Daily Times

The previous essay ended with an unanswered question. What does the modified [exploitative] version of globalization do to the host [poorer] country? To fully comprehend this, it is necessary to view consequences through two prisms: The Market Perfection Theory, MPT, and the Keynesian Theory, KT.

Mathematics; is a pure science and, therefore, deals in absolutes. Social Sciences, on the other hand, deal with possibilities and probabilities. Consequently, any new theory that emerges among social scientists, usually arouses a critical and inquisitive reception rather than an opposition; unless of course, the new theory is challenging the veracity of a previously established one.

This is why I was a little surprised when I learnt that, on presenting his theory, Keynes met some opposition from the Old Guard; the adherents of the MPT. I was surprised because KT posed no challenge to the MPT. In fact, in my opinion, the KT is a product of linear logic progressing from the MPT. Let me attempt explaining my contention.

The MPT is a rather simple self-explanatory statement i.e. the market is perfect. It is so because supply responds to demand. If demand increases, supply meets it. If demand falls; so will supply. Although not relevant to where we are going with this reasoning, it is necessary to add that it isn’t that simple.

Prices go into an inflationary spiral, debts become circular and increasing exponentially, balance of payments become increasingly unfavorable with every year; and nothing seems to get better

In bulk production, there are an “optimum” number of units that will result in the cheapest cost of production per-unit. And, therefore, the factory might find it more economical to produce units surplus to the demand in the market and still make more money, despite the waste. Nowhere is this more visible than in the malls in US.

To return to our logical progress, Keynes’ theory was looking at recovery for an ailing economy. In an ailing economy, demand has, obviously, fallen, therefore, so has supply. Consequently, for the economy to recover, demand must increase, so that supply increases, thereafter industry picks up, and the wheel of the economic cycle becomes larger.

Keynes correctly identified the fact that the state is the only organization which can [by its policies] increase demand and continue to enlarge the wheel. To do so, the state can a) decrease taxes and/or b) increase employment opportunities and/or c) increase wages. Ideally, all three should be done in conjunction but, at least one or two to begin with.

To understand why I classify the “poor” [in pitying it] state suffering from the modified version of globalization; I draw your attention to how the three options for the state to recover its economy; impact on the peoples. a) Affects all citizens; b) enlarges the circle of state beneficiaries [its employees] but c) merely improves the purchasing power of those few who already have a minimal purchasing power.

Now we can advert to the “poor” beneficiary state.

First, some large sum(s) have been invested in the state, from which the state and people are bound to benefit and with the investment, [slightly better paid] employment opportunities have increased. The market is bound to pick up and improve.

However, merely a small number of the total labor force employed by the state, whether intellectual labor or physical, is receiving better wages. This is so for obvious reasons. The foreign investor wants the best local labor available and can afford to pay more. He pays; and gets the best. Meantime, the market picks up and prices rise.

Therefore, second, while the small percentage of employees of foreign investors can afford to buy more, the others, hit by inflating prices, can buy less and demand increase in wages. If the state refuses, not only are conditions for the vast majority of the state’s labor force worsened, their will inevitably be civil unrest. It has no option.

But the state has no money? So it heads back to the Bretton Woods fellows. The pair that is now ruled by the IMF. And, remember John Perkins; the economic Hitman who confessed publicly? He informed us that recipients of these donations or loans are selected on the basis of the recipient state’s acceptance of terms and conditions beneficial to US or, American citizens. What is worse is that these loans could be given for projects that do not benefit the economy.

Bottom Line? Following the sterling example of the US, these states too start printing money. But, they aren’t the US; and people [and states] still save in dollars not Pakistani Rupees. The inevitable follows; sometimes slowly; but very surely. Prices go into an inflationary spiral, debts become circular and increasing exponentially, balance of payments become increasingly unfavorable with every year; and nothing seems to get better.

Sounds familiar? It surely should. A long succession of our leaders has been leading us down this garden path, where we end up becoming “Globalized” colonies of whichever master whose lures we have succumbed to.

Since I frequently paint US as the villain, a friend inquired of me if I expect better from the Chinese. It is my considered view that any country that has the means, the guile [intellect, if you will], and the ambition, will exploit others. However, the terms of exploitation are likely to be less exploitative, at least, to begin with; while they are luring future colonies. Once lured, and colonized? Who knows? They might be worse.

The writer is a retired brigadier. He is also former vice president and founder of the Islamabad Policy Research Institute (IPRI)