Tuesday, December 13, 2005

India is seeking to codify the rules on outsourcing

*Do I sense a possible compromise here?*

Well either that or even more protectionism.

One of the theories behind the need for protections is a converse notion of UNILATERAL liberalisation. Some people have seen tarrifs as a form of commodity that one could use to 'trade' with another country in a bid to cause both countries to lower their protectionistic barriers towards each other. So if I give up my tarrifs against your cars, you give it up against my cotton etc. And in a similar vein, Europe and the US could theoretically persuade India to stop leading with Brazil, the G20 in oppostion with them and viola, it leads to a massive liberalisation of capital and services.

But other than the fact that that is like throwing rocks into your habour just because other's are doing so, it faces a bigger problem. Like batter trade, it has to be something both sides want, a mutual meeting of interest. And the reason why 'money' took off was because it lowered transactional cost in terms of scouting around and attempting to find someone who wanted your goods while having goods that you wanted.

Furthermore, this is the WTO, which means that what is decided is binding on all its members (ostensibly, see the Banana war for how the rules can nevertheless be distorted). And it's better than the alternative of bilateral deals on pure mathematics. One single multilateral deal is much preferable to a whole series of bilateral deals to get the same effect. Between 5 nations, you effective need 10 bilateral deals between all of them to replicate the same effect. And smaller countries do lose out in terms of bargaining power.

Thus the bigger danger is that in return for India backing down on its calls for outsourcing, Europe gets to keep its farm tariffs. Which would be tragic for almost everyone including India and Europe. In case anyone has forgotten what happened at the Doha round. The round was to talk about the 'Singapore Issues' which mainly had to do with further liberalisation of capital (and a codification of the rules). This was held up by a number of grievances, some more legitimate than others. The legitimate one involved the really horrid CAP in Europe which not only screws over more efficient and cheaper manufacturers of food e.g. Brazil but force consumers in the EU to pay anything up to 6 times higher than prevailing market prices on basic commodities e.g. sugar (the rest tends to hover about 2-3 times more). teh illegitimate one involved the G20 screaming that increased financial liberalisation was a form of neo-imperialism. Except that in every case, a persistent unsustainable budget deficit, miserable transparency and accountability at the financial infrastructure level and a whole load of bad loans precipitated the financial crisis, not free capital flows.

So anyway, if a protectionist deal is made, no one benefits BUT there will be no political cost either (after all, who ever listens to the 'ivory-tower' academics until something goes wrong anyway). The problem with liberalisation of trade, services, goods, people and capital is that the cost is obvious i.e. people lose their jobs etc. but the gains are not significantly apparent e.g. cheaper everything, peace, stability and mroe jobs. But looking at it from a politicians point of view, those people who benefit from liberalisation aren't going to be aware it's because of globalisation but the people who suffer are going to know it and vote you out.

So economic reality meets political rationality, who do you think tends to win out?



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