The confusing story of trade liberalisation
Sunday, 24 June 2007
Qazi Azad
A GOOD society is one where the middle class outnumbers everyone else. Like Aristotle, foreign investors also believe so, although for a different reason. Usually, they choose to investment more in a country where the middle class is large and expanding.
They look at and measure the purchasing power of the local people in a country and basically target its domestic market before making decisions to invest in it. Hardly they choose a country as a production-base for export unless it is endowed with some critical raw materials, which are not exported, like gas in Bangladesh, or unless it competes in other factors of production with other countries significantly favourably.
The veracity of this assumption may be checked from the current Indian example of a rising tide of prosperity, at a growth rate of about 8.2 to 9.0 per cent. A report in 2005 said, "As India's economy grows, by 8.2% last year, India is making millionaires at the record rate, 11000 reached the bench mark in 2003… For the past 23 years India's GDP has grown at an average annual rate of 6.0 per cent, making it one of the fastest growing economies of the world. It is doubled that achieved by the West during the Industrial Revolution. India's middle class has more than tripled in size to 250 million people".
The report quoted a management consultant, KSA Technopak, as having concluded that urban consumption contributed to 12 per cent of the Indian economic growth in 2002 and 16 per cent in 2003. Add to it the contribution of the middle class of India's rural areas where 600 million of its one billion plus population work and live. "While the number of rich has grown", the report went on to point out, "about 1.0 per cent of the poor have crossed the poverty line every year". Exposing the factor behind India's surging prosperity, it further said, "The new group of Indian millionaires are professionals, who have made their fortunes in information technology and the knowledge-based economy, and they reflect a social contract whereby talent, hard work and managerial skill have replaced inherited wealth. Since the economic reforms, making money has increasingly become respectable and India is in the midst of a social revolution rivaled, perhaps, only by the ascent of Japan's merchant class after the Meiji Restoration".
This analysis of the present Indian miracle of high economic growth, as provided in the report, credits the Indian economic reforms of early 1990s only for making money increasingly respectable. But, basically, it admires India's professionals for the creation of their rising national wealth.
While visiting India the present US President, George Bush, indirectly explained the role of a nation's middle class in expanding its prosperity. He went on record for having said, India with its large middle class has become an attractive spot for trade and investment. He recommended that the American investors and businessmen should take more interest in that country to take advantage of it. The statement of a politician holding the highest public office of the world's leading economic superpower also confirms that the basic strength of an economy grows from within and not without.
There are now many countries in Asia and Africa that are significantly liberal in their trade practices. Some of them import from cheese to bottled water at reduced or no tariff. Yet these countries do not compete with present-day India in industrial growth-the solid economic growth of the permanent nature. One may ask: Why? The answer could be that there must be enough people within a country, as laid bare by the Indian example, to conceptualise, man, lead and guide higher level economic activities and industrialisation to take it to the critical threshold when outsiders having interest in long-term investments would also step in.
What then is the role of trade liberalisation in economic development? This is a confusing question in an era of globalisation. Yet it occurs more to one's mind in the recent years since the Doha round of multilateral trade talks of the World Trade Organisation in 2001. The tug of war in negotiations between the US and the European Union, on one side, and India and Brazil, on the other, on the issues of implementation of the agreed agenda of the Doha round drags on and on. The two groups of opposing trade interests are stuck up in their negotiations on the matter of trade liberalization, as per the agreed agenda of the round, concurrently in agricultural products and industrial goods. While the first group representing the rich and advanced industrialised countries wants to retain their abnormally high trade-distorting agricultural subsidy to as much as possible, the second group-India and Brazil-representing many of the developing countries disagrees to further lower the industrial tariffs without being compensated with easy market access for their agricultural products by the first group of countries through marked reduction of their agricultural subsidy.
India's astute Commerce Minister Kamal Nath and Brazilian Foreign Minister Celso Amorim stridently insist on equilateral trade concessions to benefit every country equally. The issue has become a matter of such hard bargain between the two groups that Pascal Lamy, the chief of the World Trade Organisation, earlier, a few weeks ago, expressed his apprehension that a lingering deadlock over the issue might cause the multilateral trading system, represented by his young world body, to collapse. The groups met recently in Germany to talk over and try to resolve the deadlock.
The 40th US President Ronald Reagan, who expired in 2004 at the age of 93, used to be admired as a great communicator. He occasionally cut sarcastic jokes, which often humbled his opponents. One such joke, which is remarkable for delivering a long message with the brevity of a master, was: "I have observed that those who support abortion are already born".
The lingering duel between the US and the European Union, on one side, and India and Brazil, on the other, on the issue of concurrent trade liberalisation in agricultural products and industrial goods, seems to initiate one to think again about the inner, untold message of Reagan's famous joke. Is there already enough ground for some master joker, like late Ronald Reagan, to coin a joke on trade liberalization?
