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Economy and Trade

Impact of Structural Changes in Economy on Growth and Inequality

One of the important challenges and priorities for any responsible government is to boost economic growth in order to provide adequate level of  employment and income to its people. However, in order to spur rapid economic growth structural changes in economy are  required. Studies have shown that  structural changes in economy affect growth and inequality and normally inequality increases with growth. The major factors affecting growth and inequality on account of structural changes are technological changes, physisical capital, human capital, social and political changes etc. The quality education plays an important role in developing and building up human capital while access to capital market improve in developing physical capital. Other factors that also affects growth and inequality are financial inclusion, physical and financial infrastructure and strong institutions governing them. Studies also shows that the determinants of growth and inequality are not mutually exclusive and normally with structural changes growth and inequality both rises in initial phase of faster development. It becomes a challenging task for policy makers to formulate policies that will accelelerate economic growth as well as reduce the inequality as wide inquality leads to many social and polital problems in long run. Therefore, for policy makers it is an imperative to identify how and to what extent each determinants affects the growth and inequality so  that  while formulating the policies appropriate importance of these factors could be assigned so that policies could spur the economic growth as well as reduce inequality. Quality public education has been identified as one dominant factor that propel the economic growth as well as reduces inequality.

 

Challenges of Unequal Development

Despite the rapid development in many countries in Asia, challenges of inequality in Asia loom large as there has not been equal growth in all the section of society. Economic and social inequality in society leads to many social and political problems such as economic crimes and class struggle and clashes. Technology, globalization and  domestic policies have been attributed the main causes for the same. 


Unequal access to technology coupled with globalization will push the unskilled and poor people further towards margin especially in poor countries where no social security system is in place. Investment in human capital through education and training and providing access to modern technology through government intervention may provide the solution in short as well as long run.


It is true that globalization has provided opportunity to few who are skilled and snatched the employment of many in process of improving efficiency through globalization. But in this process it has improved the technology acquisition level, man power skill in many countries. A country needs to strike a balance between efficiency and equity by engaging itself in  properly calibrated way in process of globalization. Moreover, appropriate taxation policies of government and social welfare scheme can improve the equity and ameliorate the condition of poor.


Public policies plays an important role in shaping the socio-economic development of a nation. An appropriate policy in human capital, infrastructure, finance, commerce and trade etc may lead rapid development ensuring equity. But, many of the public policies in developing countries are highly influenced by international big players who have got other economic or strategic interest, and that come against equitable development of society. 

Developing countries in Asia need to ensure that development be inclusive and equatable even if efficiency and rapidity of growth is compromised a little bit at initial stages of development.

State directed Development in India

Though development has many dimensions, but, economic and social development is one of the major objectives of state so as to fulfill legitimate aspirations of society as well as state, and roles and responsibilities of state become important in propelling the economic development. Technological development led to industrial revolution in Britain in eighteenth century that soon spread in Europe and North America and rapidly improved the economy of these countries, while most of the countries in Asia, Africa and Latin America were either a colony or in process of being colonized by European power at that time. After World War II, decolonization started and many of the countries in  Africa, Latin America and Asia including India got liberated from colonial rule and pursued the path of economic development, but result was varied in these countries. Mixed result of industrial development of these countries was subject matter of study for scholars of political economy. In one of the studies, Atul Kohli has developed a framework for studying and analyzing the reasons for varied performances on statist approach taking into considerations characteristics of states and patterns of its interventions, and analyzed the cases of Brazil, India, Nigeria and South Korea.

