Thoughts on economics and liberty

Thengadi’s (REALLY BAD) arguments for Swadeshi

Thengadi’s book Third Way is available to download at All other works of Thengadi are also available –

Quite a prolific writer. Pity almost no one outside the RSS has ever heard of him. Now that RSS is ruling India it is crucial to understand these people.

I’ve annotated this RIDICULOUS chapter. There is too much garbage here. I’ve just made a few comments since it is all so bad.  [On Thengadi: Organiser]

 CHAPTER 17: Swadeshi: The Practical  Manifestation of Patriotism

In 1993, ‘Swadeshi’ has become a queer term.

A common man on the street is fairly familiar with its connotation.

But for uncommon men this is an unknown commodity. For sophisticated, air-conditioned elite of the metropolitan cities the concept is strange – an oddity in the midst of modernism.

For “kept” economists of the regime, this is a red rag. And for the ruling politicians, a bull in their China shop.

So the abuses like ‘obscurantism’, ‘anachronism’, etc., are being used to condemn the idea irreconcilable with the luxurious fashions.

What is most important is not the future of the country, but the immediate comforts of the westernised urban elite.

These uncommon citizens are not in contact with the earth, they are in their own ivory towers, cut off from the national realities and alienated from their co-countrymen.

Fortunately, the number of such persons is extremely limited – not even one per cent of the total population of this poor country.

It is wrong to presume that ‘Swadeshi’ concerns itself only with the goods or services. That is more an incidental aspect. Essentially, it concerns the spirit determined to achieve national self-reliance, preservation of national sovereignty and independence, and international co-operation on equal footing. [Sanjeev: NATIONAL SELF-RELIANCE IS SUICIDE.] Swadeshi spirit inspired the Britishers to restrain their Head of the State from purchasing a luxurious German Mercedez Benz car, for her personal use. When asked by an Indian correspondent as to why he was using a pant torn (and stitched) because of the weak texture of the Vietnamese cloth, Ho Chi-Minh smilingly replied, “My country can afford only this much.” When the U.S. forced Japan to give market access to its Californian oranges, Japanese customers did not purchase a single

Californian orange and thus rendered the American arm-twisting a ridiculous affair.

When the Governments of China and Korea prevented the entry of Michael Jackson in their countries on the ground that his performance amounted to  ‘cultural invasion’, they only demonstrated their Swadeshi spirit. Incidentally, this gesture also indicated that ‘Swadeshi’ was not merely an economic affair confined to material goods but a broad-based ideology embracing all departments of national life. Needless to multiply such incidents. The point is that all these patriots from different countries drew their inspiration from the ‘Swadeshi’ spirit.

‘Swadeshi’ is the outward, practical manifestation of patriotism. [Sanjeev: Nonsense. India was NEVER a fan of swadeshi. Kautilya is the greatest votary of exports] Patriotism is not considered as isolationism – particularly in our tradition which stands for integral humanism according to which, on the level of human consciousness, internationalism is the further flowering of the spirit of nationalism. Nevertheless, it is noteworthy that presenting patriotism as isolationism is the usual practice of imperialist powers. For example, when after the end of the Second World War it became obvious that under the pressure of the international situation the imperialists would be forced to grant independence to their colonies, they started ‘operation salvage’ to preserve as much of their vested interests in the colonies as possible, under the changed circumstances. In Bharat, some Executive Councillors of the Viceroy became their tools. Misrepresenting the move for full-fledged independence as isolationism, Sir C. P. Ramaswami Aiyar propagated that in the new era of internationalism “our motto should be, not independence but interdependence.” Dr. Manmohan Singh’s plea for liberalisation and globalisation is the modern version of Ramaswami’s ‘interdependence’.

Patriots are not against internationalism. Their plea for national self-reliance is not incompatible with international co-operation, provided that the latter is on equal footing – with due regard to the national self-respect of every country. [Sanjeev: HOW IS NATIONAL “SELF-RESPECT’ RELEVANT FOR TRADE??] Their difference of opinion with the advocates of ‘globalisation’ is on a different and more basic point.

Proponents of Swadeshi are not prepared to endorse the view that the western paradigm is the universal model of progress and development worthy of being followed by all the peoples of the world. While they recognise the fact of cultural intercourse, they insist that every people have each their own distinct culture, and the model of progress and development for each country should be consistent with its own cultural ethos. Westernisation is not modernisation. Modernisation should be in keeping with the spirit of national culture. They oppose the move for steam-rolling all the various cultures and national identities in the world in favour of the West.

