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Truth About Interventionalism and Globalization

Navraj Goyal - 5/22/2006

History is a test of ideas. In the economic sphere, the history of 20th century has tested the two ideas of socialism and its cousin interventionism to their fullest extent. The failure of socialist idea was so complete where it was tested in all its grandeur- the erstwhile Soviet Union that it needs no further elaboration. Whereas socialism was put in practice in some well defined geographical areas, interventionism which has been much more widespread in varying degrees in all parts of the world. Some doubts still prevail over its fallouts which call for a closer examination.

Unlike the socialists, the proponents of interventionism though did not deny entirely the merits of market economy yet maintained that it is for the government to guide the allocation of scarce factors of production into the right channels. Led by ideal of self-reliance, every nation sought to produce everything within its boundaries. It resulted in wasteful allocation of factors of production into those lines as well where goods can be produced by the inhabitants of some other country more economically. It would make more sense to procure the particular good from outside and allow the freed factors of production to move into other channels where it is more economical to do so.

Now, division of labour is one of the fundamental factors on which material wealth of the modern society is built . The net result of the aforementioned interventionist policies was that the division of labour developed within the national boundaries. Globalisation seeks to replace the national division of labour by a global division of labour. And in the process, it seeks to do away with the wasteful allocation of scarce factors of production into creating artificial production capabilities.

It is not possible to examine all instances of interventionism here as it would require the space of several volumes. Therefore we shall confine ourselves to two areas: global trade in agriculture and allied sector and global movement of labour.

In advanced countries, the visa restrictions prevent entry of workers from the developing countries as it helps to maintain wage rates at higher levels. Simultaneously,however, it also increases the cost of production for the entrepreneurs who now have to rely on a limited supply of an important factor of production. In the poor countries there are workers but no jobs. Deprived of legal channels, some of them resort to illegal ones to reach advanced countries in search of job. While hundreds of them die in the process, others end up detention cells of immigration authorities. Some of them , who are lucky enough to survive the ordeal are able to find jobs with the danger of being deported hanging continuously over their heads. What happens along the US-Mexico border and other immigration hot spots is a humanitarian tragedy.

A still greater tragedy takes shape in the native countries of these workers where lack of jobs acts as a slow poison. The workers and their families are forced to live a life of want,hunger, malnutrition and disease.

However, the facilitation of movement of global capital and emergence of information technology in the last decade of 20th century have mitigated the effects of immigration restrictions to an extent. Not surprisingly, the greatest beneficiary of the foreign direct investment has been the country with the biggest labour force in the world. Already there are reports that firms in China are increasingly facing labour shortages. In many cases, foreign companies came to China as these were running huge loses in their own countries.

Similarly, information technology enabled the delivery of many services possible without constraint of geographical factors like distance. Thus, the world saw the emergence of cities like Bangalore as the outsourcing hub of the globe. A great opportunity came in the way of companies in the developed world to cut down their costs. The monoliths of business process were broken down and those processes which could be carried on at remote places with the aid of information technology were outsourced to tap the low cost advantage.


However, it is in the farm sector that interventionism has reached its peak. From outright prohibitions to tariff barriers above 500% such as those applied by Japan on rice imports to domestic subsidies which, as per Oxfam estimates, can be as high as $ 2.62 daily per cow in European Union to export subsidies, the list is endless. The quantum of subsidies becomes a stark reality when we consider the fact that half of the humanity lives on an income far below the daily subsidy given to a cow. In USA, cotton farmers get government support which is more than the entire GDP of any of the four cotton producing west African countries - Mali, Chad, Burkina Faso and Benin.

For laying the foundations of global prosperity, a global division of labour has to take shape on the ruins of artificial and uneconomic production facilities and their support systems. Globalisation is bound to face tough resistance wherever the levels of interventionism are high. A barometer of the same can be seen in the findings of a recent survey published by the European Commission. As per the survey,a majority of Europeans, as high as 72 per cent in France, consider globalisation as first and foremost threat to employment and companies in their countries.