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Tuesday, Feb 10, 2004

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In India's future trade wars...
Democracy is the spear and shield

G. Ramachandran
V. Sankar

Trade and real wars will appear winnable when American lawmakers are convinced that keeping jobs onshore is critical to their own political success. They will not be upset if New Delhi did what it takes to keep jobs onshore. India can show off what a great democracy it is in its own election year. It can use the power of self-proclamation and then use democracy as a weapon, say

INDIA'S economic interests have been adversely affected, even if only slightly, by the passage of the law by the United States Senate to ban federal outsourcing to other countries.

Though the law is limited up to September 2004 and covers contracts by only two federal departments, it egregiously contradicts the spirit of free trade championed by the US and promoted by the World Trade Organisation (WTO). This law clearly defangs the `Singapore issues' that the developed countries hope to promote within the framework of the WTO.

Should we despair at this law and the undisguised violation of free trade by the US in an era that hopes to vigorously promote globalisation?

Has the US fallen too low to protect its domestic interests? Or, has it risen very nobly and high by using its domestic-democratic lawmaking machinery to protect the interests of its electorate?

Should India's lawmakers, policymakers, fortune seekers and devotees of free trade emulate the US as a nation that preaches the merits of free trade with evangelical zeal and then breaches the principles of free trade with devilish determination for a good cause?

Emulation is recommended. The takeaway from the recently enacted ban is that the US will do anything — it should, as would be argued — to protect the interests of its citizens, especially its taxpaying electorate; there can be no better cause.

The US has made it possible for India to breach the principles of free trade with steely determination for a good cause. The defanging of the `Singapore issues' is good news.

India is the world's largest democracy, resolute in its desire to assimilate the diverse interests of more than one billion people. It is in a unique position to understand the US's compulsions and how a democracy works towards `making things happen' for its people and its lawmakers.

If the US has used its democratic lawmaking machinery to protect the interests of its electorate, then India has four times such a right to use its own democracy as a spear to discipline erring nations and as a shield to protect itself from the indiscipline of pretentious free traders.

Democracy that delivers

Republican Senator from Ohio, Mr George Voinovich, has given our redoubtable democratic republic an unprecedented opportunity to invoke the power of democracy in pursuing our interests.

He ensured that the amendment aimed at altering the `outsourcing business' was embedded in the omnibus spending measure that was approved by the US Senate on January 22. He smartly went about securing the US's economic interests and championed his political interests. India's lawmakers should learn from this senator and his fellow lawmakers in the US Congress.

The omnibus measure included an earlier initiative in October 2003 to bar private sector contractors executing US federal government contracts from subcontracting to other countries such as India. The move failed narrowly to win approval. The omnibus spending measure then became the Trojan horse that was smartly put to use by the senator to get what he wanted and, more importantly, what others seeking the Senate's intervention wanted.

That is democracy in the US: for the people, by the people and of the people. US lawmakers secure their political careers by working on issues of social and economic importance to voters and taxpayers in their counties and states. What is remarkable about democracy in the US is that the electorate in almost all counties and voting districts comprises voters who are taxpayers and taxpayers who are the voters.

So, when candidates and elected incumbents address the economic concerns of people in the counties and states, they address the economic concerns of their electorate. That is democracy in the US. It is this congruence that has made the US an economic colossus.

He who pays the piper...

Senator Voinovich is a realistic and pragmatic lawmaker. He understands that jobs in the US produce incomes and then the taxes that support spending by the federal, state, county and municipal governments. The nexus between jobs and spending is clear.

When jobs go offshore, government spending could be impaired. When jobs stay onshore, spending could be raised.

By championing the amendment that bans outsourcing, he has kept some jobs onshore and thereby secured part of the sources of federal spending.

What is important is that jobholders have been regarded both as the sources of government spending power and the beneficiaries of government spending. If federal spending is funded by domestic taxpayers, what is wrong in allowing them the discretion to determine who will work on federal tasks? What is wrong in allowing taxpayers the right to determine when and how they will pursue efficiencies in the execution of government tasks? If the taxpaying voters are the fee-paying customers of government services, the `make-or-buy decision' is surely theirs to make. That is democracy.

That is the way democracy should be. The US was founded on the principle of `no taxation without representation'. In a representative democracy, the right to determine how taxes would be spent and who would work on tasks pertinent to federal, state, county and municipal tasks belongs to the voting taxpayer.

It is inconceivable that such a right can be snatched from American voters. It is this right that has made the US an economic colossus. It is not surprising that the White House did not deem it fit to veto the Trojan horse. Voters are powerful in the US, even though the turnout is as low as in India.

US lawmakers know that they cannot shortchange their voters. They have a long track record of leveraging information technology resources for improving quality of government services to their constituencies. They have whittled down budget deficits by resorting to offshoring. They have lowered costs of government services and improved the quality of services delivered to their constituencies through outsourcing. Now they believe that some of these objectives could be better served by effecting a ban on outsourcing. Connecticut, Florida, Indiana, Maryland, Michigan, New Jersey, New York and North Carolina introduced anti-outsourcing bills in 2003. None got approval. They may, in 2004. Other states could introduce anti-outsourcing bills.

Outsourcing has attracted the attention of Democratic presidential candidates such as Massachusetts Senator, Mr John Kerry. Senator Kerry is the current frontrunner among the Democrats after the early caucuses.

He has said that while he is not against outsourcing, he will provide tax incentives to companies that keep their jobs in the US.

He has sworn to close all loopholes that facilitate outsourcing and offshoring. But who are we to complain? We are not stakeholders in the US economy.

The real colossus

We are stakeholders in India's economy and democracy. But the pity is most people in Washington DC, including those on Capitol Hill and along Pennsylvania Avenue, do not regard India as a redoubtable democracy.

The low per capita income, the dictatorial governance for 19 months and at a time when the Democrats regained the White House, and the overt tilt towards the Soviet Communists for almost 25 years have tarnished India's image.

The general view is that a country with a very low per capita income may have lawmakers who do not take democracy and their jobs seriously.

Hence, India is seen as a dwarf that can be managed by the US as easily as it manages countries that have no faith in democracy. It should be emphasised that the US has the most cordial economic and diplomatic relations with countries that comprehensively shun democratic practices.

Its relations with countries such as France that overtly practice democracy are often troubled by differences. Well, French lawmakers have their tasks to accomplish. France regards itself as a great democracy. The power of self-proclamation is often invincible though not infallible.

India's lawmakers have their tasks too. India would be an economic colossus if its lawmakers begin to change their attitude towards voters and taxpayers. Why? Senators Voinovich and Kerry are pragmatists as well as opportunists.

There are more than 90 such senators in US Congress, and 34 senators face election this year. Moreover, all 435 members of the House of Representatives and 11 state governors face elections.

They are all aware of the importance of jobs, incomes, taxes and government spending and their impact on the US's global might. Trade wars and real wars will appear winnable when they are convinced that keeping jobs onshore is critical to their own political success.

Hence, they would not be upset if India did what it takes to keep jobs onshore. India can show off what a great democracy it is in its own election year. It can use the power of self-proclamation and then use democracy as a spear and a shield.

(G. Ramachandran is a financial analyst and V. Sankar a stockbroker. Feedback may be sent to

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