Introduction of modern technology and economic system is the inauguration of an entirely new civilisation, inconsistent with the nature of all non-western cultures. This is the basic point of difference.

Nevertheless, Americanised Indians are condemning Swadeshi Jagaran Manch on the plea that Swadeshi is the antithesis of the ‘sacred’ and universally-accepted principle of ‘Free Trade’ which is being recognised and followed by all the countries.

It has become imperative, therefore, to examine thoroughly the ‘Free Trade’ principle, and its position in the field of the current international trade.

Liberalisation – Free Trade?

Though preached earlier by Adam Smith himself, the principle of Free Trade acquired unchallenged legitimacy after the publication of Ricardo’s Principles of Political Economy in 1817. The intellectual foundations of “Comparative Advantage Theory” became unshakable. Essentially, the principle declared that unhindered play of market forces was the best way of obtaining an optimum trading pattern. Based on the Ricardian model of comparative advantage and the Hecksher-Ohlin theorem, the theory claimed that free trade enables each country to specialise in its production and to make optimal use of its scarce resources. From the early 19th century until the late 1970s, international trade theory was dominated by the concept of “Comparative Advantage” which implies that countries trade to take advantage of their differences. Economies were assumed to be characterised by constant returns to scale and perfect competition. Difference lay in tastes, technology or factor-endowment. Within the framework of the theory, there might have been differences in emphasis. For example, the Ricardian model emphasises technological differences as the cause of trade, while the Hecksher-Ohlin-Samuelson model emphasises differences in factor-endowments. But still until 1970s the validity of the “comparative advantage” theory was accepted. In countries like the US, the UK and the Netherlands, it was accepted as a doctrine in forming State Trade Policies (though countries such as France, Italy and the Federal Republic of Germany did not accept the free trade theory as an official trade policy doctrine).

The GATT became the embodiment of the free trade theory. It has been rightly said that GATT has, as its building-blocks, the philosophy of free trade.

Nevertheless, since the late 1950s, doubts began to arise about the full validity of the free trade theory. Can comparative advantage theory explain fully the modern developments in the international trade? Since 1970, the scepticism about the free trade theory has progressively intensified.

The theory of comparative advantage was based upon the assumption of perfectly competitive markets and constant returns. But, as Krugman points out, it was, however, realised that international markets are not perfectly competitive and that they are imperfectly competitive. Increasing returns held the key to the operation of these markets, the advantages of which can be appropriated only by the dominant firms in the market. The advantages, once appropriated, become the basis for further gains in the market. [Sanjeev: Krugman is a third rate economist. Obviously, these people had to cite him.]

Experts like Winfried Ruigrok felt that by free trade theory international capital flows, such as Foreign Direct Investment (FDI), could not be accounted for. The production process as such was not analysed at all. Technological development was assumed to be transparent and available to all. Neither the economics of scale nor the rapid increase of FDI could be explained by free trade theory. The efficient allocation of scarce resources has never been the sole consideration in this matter.

Ruigrok poses a question. Why do governments sometimes choose not to comply with the free trade norms? The answer to this question reveals, according to him, a fundamental flaw in the postulates of the free trade doctrine. Contrary to its fundamental premise, the efficient allocation of scarce resources has never been, and will never be, the sole consideration in the choice of state policies. State policies are based on a mixture of political, social, economic and military considerations. National security and preservation of the internal order have been, and will remain, more important concerns than maximising efficiency. [Sanjeev: national security is a separate issue: how is it linked with swadeshi?]

Again, a case for strategic intervention to provide advantages for the domestic firms by adopting policies that would discriminate against the foreign firms, appeared to be gaining greater support. Brander suggested subsidies to strengthen the position of a domestic firm engaged in competition for the world market with a foreign rival. Spencer also put forth a similar suggestion for subsidies. There was a growing feeling that import restrictions and export subsidies may, in certain circumstances, be in the national interest. The case of Japan granting 700 per cent subsidy to its rice farmers and imposing 700 per cent duty on import of foreign rice illustrates this point.

Sometimes governments act not necessarily in the national interest but under the pressure of domestic pressure groups.

During the latter half of the 1980s, the adherents of free trade acknowledged that their basic argument was challenged seriously. Government intervention could lead to profit-shifting from one country to another. Under such circumstances, countries following the traditional rules of free trade would inevitably transfer wealth to their trading partners. The term “Competitive Advantage” became preferable to “Comparative Advantage”. In 1980s, Japan’s successful export drive to the EC and US has proved how “competitive advantage” could be created.

