition with the Chinese. The Chinese work at cheap wages at factories, the Americans just changed the game.