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P. V. Indiresan

Technological might has replaced military power in the exploitation of weak nations. Large differences in wealth among nations are mainly due to the degrees of ownership of technology. It is not enough to complain and find fault with the rich nations. Poor nations should also look within and correct their own faults, says P. V. Indiresan.

MURASOLI Maran, who passed away recently, will be remembered for the valiant fight he put up at Doha during the WTO negotiations. Although, one by one, all our supporters were enticed away by the rich nations, he did not flinch and stood his ground all by himself. We could do with many more patriots of his calibre. In Doha, Western nations systematically drove wedges among poor nations and divided them to prevent countries such as India from resisting their imperial demands. That was the old divide-and-rule policy, except that, as Gandhiji remarked, we divided and they ruled.

Till about 1750, consumer demand was mainly food. As the rich did not need more food than the poor, in that agrarian economy, all nations of the world had nearly the same per capita incomes. A few, like India, were richer, because they had spices and cotton. Some others in Western Europe were rich because of what they had looted from conquered nations. Even then the range of per capita income was relatively small. The situation is different now. Between the richest and poorest nations, the gap in per capita income could be as much as 50:1. In general, the disparity between the rich and the poor nations is greater than the disparity between the rich and the poor within any nation.

Two hundred years ago, economic exploitation was based on military might. These days, the methods are subtler. In recent years, barrier-free international trade has been aggressively touted as the remedy for the ills of poor countries. Like most theories of economics, this hypothesis too is valid up to a point but not universally. As Nobel laureate, Prof. Joseph Stiglitz, remarked, Western nations are agreed that free trade is good for the poor nations but imports are bad for the rich ones!

Non-tariff barriers, raised by Western nations against imports from poor countries, were by far the most contentious issues debated in Doha. For instance, Western nations have banned imports of leather goods, carpets and the like from India on the ground that they use child labour. If their concern had been borne out of compassion for India's poor, their protests would have been unexceptionable. However, their objections were driven more by self-interest in protecting high wage jobs in their countries rather than for any love for India's poor.

For instance, the subsidy given to rich American farmers is destroying the livelihood of many abysmally poor African farmers. As recent moves by the US Government to restrict the imports of cotton goods from China and steel from India show, protectionism in the West is brazen, but condemned as stupid and immoral when poorer nations copy them.

These days, technological might has replaced military power in the exploitation of weak nations. Developed countries use technological superiority both by raising prices sky high for the goods they control and by dumping the goods poor nations can make. For instance, the Indian Navy, while procuring a communication system for submarines, found that the French suppliers were demanding the considerable sum of Rs 156 crore. At this stage, the Navy approached US manufacturers with whom, for political reasons, it had had no contacts at all for years. The Americans did agree to supply at a cost no more than Rs 160 crore! Apparently, never expecting India to go to the Americans, the French had neglected to prime the US manufacturers about the deal. Hence, unlike European manufacturers, the Americans quoted the true price. In another instance, an American firm quoted Rs 75 lakh for a railway electronic equipment, but when IIT Delhi succeeded in developing a local version, the price was brought down to Rs 17 lakh.

Applying a contrary tactic, a French firm entered into an agreement for technical collaboration for the production of telecom equipment with the public sector firm ITI. In spite of that agreement, the same firm put in a competing bid for the supply of the same equipment, quoting a lower price than even the cost of the bill of materials it was supplying to ITI. On the one hand, ITI was bound by contract to procure its materials only from the vendors stipulated by the French firm, and on the other, the same collaborator insisted on undercutting ITI by proffering a lower bid. In consequence, the ITI was forced to incur a substantial loss and never recovered thereafter. It is now sick.

Thus, the international market for hi-tech products is no different from a village fish market, except that the costs imposed on the unwary can be enormous and not a few rupees more or less as in the case of fish. In the jungle, tigers and lions hunt only the weak animals and not the strongest. Likewise, in international commerce, multinationals pick on the technologically weak nations to eviscerate them, tear them to pieces.

Some years ago, countries such as Thailand got into serious balance of payments trouble by investing excessively in real estate from loans borrowed from the West. The IMF agreed to help the Thais in their moment of distress. Few realised then, and only later on it became apparent, how the funds provided by the IMF were used only to bail out Western lenders, and very little was available to revive the Thai economy itself.

In international transactions, the concern is all for the rich creditors and not for the poor debtors. These are the anguished words of Prof. Stiglitz. As he points out, the IMF bailout was used up mainly to help the creditors and not to revitalise the Thai economy to any significant extent. It was ultimately the Thai taxpayer who repaid the IMF loans, and it was the Thai worker who lost his job in the national poverty that ensued.

It is not enough to complain and find fault with the rich nations. We should also look into ourselves and correct our own faults. We should enquire why Western nations have become as powerful as they are, and are able to force decisions that are profitable to themselves and destructive of others.

In theory, there could be four different causes for the large disparity in wealth among nations. Natural resources are the first one to come to mind. It would appear that those that are rich in natural resources, like the oil sheikdoms, will be automatically rich. That is not true as Arab nations are fully aware. The prosperity they now enjoy is a temporary affair. They still remain under the thumb of the West.

In any case, all raw resources, including oil, are priced around Rs 10 a kg. On the other hand, manufactured goods, even chocolate bars, can fetch as much as Rs 1,000 a kg. Hence, wealth does not reside in natural resources but in the technology that converts them into attractive goods of final consumption.

Differences in human resource endowments could be another cause of wealth disparity among nations. Even that is not true. IIT graduates earn several times more in the US than in India. Hence, the same talent generates wealth in technologically advanced countries, not in others.

Availability of capital (in other words, higher savings) could be another probable cause. That too is not borne out by facts: Countries with high savings rate (such as India) are not necessarily wealthier than those with lower savings such as the US.

In truth, large differences in wealth among nations are mainly due to the degrees of ownership of technology. All other factors remaining the same, countries that own technology are invariably richer than those which live on borrowed technology. Those that cannot use even borrowed technology are the poorest.

Unfortunately, high technology has become a source of political corruption. Unlike consumer goods, high technology does not have a competitive market. It does not have much visibility either. Few people can understand the implications of choosing one technology over another. Hence, the market price of technology is largely an unknown factor.

In all fairness, that is true among developed nations also. That is why the best firms do not buy technology; they exchange technologies. For instance, IBM and CISCO cross license their patents, do not buy from each other. It is strange but true that at the most sophisticated level, trade is best done by barter as in the case of primitive markets.

When we had the high quality C-DoT technology, we had bargaining power in the purchase of telecom equipment. Now that the C-DoT technology has become obsolete, we are once again at the mercy of Western nations. Technology is like vegetables; it has to be grown fresh all the time. Maran put up a brave fight but not a very successful one because he did not have the right weapon with which to bargain — namely competitive indigenous technology.

Maran did not have that bargaining power in Doha because many of our ministers systematically sacrificed institutions such as C-DoT to garner dubious favours from foreign suppliers. When it comes to economic exploitation, do not look outside in search of enemies. Our enemies are inside; they are us.

(The author is former Director, IIT, Madras. Response may be sent at indresan@vsnl.com)

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