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Demand and supply

But for most of us in Pakistan, May Day was just another holiday. The closest we came to the spirit of the occasion was when we briefly saw some workers marching on TV. Many of us probably muttered "Losers!" before we switched channels.

The vulnerability of workers, even in the West, came home to me in a recent newspaper article describing the woes of a small East German town which had been home to a factory that has recently been shut down, and its production shifted to Thailand. This factory had employed several generations of German workers. Globalisation does not respect national boundaries or history.

When workers protest in Karachi against privatisation and the resulting job losses, they are read the mantra of efficiency and market forces. But anybody suffering from the repeated and extended power cuts in Karachi these days can be forgiven for wondering how the privatisation of KESC, the local power company, has improved matters. Reports indicate that it is prone to much the same muddle and corruption as it was under state control.

Adam Smith, the father of modern economics, once referred to the forces of demand and supply as the ‘invisible hand’ that regulated the market. According to him and subsequent generations of liberal and neo-liberal economists, the best the state can do is to stand clear and allow the market to deliver.

Unfortunately, the market is not the benign force its champions insist it is. Uncaring of human happiness and tragedy alike, it can ruin lives and destroy nations. And yet it has no moral dimension: a worker whose job has been lost due to automation can scarcely hold progress responsible. A country invaded and colonised because the price of its principal commodity has shot up cannot rail against market forces.

The forces of demand and supply work implacably through stock and commodity markets, shopping malls and the corner grocery shop. Billions are made and lost as prices rise and fall. And as communications improve constantly, the effects of local incidents are felt around the world in minutes: thus, Hurricane Katrina in Florida pushed up petrol prices in Pakistan overnight.

A couple of years ago, I attended a conference organised by a neo-liberal group in Sri Lanka. Much of the discussion focussed on the need to reduce the role of the state. While I agree that governments are a disaster when it comes to running industry, surely there is a case for state intervention in the social sector. For instance, liberal theory holds that when the market needs educated people, it will put in the resources needed to educate them. But when there is a surplus, resources will move elsewhere.

In a heated discussion, I asked what happens in poor pre-industrial states? If there is little demand for educated citizens, does this mean there should be no schools? ‘The market decides’, was the answer. But surely this is a very cold-blooded way of deciding the future of millions of people.

While the rich want market forces to operate freely, they are not prepared to follow the logic of capitalist theory all the way. According to this system, goods, labour, and capital should be able to move freely wherever they are most efficiently utilised and where the returns are highest. But modern champions of the free market are not willing to allow labour to move without tight controls, while they insist on the free movement of goods and capital.

So where does this leave the have-nots? Very vulnerable to distant market forces that can create jobs, and just as easily abolish them. The workings of the WTO arrangements are a case in point: while developing countries are obliged to open their markets to goods from industrial nations, their farm products are subject to all sorts of restrictions and duties. These distortions in the market are reflected in obscene subsidies provided to Western farmers, and in the abject poverty on Third World farms. And just as globalisation has flattened individuals and nations, so too has it trampled over culture and traditions. Jeans and pop music have virtually driven out local dresses and musical traditions around the world. Rubbery KFC fried chicken has taken a big chunk out of our delicious chicken tikka market. And this is the beauty of the system: you can create a market overnight where none existed. Where the market reigns supreme, the marketing man is king.

But the fact is that globalisation has created millions of jobs, and transformed a huge, backward country like China. With growth rates running in double digits for years, its economy is now the fourth biggest in the world. Indeed, high petrol, steel and cement prices can partly be attributed to the strength of Chinese demand. However, where there are winners in the global system, there are bound to be losers: many jobs in Pakistan and elsewhere have been lost to cheap, efficient Chinese labour.

So does the state have a role, or should it allow market forces to work their blind magic? Our experience shows us that state capitalism is the most inefficient system conceivable. Nationalisation has cost our economy an incalculable amount. Experience around the world has taught us that the state must not get involved with manufacturing.

Nevertheless, we cannot allow the private sector exclusive control over the social infrastructure. For one, good education and health care would be beyond the reach of the common man. Unfortunately, in Pakistan, the state has been unable to provide acceptable medical services and education. But this is largely due to under-funding and the inbuilt inefficiency of our bureaucracy. In other countries, the state does run decent institutions for its citizens from their taxes. This is something we need to emulate.

What then are the lessons of May Day? Do we surrender before the market forces that are changing our lives? Or do we try and control them? It is clear that the unchecked operation of Adam Smith’s ‘invisible hand’ provides the most efficient use of resources. But is economic efficiency the only criterion? How long can we live with the depletion of natural resources, and the degradation of the environment? Morally, can we leave the weakest sections of society to starve while the lucky ones live in luxury? Should we live by old maxim: "The devil take the hindmost?"

Surely we need to look for a gentler, more user-friendly model than the market system that is rolling over us like a juggernaut.

Irfan Husain is an eminent Pakistani commentator based in London. He can be reached at irfan.husain@gmail.com