Re: Continuation of free trade

[Ashish Hanwadikar <ashish_hanwadikar@yahoo.com>]

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Hi Venugopal,

> Ashish, this logic is fallacious. It is similar to saying
> that if
> X can kill Y, it is to the advantage of Y,   because he can be reborn
> earlier than X!

I am having hard time understanding your metaphor! I really wonder
whether you understand the meaning of a logical fallacy! One commits a
logical fallacy when the conclusion cannot be reached from the
arguments by following accepted rules of logic. There are many
well-known logical fallacies. Can you name which fallacy I have
committed!

Here is a link which explains many of the well-known logical fallacies.
http://www.datanation.com/fallacies/index.htm

>  If a million people are living in a district in  India with dignity,
> cultivating wheat, we enter a scenario where globalisation, coupled
> with
> export subsidy for agriculture in developed countries, makes it
> impossible
> for these people to live with dignity. They will be affected in two
> ways.
> First, they cannot export wheat in a free manner as free trade is
> denied to
> them because of export subsidy in developed world. Secondly, they
> cannot
> sell in domestic market, as imorted wheat based on same export
> subsidy in
> developed world knocks them out of the domestic market. All this is
> not on
> the basis of efficiency or productivity, mind you. Therefore a
> million
> people's livelihoods will be ruined in our example, with some of them

Let me handle this in a step by step way. Let's assume for the sake of
argument that giving subsidisies to farmers is a good way to conquer
the foodgrain market and destroy economy of competitors (which is what
US and other countries are trying to do). Let's also assume that
levying heavy import tarrifs is a way to protect poor farmers from such
an attack. Then why can't the same logic can be applied to the level of
state governments. Why doesn't Punjab Govt. give heavy subsidies to its
farmers so that they capture Indian foodgrain market? That way they can
quickly become rich! If punjab does it then Maharashtra Govt. should
levy heavy import duties for food grain imports. That way it will
protect its farmers from such an attack. Maharastra Govt. in turn can
give heavy subsidies to some other industry, say, textile mills. Let's
fight till we all die of subsidies and tariffs!

> becoming urban slum dwellers, rikshaw pullers in those small towns
> where
> development has still not replaced manual rikshaws with auto-rikshaws
> and
> cars, or they will become petty thieves or sex workers. I agree that

You want to know why auto-rickshaw's have not replaced manual
rickshaws? It is because each city Govt. needs to issue a license
before auto rickshaws can be driven on the road for commercial
purposes! The existing auto-rickshaw drivers need to be protected from
competition from cheap labour! And of course, auto-rickshaw consumers
need price protection (that's why rates are fixed by the city govt.).

And our country bans import of second-hand automobiles! If farmers want
protection from cheap food grains imports will automobile manufacturers
be far behind! The cost of asking for import duties is not just the
tarriffs themselves! In order to satisfy the request for import duties
from one constituency politicians have to win votes from others! Guess
what? They promise import tarriffs for other industries !

You see, the free-market system is replaced quickly by political
competition. It's a dog-eat-dog world whichever way you look at it!

> a small
> fraction of them will be able to diversify into trading and 'grab the
> new
> opportunities thrown open by liberalisation, privatisation and
> globalisation'. But a vast majority of the people will suffer and
> lose their
> dignity. As the game goes on, the weakest people will have to stop
> wheat
> cultivation and migrate to urban areas. The developed world has
> greater
> staying capacity in the game, because of historical inequalities.

The developed world has greater staying power precisely because of our
import tarriffs. Because we levy huge import tarriffs (say on wheat)
the wheat gets costlier. That means people will purchase less wheat at
a higher rate! The amount of subsidy given by US taxpayers will get
reduced. The taxpayers in US which are subsidizing wheat production
will not lose money at a rapid rate. Imagine, all the developing
countries open up their borders for wheat. The amount of cheap (because
of subsidy) wheat that will be consumed will cause US taxpayers to lose
huge amount of money in subsidy at a rapid pace and hence they will not
be able to sustain it.

If you want to see this phenomenon in action look at the Nasdaq crash
and dot-com bust! No subsidies were involved here. However, lots of
people invested huge amount of capital in dot-com companies even though
the amount of future revenues were uncertain. When those benefits did
not materialize people pulled back their investment and many of the
dot-coms went bust!

