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RE: British IT workers want Indians to go home



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IPI_Marker

Hi Kartik,

> Second, opening up markets is all very fine, but if access to US and
> EU
> markets is denied in sectors like agriculture and textiles, open
> markets are
> not very useful to India. While  foreign countries can export to
> India,
> unless
> the US and EU open up their markets to us, how do you envision an
> increase
> in
> exports to those countries?

As I have argued numerous times in this forum irrespective whether
foreign countries open up thier markets to us or not allow imports is
always beneficial. Because if we allow imports freely, Indian
capitalist and consumers will have access to cheaper goods (including
technology). This means we will be able to produce other goods and
services (other than what we are importing) at lower costs. 

I will give a specific example. Let's say we free up electronic and
technology imports like PC, mobile phones etc. This will reduce our
cost when these goods are used in the production of other goods and
services such as Software development. That means, Indian software will
become cheaper (even while keeping quality atleast constant or
improving). This means, the gap between price of Indian software in the
market and what can be internally produced in US or EU will increase.
This will force them to open up their markets automatically.

The same thing can be illustrated for agriculture and in the reverse
way. By not allowing import of seeds, fertilizers (because we want to
protect domestic industries) our cost of producing foods increase
dramatically. 

> Finally, transaction costs do inhibit free trade, but there is an
> argument
> for
> social insurance in the transition process. I don't imply that this
> is any
> thing like the subsidization and transfer payments system that India
> currently
> has, but social insurance (as argued by Dani Rodrik) could
> potentially play
> a
> powerful role in increasing the receptiveness to free trade.

Remember though that even if we free up our imports of seeds and
fertilizers the reduced cost of food grain production however may be
still be higher than other countries. Why? Because of transaction
costs! If the land titles are not clear, lots of disputes are pending
in the court, or if large scale land ownership is restricted, access to
debt or equity capital is not available because of regulation in
financial markets then our cost of foodgrain production will still be
higher. This will be case even if lots of land is available for use,
lots of savings is available ready to be invested and lots of labour
unemployed. 

The factors of production such as labor, capital and land does not come
together easily if transaction costs are higher (because of either too
tight regulation or lack of laws). For example, even if large number of
people are unemployed and are ready to work for very less wages,
capitalist may not hire them if labour laws are complicated (such as
minimum wages act and laws related to retrenchment) and militant trade 
unions are there. The presence of institutions such as stock markets,
law and order is needed in order to reduce the transaction costs!



I don't imply that this
> is any
> thing like the subsidization and transfer payments system that India
> currently
> has, but social insurance (as argued by Dani Rodrik) could
> potentially play
> a
> powerful role in increasing the receptiveness to free trade.

You have to understand that nobody is obliged to make free trade more
acceptable to you. You have to simply realize the benefits yourself.
Free trade is not a bitter pill to be sugar coated so that people can
swallow it. Some day down the line you will have to accept it. The
question is till that time are you prepared to handle the waste that
lack of free trade brings? It is up to you!




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