In 1993, ‘Swadeshi’ became a queer term. A common man on the street is fairly familiar with its connotation. But for uncommon men, this is an unknown commodity. For the sophisticated, air-conditioned elite of the metropolitan cities, the concept is a strange and oddity in the midst of modernism.
For “kept” economists of the regime, this is a red rag. And for the ruling politicians, a bull in their China shop. So the abuses like ‘obscurantism’, ‘anachronism’, etc., are being used to condemn the idea as irreconcilable with the luxurious fashions.
What is most important is not the future of the country, but the immediate comforts of the westernised urban elite. These uncommon citizens are not in contact with the earth; they are in their own ivory tower, cut off from the national realities and alienated from their co-countrymen.
Fortunately, the number of such persons is extremely limited, not even one per cent of the total population of this poor country.
It is wrong to presume that ‘Swadeshi’ concerns itself only with goods or services. That is more of an incidental aspect. Essentially, it concerns the spirit determined to achieve national self-reliance, preservation of national sovereignty and independence, and international co-operation on equal footing. Swadeshi spirit inspired the Britishers to restrain their Head of the State from purchasing luxurious German car, Mercedez Benz, for her personal use. When asked by an Indian correspondent as to why he was using a pant torn (and stitched) because of the weak texture of the Vietnamese cloth, Ho Chi Minh smilingly replied, “My country can afford only this much.” When the US forced Japan to give market access to its Californian oranges, Japanese customers did not purchase a single Californian orange, and thus rendered the American arm-twisting a ridiculous affair.
When the Governments of China and Korea prevented the entry of Michael Jackson in their countries on the grounds that his performance amounted to “cultural invasion”, they only demonstrated their Swadeshi spirit. Incidentally, this gesture also indicated that ‘Swadeshi’ was not merely an economic-affair confined to material goods, but a broad-based ideology embracing all departments of national life. Needless to multiply such incidents. The point is that all these patriots from different countries drew their inspiration from the ‘Swadeshi spirit.
‘Swadeshi’ is the outward, practical manifestation of patriotism. Patriotism is not considered as isolationism, particularly in our tradition, which stands for integral humanism, according to which, on the level of human consciousness, internationalism is the further flowering of the spirit of nationalism. Nevertheless, it is noteworthy that presenting patriotism as isolationism is the usual practice of imperialist powers. For example, when after the end of the Second World War, it became obvious that under the pressure of the international situation, the imperialists would be forced to grant independence to their colonies, they started ‘Operation Salvage’ to preserve as much of their vested interests in the colonies as possible, under the changed circumstances. In Bharat, some Executive Councillors of the Viceroy became their tools. Misrepresenting the move for full-fledged independence as isolationism, Sir C.P. Ramaswami lyer propagated that in the new era of internationalism, “our motto should be, not independence but interdependence”. Dr Manmohan Singh’s plea for liberalisation and globalisation is the modern version of Ramaswami’s inter-dependence.
Patriots are not against internationalism. Their plea for national self-reliance is not incompatible with international co-operation, provided the latter is on equal footing with due regard to the national self-respect of every country. Their difference of opinion with the advocates of ‘globalisation’ is on a different, and more basic point.
The Swadeshiwallahs are not prepared to endorse the view that the western paradigm is the universal model of progress and development worthy of being followed by all the peoples of the world. While they recognise the fact of cultural intercourse, they insist that every people has its own distinct culture and the model of progress and development for each country should be consistent with its own cultural ethos. Westernisation is not modernisation. Modernisation should be in keeping with the spirit of national culture. They oppose the move for steamrolling all the various cultures and national identities in the world in favour of the west.
The introduction of modern western technology and economic system is the inauguration of an entirely new civilisation, inconsistent with the nature of all non-western cultures. This is the basic point of difference.
Nevertheless, Americanised Indians are condemning Swadeshi Jagaran Manch on the plea that Swadeshi is the anti-thesis of the ‘Sacred’ and universally-accepted principle of ‘Free Trade’ which is being recognised and followed by all the countries.
It has become imperative, therefore, to examine thoroughly the ‘free trade’ principle and its position in the field of current international trade.
Liberalisation-free trade?