 

India has a long history of its development. However, in recent times, before British colonial rule, Mughal controlled northern and central part of India. They had strong mobile army, judicial system, court proceedings with written records, fairly structured bureaucracy well spread up to periphery to manage general administration and taxation in the   territory under their control that made Mughal rule effective in collecting taxes and further strengthening army and other affairs of state. However, it remained a patrimonial state where appointments of officials and grant of land on temporary basis were controlled by court on personal loyalty and preferences to curb emergence of independent power. This system did not provide any incentives for land holders to invest the surplus income to enhance agricultural productivity; rather income was spent on unproductive conspicuous consumption that did not contribute to development of economy.  State also did not take any initiatives to make available new technologies, irrigation systems etc to boost agricultural production. Trade, commerce and few small cottage industries were fairly developed with export of cotton textile. But large industrial economy with modern technology was not developed due to lack of knowledge and interest in the scientific and industrial advancement of the West, weak commercial and organizational structure, and poor demand and supply conditions. Therefore, though state in Mughal period was a strong state, but it did not intervene to develop industry or agriculture.

 

 East India Company established its rule by first half of nineteenth century after decline of Mughal Empire with centralized revenue administration system, exam based civil service, and apolitical armed forces that led to state formation. Due to lack of investment in agriculture, agricultural productivity was stagnant. Company’s rule promoted export of raw material and import of finished goods on the pattern of colonial economy that was serving the interest of British industries and imperialism. Even the textile industry and export which was in reasonably good shape also collapsed due to open economy as it could not face competition from technology driven efficient production in Manchester and Lancashire. Development of railways, postal system and telegraph improved colonial market and trade and consolidated the rule. However, it also created national integration and sense of nationhood that helped in revolt of 1857.  After the revolt  British consolidated its rule in India. However, government did not take any favorable action for development of agriculture or policy initiatives for promoting industrial development. In late 19th century opposition to British rule grew among educated Indian elite and took the shape of Indian national movement after entry of Gandhi on political scene of India in early twentieth century. The nationalist movement led by Indian National Congress (INC) rested on multiclass coalition with democratic organization and demanded full democracy that led India to be becomes sovereign fragmented-multiclass state after independence.

 

Industrialization started after mid nineteenth century when some British businessmen invested in jute, coal and processed tea industries in  Calcutta, and Indian businessmen invested in textile industry inBombay. Economic conditions were not favorable due to supply demand constraint such as scarcity of capital, lack of savings, banking and financial institutions, inefficient labor, technical knowledge, limited energy and lack of transportation, low per capita income, and cheap import. The First World War created favorable conditions for Indian manufacturers of textile and steel as supply of imported items interrupted. Subsequently demands of Indian capitalist for protective tariffs were taken by nationalists. To increase the revenue and to block import from Japan and Germany tariffs were increased and role of protection on industrial development was visible and several Indian business houses matured during this period. Therefore, well before post colonial rule, Indian business profited from colonial state-interventions.

 

During post colonial period from 1950-64, political priority prevailed over economic one and state led industrial development was initiated and a number of import substation heavy industries including steel industry were set up under public sector that became inefficient due to incompetent bureaucrats, managements and political interferences to protect labor. Political compulsion to display nationalism did not favor foreign investment and socialist ideologies coupled with license permit system did not favor Indian entrepreneurs. Moreover, the top bureaucracy was not trained and competent to undertake economic development especially industrial development. Therefore even after availability of sufficient numbers of Indian entrepreneurs, banking and financial institutions, trained manpower development was slow even after protection to industries. 

 

During Indira period from 1965 onward, growth rate of industrial development declined especially textile that had potential for export  as state was more interested in populist measure, public investment in infrastructure were cut, state control on economy was more, industrial and trade policies and nationalization of banks were unfavorable for investment.

 

During 1980s and 1990s economic policies became liberal and probusiness under Rajeev Gandhi and Narsimha Rao that initiated the process of economic reforms and promoted information and communication technology that paid rich dividend at the close of twentieth century. After emergence of nationalist party, BJP (Bhartiya Janata Party), considering the past policy outcomes during Nehru and Indira period, it dismantled state control on private economic activities, liberalized economy, opened economy for foreign investment, and allied with capitalist class even without being repressive to labor that led India to become one of the fastest growing economy.

Thus, effective and favorable state interventions 1n 1990s were drivers for economic development in India.

