The Broad Mind | Retail FDI – a controversy of “illiteralism”?

by Somnath Mukherjee

The fiasco over FDI in multi-brand retail was one of the many faced by the government in the year gone by, but in many ways exemplified the policy paralysis.

Be that as it may, while the government can be legitimately be accused of incompetence, the intellectual opposition to the measure can surely be largely accused of being, simply put, illiteracy. Nothing exemplified this as this op-ed in The Hindu by none other than Prabhat Patnaik. Now, Prabhat Patnaik is not a pamphleteer of the RSS-type, nor indeed one of the Leftist cabal. He is a distinguished professor of JNU, has held important policy positions, and usually argues with his facts and rationale impeccably in place. True even when his prescriptions can be argued as antediluvian.

In this case however, he has “worsted” the worst of the RSS brand of unintellectual pamphleteering. To start with, the very basis, Pareto Optimality.

from: Chanakyan

Vilfredo Pareto, the Italian philosopher-economist, had suggested a criterion for comparing alternative states of society, which has acquired wide currency in economics. According to it, between social states A and B, if there are some persons who are better off, and nobody is worse off, in A compared to B, then A is socially preferable. On the other hand, if some persons are worse off in A compared to B while others are better off then we cannot say that A is to be preferred to B. Taking A to be the social state where MNCs are operating in retail, it clearly follows that we cannot consider their operation to be socially preferable to a state where they are not operating.
If Prof Patnaik take pure Pareto Optimality as a touchstone for every policy action, first up he has been bypassed by the entire body of economics work around Pareto Optimality. Almost nothing in the real world can be Pareto Optimal, given frictional costs of implementation, as well as rent seeking behaviour from all economic agents. Shorn of the jargon, what it means is that in any policy decision taken, there will be winners and there will be losers, the decisions are therefore taken in order to maximise the total benefits accruing to society. In the process, “winners” are incentivised (or taxed) to compensate the “losers”.

But I am sure that Prof Patnaik knows more than a thing or two about Kaldor-Hicks Efficiency (among others around Pareto Optimality), but he simply uses amateur sophistry to base his opposition towards a completely indefensible intellectual paradigm. The most eggregious of which is the reference to economic policies of the Raj.

And it is exactly identical to the argument put forward in the colonial context that since imported manufactured goods were of superior quality and benefited the consumers (who would not have bought them otherwise), among whom were numerous peasants, the fact that they destroyed the livelihoods of millions of artisans and weavers, should not be held against the policy that freely allowed such imports. In fact the argument for FDI in retail is a precise recreation of the discourse of colonialism.

The irony cannot be more delicious. The nationalist discourse of the freedom movement bases itself on how India was starved of opportunities to produce domestically the same goods that were incentivised for imports from Great Britain. The greater issue wasnt that of mill-made cloth versus hand-woven, but of the fact that the same was being produced in Britain, and not India. In economic terms, the Pareto frontier was being built through a loss to Indian producers offset by gains to Indian consumers and gains to British manufacturers. The nationalist narrative was largely focused on the last element. Which in itself drive much of the protectionist industrial policies post independence.

With FDI in retail, the propositionists are really saying that efficiency gains from logistics are to be passed on to producers and consumers of India, with the logistics itself being owned “within” India.

Ofcourse, if the touchstone of Pareto optimality, Prof Patnaik style, is taken to its logical end, every single social welfare measure in India will be deemed sub optimal. With coruption eating away much of the outlays and therefore benefits being uncertain while “losers” in terms of higher burden on taxpayers being pretty certainly identified, the equation isnt much different from what he is painting in the op-ed.

Which is really the issue with the opposition to retail FDI, Right or Left (another delicious irony – on most contentious issue, the congruence of views of both makes one wonder) – there is really no intellectual praxis of the opposition, only sophistry to suit a cynical political position.

from: Chanakyan

DISCLAIMER: This is an archived post from the Indian National Interest blogroll. Views expressed are those of the blogger's and do not represent The Takshashila Institution’s view.