Atanu Dey On India's Development

Dutch Disease Disturbing the Universe

Do I dare
Disturb the universe?

The Law of Unintended Consequences is pretty well known, I suppose. It is part of a more general law which I call the Zeroth Law of Ecology which says that you can never really do only one thing. That is, you want to do only A and instead you find that you have also done B and C, both of which you had no inclination to do. This is because the universe is complex and all its parts are interlinked and so when you do something to one bit of the universe, you end up disturbing the whole universe.

There must be many reasons why we cannot see all the connections. There may be ignorance, willful or otherwise, for instance. Or it could be that we are not omniscient. But, I believe, it is mostly due to what is called our bounded rationality, that is we are not clever enough to think through all the complexities of the universe.

I find paradoxical stuff fascinating. A paradox is puzzling only as long as you have not figured out the full story. Counter-intuitive stuff also give me thrills. Take, for instance, the observation that many people who win lotteries end up being not lucky after all. A good many of these lucky winners end up broke and sometimes worse off than they were before they got the windfall. It is like a winner’s curse with vengeance.

These unlucky lottery winners seem to be having a sort of their own personal DUTCH DISEASE. What is the Dutch disease and how can I avoid catching it? you ask. I will tell you. Here is what I found on the web (I have lost the link, unfortunately):

In 1959 a large reservoir of natural gas was discovered in the Netherlands, which by 1976 earned that country revenues of some $2 billion in addition to an estimated $3.5 billion of savings in imports. By the mid 1970s, gross corporate investment had fallen by 15% since the start of the decade, while employment in manufacturing had declined by 16%. The total level of unemployment had risen from a modest 1.1% to 5.1%, while the share of profits in national income which had averaged 16.8% in the 1960s had fallen to 3.5% in the first half of the 1970s. While the first oil crisis had a devastating effect on most of the western industrial base, why did The Netherlands, with its new-found fortune in natural gas, fare worse than most?

This process of de-industrialisation of the existing manufacturing base was attributed to the upward pressure that the energy discovery placed on the Guilder and the wage rate, and was dubbed the Dutch Disease. Since then, the term’s use has widened considerably to encompass any situation whereby a country’s apparent good economic fortune ultimately proves to have a net detrimental effect.

So where am I going with all this, you ask. Is there a Dutch disease lurking in India’s future? That question has been bothering me. Here is what I mean. I will present only the outlines of my concern and if there is sufficient interest, I will expand on the issue.

India is a two-sector economy: the urban educated sector and the rural uneducated sector. The latter forms the base of the huge pyramid and toils away at a subsistence existence. The urban sector is seeing a boom what with BPO and ITES and all sorts of stuff. Policy makers, politicians, journalists, management gurus, TV reporters, and everyone and his brother are totally wrapped up in this incredible phenomenon. India, they all scream, has arrived. Having convinced themselves of that, they focus entirely on that part of the urban sector that is involved in the boom. This leads to a shocking neglect of the larger rural sector. Then when the boom runs out of steam, the country is worse off than what it would have been without the boom at all.

This is Dr. Atanu “Dooms” Dey signing off for now.

  • Venkat Ramanan

    HI,
    A precise observation of what is happening in India now and the comparison of the situation to the Dutch Disease is Perfect! Indians may not only suffer from Dutch Disease, but also from disorders like Bio-Chronological Disorder, eye and back peoblems which have been projected as the gifts that we receive from an IT and ITes job. and, the fact that our law makers and the media celebrate this Services Success has masqueraded the true India which still remains totally devoid of even basic needs of human beings like food, shelter and clothings.. and the services sector is also adding up to the congestion in the metros, which, in a few years time, will choke and explode.. what the heck can we do for enabling a pan-Indian development? which sectors should be of primary focus? is anyone willing to reply?

  • Prem!

    There is a tremendous opportunity for growth in the IT, BPO, teleservices and other services sectors – India is currently only getting a small fraction of business, and there really aren’t many other places on the planet with the same advantages (English education, functional computer-literacy, relatively low wages, market-economy, native companies with global reach, stable government, etc.). The urban workforce in India has global competitive advantages, and there is nothing wrong with using that human resource. So I do not think this is something to worry about in itself.

    What is needed, is to find ways in which this global exposure and opportunity is leveraged to benefit the rest of the population which is not directly involved in these sectors. I can hear the gentleman in the back-row with the phrase “trickle-down quackery” trembling on his lips, but that is not what I am talking about! What I am advocating is the active pursuit of other opportunities for exporting value-added goods and services that we enjoy competitive advantage in.

    I do see one problem with the current focus on IT and BPO services – the lure of a lucrative tele-services job is sucking away talented graduates from other disciplines – somewhat analogous to the couple of generations of urban Indian kids who were pushed into Engineering or Medicine, regardless of their aptitude for either.

    Nonetheless, I see the export of value-added services is a great opportunity that should be leveraged with a concerted plan to expand the footprint into other sectors.

    Regards
    Prem!

  • http://www.samooha.com Rajesh

    Atanu,
    You are perfectly accurate in predicting the possible “dooms” dey :-) . However, please see the link where some hopes may be there if the industry Pros take serious note of it. I may help you feel good by proving you wrong!!

    http://itvidya.com/smes_better_late_than_never_it_pros_better_now_than_later

    The situation especially with the Stock Markets is reminding me of “Soros Effect” on Tiger Economies of South East Asia. We can only pray that we will not see that repeating in the soaring and roaring Indian economy if the forces play mischief by pulling the plug sooner or later.

    Rajesh

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