May 6, 2009

Thank you, Mr Obama. You have sown the seeds of an economic renovation

This is a historic decision. It goes beyond what the economic textbooks teach us. It will surely upset the mainline economists (and the economic and business journals), and will therefore come in for some sharp criticism. But to any sensible person, whether he is an economist or an educated unemployed, the US President Barack Obama's proposal to reform tax structures by scrapping incentives for American companies outsourcing services to other nations, is the First Commandent of a New Global Economic Renovation. 

Thank you, Mr Obama. You have sown the seeds of what I call as an economic renovation.

Hitting hard at the current taxation system, of which he has been very critical since his election days, he said: "It is a tax code that says you should pay lower taxes if you create a job in Bangalore, India, than if you create one in Buffalo, New York." Unveiling his tax reform agenda at the White House in Washington, Mr Obama added: "The way we make our business competitive is not to reward American companies operating overseas with a roughly two per cent tax rate on foreign profits; a rate that costs taxpayers tens of billions of dollars a year."

He of course want the US companies to remain most competitive in the world. "But the way to make sure that happens is not to reward our companies for moving jobs off our shores or transferring profits to overseas tax havens." Well said, Mr Obama. You are the first President that I know who had dared to think out of the box, and that too of a box that is coloured with human blood and sweat. I am aware that your move will hit the Indian IT sector hard, but that's a small price for making a historic correction.

Newspaper headlines in India clearly tell you that India Inc is not happy. After all, 60 per cent is the US share in the business of India's IT-BPO industry; US $ 47 billion is the total worth of India's IT-BPO industry; employing less than 2 million professionals (it is 1.7 million by the latest count).

About 5.1 million jobs have vanished in the US since December 2007. The job of any President or Prime Minister should be to protect as well as create more jobs in his/her country rather than to fill the coffers of big business. Mr Obama has shown the right way.

What shames me is that to protect the business interests of a handful of IT companies, India had been more than willing to sacrifice the livelihood of a majority of 600 million farmers. If you have followed the ongoing WTO negotiations, India has always been asserting that lifting protection in agriculture is necessary to make agriculture competitive and at the same time is a trade-off to meet the rising aspirations of the educated young (read IT professionals).

But let us first look at what the economists and analysts (don't forget their role in the economic meltdown) have to say. Some say that any protectionist initiative by the US government could delay an economic recovery. An article in the April 6 issue of Time weekly calls such protective measures as The Road to Ruin. Obviously, the World Trade Organisation (WTO) is worried at the growing protectionism and slowing trade worldwide.

I am not the least surprised. Whether it is the WTO or Time magazine or the World Bank chief Robert Zullick, they all work for big business. Their job is to protect the commercial interest of the multinational corporations and financial institutions. Although they use the arguement of creating more jobs to justify the unhindered march of the MNCs, the fact remains that the theory of 'comparative advantage' on which this assumption is based is fundamentally flawed. It is based on wrong analysis and assumptions. Take for instance the case of oilseeds. The World Bank had been telling India to reduce the area and production under oilseeds because of its uncompetitiveness vis a vis the American soybean. But what it cleverly hid is the fact that the amount of subsidies that go into soybean production in the US is more than the total output in value terms of oilseeds produced in India.

How can you measure the 'comparative advantage' of a commodity which is highly subsidised with an output that does not receive even a fraction of the subsidies received in the US? I have always been saying that American agriculture (or for that matter agriculture in OECD countries) is competitive as long as it continues to receive subsidies. Remove these subsidies, agriculture in the US and Europe will collapse like a house of cards.

'Comparative advantage' is what has been behind the outsourcing of US jobs to India. Over the last few months, most of the BPO jobs have also deserted India, and moved to still cheaper destinations like the Philippines.

This is no sensible economics by any standards. We all know that the rich and developed countries had protected their own economies when they were in the process of development. Historically, all over the world protectionism has led to development. After reaching a stage where they don't need the protective ring anymore, the industrialised countries are forcing the majority world to open up their borders and allow for cheaper imports to come in. You do what we tell you to do, not what we did (is what these rich countries tell the poor nations).

If you see a report that I and my colleagues have compiled on the impact of WTO Agreement on Agriculture in its first 10 years, you will be shocked to see how millions of jobs have been destroyed in the developing world. Food is becoming cheaper but the people who produce food are being kicked out of the farms, and further marginalised.

Whether the WTO/World Bank/or the American universities like it or not, the only way to grow economically and emerge out of the economic recession is by creating more jobs. This will spur growth and demand, and kickstart the economy. And this can happen only if nations take adequate steps to see that domestic jobs are not lost to outsourcing. Hats off to Mr Obama for demonstrating political courage at a time when the world is being ruled by economic lunacy.

Mr Obama would do well to remember what Mahatma Gandhi had once said. What we need is a production system by the masses and not for the masses. The key to economic sustainability and justice lies in what Mahatma Gandhi had said. Mr Obama, let this be your talisman. And mark my words, you will never fail.


Dr. Ernest Albert said...

For President Obama and to the closing line of your latest one, Devinder.
"let this be your talisman..."

ai khuda mujhe taveez ki taqt de de,
maine apna koi vaada nibhaana hai.

Yayaver said...

behtareen post...i will appreciate it as an educated young (read IT professionals)