Developing countries have to choose between two policies for reducing global inequality. One policy is of cooperation. Developing countries can hope for an increase in the growth rates of the developed countries. An increase in consumption by these countries will create demand for their exports just as the ancillary industry gains when sales of the parent company pick up; or as the village potter gains when the landlord reaps a good crop. Developing countries can compete with each other in providing goods at cheapest price to the developed countries. The most efficient among the developing countries will gain more from such exports.
The second policy is that of confrontation. Developed countries are importing the natural resources of the developing countries such as iron ore, oil rice and mangoes in large quantities. Developing countries can make cartels and jack up the prices of these exports just as was done by the oil-exporting countries in 1971 by forming OPEC. The price of crude oil was increased overnight from about $ one per barrel to $11 and subsequently to $21. A similar increase in price of iron ore and rice will force the developed countries to pay more for imports. Their growth rates will decline as had happened in 1971. Income of the developing countries will increase as seen in the huge development projects being undertaken in the oil-exporting countries like Dubai and Kuwait. Developing countries stand to gain by following either policy. They have to decide which of these to adopt.
I like the second policy. Reason is that 20 per cent people living in the developed countries are today consuming 80 per cent of the world’s natural resources. This inequality is against the basic principles of humanity. Worse, much of the high consumption is the flip side of the low consumption by the people of the developing countries. More consumption of corn fro the production of meat in the United States is the flip side of malnutrition in the poor countries. This inequality will further increase if we follow the policy of competing with each other and exporting at lowest prices to the developed countries. Just as the trolley ever follows the tractor and never overtakes it, similarly the wagon of the developing will be hitched to that of the developed countries and never take an independent path. The developing countries should adopt the policy of making cartels and confronting the developed countries to break this asymmetry in global consumption.
There are three dimensions of this policy of confrontation. First dimension is that of foreign investment. Cooperation will help bring in foreign investment into the country as establishment of a car making plant by Ford Motor Company in Chennai has brought foreign capital with it. However, such investment does not establish equality even though it may get us good quality cars. The profits earned by Ford in its Chennai plant are remitted to the United States. America gets the cream while we are left with the buttermilk. We can get the same foreign capital in a different way. The developing countries are sending huge amounts of their hard earned incomes to the developed countries for maintaining foreign exchange reserves. China has amassed US Treasury Bills of $1.4 trillion in the process. According to data provided by the World Bank in its Global Development Finance report, the developing countries have been exporting more capital on this account than they are receiving as foreign investment. Developing countries can gain more by stopping this outward remittance than by trying to attract inward foreign investment.
Such a policy would deprive us of frontline technologies, however. This can be solved by seeking removal of patent laws from the ambit of the WTO. Most global patents are held by the developed countries today. They are selling us patented goods like the Windows software at prohibitive prices. They are becoming rich and we are ever ‘developing’. The removal of patents from the WTO will allow us to copy the technological innovations of the developed countries.
The third dimension is of trade. Developing countries can compete with each other and sell their goods to the developed countries at lowest cost. India can compete with Bangladesh in the supply of garments, with China in the supply of toys and with Iran in the supply of carpets. Alternatively we can make cartels and jack up the prices of our exports. India can increase the price of tea by making a cartel with Sri Lanka, the price of coffee with Brazil and that of rubber with Malaysia. We stand to gain in both policies. Selling goods cheap will help expand our markets and we will gain. Selling goods expensive will beget us greater incomes on smaller volumes and we will again gain. But cheap exports will lead to increased inequality even if it provides some gains to us. For these reasons I suggest we should adopt the path of confrontation to establish global equality.
One argument against this suggestion is that the poorest countries stand in the same situation vis-à-vis India as India stands vis-à-vis the developed countries. If India should increase the price of tea for exports to the developed countries then Bangladesh should increase the price of jute for exports to India, China and other developing countries. There is merit to the argument. The underlying question is to discover the main fault in the global economy. The world economy can be divided into four parts. At the lowest rung are the poorest countries like Bangladesh. At the second level at developing countries like India. At the third level are middle income countries like Brazil and Hungary. At the top are the developed countries like the United States. We have to discover the main fault line among these divisions. The main problem of the world economy in my reckoning is the high consumption by the developed countries. Therefore, ideally, the lower three rungs should make a common cause and join hands against the developed countries. A capable trade union leader forges an alliance of Class 4, 3 and 2 employees and wages a battle against Class 1 employees. He manages to resolve the internal disputes between the three lower classes of employees. Similarly the three lower rungs of developing countries should cooperate with each other. Main point is that cooperation with the developed countries will put us in the same situation as the bonded labour who tries to progress in cooperation with the landlord.
(The author can be contacted at bharatj@sancharnet.in)
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