Monday, February 13, 2006

Z e r o S u m G a m e

There is a big mystery that has been puzzling me since childhood. It is the persistent economical poverty of some nations in spite of the dazzling technological advances of our age.

How come two-thirds of the world population still live in poverty - their standard of life not any different from that of medieval Europe (15th century AD) before the industrial revolution happened ? How come the benifits of the modern industrial / communication revolutions do not reach them ? What is keeping them behind ?

Neither do these answers come intuitively to me nor am I a student of economics. But I hope to discover these answers somehow. Today's post is one of my attempts to start a debate which has been brewing in my mind for sometime.

Is it inevitable - that some societies remain economically backward - for technological progress to happen ?

Many economists argue that economical progress is not a zero-sum game. In the sense that, trade is beneficial to both the parties. I reckon that a complex mathematical theory exists for studying the rules that govern this relationship. My knowledge regarding this topic is very dim.

But I want to raise a new and parallel question - how about technological progress ?

During the ancient and medieval ages (in fact ever since the days of river-valley civilizations) the societies which engaged in trade gradually grew rich and prosperous. More so were the societies which controlled the trade-routes.

But with the industrial revolution, the situation turns a bit more complex.

The new thing with the industrial revolution is that many people who are previously employed as skilled labour lose their jobs. During the previous ages, this did not happen in such massive scales. Further, this newly unemployed people cannot be readily accomodated - even as unskilled labour. Gradually, in the course of time (approximately 25 years - the time of one generation of people) the society gets adjusted to the new scenario. People get trained in operating the new machines and new jobs get generated. But it is important to note that this process is not smooth - it is not instantaneous. Skilled labour demands education, and this education demands several sacrifices and changes in the lifestyle of people. It is not easy, it is easier to educate children (That may be one reason why the time of 25 years)

During industrial revolution, most of the means of production become machinized. Due to this, the productivity increases thousandfold and there would be a rapidly accumulating heap of surplus. The economic cycle of the society has to run faster and faster to catch up with this abundance of surplus. Now this presents an interesting chicken-and-egg problem.

With several people becoming unemployed, who would purchase this surplus ??

If we look at history, this question has been addressed differently in different societies.

Western Europe (Britian, France, Spain, Portugal and the neighbouring countries) quickly started to build colonies in the aftermath of the industrial revolution. This colonization has been greatly facilitated due to the vacuum that was temporarily created due to the absence of major powers in Asia and Africa. This was one of the major turning points in world-history (Possibly, the biggest turning point)

The colonies have presented avenues of cheap labour and raw material, but more importantly, they presented a huge market for the fruits of the industrial revolution. Further, the demands of maintaining an imperial army consumed huge amounts of economical energy. Together, they have set a rapid momentum to the wheel of economical cycle.

This has greatly facilitated a smooth transition to the industrial age without major famines or bloodshed or revolution.

Karl Marx, in his study of the Capitalist society, has failed to realize the importance of colonization for the industrial revolution to happen. This has been accomodated very later by the work of Lenin in the 20th century.

Eastern Europe and Russia had to suffer greatly due to the lack of colonies. The industrial revolution did not proceed smoothly and resulted in a communist revolution. But the chicken-and-egg problem persisted during the reign of communism.

Stalin introduced the 5 year plans to trigger the industrial revolution. But this did not happen overnight. Russia had to suffer a series of terrifying famines during a time of 30 years. People were forced to buy surplus that was useless to them. Agriculture received a severe jolt and several people perished of hunger. All this was kept tightly under control from inside the iron curtains.

Economical progress may not be a zero sum game. But technological progress is possibly one. It may be true that the society gets adjusted to the needs in due course of time. But atleast for some period of time, I reckon that somebody has to suffer.

The first and the second world wars were essentially fought for colonies. Even though some countries (most notably Germany) lost the wars, the machinery of war consumed a lot of economical energy and set the industrial revolution rolling. After the war, during a time span of about 25 years, the German population have regained their morale and rebuilt their nation.

Second world war presented an opportunity for Russia to build a set of colonies - in Poland, Belarus, Ukraine and the Eastern Europe (though technically they were not called colonies). This has further fuelled the Russian industrial apparatus.

The United States of America has been very lucky in possessing virgin lands and wild natural bounty. This has kept the citizens busy as they studied the Industrial Revolution in tranquil peace, during which time, hell was brewing in Europe. When the industrial apparatus in the USA started ticking, the surplus was slowly being shifted down to South America (which woke up later and due to which suffered greatly). Also, the second world war created a host of hungry consumers in Europe whose apparatus was damaged due to the war. USA was quietly making rapid money without even participating in the war. By the time Japan dragged it in, it was already an economical superpower.

A slightly similar explanation can be provided for Australia and for New Zealand.