During the 1970s and 1980s experts increasingly believed free trade model to be sacrosanct. But Paul Krugman says, “Free Trade is an idea that has irretrievably lost its innocence.” During this period the traditional models of international trade have been supplemented and sometimes even supplanted, by a new breed of models that emphasises economies of scale, increasing returns and imperfect competition. (The dynamic scale economies are associated with investment knowledge and R & D).

Today, the general trend is to believe that comparative advantage is an incomplete model of trade, and also to believe simultaneously that free trade is nevertheless the right policy. Krugman informs us that this is the position taken by most of the new trade theorists themselves. So free trade is not ‘passe’ – but it is not what it once was. The case for free trade is currently more in doubt than at any time since the 1817 publication of Ricardo’s Principles of Political Economy. [Sanjeev: the man is clearly a moron]

In the Uruguay Round of negotiations, unqualified support for the free trade framework has been espoused, and simultaneously, increase in protectionism and threat of intervention in the markets of partner countries to seek enlarged access to exports, have been adopted by United States in formulating its trade strategy!

In spite of all the propaganda in favour of ‘free trade’ concept, Ruigrok informs us that the pattern of global trade looks as follows:

– approximately 25% takes place inside global companies (intra-company trade),

– approximately 25% is bilateral trade (by preferential agreements), – approximately 25% is barter trade,

– approximately 25% can be considered ‘free trade’ governed by GATT rules.

The author has quoted this from FAST (‘Forecasting and Assessment in Science and Technology’).

While advocating the principle of free trade, the US has been following the policy of protectionism regarding textiles right from 1956 when the President was given the authority under the Agriculture Act to negotiate agreements for limiting “imports into the United States, of Textiles or Textile products”. In the 1980s the US administration employed non-tariff barriers to insulate the US automobile industry from the competitive threat that, as in the case of textile industry, was posed by Japanese imports. As James Dunn points out, post-war international trade in automobiles has always been a mixture of liberalising and protecting elements.

Japan is, in many cases, a one-way trader, not importing any of the product categories it exploits. The same is the case with the Japanese foreign investment imbalance. As on 31 March 1990, Japanese direct investment abroad amounted to seventeen times the value of FDI in Japan. Japanese competitiveness and huge trade and investment imbalances have contributed, according to experts, to the EC and US conflicts with Japan in industrial products. ‘Toyotism’ of Japanese industry has given it a great advantage over ‘Fordism’ of the US and EC industries. To cite a single example, in the 1960s and 1970s, the EC’s ship-building industry could not stand a threat from Japanese ship-building companies’ aggressive marketing strategies.

With the present growth of Japan’s foreign direct investments in the EC and the US, the industries of the latter are demanding more trade barriers and greater protection (though recently Japanese economy also is showing signs of decay).

It is interesting to note that criticism of free trade doctrine has been gaining ground as the EC and the US have been meeting with increasingly fierce competition in a number of industries. Many of the earlier champions of the doctrine are today its critics.

The opportunism is not a new phenomenon. When German goods were dominating British markets, Britain was the worst critic of free trade principle. After industrial revolution, the equation changed and Britain became the best champion of free trade doctrine.

The current American concept of “fairness in trade” reminds Biswajit Dhar of Gladstone’s remark made more than a century ago under a similar situation: “It (fairness in trade) bears suspicious likeness to our old friend protection.”

The decline in the economic strength of the United States started in the 1960s. The process of the end of its hegemony commenced around 1973. By the 1980s the United States had come to be established as the economic power going rapidly down-hill. Several authors like Linder and others have predicted the end of the US hegemony in the international economy during the early period of the next century. With every new set-back, the US has been deviating progressively from the principle of free trade, and by this time it has completely abandoned that once-sacred doctrine. These recent developments and deviations in the US trade strategy have been aptly elaborated by Biswajit Dhar in his The Decline of Free Trade and US Trade Policy Today.

At the level of policy, the demise of ‘non-interventionist’ mode can be seen clearly in the case of US where trade administration has adopted an “activist” trade policy, particularly during the last two decades. While the increased dose of protectionism formed the core of the nature of state intervention in the earlier years, seeking increased market-access to US products by compelling its partner countries to change their policies and become “more open” has been the present line of its policy. Protectionism has now become the sole thrust of the policy-initiative in recent years. Trade legislation in US since 1974 indicates this trend. The Omnibus Trade and Competitiveness Act of 1988, particularly through its two new provisions, namely, Super 301 and Special 301, unfolds fully the intentions of the policy-makers.

