A few days back I completed this book Globalization and is discontent by Dr Stiglitz, a nobel laureate. I wrote on that recently – Interdependent co-arising a macroeconoics example. Besides this macroeconomics example, I had this intra-country example of the same concept of interdependent co-arising. Stiglitz has written so many things more than 10 years back which are happening in India currently. However, here I am just interested in quoting a small part of the book which relates to the corruption of coal mine allocation in present day India. This example is from page 71 of the book –

There is more to the list of legitimate Complaints against Foreign Direct Investment (FDI). Such investments often flourish only because of special privileges extracted from the govt. While standard economics focuses on the distortion of incentives that result from such privileges,  there is a far more insidious aspect: often those privileges are the result of corruption the bribery of govt officials. The Foreign Direct Investment comes only at the price of undermining domestic processes. This is particularly true for investments in much oil and other natural resources where foreigners have a real incentive to obtain the conversation at low prices.

Moreover such investment have other adverse effect- and often so not promote growth.  The income that mining conversation brings can be invaluable but Development is a transformation of society. An investment in mine – say in a remote area of a country – does little to assist the development transformation, beyond the resources it generates. It can help create a dual economy, an economy in which there are pocket of wealth. But this duel economy is not a developed economy. Indeed, the inflow of resources can sometimes actually impede development, through a process that is called “Dutch disease”

So effectively, what Stiglitz said was bribing of officials for mining in developing / undeveloped countries. Further, the dual economy this FDI may create is not best for country to develop. I would take this example of Dutch disease in my next post – “Business to the Buddha”.

Here what I want to highlight is this – the current issue in India – #CoalGate scam is a clear example of what Stiglitz wrote more than 10 years back. Indian Prime Minister – Dr Manmohan Singh – being an economist might have been aware about this and perhaps therefore kept Coal Ministry with him. This is just an extrapolation. Otherwise why would Law ministry and Law minster would want to change parts of report? According to the Supreme Court of India, the changes are Heart of the report.

After reading the book – Globalization and its discontents – I realized that Stiglitz is not against Globalization but against the way Globalization is happening. So, when you read the above part, you should not infer that Stiglitz is against Globalization.

KRD Pravin

Here I am supposed to write about myself. Professionally, I am quite serious and a workaholic; personally I am an individual who enjoys what he does and takes life as it comes. I am passionate about my work and actions and empathetically careful, attached and committed to them. All this makes me a fierce competitive professional and yet a compassionate soul, the Yin and the Yang together. Balancing is the art to be practiced using the middle path. From - http://business2buddha.com/about/


rummuser · May 12, 2013 at 9:08 am

The basic assumptions that ALL economists make is that they take it for granted that human beings are honest and straight forward. All economic theories , globalisation, libertarianism, capitalism etc will work if that were so. These theories fail because, human beings are precisely that , human.

    KRD Pravin · May 13, 2013 at 1:10 pm

    So you mean to say, Dr Manmohan Singh makes this mistake of assuming people are honest & straight forward than when he becomes the PM he himself refuses to follow the assumption of being “honest and straight forward”.

    Good one.

    By the way, whole of marketing is based on the flaws of economics. Economics talks about “All things being equal, market would function like this or that”. Marketing breaks that assumption of everyhing being equal. Right?

rummuser · May 14, 2013 at 2:15 pm

No, marketing does not break that. What marketing does in the hands of good marketeers is to make the situation unequal. Thank you.

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