The Cheat Sheet

Why an ‘atmanirbhar’ world won’t work so well

Venky Vembu | Updated on August 19, 2020 Published on August 19, 2020

Don’t you mean ‘atmanirbhar’ Bharat?

Well, the sentiment in favour of shaping a self-reliant economy was articulated explicitly by India, of course, but other countries too have not been immune to a similar sentiment that drives them to turn inwards. It has policy analysts fretting that the world is sliding down a slippery ‘protectionist’ slope.

But India says Atmanirbharta isn’t a form of isolationism…

It’s hard to make that case when your policy actions are manifestly oriented in the other direction. This shows up in everything from the restrictions on imports under the cover of ‘import substitution’ to placing conditions on foreign direct investments, citing national security interests.

What’s wrong in putting your country first?

History bears abundant witness to the folly of every country practising a ‘beggar thy neighbour’ policy. In an ebook titled Covid-19 and Trade Policy: Why Turning Inward Won’t Work, produced by the Centre for Economic Policy Research and VoxEU.org, former British Prime Minister Gordon Brown notes: “More recently, the aggressive unilateral us-versus-them nationalism of ‘America first’ has gone global, and now we have ‘China first’, ‘India first’, and ‘Russia first’ — an international coalition of anti-internationalists impeding global cooperation and intent on blaming anyone but themselves when things go wrong.”

True, the ‘free trade’ philosophy is in a bear market.

Yes, and it’s been accentuated by the Covid-19 pandemic, which has disrupted global supply chains. But Brown terms it as “one of the greatest false dichotomies of our age: that international trade undermines national strength and capabilities.” Where an internationally coordinated initiative to increase global capacity to supply medical supplies may have served them well, countries are resorting to “cut-throat” competition and outbidding each other in the race for limited supplies. In the colourful words of Winston Churchill, when he condemned the protectionist leaders of the 1930s, they are “resolved to be irresolute, adamant for drift, all powerful for fluidity and all powerful for impotence.”

Now, there’s also a scramble for a first shot at vaccines.

It’s spawned a sense of ‘vaccine nationalism’, with countries looking to corner supplies for themselves. Even the race for a vaccine has triggered a transnational competition, with Russia claiming that its approval of a vaccine represents a ‘Sputnik moment’, which invokes the propaganda terminology from the Cold War era.

But what is the worst that can happen from protectionism?

The more ‘benign’ risk is that countries may be writing off the benefits of harnessing all of the world’s resources before even giving it a chance.

In the worst case, analysts fret that this could lead to a collapse of the world trade order.

How would that play out?

Horribly. Economic historians Barry Eichengreen and Douglas Irwin have noted, citing the most extreme consequences of protectionism in the 1930s, that while many aspects of the Great Depression are still open to debate, “there is all-but-universal agreement that the adoption of restrictive trade policies was destructive and counter-productive.”

So what options do countries have?

Protectionist policies end up accentuating shortages, which is the exact opposite of the effect they intended. That’s because once trade is restricted in some areas by some countries, other countries join in. Clearly, “turning inwards” won’t work: it won’t work in fighting Covid-19, and it won’t work in fostering economic recovery. As Brown puts it emphatically, even if counter-intuitively: “This is not the time to retreat into isolationist silos; it is the time to rediscover the logic of international cooperation.”

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Published on August 19, 2020
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