A GOOD society is one where the middle class outnumbers everyone else. Like Aristotle, foreign investors also believe so, although for a different reason. Usually, they choose to investment more in a country where the middle class is large and expanding.
They look at and measure the purchasing power of the local people in a country and basically target its domestic market before making decisions to invest in it. Hardly they choose a country as a production-base for export unless it is endowed with some critical raw materials, which are not exported, like gas in Bangladesh, or unless it competes in other factors of production with other countries significantly favourably.
The veracity of this assumption may be checked from the current Indian example of a rising tide of prosperity, at a growth rate of about 8.2 to 9.0 per cent. A report in 2005 said, "As India's economy grows, by 8.2% last year, India is making millionaires at the record rate, 11000 reached the bench mark in 2003… For the past 23 years India's GDP has grown at an average annual rate of 6.0 per cent, making it one of the fastest growing economies of the world. It is doubled that achieved by the West during the Industrial Revolution. India's middle class has more than tripled in size to 250 million people".
The report quoted a management consultant, KSA Technopak, as having concluded that urban consumption contributed to 12 per cent of the Indian economic growth in 2002 and 16 per cent in 2003. Add to it the contribution of the middle class of India's rural areas where 600 million of its one billion plus population work and live. "While the number of rich has grown", the report went on to point out, "about 1.0 per cent of the poor have crossed the poverty line every year". Exposing the factor behind India's surging prosperity, it further said, "The new group of Indian millionaires are professionals, who have made their fortunes in information technology and the knowledge-based economy, and they reflect a social contract whereby talent, hard work and managerial skill have replaced inherited wealth. Since the economic reforms, making money has increasingly become respectable and India is in the midst of a social revolution rivaled, perhaps, only by the ascent of Japan's merchant class after the Meiji Restoration".
This analysis of the present Indian miracle of high economic growth, as provided in the report, credits the Indian economic reforms of early 1990s only for making money increasingly respectable. But, basically, it admires India's professionals for the creation of their rising national wealth.
While visiting India the present US President, George Bush, indirectly explained the role of a nation's middle class in expanding its prosperity. He went on record for having said, India with its large middle class has become an attractive spot for trade and investment. He recommended that the American investors and businessmen should take more interest in that country to take advantage of it. The statement of a politician holding the highest public office of the world's leading economic superpower also confirms that the basic strength of an economy grows from within and not without.
There are now many countries in Asia and Africa that are significantly liberal in their trade practices. Some of them import from cheese to bottled water at reduced or no tariff. Yet these countries do not compete with present-day India in industrial growth-the solid economic growth of the permanent nature. One may ask: Why? The answer could be that there must be enough people within a country, as laid bare by the Indian example, to conceptualise, man, lead and guide higher level economic activities and industrialisation to take it to the critical threshold when outsiders having interest in long-term investments would also step in.
What then is the role of trade liberalisation in economic development? This is a confusing question in an era of globalisation. Yet it occurs more to one's mind in the recent years since the Doha round of multilateral trade talks of the World Trade Organisation in 2001. The tug of war in negotiations between the US and the European Union, on one side, and India and Brazil, on the other, on the issues of implementation of the agreed agenda of the Doha round drags on and on. The two groups of opposing trade interests are stuck up in their negotiations on the matter of trade liberalization, as per the agreed agenda of the round, concurrently in agricultural products and industrial goods. While the first group representing the rich and advanced industrialised countries wants to retain their abnormally high trade-distorting agricultural subsidy to as much as possible, the second group-India and Brazil-representing many of the developing countries disagrees to further lower the industrial tariffs without being compensated with easy market access for their agricultural products by the first group of countries through marked reduction of their agricultural subsidy.
India's astute Commerce Minister Kamal Nath and Brazilian Foreign Minister Celso Amorim stridently insist on equilateral trade concessions to benefit every country equally. The issue has become a matter of such hard bargain between the two groups that Pascal Lamy, the chief of the World Trade Organisation, earlier, a few weeks ago, expressed his apprehension that a lingering deadlock over the issue might cause the multilateral trading system, represented by his young world body, to collapse. The groups met recently in Germany to talk over and try to resolve the deadlock.
The 40th US President Ronald Reagan, who expired in 2004 at the age of 93, used to be admired as a great communicator. He occasionally cut sarcastic jokes, which often humbled his opponents. One such joke, which is remarkable for delivering a long message with the brevity of a master, was: "I have observed that those who support abortion are already born".
The lingering duel between the US and the European Union, on one side, and India and Brazil, on the other, on the issue of concurrent trade liberalisation in agricultural products and industrial goods, seems to initiate one to think again about the inner, untold message of Reagan's famous joke. Is there already enough ground for some master joker, like late Ronald Reagan, to coin a joke on trade liberalization?