- Dec 4, 2017
I have always believed that economic problems are always laced with political undertones, just never realized how much. Thank you sir for the excellent write up. I am so sorry putting you through the trouble of typing all that, regrettably I will bug you a bit more. The true oligarchs in Pakistan is the military as you rightfully wrote. Most of their produce is commodity goods like cement. So, technically speaking ramping up cement production in India should cut our import(however little) from them and also make us more competitive in global markets, further hurting their exports prospects. Pakistan is largely speaking an agricultural economy, their economy is not as diversified as ours. Their agriculture much like ours depends heavily on the elements. A lack of water for example can have devastating impact on their agriculture, reason for all the Indus Water Treaty rumblings. It seems to me that there is a lot we can do to hurt them economically, yet very little action is seen on the ground. Why is that ? Are their any legal barriers preventing us from taking punitive economic action ? Or is it something else ?
Its no trouble at all....members from another forum know just how long I can type things up on certain matters ...its the teacher in me I suppose. I also like to see how my thoughts on issues comes out in written form....so don't worry...its no trouble but fun.
As for Pakistan economy being not as diversified, thats true. But there is not so much we can do internally.
If you look at say the poorest African country, as long as it is within its means externally (trade, loans, investment etc i.e stuff that brings in currency not under its control)....internally there is not much another country can do sanction wise (i.e people grow food, eat that food, do some basic production of other stuff and build dwellings....all using the currency the country creates and manages by banks for that).
The only thing that is a country's sensitive spot w.r.t others is the external footprint/imprint (i.e stuff you cannot make yourself in reasonable timeframe/effort...so you need access to what others can sell you and pay for it by selling them stuff you can make). It surprised me that only now India revoked trade advantages that Pakistan enjoyed and is starting to build up pressure (i.e tariffs on top of that). However it needs far more concerted effort with other countries given Pakistan mostly gets bailouts/loans and engages in trade with those countries compared to what it does w.r.t India.
Your example of one industry (concrete) is little more nuanced as we would need to explore what absolute advantage vs comparative advantage is....that just gets a bit complicated....but conclusion is another supplier can still compete with you on your own turf even if you have full realised economy of scale (because you have found even MORE productive use for the resources going to that industry whereas they haven't so they sell for less to you etc even though you are more efficient/productive/cheaper because you would rather make more money elsewhere from same set of resources).
A binary option to MNCs (and developed countries organisations more broadly, given their govts would not be too responsive so its best to bypass them altogether) for example should have been given right after 2008 mumbai attacks....either you can engage (invest, trade , operate) with Pakistan or with us....but not both.....but maybe Indian govt did not want to rock the boat too much economically. Now we have grown much more and our trajectory is much more solid too.....so I expect next administration to take some action on this front. Make examples of every MNC that continues to operate in Pakistan....India can afford to lose a few given we have plenty operating inside India to take the place of those that choose wrongly. We are no longer dependent on just a few.....the market size is large and resilient enough now....so time to start using that. Make Pakistan fully reliant on Chinese SOEs and a mix of standard gulf investors.....in fact we can start checking how far we can push UAE (regarding the latter) on it too....they have really commited lot more to India than Pakistan....and just need bit of extra nudging I feel. But first get EU, USA, Japan, Korea, ASEAN, Australia etc... companies to make the "tough" choice....rest will follow depending on what we can prove there.
How do you explain the "till now insulated" economy of China with over 600 million apartments lying unoccupied in Ghost Cities, all of this happening with massive funding from Central Banks of China. Still the CNY is appreciating.
China is interesting case. The govt is a complete static monolith that has flipped on its earlier fully Marxist doctrine (keeping only the authoritarian aspects, but ignoring the process methodology).
So basically in the 80s, they went for greater foreign participation in their economy and have not looked back.
Why the bubbles in certain sectors (like real estate which you have pointed out) have formed is due to the overriding govt intervention present again (this time afforded a large buffer from the more productive and competitive industries). It is basically what the Chinese govt can "launder" for use in less competitive "internal" sectors...with the goal of providing easy employment (construction is notable one, mining is another....construction/mining etc workers don't need a heck lot of investment to train...nor do they face much competition from other foreign labour pools etc).
Hence not only do we have ghost apartments etc....there is also massive renovation always going on (one observer I know noticed that malls basically get redone every 3 years which is ridiculous....and a clear employment over market need based scam).
China has basically bulked up enough elsewhere (electronics, manufactures etc) competitively plus has created a forex stockpile over the years to subsidise its employment further. Think of this as holding back + investing foreign earnings rather than using it to consume products from the producers of other countries. If you did the latter, it makes more productive/market sense overall....but at cost of a huge amount of jobs internally. Basically China operates fully on jobs + prevent revolution/upheaval tendency in the short term (because they allow ZERO political process from the actual people). Market economy is delegated more the mid and long term objective.
That is why huge part of Chinese economy is still state run.....it is the bridge between the overriding short term goal and mid+long term stuff. No matter what they say otherwise, I have it on good authority (from a CPC defector) that Chinese govt was and still is spooked a huge deal by Tienanmen massacre.
This kind of stuff comes out much later too as well (but is part of the overall thing going on in China):
The answer for the anomalous Chinese model normally comes from asking the "why" rather than the "what and how".