The protectionist measures adopted by the US have abrogated the basic principles of non-intervention in trade, underlying the post-war trading system governed by the GATT rules. Specific and systematic trade barriers have been raised by the US, in violation of the GATT rules. This has grossly undermined the multi-lateral trading system. In response to the competitive threats from Japan and other newly-exporting countries, the US curbed imports by using increasing doses of protectionism achieved through imposition of the non-tariff barriers, and increased exports by forcing open foreign markets using the powers of trade retaliation that were assumed by the US President through the Trade Acts of 1974 and 1988. The first phase gave protection to domestic producers against imports. Quota restrictions on exports to the US were imposed. The US trade administration frequently imposed Voluntary Export Restraints (VERs) and Orderly Marketing Arrangements (OMAs) on several countries. [Sanjeev: the best policy is unilateral free trade – it is what Arthashastra talks about]

The more prominent industries that were provided import protection were steel, automobiles, textiles, machine tools and semiconductors. Section 301 of the 1974 Act was directed at the policies of foreign governments which did not provide free access to US products in their markets. In 1985, the insurance industry in Korea was targeted for this purpose; the action under Section 301 of the 1974 Act was initiated. Between 1985 and 1988, when the Omnibus Trade and Competitiveness Act was passed, Section 301 was introduced to deal with cases relating to insufficient protection of intellectual property rights of US origin.

Under Super 301, action could be initiated against the entire gamut of trade and trade-related policies that the infringing partners were following in retaliation against a sector or an industry-specific infringement. In other words, Super 301 provided for cross-retaliation between sectors.

Secondly, Super 301 introduced a time-frame for identifiable specific cases of trade distortions, and initiating cases against countries which, according to the US, were obstructing US exports. The cases under Super 301 were to be initiated in 1989 and 1990; and the retaliatory action against the identified “infringing” countries was to be carried out within 180 days of establishing that trade distortions were liable for retaliation.

Special 301 covers infringement of intellectual property rights of US origin causing distortions in US exports. Special 301 was to ensure that US exports could be increased by compelling countries to provide a stronger monopoly to US commercial interests in their markets through an appropriate system of intellectual property protection that the US trade administration deemed fit.

Unlike provisions under Section 337, the Special 301 provision did not put the onus on the complainant to “prove” the injury. The US International Trade Commission was simply required to institute inquiry into the complaint and grant protection, all within 90 days of the registering of the complaint.

In May 1989, the USTR identified three countries – India, Japan and Brazil – and put them on the list of priority countries for action under Super 301; and six trade-distorting practices – the ‘priority practices’ – of these countries were identified; India was found to restrict US exports from entering into markets through following two priority practices.

  • Foreign inventors in the country were required to export a part of the produce, and to use locally produced inputs, thereby causing trade distortions; and
  • US service industries were prevented from competing in the Indian market. India’s market was completely closed to foreign insurance companies.

A new list of ‘priority practices’ under Super 301 was issued in April 1990. The list had two cases and both involved India. The two priority practices of India listed in 1989 were again included in the 1990 list. Japan and Brazil were excluded. Trade barriers to insurance and investment in India were particularly irritating to the U.S.

In 1989 and 1990, four countries – India, China, Thailand and Brazil – were put on the priority watch list. In April 1991, USTR decided to initiate proceedings under the Special 301 clause. India, China and Thailand were named as priority countries for action under Special 301.

The US is insisting upon free trade and the so-called ‘liberalisation’. The US experts have excelled Goebbels in the propaganda techniques. “Repeat a lie hundred times, and it becomes the truth”, Goebbels said. Hitler went a step further. He said that if a lie is to be circulated, you should not give a simple lie, but give a big bluff – so big that people will not be able, because of the magnitude of the given lie, to suspect that such a big news may be a lie. Because of the American propaganda the doctrine of economic liberalisation became popular in the last two decades. [Sanjeev: good economics is not “propaganda”, and USA is no role model] De-regulation and privatisation have acquired respectability and authenticity. The IMF and the World Bank have been striving to sell ‘liberalisation’ doctrine to the Third World countries by imposing on the debtor countries the policy of economic liberalisation as a condition of further credit! The GATT and the US are preaching the free trade principle as a sacred gospel truth. But the US is itself violating this “sacred” principle. The US is also violating the standards evolved by the International Organisation for Standardisation. The US public procurement policies are not in conformity with the GATT. Government procurement code, ‘Buy – American’ restrictions, cover a vast area. There were thirty-one significant cases of special protection which covered four broad sectors – manufacturing, mining, agriculture and fisheries. Some other services also are being given protection. It is subsidising heavily its farm sector, while demanding that other countries should withdraw all subsidies to that sector. It is following double-standards in case of the pharmaceutical sector also.

