The country that produces goods cheapest wins in the global markets. But the market looks only at short term costs incurred by the businesses. It ignores the long term consequences of cheap production. For example, the market goes crazy if a company sells its goods cheap. The market is not concerned whether the company may fold up in a few months from the losses so incurred. The same logic applies to countries. Junk food costs less. Therefore, that country will win in the global market that promotes junk food. The workers will get cheap food, the cost of labour will be less and also the cost of production. The market is least concerned about the impact of junk food on the health of the workers 10 years hence. Workers may fall ill, expenditures on health services may increase and, in the end, that economy may collapse. One can almost see such happening in the United States today. One of the main reasons for General Motors going bankrupt was the huge burden of health care to which the companies’ workers were entitled. General Motors could not bear this burden and collapsed. But this was the long term consequence. The market was all in praise of the same General Motors till the crisis struck.
The logical result of globalisation is that every country will have to adopt the policies of the country that produces cheapest goods irrespective of whether they are good or bad. If America produced cheap cars by encouraging the consumption of junk foods, then other countries will have to adopt the same. Their cost of production will be high and they will be priced out of the global markets if they do not adopt junk foods. Consequently, they will have to face the same consequences of bad health that America is facing today. Globalisation entails import of bad practices along with cheap goods. We are today importing many such bad practices. These include movies that encourage violence, divorce and drinking; synthetic cloth; junk foods and many other items. It has also become necessary for all countries to impoverish their workers. Globalisation means that every country will have to pay the wages paid by the least cost manufacturer. If China pays Rs 80 per day to an unskilled worker, India, United States and Brazil will have to do the same. Otherwise their cost of production will be high and they will be priced out of the global market. All countries are similarly marching together to destroy their environment. If China does not impose taxes on carbon emissions on its industries then no country will be able to do so. In this way we are importing various bad practices helplessly.
Consensus has been reached to put a stop to a few bad practices. Goods produced by child labour are universally decried, for example. Or, multilateral institutions like the World Bank impose conditions of better governance in extending loans. But these consensuses are few and far apart. The march of bad practices continues unabated.
Developed countries have been demanding the inclusion of labour and environment standards in the WTO for a long time. The demand is theoretically correct. Restrictions must be imposed on low wages and high carbon emissions just as they have been imposed on child labour. Cultural standards could also be made. Special taxes can be imposed on movies promoting violence, for example. But it is difficult to implement such standards globally. How is the correct level of wages to be determined? Daily wage of Rs 200 is ‘high’ for Indian manufacturers while a wage of Rs 2,000 is ‘low’ for American workers. We stand to give away our main competitive advantage if we accept labour standards. Goods made in India and China are competitive, in part, because the cost of living in India is less. A worker can obtain three full meals a day in Kolkata today for about Rs 25. Our ability to live at these low levels of expenditure keeps the wages low and the cost of production of our goods is less. Say a global standard of Rs 500 is fixed. Our exporters will have to pay this in order to enter the global markets and we will be priced out. Cultural standards are likewise difficult to determine. Drinking alcohol in public meetings is normal in the United States while it is frowned upon in Islamic countries.
We have to attain two mutually contradictory objectives. We have to make cheap goods to conquer the global markets. We will have to accept bad practices such as those of junk foods, carbon emissions and low wages because other countries are following these practices. The second objective is to keep alive our civilization. We will have to reject the same bad practices here.
The solution to this dilemma is to impose an additional ‘environment tax’ on all imports. Say, the cost of cloth made by a power loom in the country increases from Rs 20 per meter to Rs 25 due to the imposition of the abovementioned environmental taxes. Other countries allow their environment to be destroyed and continue to produce cloth at Rs 20 per meter. Their cloth will enter our markets and our industries will collapse as they are burdened with higher taxes. The solution is to impose an ‘environment import tax’ on imported cloth. A tax equal to the amount of tax imposed on domestic manufacturers for preserving the environment may be imposed on imported cloth. The price of imported cloth in the domestic market will then increase to Rs 25 and our industries will be able to face the competition.
Similarly, we will have to pay an export subsidy to our manufacturers. The price of cloth in the international market will be Rs 20 since many countries are allowing their environment to be destroyed and not charging for environmental damage. The cost of cloth produced by our manufactures will, however, be Rs 25 because they have to pay an environment tax of Rs five. Our companies will not be able to export their goods. This problem can be solved by providing an export subsidy of Rs five per meter equal to the environment tax imposed on domestic manufacturers. The cloth produced in India at Rs 25 per meter will be sold in the global marketplace at Rs 20 and we shall survive while also protecting our environment.
It must be recognized that we will not be able to capture all the gains of globalisation in this approach. Our people will have to buy cloth at Rs 25 per meter against Rs 20 per meter paid by people of other countries. I suggest we should willingly bear this cost. We should first ensure long term survival of our civilization. Then we should capture as many benefits of globalisation as we can. Of what use are cheap goods if they lead to the end of our existence?
(The writer can be contacted at bharatj@sancharnet.in)
Leave a Comment