The ministerial level meeting about the Doha round on further liberalisation of world trade, ended the previous week-end. The final agreement was obviously a compromise -- optimists would describe it as a glass half full, while pessimists will doubtless see it as half empty.
As has become customary lately, the meeting was accompanied by more than its fair share of the anti-globalisation protesters and demonstrators.
In India, the Left often opposes freer trade. On the other hand, the Left stands for egalitarianism, a greater economic equality amongst people. If it favours this across nations, and not just within India, it should be supporting, rather than opposing, globalisation of trade, freer movement of goods, services and capital.
The point struck me forcefully while reading a book, China Inc., by Ted C Fishman, a journalist rather than an economist. He argues, without any ifs and buts, that "If the 20th was the American century, then the 21st belongs to China."
Leaving the general thesis aside, at one place, while describing how jobs are migrating to China, not only from American workers, but also from Mexicans, he states that "Mexican maquiladora (factories on the American border, supplying to the United States) workers, on average, earn about four times what Chinese workers do, but they earn only about one-seventh of what American factory workers do."
For doing similar and equally productive work, does the American worker have a God-given right to earn 30 times more than a Chinese worker? For any normal person, other than the Christian right in the US (and, indeed, President Bush himself), which believes that it is God's chosen country, the answer will have to be negative: for a given level of productivity and similar work, the Chinese worker has every right to earn as much as his European or American counterpart.
And, globalisation of trade in goods and services, helps narrow the gap in the wage levels. More work will shift from American factories to the Chinese ones to the extent the Chinese output is cost and quality competitive. In the process, this shift would tend to depress the wages of the low-skilled workers in the US at the same time that it improves the living standards of the Chinese workers.
And, this is not true only of goods: the logic is equally applicable to services. The fast-growing services exports from India will keep pricing pressure on suppliers of similar services in the American and European markets.
Wages of workers in such service providers will remain under pressure while those of the Indian workers in services exports will rise rapidly, as indeed they have, narrowing the earnings gap. Hence the argument that globalisation is an egalitarian influence.
By no means is this a purely conceptual argument: if the per capita incomes in Hong Kong and Singapore exceed those in many European countries, if countries like Korea, Taiwan and, some distance behind, Malaysia and Thailand, have witnessed a sharp increase in per capita incomes, the underlying cause has been the globalilsation of trade in recent years.
And, China is following in their footsteps. Hundreds of millions of people have graduated from poor to middle class status in a couple of generations -- it is difficult to see how this could have occurred without their being open to foreign trade and investment.
Globalisation does push relatively low-skilled jobs in the rich countries to the poorer countries -- and one can understand the US worker protesting globalisation. So, if we are concerned more with retaining the jobs of American workers earning $30 per hour, and not about creating jobs in India, then we too should oppose globalisation.
Incidentally, would the American low-skilled worker himself benefit from a closed economy? Perhaps some would, at least temporarily, but at the cost of the consumer. Unfortunately, the consumer rarely has time to come out in the streets demonstrating in favour of globalisation.
Trade apart, the Left does seem to be looking more kindly towards FDI: its high priests recently advised Kerala to follow Bengal on the subject. The opposition to FDI is rooted in the perspective that the rich foreign investor is taking money away from a poor country like India.
The underlying assumption is that growth is a zero sum game, that if the foreign investor is profiting, we must be losing. The fact is that if the foreign investor takes away some profit, he can do so only by creating jobs in this country -- much of FDI in China is in exporting factories, which make profits only by creating more domestic employment and content.
It is a case of capital indulging in wage arbitrage. But, there are significant qualitative benefits as well -- supply chain management, best practice in distribution, design ideas, and so on -- if only we wish to learn!
