Phool Na Loon to Kiya Karoon?

There is this poor woman who works for us. She sweeps the floors and wipes them with a wet cloth every day except Sundays. She takes a holiday on Sunday because she is Christian and goes to Cherrch. She and I regularly have a chat about life and everything. Fortunately life and everything is a safe topic because everyone no matter Hindu, Jew, Christian , Sweeper, Chowkidar, Thelaywala can talk about it. She told me today that her six year old has Typhoid. So I asked her what about medicine and she said, "I don’t have money to buy it. My salary goes towards the house (?) rent. Ji kal sey kuch khaya nahin hai, na atta hai na ghee". (the poor have roti, ghee and a bit of daal occasionally). She has four children. The latest is a beautiful brown little baby who wears my son’s old clothes. Her little girl does not have a sweater. She occasionally combs her hair. And looks really pretty when she does. Her husband, like many poor husbands is out of a job more often than holding one. The thought of limiting the number of pregnancies of his wife does not cross his mind. If he is angry at life he conveniently beats his wife. My skeptic friends will say she probably prays on your sympathies and your guilt. That’s what rich people usually think when they have to give anything to some one less than them. A favor as it were, with no reward other than the hereafter for the believers in God.

Talking to her humbles me immensely. I think of how easy it is to forget the meek when the System works for you. How easy it is to think that Capitalism is the best way to allocate resources because of "Free Market Forces". The Free Market Mechanism is a theory modeled on the hypothesis that people will do whatever it takes to get food and clothing. It assumes that this is the best way to allocate resources also since resources will flow wherever there is demand. Usually the rewards of the Free Market are such that it does motivate people to work and capital to flow where the need is greater…at least in the long run. The Free Market also assumes a culture where the incidence of skills amongst the individuals is such that trade is possible between them. In case of any shortcomings, one can always improve one’s skills. It looks beautifully simple and wonderfully effective and I bought the idea for most of my academic life. Mr. Robert J. Samuelson had explained it nicely and all I had to do is repeat the idea on paper to pass a course on Macro Economics. If the sight of the extremely poor irritated, all I had to do was to say ‘Oh. Well, they don’t know about Free Market Forces and how in reality they are Free to negotiate more money from the System." The point is that the theories of the magical Free Market assume too much. The worst assumption is the one that people are free. People are not free. People are trapped in vicious cycles of ignorance and poverty. Trade is unequal between the unequal. If the less developed countries sell something to the more developed countries at too cheap a price, accusations of ‘dumping’ are leveled at them. (An example is Pakistan and the export of raw cotton). The theory also says that resources flow where profit motives are stronger. Greater investment usually means greater profits in the hypothetical Free Market World. Ingenuity also becomes a function of investment because more investment in Research and Development results in new and better products. More money perpetuates more money. And so the snowball of the rich grows bigger and bigger.

The LDC’s beg for aid and for favors to desperately try to negotiate a greater share in the "Free Market" pie (or the snowball). They reason that the rich countries like cotton, lets make more cotton and sell it so that we can buy petrol for our cars and pay for it in dollars. We use up our best crop land for cotton and end-up with a wheat shortage. The wheat shortage means that we of Planet Earth who are soon to enter the 2000th year of ‘civilization’ see line upon line of poor people standing in front of trucks which are distributing bags of free ‘atta’ (flour), in a wheat growing country with plenty of arable land.

Our much vaunted objective of ‘earning foreign exchange’ which is cited as a plus point for most feasibility reports of manufacturing projects in Pakistan, falls flat on its nose because the wheat is imported. I have always wondered why is it that we want so much foreign exchange. They tell us that it is required to buy cars, medicine, defense equipment and other things that other countries make better and cheaper. Things that we need. Can’t we make them ourselves?

There is another wonderful theory under-pinning the ideas of trade in the hypothetical "Free Market". This is called the Theory of Comparative Advantage. This is a pearl of the idea of free flow. It says that everything should be made by the people who know how to make it best/cheaper. This means there is no point in the LDC’s learning how to make cars or defense equipment because this will use up more of the world’s resources than if the countries who made it cheaper continue to do so. This theory assumes that the status quo of who makes it cheaper right now will continue and that all the countries in the world will continue to perpetuate the same products. It also assumes that people in the world will continue to desire the same products for ever. Say I accept all these as valid than the only way the Theory can work in real life is if we imagine that the export trade of Country A will always balance out its import trade. This is not true for poorer nations because we end-up as net importers every year and are ‘unequal’ trading partners.

The Less Developed countries cannot hope to compete for world resources if they remain unequal trade participants. The Free Market will not solve the problem of poverty. This dis-equilibrium will not automatically right itself because the magic in the Free Market Mechanism works only for the right wizard.