Since some commentators had expressed the view that the earlier post was protectionist, Prof. Natarajan has responded with the following comments, which I thought best to reproduce as a post.
It is true that most economists root for free trade and are against protectionism.
But I believe we need to move away from that dogma. (Incidentally the US was the first and consistent practitioner of protectionism from the 18th century until the fag end of the 20th century when it realised that it stood to benefit from a different policy.)
All systems are cyclic like the swing of a pendulum. The simplest example is the business cycle.
When the Soviet Union was dismembered the West believed that capitalism had finally won and the word socialism could be safely deleted from the dictionary, but now Russia has risen from the ashes on the back of its oil resource.
Likewise the US honestly believed that it become an invincible power, only to be challenged by the 9/11 attack.
IMF and the World bank always pretended that financial collapses of third world countries, one after another was solely the result of their domestic protectionist policies and offered a standard prescription of Devaluation to every one of them that eventually led them to repeated crises. Now IMF has admitted the inappropriateness of its diagnosis and prescription.
I therefore believe that our mind should first be freed from bias in favour of or against any ‘ism’. In a changing world nothing is permanent.
The present version of free trade as defined by WTO is by no means the last word on the subject of globalization. The original concept was mooted when capital was immovable. That has now undergone a huge transformation and the flight of capital in search of the least cost advantage is tending to cause instability. Secondly the fundamental flaw with the WTO model is that it does not address the free movement of the most important resource, namely human resource. This knocks down the claim of level playing ground. Thirdly while it compels low tariff barriers and opening up of opportunities for international competition in every sector, taking away the only means available to economically weaker countries to protect their turf, it has strengthened the power of developed countries to practise Protectionism by raising non-tariff barriers that automatically demolishes the level playing ground concept.
Now of course the biter is bit and the only tragedy is that the whole world has got trapped, with every one groping in the dark for the invisible door, not even sure if it exists, although all economic-political astrologers are assuring us daily that we are only in a tunnel that has light at the other end. In this scenario, several solutions are bound to be considered.
India had gone slow in adopting a policy of total currency convertibility thanks to the political compulsions of the coalition government, and many feel that this has providentially saved us from a greater impact of the international financial crisis.
In the current critical situation it is only natural that at least temporarily we revert to our primeval instinct for survival by ‘protecting’ ourselves till the crisis ends. This solution is a way out until WTO brings in free migration of human resource and does away with other protectionist non-tariff barriers.
I do apologise for this long reply. I felt I owe an explanation for my ‘protectionist views’, since many commentators have expressed their reservations on this issue.”