These are clearly unprincipled bullying tactics. The culprits in this crime are the rulers and the big capitalists of the US – not its common masses who are themselves kept in the dark about developments on the economic front. These bullying tactics are being employed not only against the southern, developing countries, but also against European community and North American peoples. The recent militant reaction of French farmers and the strong support given to their gesture by farmers of the European countries; the agitation of the working people of the US against the North American Free Trade Agreement (NAFTA); the effective protest registered by Canadian voters against the ruling party that became a signatory to the notorious NAFTA; the demonstration (on 2 October) by 12 purely American organisations of environmentalists and humanitarians against the modus operandi of Cargill – all these indicate that the unholy alliance between the rulers and the big capitalists of US is operating not only against the third world countries, but also against other developed white countries, and even against the less privileged masses of US itself.

And these culprits are the champions of free trade, liberalisation and globalisation – a case of Satan quoting the Bible.

To sum up:

In its present form

‘Liberalisation’ of the GATT and the US is a downright fraud.

‘Liberalisation’ of Dr. Manmohan Singh is sheer gullibility.

‘Liberalisation’ of our air-conditioned radicals is ignorance or hypocrisy.

‘Liberalisation’ is a grave challenge to patriots of all non-American countries.

Hence the propriety and urgency of ‘Swadeshi’ for all non-American peoples of the world.

Genuine liberalisation and hegemonic globalisation can never go together. The Hindu concept of globalisation represents genuine globalisation.

The Hindu version of globalisation is fairly well known to all Hindus who are not self-alienated: For them the elaboration of Hindu concept may be a superfluous repetition of whatever they know already. For the benefit of the de-Hinduised Hindus a brief restatement of the same may, however, be helpful here.

Pandit Deendayal Upadhyaya, who could conceive of the Central State Authority without stateism, envisaged evolution of the world state enriched by the growth and contribution of different national cultures, as well as the flowering of the Manava Dharma, enriched by the perfection of all the religions including ‘materialism’.

Revered Shri Guruji believed that the world unity and human welfare could be made real only to the extent mankind realised the ultimate, absolute Vedantic truth that “all is one”. What he implied was not elimination of all distinctive features of nations and rolling them all into one uniform pattern. He visualised various groups of peoples coming together in a spirit of familism realising the innate oneness of mankind while preserving their individual identities and special characteristics. The different human groups are marching forward, all towards the same goal, each in its own way and in keeping with its own characteristic genius. The destruction of the special characteristics, whether of an individual or of a group, will destroy not only the natural beauty of harmony but also its joy of self-expression. To seek harmony among the various and diverse characteristics has been our special contribution to world thought. Shri Guruji says:

“The World State of our concept will evolve out of a federation of autonomous and self-contained nations under a common centre linking them all… It is the grand world-unifying thought of Hindus alone that can supply the abiding basis for human brotherhood. That knowledge of the inner spirit will charge the human mind with the sublime urge to toil for the happiness of mankind, while opening out full and free scope for every small life-speaciality on the face of the earth to its full stature. Verily, this is the one real practical world-mission, if ever there was one.”

This Hindu concept has been elucidated elaborately by Rishi Aurobindo who envisaged the still further stage of ‘mass spiritualism’. With this mental background, our Rishis conceived of the ‘One World State* :

“From sea to sea, over all land, one State.”

This is genuine globalisation. In its absence, the world cannot go beyond the abortive experiments of the League of Nations or the UNO.

Without the growth of such Hindu, i.e., human consciousness, it is impossible in the international economic field to ensure genuine ‘free trade’, maximum utilisation of the scarce resources; development without environment problems and permanent damage to Nature; adjustment of the presently unlimited human desires with the limited resources of the planet; management of population explosion; diversion of all the huge amounts allocated currently by different countries for their defence budgets to their developmental activities; encouragement to every country to maximise its specialised production; free exchange of scientific and technological information; constitution of International Technological Ombudsman; curbing the activities of international criminal gangs disturbing seriously the economic structures of even the civilized countries and world peace, harmony and prosperity. [Sanjeev: this last para is the MOST IDIOTIC THING I’VE READ IN A LONG, LONG TIME]

Sanjeev Sabhlok

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