The industrial revolution in Japan was greatly fuelled by the war apparatus of the second world war, during which time the Japanese also gained a plethora of colonies in East Asia. Even though the war badly damaged the industrial apparatus, the Japanese citizens were already educated and the society was adjusted to the demands of the industrial age. They quickly recouped in a span of 25 years.

Tiny countries in South East Asia (Taiwan, Singapore, Hong Kong etc) woke up earlier than their neighbours in the charge towards industrialization. They benifited enormously from the fact that it is easier for leaders to rally a smaller nation. Apart from industries such as shipping and sea-trade, these countries also encouraged tourism.

The Arab nations were the luckiest of the lot. For they were sitting on top of the world's oil reserves. They moved into the industrial age painlessly (Even without educating their citizens properly to its demands).

China had to suffer more than Russia in the quest of industrialization. Several of the 5 year plans flopped and the Chinese citizens suffered some of the worst famines of the 20th century. Again, this situation was tightly controlled from behind the iron curtains. Later, globalization presented new opportunities to China and it was quick in realizing this. It invited active foreign investment and this strategy has been doing very well so far. Several ex-compatriots who have settled abroad actively invested in China. Due to cheaper labour and infrastructure costs, China was able to cut down the manufacturing costs and compete with Europe and USA. This has quickly created a protectionist sentiment amongst the European industry. Only, time will tell us if this conflict gets resolved without any tension.

India was massively exploited during the British Imperial rule. Also it could not industrialize as rapidly as China did due to it being a free democracy. But Indian citizens are slowly getting educated and trying the globalization strategy now. India holds some advantages such as a large English speaking community - which is helpful in the services industry. It still has to make major forays into the manufacturing industry.

But where would this surplus get sold ? Where would the new markets emerge ? Would the transition to an industrialized age be smooth for India and China ? Where would the old workers be accomodated in the face of unemployment ? Would the transition be harsh or smooth, or would it take 25 years ? (Presuming that the next generation of individuals get educated properly. If not, it will take even longer)

What about Africa ? Do they have any prospects of development ? Can it ever get industrialized ?

Would the earth's oil reserves and environment support a thorough industrialization in all the countries (all of them consuming massive amounts of petrol and exhuming pollution ?)

Clearly, I see an incentive for developed countries (Europe and the USA) to keep some population perennially backward. Do they have an active hidden strategy which we do not know ?

How else can you explain the reluctance of western powers from investing in the manufacturing industries in places like Africa ? Or even in places like India where they get cheaper labour ?

What's the deal ?


omega said...

nice post!
raised some interesting questions..

Halley said...

You might find some more answers by reading this book titled "globalisation and its discontents" by Joseph Stiglitz.
Btw have you read this book before ??.
It discusses in detail one of your questions "How come the benifits of the modern industrial/communication revolutions do not reach them ? What is keeping them behind ?".

Kiran said...

@halley :
Joseph Stiglitz is a huge influence on my thinking. I read his book called "The roaring nineties" You might also like it. I still have to read his first book. Soon - I can't stand this guilt for longer.

mOby said...

I havent gone through your entire article. but one thing i have realized after working in this field for 8 months is that economics as a predictive science is crap. Economics has always been and will always be a tool for post-mortem analysis. After the chicken has been cut and all the blood has been drained the normal economist comes up with a book and a theory on how a knife was can be used to cut a chicken and how it will bleed afterwards.

Kiran said...

Mr. Kiran Chandra of FSF-AP has given me some nice comments on the telephone. I think it's my duty to post them in here. Also, he is the one who recommended me to purchase the Joseph Stiglitz book - which actually got my thoughts rolling. So, thanks to you Kiran Chandra.

KC thinks it is not right to criticize Marx for not fore-seeing the impacts of imperialism. After all, he was a human and he always corrected his mistakes whenever he made one.

Secondly, KC feels that several other factors contributed to the famines in USSR. And a bigger role in the demise of USSR can be traced to the reign of Brezhnev rather than that of Stalin.

Thirdly, KC appreciated me for pointing out the several misdeeds of the USA. And he requested me to write more on that. Sure will do KC, thanks for your valuable comments.

@Moby :
Hi buddy, what you said makes sense. But isnt it too fatalistic to think like that ? If not through economic principles, how do you evaluate the shares to purchase on the stock market.

What I think is that Economics, in its current state, is inadequate for major predictions. But I think it gets better with time.

Why don't you write comments on the rest of the ideas in my blog ?

Kiran said...

I was having a chat with Rajan this evening and among other things we talked about this post.

He told me that terminologically zero sum game might be wrong because somebody is probably gaining more than what somebody else is losing. And I think he is right.

What I wanted to convey is that technological change might not be this rosy path to the golden land of milk an honey. And that inevitably some people have to suffer in this path.

Rajan said that I am probably right about this and that history is replete with examples illustrating this.