The argument advanced by the Central government in favour of FDI in multi-brand retail is reminiscent of the way the colonial regime justified the destruction of craft production through imports from the metropolis.
The UPA government mercifully has decided to keep in abeyance its decision to allow 51 per cent foreign equity in multi-brand retail. What is disturbing however is the argument with which it sought to justify its earlier decision, which represents a shift towards a palpably inhumane discourse in matters of economic policy. One must protest against this shift before it becomes “acceptable.”
The official argument stated that FDI in multi-brand retail would benefit “consumers” (whoever they are), and peasants and small producers from whom the retail MNCs would procure supplies. Let us for a moment accept these arguments, notwithstanding their vacuity (exposed by C.P. Chandrasekhar in The Hindu, Nov. 30). Nobody however has claimed that the induction of retail MNCs will not harm the small retailers. Even the government's own argument that confining retail MNCs to cities with more than ten lakh people will limit the damage to petty retailers, actually concedes that such damage will occur. There is, of course, an element of dishonesty involved in this argument: since it is not worth MNCs' while to set up shops in villages, what is claimed as a restriction upon them conforms precisely to what they want anyway; but the argument itself vindicates the critics. And since the bulk of employment in petty retail at present is in urban areas, the fact that FDI in retail will cause substantial damage to the livelihoods of vast numbers of people is indubitable. Promoting it therefore is based on the presumption that distress for them should be acceptable because of the benefits that would accrue to other sections of society.
This argument however is dangerously violative of a humane discourse. It is analogous to saying that since the processing of minerals will bring benefits, by way of availability of manufactured goods, to some sections of society, the distress caused to the tribal population which has to be uprooted for obtaining the minerals should be of no concern. 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.
It is instructive here to recollect the rhetorical question that Gandhiji had asked: If “my brother” the weaver is out of work because of imported cloth, then how can I be better off by it? The humaneness of this discourse was the foundation upon which our anti-colonial struggle was built, and we came into being as a nation. The current official discourse constitutes a rejection of it.
Interestingly, the current official position is antithetical not only to the humane discourse that Gandhiji was propounding, which postulated that no section of the population should consider itself better off by some policy if certain other sections belonging to the non-affluent were pushed into greater distress by it, but also to what even conventional economic theorising suggests.
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.
The Pareto criterion has major lacunae, the most obvious being that it flies in the face of egalitarianism. If the poor continue to remain as poor in A as they were in B but the rich become much richer, then A is socially preferable to B according to Pareto despite the increased inequality. Not many would accept this view: egalitarianism may override Pareto, but not the converse. But in the case under discussion, if we introduce egalitarian considerations in addition to Pareto, then the argument against MNCs in retail gets further strengthened. Not only will their operation, no matter whether it benefits some sections of society, hurt others, but those hurt will include a substantial number of the poor. Both Pareto and egalitarianism therefore point in the same direction, namely, jettisoning the move to introduce FDI in retail. What is intriguing is that a government headed by an economist should have ignored this basic bread-and-butter economics.
Even if we keep egalitarianism aside, just to pass the Pareto test, the least that the proposed policy should have provided for is a system of compensations, effected through the government budget, for those who stand to lose by it, to be paid for by those who stand to gain from it. But then it may be asked: who exactly stands to gain from it? The government's answer to this question is palpably absurd. The insertion of some gigantic MNCs which would act as oligopsonists vis-à-vis the sellers of produce, consisting of a set of peasants and petty producers, and as oligopolists vis-à-vis the buyers, consisting again of a set of relatively small consumers, is bound to act to the detriment of both these sets. International experience, contrary to the claims of the Central government, testifies to this. But let us for the moment accept for argument's sake the possibility that a large number of people may gain from this move. Of one thing however we can be absolutely certain, namely that the MNCs will gain from it. It stands to reason therefore that the MNCs should be asked to pay for compensating the petty retailers who will lose from their entry, and that they in turn can recoup this by charging whoever gains from their entry. (And if this makes transactions with them unattractive for buyers or sellers, then so much the better, for it will then serve to prevent the supplanting of petty retailers).
For the introduction of FDI in retail to be at all a credible measure for consideration, it is essential therefore that it should be accompanied by a system of compensations for the losers, for example in the form of an Income Guarantee Scheme for the petty retailers. Even with such a system of compensations, FDI in retail can still be objected to on grounds of violating egalitarianism; but without such a system it is simply not worth considering at all. And if such a system of compensations is considered infeasible on administrative or any other grounds, then too it follows that FDI in retail is not worth considering at all.
The process of destruction of petty business by capitalist enterprises was referred to by Marx as “primitive accumulation of capital.” While Marx had seen primitive accumulation as occurring at the beginning of capitalism, it obviously characterises the entire history of capitalism which is marked by violence and predatoriness. But unleashing a process of primitive accumulation of capital, such as what FDI in retail amounts to, is not only violative of humaneness, but also undermines both democracy and the foundations of our nationhood. Having a system of compensations, say in the form of an Income Guarantee for petty retailers, is one way of preventing primitive accumulation of capital. It still does not make FDI in retail acceptable; but it makes it minimally worthy of being placed on the table for discussion.
What is frightening about the current situation is the way measures which are not even minimally worthy of discussion and which entail primitive accumulation of capital, are being imposed upon society through executive fiat. And, to justify this, as many have pointed out, one section of the poor is being spuriously projected as constituting gainers, so that the distress caused to another section can be conveniently overlooked.
(Prabhat Patnaik held the Sukhamoy Chakravarty Chair at the Centre for Economic Studies and Planning, Jawaharlal Nehru University, New Delhi.)