Saturday, September 18, 2010

America’s wrong turn to Protectionism; Need to take a note from the early Indian protectionist era

[Fully protected by state?] 
Globalization has changed us into a company that searches the world, not just to sell or to source, but to find intellectual capital - the world's best talents and greatest ideas - Jack Welch.
  • Indian experiment with Protectionism:
There was a time in India when Swadeshi (Using the Indian made products) movement was on its height – at that time it to protect the local economy from the injustice of administration; a fight against the mighty British Empire and its notorious taxation laws.

Even after independence government vigorously promoted country made things. Travelling in State owned Air India, Indian Railways and various State Transport Corporations - which rarely produces any profit; banking in state owned banks like SBI etc.; Oil Exploration business through state owned entities like ONGC; Coal exploration through Coal Indian which doesn’t face any completion from Indian market;  Using the electricity produced by various state owned corporations – where production rarely met the demand; calling friends and family using the telephony services provided by Government  - there was a decade long waiting list to get a new connection at that time; notoriously corrupt Public Distribution System(PDS); severe restriction in holding foreign currency; commonly known as the era of the infamous License Raj.

During the British Raj country slipped from the top positions in trade - looks like the ghost of the past glory. Even after independence Indians was unable to regain the pre-colonial dominance (controlled close to 23% of world trade) in the world trade and economy. Things changed in the early 1990s, after the then government of India forced to do critical surgeries in economy to save it from the total collapse. Still opening up insurance, banking, defence sector faces severe opposition from the left and trade Unions. It may take several more years for India to completely eliminate the protectionist policies.

The result of License Raj was disastrous. The so called ‘Asians Tigers’ – Singapore, Taiwan, Hong Kong and Korea marched in front of us. Japanese economy starts flying like a Phoenix, Chinese opened up their economy, and Pakistan attained more growth rate than India. Oil boom in Middle East changed that sector from a mere desert to that of a golden oasis – but still India didn’t have proper exploration policies. When we finally discovered huge oil deposits in KG (Krishna- Godavari) basin there was long legal battle between Government and Private Companies. What more; despite having thousands of kilometers of costal area, we are depending on Singapore, Salala and Colombo ports for transshipment.  

Because of our ‘uncontrollable appetite’ for the products from state owned companies which doesn’t face any competition from market – a characteristic of socialist countries, we are still depending on the technology transfer agreements and so called foreign collaboration, no matter weather it is for the development of a new Boiler for power plants or fighter plane. Still we are not producing a civilian aircraft on the lines of Boeing, Airbus or Embraer. The list will be too long if we are going to describe all the things.

These are the things happened in Indian and may other countries that got freedom after Second World War and vigorously promoted state owned companies. If US wants to going back to that era where state decides everything, from how much a person can eat to how much he can earn, it will not take much time for them to experience the above mentioned things.
  • Effect of Protectionist policies in Education:
It’s good that new US government encourage education, they should do. Because the only way a country can remain in the top echelons of trade and prosperity is through innovation. But innovation will not come from the protected test tubes. It required some air. Countries are prospering when there is an exchange of ideas between the nations, interaction between the people.  There is no need for reinventing Newton’s or Keller’s laws when it is already proven and available.

If US don’t allow companies to hire best brains in science and technology sector – which can also be come from abroad – their efficiency will be eroded over time. In this era of knowledge explosion you should always have the best resources. It is also to be noted that the scientific progress in the US after World War II have heavy contributions from European scientists who migrated to US.
  • Effect of Protectionist policies in Agriculture:
The protectionism in agricultural sector may provide temporary advantage to the farmers but it will raise the expenditure for food among common people, every one can’t be a farmer and those who are not farmers have to buy food grains. In the absence of competition, improvement in production and quality will take the back seat.
  • Effect of Protectionist policies in technology and Service sector:
What If US government restricts/ban the services of foreign companies in IT and other technology sectors? If the US House of representatives can pass two different bills that mandate the congress and Department of Homeland Security to purchase only US made goods, the other legislative assemblies around the world also can do the same. For example, India can decide to cancel the entire orders for the aircrafts from Boeing, Lockheed Martin etc. and redirect it to Airbus, Eurocoptor or Embraer etc. There is no need for giving orders for the construction of new nuclear power plants in India to GE or any other US company for that matter - Avera and many Russian companies will very happy to grab the orders. 

What about Microsoft, Google, Cisco, Apple, Xerox etc? Can’t we use 100% non American products? US have to realize the outcome of their old philosophy of Globalization and Liberalization. The world is more interdependent than ever before, and it is for the mutual good. So instead of forcing Indian IT professionals to fund for the construction of walls in Mexican border, they can use them to improve the competitive levels of US technology, educational sector etc.

[Shanghai deep water port - benefits of globalization]
  • Effect of Protectionist policies in oil:
What about Oil, like the Berry amendment originally enacted in 1941, requires the department of Defence to procure a range of domestically produced or grown items with 100% US content, why not US use 100 % oil from US soil instead of importing it from Central Asia, Africa, Middle East etc.?
  • US ready to lose the leadership?
US have to realize the hard facts, if they are not ready to face the global order and ground realities their position as a leading country in the world will soon become history. A lot of countries in this world are more than willing to assume that position.
Former UN General Secretary Kofi Annan once said - “It has been said that arguing against globalization is like arguing against the laws of gravity.”

[Both pictures are from Wikipedia]

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