The point here is that access to cheap capital does not necessarily
mean that you will make money in the market. In fact, access to cheap
capital causes the goods to be priced at a very low cost in the market.
Because capital was so cheap lots of dot-coms offered free services
(free internet, free email, free web hosting). When that capital dries
up the business collapses.

The subsidy is nothing but a cheap capital. Because, if selling
agricultural goods cheap in the world market was really so beneficial
private capitalist would have financed it expecting a good return on
their capital investment. However, since no private capital investment
is coming in the agricultural sector, Govt. is using its force to
collect taxes and use them to supply to the farmers. That itself
suggests that no benefit to farmers or investors is possibly by
supplying wheat or any other agricultural commodity at cheap rate to
the world.


> This is
> not just my opinion but this is the reason which forced the developed
> countries in the WTO rounds to accept a time frame for gradual
> removal of
> export subsidies for agriculture in their countries, ostensibly to
> promote
> free trade. I agree that the two advantages which you have cited are
> there,

You agree that the two advantages which you have cited are there! Then
why are you saying that I committed logical fallacy! What exactly are
you trying to say? I am badly confused!

> There is no transfer of wealth here. Transfer of a commodity is
> not
> the same as transfer of wealth. I would call it transfer of wealth if
> capital assets are transferred and placed in control of local
> communities of
> the third world, with proper updating of their skills for
> maintenance. Mere
> transfer of some consumable goods cannot be termed as transfer of
> wealth.

Unbelievable! What a logic? You would call it transfer of wealth if the
capital assests are transferred and placed in control of local
communities of the third world, with proper updating of their skills
for maintainence!

The idea that capital assets generate wealth by simply maintaining them
is so terrible and disgusting! Let's say Indian farmers are given lots
of land. They are also given seeds and fertilizers needed to grow the
foodgrains! Now they keep producing and selling food grains. What
happens when somebody discovers a new seed variety which produces ten
times the yield of existing one! I guess our Indian farmers will need
another healthy  dose of that capital again to survive! Right? Or least
they will need more import tarriffs to keep away cheap foodgrains
produced by other countries using that new seed variety. How long we
are going to continue with this stupdity?!

Capital assests do not need simple maintainence! With Industrial and
then Knowledge Revolution we have long passed that stage! Those who own
the capital should be smart enough to deploy it and enhance it with
Research and Development! Mere physical control of assets do not
guarantee wealth creation! If you don't believe me, just look at the
Saudis! The fact that United States is much more wealthier than Saudi
Arabia or any other Gulf Country despite of the fact that people in the
Gulf Countries own the largest natural assests (oil wells) in the World
is testimony to the concept that it is the ideas that count when it
comes to the wealth creation. John Rockeffeller became one of the
wealthies man in the world not by owning Oil Wells but by discovering
the Kerosene and its distillation process. Microsoft founder Bill Gates
created huge amount of wealth not by producing computers (IBM was doing
that!) but by producing good software.

I will ask you a simple question! Who is more wealthy, Amitabh Bacchan
who acts in the Movies and produces entertainment or the owner of the
cinema hall or the owner of the Camera! Which company will you invest
in? A Textile mill or a Company which designs and developes fashion? To
produce fashion you don't require huge capital but a simple Pen and
Pencil. The amount of revenue generated by Harry Potter movie in one
weakend totally dwarfs the amount of revenue generated by my company in
the entire year which develops Networking switches.

Russia is still the largest country in the world with huge amount of
unused land. Lots of that land is inhabitable because of cold weather.
However, many of that land has become habitable in the last few decades
because of invention of Air Conditioners and Heaters! You see, the
wealth producing potential of capital or natural assets depends on what
you do with it! For it you require great ideas!

In fact, ideas allow you extract more and more benefits from less and
less resources. That's beauty of capitalism! The pharmaceutical drugs
may look very costlier and hence unaffordable to poor! But what is the
alternative! Without those drugs you will require extensive
hospitalization. Which means more resources!

> but I argue that these advantages will be grossly offset by the other
> disadvantages as I have cited above, owing primarily to historical
> factors
> of industrial backwardness which was again a product of colonial rule
> in the
> past, destruction of our native artisan-based cottage industries in
> the past
> etc..

Yah! Yah! Yah! There are lies, dammned lies and then there is a
history!


> As I have said, such cases can be dealt with one by one, as it is
> already
> under process by government. I agree that some of the points are
> correct and
> they have to be changed and deregulated. I will revert to this
> subject in
> due course.

Please, please do so! I awaiting eagerly!

Regards,
Ashish




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