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Empire Nation Part 3: From Barriers To Compartmentalisation

CPS Home > Talking policy > Empire Nation Part 3: From Barriers To Compartmentalisation

DISCLAIMER: The information and views set out in this article are those of the author(s); and do not necessarily reflect the views of the Centre for Policy Studies or the Indian Institute of Technology Bombay.

This is Part 3 of a Three-Part Series. Click here for Part 1 (How India’s Internal Division of Labour is Colonial and What We Can Do About It) and here for Part 2 (Backward Cities Need Each Other)

By Anush Kapadia

When societies break, social scientists get more information about how they work. Just so, when an immediate lockdown of the Indian economy was called by the PM on March 24th, a cascade of misery emerged as poor migrants in shuttered cities started to flee to their homes by any and all means. I argue that this illustrates a kind of internal, economic colonialism within India. And, remote as it may seem at this moment, this crisis might actually give us an opportunity to break this pattern.

This essay is divided into three parts. Part 1 outlines the difference between political and economic colonialism and suggests that India’s internal economic pattern might be described as colonial. Part 2 provides a very brief, thumbnail account of the ideas of Jane Jacobs (1970, 1985), who re-redefined economic development as the process whereby local networks of cities undertake work that is import-replacing. Part 3 suggests that such networks might actually be catalysed in the conditions prevailing under the Covid-19 crisis, namely a fragmentation of inter- and intra-national economic space. Some barriers or compartments are highly functional for import-replacing work to take off, so there might be a way to make a virtue of the crisis-driven necessity of breaking up economic space.

Part 3: From Barriers To Compartmentalisation

The question for development policy, from this point of view, is: how do we catalyse ‘volatile’ intercity, import-replacing trade of this kind? The answer is: get out of advanced-backward trade, which is a dead-end. Just as free trade within empire was a dead-end for the “Indian economy,” so is (relatively) free trade within our internal empire nation a dead-end for our more backward regions. 

One way out of this destructive pattern of trade is to impose tariffs: this was the economic logic of anti-imperialism and ISI policymakers alike even while they lacked the urban insight of Jacobs. Even Jacobs, far from an old school mercantilist, recognises that tariffs are required, if only to signal to a region that it is not earning all its imports through export work. 

Note that this is also how a large nation like China has managed its federalism: substantial powers to sub-sovereign units, differentiated areas with SEZs, an internal passport system and so on. While there are serious limits to some of these policies in a democracy, we can analytically separate the undemocratic element from the functionality of compartmentalisation. Our challenge in India is to achieve this is by means of democracy.

Our current world was created by the ideology of ‘liberalisation’ and free trade, i.e. the removal of tariffs to the maximum extent possible. As we noted in an earlier post, nations that developed did so by violating these maxims rather than observing them, but of course there are powerful interests behind these ideas seeking market access and raw materials just as in the period of classical imperialism. The idea of free trade has from its inception been the handmaiden of powerful capitalist interests, no matter where they come from.

The poverty of this idea has been on display for at least over a decade since the global financial crisis; that economic model continued to wreak havoc with middle class incomes even in developed nations to the point where it fuelled right-wing, populist movements as blowback. We know that international trade with its globe-spanning supply chains is boiling the planet. And now, the Covid-19 crisis has once again illustrated that global specialisation of the comparative-advantage type leaves us all vulnerable when these fragile supply chains snap.

In short, whether because of inequality, instability, or climate change, we have been in need of a new economic model for some time now: one that emphasises local networks of productivity rather than international trade that settles into a very familiar colonial pattern, whether within nations or between them. Yet tariffs are verboten. We have painted ourselves into a very vulnerable corner.

One way out might be to rethink tariffs in light of the idea of development outlined in the last post, one that centers on networks of import-replacing cities. Rather than positioning tariffs or other impediments as “barriers” which rhetorically set them against “freedom,” it might be more useful to think in terms of system robustness derived from the idea of compartmentalisation. 

The effect of Covid-19 on global supply chains seems like yet another nail in the coffin of neoclassical trade theory and its fellow traveller, liberal internationalism. Connecting everything to everything else in the name of efficiency and openness has led to all kinds of pathologies.

The principle of firewalling or compartmentalisation is virtually ubiquitous in both natural and social systems. Of course, the very term “firewall” originated in fire safety in connected buildings before it migrated to information systems. One cannot achieve even a moderately complex division of labour without compartmentalisation. 

And yet the neoclassical/liberal fantasy consistently runs against this common sense in trying to connect everything to everything else by removing ‘barriers to trade’ and other associated ‘frictions’ and ‘transactions costs’. 

Yet given the centrality of city regions for development, as outlined in the last post, we need to move away from the nation-state as the unit of analysis and open the black box of national economic space to think of how we might achieve functional compartmentalisation within large, federated nation states like India.

Of course, we have a version of liberal-connectionist thinking in India: the Economic Survey (2016) itself heads the chapter on what we are calling our colonial division of labour by citing ‘One Economic India’; GST operates under the mantra of ‘One Nation, One Tax’; and the central government has been pushing a pan-Indian electronic trading portal called the National Agriculture Market or eNAM on the states. 

This utopia of a flat economic world has to now stop having any currency. Unfettered markets have never been good for backward regions: just ask Greece, virtually deindustrialised after brutal competition from German industry, how it feels about the European Union.

