Sunday, 29 January 2017

Protectionism in Trade - Recent Developments Analysed

ENTER PROTECTIONISM!

Worldwide, the rise of so-called nascent protectionist tendencies has seen increasing focus in pink as well as white media; this is almost the flavor of the season. I don’t blame the media – the hyperbole emanating from society, social media as well as the political sphere justifies the focus on this theme. And so long as this focus causes an informed dialogue around this theme, it is a welcome development. We need a serious, informed debate in all Media around this tendency, or perceived tendency.


I say perceived tendency; this may sound counter-factual. But stop a minute, and think through – is it really counter-factual? I am not denying the trendlines increasingly visible the world over; all I am asking is to abandon hyperbole, and focus on the facts. Isnt it a fact, for us developing nations in general – and India in particular {given I am an Indian} – that protectionism emanating from the Western economies has always been the exception rather than the rule? It is only a difference of degree. Why is that degree important is the focus of this article.


First, let us hark back towards history, and consider a few examples from history. Let us start at the beginning – the 50s, when Steel Plant technology was denied to us on flimsy grounds by the USA. What was that? Wasn’t that politics mixed with protectionism? To some, this example may be debatable; to them, there are other examples that can be quoted : Recall the imbroglio over the AMS and Food Security? Solar Panels and Cells? Or Compulsory Licencing and Patent Rules? Preferential Market Access and Localisation Conditions?


Each of the examples above is a clear indication of a powerful western nation - {or nations, if you consider the Food Security issue at the WTO}  - protecting its turf, and very fiercely at that. Other examples readily spring to mind in various fields – IP rights in the Drug field is yet another very evocative example. This is the way of the world – and rather than cry about, let us accept it; and figure out how to fend for ourselves in the midst of these established tendencies.


There is nothing wrong with a globalised world; India thrived on free trade for over 4 millennia. But it takes on an entirely different hue altogether when a state, or a set of states, gang up on another, deny access to capital and/or technology on frankly flimsy grounds. It becomes almost a buccaneering loot {from our perspective} when you fight the ability of the state to provide for its own people as it may impact your profit lines. And that is precisely what the entire Farm Subsidy, Green House Gases, Pharmaceutical drug battles are all about.


WHAT HAS CHANGED?
I argue that nothing has changed, precisely nothing. What is in evidence is the mere continuance of the trendline I have pointed out above, with clear proof and precise examples. Why, then, are we seeing the updates, events, news and happenings that we noticing nowadays? This is what bears a closer examination, not the bugbear of so-called protectionism! What we call protectionism is simple Human Nature; no point crying about it. It is basic nature to protect your turf; it may not be fair – but this is the way it has always been since we entered Dvapar Yug!


What has changed is that rising prosperity in the developing nations, rising educational levels and favourable demographics combined with cheaper factors of production – especially labour – has led to two movements. First, an emigration of educated and/or talented people to the West, who come with significant economic benefits in terms of lower wages and a harder work ethic; and two – stagnancy in the West as compared to rising lifestyles & infrastructure in the East has bridged the gap somewhat, at least in pockets in some developing nations, leading to other factors getting highlighted.


These factors are, simply, first the markets, wherein the size has made them attractive; and better facilities and educated workers meaning a lower cost of production at a comparative quality. Obviously, in a finite system, if one side manages to attract capital through superior factors of production, it is going to fuel political, economic and cultural undercurrents in the other side. For, at least temporarily, and in some products – centers of jobs are going to shift, and a cultural & demographic change in worker profiles is going to happen in the target economies of the new world.


This, combined with the inability of these economies to create new jobs for the lost ones, and a high burden of social expenses by virtue of the freebies the population in these nations enjoys – creates a whirlpool. These factors taken together are bound to fuel short-term tensions and rises in protectionism. What can we do? Wait it out; hope for better sense – and play sound policies, that focus on the factors of production, making business easier – and consistently pointing out how these tectonic shifts in the past 2-3 decades have had benefits as well, even for the Developed World; that is a story that badly needs to be told, and not just in Indian Media – but in World Media. We have been focusing only on one side of the coin; has anyone systematically tried to point out the benefits flowing from these tectonic shifts that I pointed out above? It needs to be done, and now. 

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