 

Sustainability of higher GDP growth number

High GDP growth number is not only sustainable but it can be further improved also provided physical capital ( especially physical infrastructure ) and human capital is created and appropriate policies are put in place for development. Though in long run, after some time after economy gets matured, the GDP growth number tends to decline, but the same can be achieved by restrucuring the economy after carefully examining the new avenues of economy development and putting proper economic policies in place.

Why consumers fail to connect when celeberities endorse too many brands ?

When celebrities appear on print or electronic media to advertise a product or service of a particular brand, they immediately catch the attention of viewers (i.e. some of the potential consumers) and in that process viewers get apprised about the attributes of products or services being endorsed by celebrities. When the viewers (i.e.  potential consumers) make a decision to buy such products or services of a particular brand, they are likely to be highly influenced in his decision in favour of the products or service endosed by celebrity if viewer is an ardent fan of this celebrity. Further, this infuence will be more strong if celebrity endorse the same product or service for a longer period of time and consumes it also. However, when celebrity starts endorsing similar products or services of many brands in a short period of time even one by one or many products or services of different brand , viewers come to know and get convinced in due course of time that celebrity is not loyal to a product or service, but same is being done for commercial considerations and influnce of celebrity in promotion of that product or service gets eroded.

 

Implications of international mobility of capital, multinational subdivision of production and international trade

Expansion in trade is essential for grwoth in economy and employment. But, when it comes to trade beyond borders, its implications may be different for different countries involved in trade based on comparative or absolute advantages in varous factors of production available in that particular country. 
Though shifting the location of a labour intensive industry to developing and least developing countries may appears to be dependent and assymetric, but provides win-win situation to both the countries. In due course of time, it builds up the capacity of developing countries in terms of skill development, capital formation from savings of additional employment generation that is essential for development for other dependent/independent industries . Though all these come somtimes at an additional cost such as environmental degradation in developing countries. However, for developded countries it reduces the cost of production and also provide access to new market. Whatever assymetries appears at initial stage, it keeps on narrowing as employment and income keeps on increasing on sustained basis. This we can see from examples of phenomenal growth of China and other East Asian countries when it was open for foregn investment in manufacturing sector in seventies due to availability of cheap labour. Similaraly India became major hub for outsourcing service sectors in nineties. Once the gap between level of development between developing and developed nation reduces the level of assymetric coupling in trade would reduce. Therefore, fast developing countries like Brazil, China, India, South Africa etc should aspire for expanding the trade relations where symmetric coupling is possible with deveoped world and should decouple assymetric coupling in phases. However, other developing countries and least developed countries should expand the trade even if it assymetrical and less benificial . But, they must ensure that it should be restricted to those areas that does not advesely affects its own industries, agriculture and other economic interests. 

Dare to be different in market

Whenever a new product is developed and well accepted in market, other enterprenuers also try to avail this market opportunity, and in this process they also come out in market with a similar product that serves the same generic need. However, in due course of time more players come in to the market and those who are already  established in the market try to incorporate the best attributes and qualities of products of other manufactures in order to increase/retain their market share. This process in due course of time dimnishes the product differentiation as is evident from the case of soap. But, whenever, technological innovation takes place in product of one firm, differences between product increases, as happened in case of introduction of man made fibre in textile products. Again other firms try to copy them and cycle repeats. However, it becomes very difficult to remain different in market for a long time.

Need for Economic Integration in South Asia

For stable and sustained economic growth in South Asia, market integration among South Asian nations by ensuring free flow of goods, services, and capital is a must.  Despite huge potential of economic integration, desired level of market integration in South Asia could not take place due to trust deficit among South Asian countries  and that has put many barriers to international trade  and harmonization of polices for trade among this region. Though there are some positive trend in recent past in  market integration in South Asian region, but it can not reach to level of ASEAN and ASEAN+3 unless and until the political trust deficit is reduced. This necessarily  requires a stable government and preferably a democratically elected government among South Asian countries.