Monday, December 29, 2014

Tuesday, December 16, 2014

Economics of Nationalism by S. P. Chakravarty


Economics of Nationalismby S. P. Chakravarty
One of the features of modern life is the hankering for communal (or group) identity, sometimes unfortunately manifest in violent conflicts, for example in the Balkan countries and also in Sri Lanka and now in Iraq. A gap has developed between the way we perceive our individual economic interest in articulating economic policy and the we way we articulate our communal interest in defining national priorities. We conjecture here that this fissure is due to a false belief amongst politicians that economic prosperity is enhanced by the possession of military power to gain control over resources.

The idea of globalization in economics is informed by the philosophy of market economics, which postulates that the rational individual is driven by self-interest. The ideas of blood and ethnicity, or any other idea of nationality, are so imprecise as to be meaningless in the calculus of a rational economic man. For example, prior claims over geographical borders on the basis of ethnic nationalism are based on a belief in a uniquely defined shared genetic descent going back to the origin of man of a population circumscribed by some arbitrary geographical borders. Archeological evidence points otherwise, to the hybrid nature of genetic descent. Yet the nationalist persists in her belief, even when the language in which the claim to geographical inheritance is made betrays recent arrival in the land.

In what has come be known as the ethnic bargain in the constitution bequeathed by the departing British rulers to what is now Malaysia, the Malay community was conferred a primary role as sons of the soil, the claim to belonging of the Chinese and Indian communities that took root during colonial rule to the new nation being thus weakened.
The implication of the language of the constitution in the eyes of the Malay nationalist was that the bumiputeras, the Malay word for sons of the soil, descended from those who lived in the peninsula from time immemorial but the others were newcomers. Yet the wordbumuputera derives from the Sanskrit language (bhumi meaning soil and putra meaning son) laying bare the claim to linear descent from time immemorial.

It appears that we define our national (or group) identity by selective remembrance of a collective memory. The sociologist Stuart Hall puts the point more politely. He says that identities are defined by the different ways in which we can tell the narratives of the past. In his narrative of the past, the Malay nationalist had chosen to forget that the Malay peninsula stood at a thoroughfare of human movements in Asia over centuries. Waves of immigrants, including those from China, must have settled in the peninsula well before the British arrived as colonial rulers. In the nationalist rhetoric in the post-colonial era, descendants of those who arrived in the wake of British rule were termed Indians and Chinese, and the mixed genetic descendants of the waves of earlier arrivals were called bumiputeras, as if to underline their greater claim to belonging in the new post-colonial geographical entity. The bumiputeras were the imagined community, to use a term coined by Benedict Anderson, of the Malay nation.

Sociologists and psychologists have discussed reasons why group identity holds sway over the imagination of people, and here we suggest a conjecture about the political expression of that imagination. We conjecture that a fissure between politics and economics has developed due to the poverty of political discourse. Political leaders articulate a view of national (or group) economic interest based on the power to control geography and resources. Thus the Malay nationalist at the time of independence from British rule perceived the economic benefits in terms of the power of control over resources of the peninsula. If the outcome of economic policy based on such views enhance economic growth, that would only be a temporary phenomenon. Most of those who were described as bumiputeras in newly-independent Malaysia lived in the countryside, and they were mostly poor. But the descendants of those from western China who came in the wake of British rule were engaged in modern commerce in the coastal areas. Their ancestors came to take these opportunities as they emerged with the arrival of the British, and many but by no means all of them became rich. The nationalist political discourse was about the transfer of wealth along enthnic lines, from the Chinese to thebumiputeras. To the extent that the policy reduced poverty and widened participation in modern commerce, economic growth was enhanced. The problem is that a good outcome of policy based on faulty reasoning cannot be sustained. Policy became prisoner of the rhetoric of redistribution between ethnic lines and could not respond by developing a secular income distribution policy to respond to the emerging inequalities within the bumiputera community, leading to political paralysis in the 1990s and a financial crisis later in that decade.

An even clearer example of the fissure between the economics of nationalism and the reality of economics is seen in the discourse over the Iraq war. The first step in the first Iraq war was taken by Saddam Hussein when he seized oilfields in Kuwait in 1990 in the name of greater prosperity for the people of Iraq. Even if his greater hold on world oil supply allowed additional revenues to be generated through the exercise of market power, there is no reason to suppose that anyone other than those engaged in securing the oil fields, the military, would benefit. If there was any expectation of greater prosperity amongst the people in Iraq, it was based on a false premise.
What is even more remarkable is that this false premise was sold to the American electorate, at least for a time, by then president George Bush, Sr. He argued, amongst other things, that western economies would suffer if greater control of oil was ceded to Iraq, notwithstanding the evidence that suggested otherwise. Following the four-fold rise in oil prices in 1973, many of the countries which prospered were countries that had no oil and had precious little other mineral resources. Many of the countries that did poorly were endowed with oil and natural gas. Per capita income rose in Japan, Germany and Korea, but problems developed in Holland where the economy faltered although new sources of oil and gas became available. Economists called this phenomenon Dutch Desease, economic decline due to sudden availability of natural resources.
His advisors also failed to explain to Mr Bush that even if the seizure of the oil fields went militarily unchallenged, Iraq would control only around 12 per cent of the world oil supply at the time, hardly a monopoly control over oil. Again the evidence from the 1970s, when the use of oil per unit of industrial production declined dramatically following the rise in oil prices, only to become profligate when the prices fell, was ignored. Any temporary increase in the price of oil was likely to have been less than increases caused by the disruption to supply caused by the war. In the event, there was a recession in the industrialized nations following the war.

The problem with nationalist political rhetoric is that politicians cannot publicly admit that the groups in whose name they act seldom have a coherent economic interest by the simple virtue of being a group. Consider the difficulties he faced when the junior President Bush attempted some years ago to impose control on steel imports in the "American" interest, grouping all Americans together in this rhetoric, and also implicitly asserting that the control of steel production by US companies was desirable in the interest of the US economy. It may have been in the interest of the steel workers in Ohio for the United States to impose restrictions on steel imports but it was not in the interest of automobile workers in Michigan for steel prices to rise in consequence, rendering their cars more expensive and difficult to sell and thus putting their jobs in jeopardy. This protectionist gesture had eventually to be discarded.

Having argued that the political rhetoric about the national economic interest is often based on faulty economics, we are left with a question. What drives the faulty rhetoric? That is a question to which I have no convincing answer, but I notice that failing industries in capitalist societies often appeal to the national interest to garner subsidies. Following the second Iraq was, British and American firms that did not have the confidence that they were efficient enough to win competitive tenders began lobbying national governments for special favours, invoking the mantra of national interest. In an interview reported by F. Brinley Burton of the Reuters news agency, the Chief Executive of one of the largest construction firms based in the UK argued to be made exempt from international competition in securing contracts for the reconstruction of Iraq. The argument begins with the classic fallacy that the interest of a company is the same as the interest of the country in which the company is registered: "Let's ensure that those who have been violently against the conflict don't share in the reconstruction," he said in the interview reported on 28 March 2003, presumably referring to firms located in Germany and France. He betrays in subsequent remarks that his company might be too inefficient to succeed under competitive tendering: "The problem... is if you go down the U.N. route, that means you go to the world to get the best price. They have to go anywhere to get the best price (which is not only) political dynamite, but morally awful.."(

In this view, it is the moral responsibility of the British taxpayer in the national interest to prop up inefficient construction companies registered in the UK. Dumb economics.

The writer is Professor School of Business and Regional Development, University of Wales.