Though preached earlier by Adam Smith himself, the principle of Free Trade (FT) acquired unchallenged legitimacy after the publication of Ricardo’s Principles of Political Economy in 1817. The intellectual foundations of “Comparative Advantage Theory” became unshakable. Essentially, the principle declared that unhindered play of market forces was the best way of obtaining an optimum trading pattern. Based on the Ricardian model of comparative advantages and the Heckscher-Ohlin theorem, the theory claims that free trade enables each country to specialise its production and to make optimal use of its scarce resources. From the early 18th century until the late 1970s, international trade theory was dominated by the concept of “Comparative Advantage”, which implies that countries trade to take advantage of their differences. Economies were assumed to be characterised by constant returns to scale and perfect competition. Differences lay in tastes, technology or factor-endowments within the framework of the theory; there might have been differences in emphasis. For example, this Ricardian model emphasises technological differences as the cause of trade, while the Hicks-Heal-Ohlin-Samuelson model emphasises differences in factor-endowments. But still, until the 1970s, the validity of the “comparative advantage” theory was accepted. In countries like the US, the UK and the Netherlands, it was accepted as a doctrine in forming State Trade Policies (though countries such as France, Italy and the Federal Republic of Germany did not accept the free trade theory as an official trade policy doctrine).
The GATT became the embodiment of the free trade theory. It has been rightly said that GATT has, as its building blocks, the philosophy of Free Trade.
Nevertheless, since the late 1950s, doubts began to arise (Technology Gap Theory and Product Cycle Theory) about the full validity of the FT Theory. Can comparative advantage theory fully explain the modern developments in international trade? Since 1970, the skepticism about the free trade theory was progressively intensified..
The theory of comparative advantage was based upon the assumption of perfectly competitive markets and constant réturns. But, as Krugman points out, it was, however, realised that international markets are not perfectly competitive, and that they are imperfectly competitive. Increasing returns held the key to the operation of these markets, the advantages of which can be appropriated only by the dominant firms in the market. The advantages, once appropriated, become the basis for further gains in the market.
Experts like Winfried Ruigrok felt that, according to the Free Trade Theory, international capital flows, such as Foreign Direct Investments (FDI), could not be accounted for. The production process as such was not analysed at all. Technological development was assumed to be transparent and available to all. Neither the economics of scale nor the rapid increase of FDI could be explained by Free Trade Theory. The efficient allocation of scarce resources has never been the sole consideration in this matter.
Ruigrok poses a question. Why do governments sometimes choose not to comply with the free trade norms? The answer to this question reveals, according to him, a fundamental flaw in the postulates of the free trade doctrine. Contrary to its fundamental premise, the efficient allocation of scarce resources has never been, and will never be, the sole consideration in the choice of State policies. State policies are based on a mixture of political, social, economic and military considerations. National Security and the preservation of the internal order have been, and will remain, more important government concerns than maximising efficiency.
Again, a case for strategic intervention to provide advantages for the domestic firms by adopting policies that would discriminate against the foreign firms, appeared to be gaining greater support. Brander suggested subsidies to strengthen the position of a domestic firm engaged in competition for the world market with a foreign rival. Spencer also put forth a similar suggestion for subsidies. There was a growing feeling that import restrictions and export subsidies may, in certain circumstances, be in the national interest. The case of Japan granting a 700 per cent subsidy to its rice farmers and imposing a 700 per cent duty on the import of foreign rice illustrates this point. Sometimes Governments act not necessarily in the national interest but under the pressure of domestic pressure groups.
During the latter half of the 1980s, the adherents of Free Trade acknowledged that their basic argument was challenged seriously. Government intervention could lead to profit-shifting from one country to another. Under such circumstances, countries following the traditional rules of Free Trade would inevitably transfer wealth to their trading partners. The term “Competitive Advantages” became more preferable to “Comparative Advantages”. In the 1980s, Japan’s successful export drive to the EC and the US had proved how “competitive advantages” could be created.
During the 1970s and 1980s, experts ceased to believe that the free trade model was sacrosanct. Paul Krugman says, “Free Trade is an idea that has irretrievably lost its innocence”. During this period, the traditional models of international trade have been supplemented, and sometimes even supplanted, by a new breed of models that emphasise economies of scale, increasing returns and imperfect competition. (The dynamic scale economies are associated with investment knowledge and R&D).
Today, the general trend is to believe that comparative advantage is an incomplete model of trade, and also to believe simultaneously that free trade is nevertheless the right policy. Krugman informs us that this is the position taken by most of the new trade theorists themselves. So free trade is not ‘passe’, but it is not what it once was. “The case for free trade is currently more in doubt than at any time since the 1817 publication of Ricardo’s Principles of Political Economy.
(In the Uruguay Round of negotiations, unqualified support for the free trade framework has been espoused, and simultaneously, an increase in protectionism and threat of intervention in the markets of partner countries to seek enlarged access to exports have been adopted by the United States in formulating its trade strategy!).
(From Organiser Archives: December 26, 1993)
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