The writing is on the wall: the optimal is not defined by the deepest integration. Firewalls and barriers are highly functional elements in designing complex systems. We need to give barriers their due instead of always framing them as somehow anti-modern or anti-freedom. Of course they can tend in that direction, but as this crisis shows, the alternatives are hardly more efficient or freedom enhancing on balance.

Covid-19 as compartmentalising?

This brings us to a response to our current crisis. If development means catalysing local networks of backward cities into import-replacing dynamism, how are we to achieve this within one large, unevenly-developed empire nation? 

Just as the removal of barriers by itself does not spur development, the existence of barriers by themselves does not spur growth: India had substantial internal barriers to trade before the implementation of GST and continues to have them even now (Van Leemput, 2016). Indeed, in many ways the nature of the internal barriers, limiting especially agricultural goods, has perhaps directed interstate trade towards manufacturing and migration along a colonial, advanced-to-backward pattern. Simply liberalising internal agricultural trade, as is often called for, would lead to much of the nation turning into stagnant supply regions for megacities. This might lead to pumping out agri cash crops at a higher rate of productivity, but higher productivity is defined by less labour inputs: where would these surplus workers go in the absence of teeming city economies?

Perverse as it may sound in the grips of a crisis, the breakdown-through-lockdown of national chains of manufacturing and migration might actually present us with an opportunity. The decline of China-based trade links presents an opportunity to be sure, but in the absence of an ecology of ‘volatile intercity trade’ we have no way of taking advantage of the opening. The upstream challenge, therefore, is to create a context for such backward city interchange.

With city migrants cascading back to their homes in backward states, and with all kinds of links in the colonial pattern now (temporarily?) severed, we have a situation that actually resembles the historical period before nation states emerged and consolidated as political spaces, similar in terms of challenges to long-distance trade and movement to the milieux in which Venice came of age in the 13th century. 

Further, these city workers are returning to their native places from all manner of city industries and workshops: they have city skills that can be used to set up small workshops that can seed businesses that replace imports (now out of reach) from advanced states and export them to other backward regions. There is some precedence for this: successive waves of national tragedies in China, often self-inflicted such as the Great Leap Forward, created a robust decentralised network of townships populated by returnees from cities. As David Ellerman (2004, p.518) observes, these crises 

‘…worked to decentralize industry away from the cities and to create a more regionally self-sufficient cellular economy, particularly in the large coastal provinces (each one comparable with a fair-sized country elsewhere)’.

These little repair shops and workshops were busy learning their trade, improvising and replacing imports of necessity as national economies had collapsed in the wake of national tragedies. Thus when liberalisation came in the 1970s, they were well-placed to take advantage of the opportunities and would flourish as the now-famous Township and Village Enterprises or TVEs. 

In order to get the same ecosystem up and running in India’s backward regions, and following Ellerman’s suggestion, we might supply some old machinery to these regions and have displaced city workers start to produce and trade with each other in order to replace imports from advanced regions now made more distant by the virus. 

We might start with the healthcare economy that will be in large demand after the crisis: it needs all kinds of protective equipment and machines like ventilators that returning migrants can set about producing in small towns around the nation. Our migrant workers in the “informal economy” are storehouses of manufacturing talent waiting to be tapped. Take this example of a metal recycling workshop in Kurla, Mumbai, where workers operate an old, dangerous lathe to some effect (Parpiani, 2020):

A worker of a lathe machine notes, “any metal thing can be made on this machine. I can literally take apart a motorcycle and make its every part on this machine.” They know their work inside out, and take pride in it. “Bas paper ke engineer nahin hai, baaki toh lohe mein sab ki PhD hai” (We might be lacking a formal degree in engineering, but we have doctoral level of knowledge of everything metal), says another worker.

Armed with such a skill set, and now returning to their homes in backward regions, such workers might be employed to make the myriad machines required by a burgeoning health sector. We need a process to map the skills of returning migrants and match them to emerging needs in the essential services sector, from health to food supply chains. That will create export-work for the backward cities to which our migrant populations are returning.

Following from that, they might start improvising (a commodity we are not in short supply of) and create spin offs in adjacent directions to diversify their economies and thereby truly develop and free themselves of their immiserating colonial pattern. As Jacobs reminds us, Japanese cities started off repairing imported bicycles and took it from there.

Decentralisation has to be our watchword if we are to restart the economy while observing the rigours of physical distancing. The old nostrums of free trade, of connecting everything to everything else, have produced fragile systems that were immiserating in their colonial patterns. There can be no going back to that world or those ideas. Once the crisis abates, we ought to take advantage of our internal barriers to trade rather than see them as so many frictions to be ironed away. We have to build on city regions that already exist and turn a crisis of connectivity into a hothouse of intercity trade.

Acknowledgements: My thanks to Siva Arumugam, Srinath Raghavan, and Rahul Srivastava for helpful comments. All errors remain mine.

References:

Ellerman, D. (2004). Jane Jacobs on development. Oxford Development Studies, 32(4), 507-521.

Government of India, Ministry of Finance. (2016). Economic survey.

Jacobs, J. (1970). The Economy of Cities. Vintage.

Jacobs, J. (1985). Cities and the wealth of nations: Principles of economic life. Vintage.

Parpiani, Maansi (2020). Fighting Fires: Migrant Workers in Mumbai. Economic and Political Weekly, 55 (14), 13-15.

Van Leemput, E. (2016). A passage to india: Quantifying internal and external barriers to trade. FRB International Finance Discussion Paper, (1185).

Image: Ken via. Flickr (CC BY-NC-ND 2.0)

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