Wednesday, December 28, 2011

Crony Capitalism Shuts India's Doors To Wal-Mart

From my editorial in today's Investor's Business Daily (with Sy Banerjee and Tom Hemphill):

India's Prime Minister Manmohan Singh and his Congress Party recently capitulated to political pressure and reversed their earlier decision to expand foreign direct investment in India's nearly $400 billion retail sector, which would have bolstered a slowing domestic economy and created millions of new jobs. Call it India's version of America's recent "Keystone XL pipeline cop-out" — and an illustration that it's not just America's political leaders who talk about creating jobs but then frequently defer to favored special-interest groups and leave jobs on the table.

By delaying retail foreign direct investment, the Indian government has protected the intermediary status quo, and ignored the plight of 500 million desperately poor Indians living on farms who have publicly voiced their support of allowing retail giants to enter the Indian market.

For decades, the intermediaries and middlemen of social and financial status have formed a powerful political force that now perpetuates a humanitarian tragedy by continuing to be protected from foreign competition. By delaying the decision that would allow multibrand retailers like Wal-Mart to enter India's booming retail sector, the Indian government is passing on a valuable opportunity to energize the retail market, create millions of new jobs and break the supply chain cartel that has impoverished India's small farmers.


At 12/28/2011 11:32 AM, Blogger sethstorm said...

Yet the same thing keeps it going in the US.

This isn't leaving good jobs on the table, it is simply recognizing Bentonville's defective merchandise as defective.

At 12/28/2011 11:39 AM, Blogger Krishnan said...

It is indeed very unfortunate that ManMohan Singh did what he did ... WalMart would have electrified the retail sector - brought innovation in the supply chain logistics, created millions of jobs, save billions for the consumer - all in all a terrific deal (yea, WalMart is but one company - there are others who would also invest).

As in the US, the rich get richer because of political connections and cronyism - by preventing the consumers from deciding who they want to support - the poor suffer, as they always do when the rich/connected grab the goodies.

It is indeed reprehensible.

At 12/28/2011 2:48 PM, Blogger Luther for Liberty said...

I think it confuses people to tie standards of living to "jobs". ANYBODY can create jobs - even terrorists create jobs by blowing things up that need to be replaced. Throughout history there is no lack of work - most people had to work extremely hard to just *live* a few decades. The real beauty of capitalism and free trade is the higher standard of living - the REDUCTION of human effort necessary to maintain the same standard of living - the realignment of capital to be put to its most efficient use, thus improving the standard of living for the same human effort.

The average person (and maybe I'm one of them) sees that the introduction of Walmart would reduce the amount of labor/capital necessary to provide the same level of consumer goods - no jobs created there, save some shorter term planning and construction jobs. It is from the SAVINGS to consumers available through lower costs that investments in other more productive ventures may occur (thereby creating more productive jobs through specialization).

I think this argument fails among most people unless you can connect those dots.

At 12/28/2011 3:46 PM, Blogger kmg said...

In India, this is particularly shameful, since the shopping experience is terrible, given that the retail sector is still stuck in the 19th century.

At 12/28/2011 5:13 PM, Blogger ChicagoMark said...

I believe you have made an error in reasoning when you say that Wal-mart would create jobs. All Wal-mart has done anywhere it goes is move jobs from one area (main street) to another (big box store) at a lower wage level and no benefits. If I was a laborer in India, I would applaud this gutsy decision. If only our politicians had the same guts to stand up to corporate interests.

At 12/28/2011 5:33 PM, Blogger Benjamin Cole said...

Reminds me of the domestic liquor industry--tightly controlling who sells liquor, limiting competition within each state.

Time to end all liquor laws, exempt perhaps on health and safety.

At 12/28/2011 8:26 PM, Blogger Dorian Gray said...

The popular media in the west considers Walmart an evil, because they operate on some basic assumptions. Like prices are paid based on market forces, people have a basic standard of living/entitlement to start with before Walmart arrives, if a retail entity engages in using physical force against a vendor they are punishable by law in a civil court, etc. Unfortunately,western media has no idea about how things work in the Indian agricultural sector. Where an intermediary can use muscle power or social status to force a farmer to sell produce at abysmally low prices, where 550 million people cannot afford to consume the minimum calorific content. Moreover,many of these intermediaries own the local law enforcement which rules out any intervention by police or courts. A scenario where 0.25 million farmers drink pesticide to evade debt and their widows give up the eldest sons (bonded labor) to the intermediaries that own the land for a payback of 160$ per year. When Walmart enters this scenario, they look a saint compared to the rest.

At 12/29/2011 1:54 PM, Blogger Jon Murphy said...

I wonder if this move will frighten off other foreign retail investors into India (Target, for example). The unseen consequences for standard of living in India here could be huge.

As an aside, I guess we see more evidence of a simple fact: capitalism ends poverty while restrictions create it.

At 12/30/2011 9:45 PM, Blogger james said...

What about Crony capitalism in the united states. How many doors have been shut because of crony capitalism. A good website to vist to find out how exsisting businesses use local government to erect barriers to entry for small upstart businesses. Anything to unnecessary licenses to zoneing restrictions and more.


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