Just What India Needs

Over 20,000 people took to the streets of Mumbai yesterday to protest the entry of Wal-Mart into the Indian market. The Indian retail sector is worth an estimated $370 billion, only 5% of which is made up of supermarkets and chain stores. The rest consists of small merchants. The conflict here is not about corporate homogeneity vs. Mom n' Pop diversity, or Westernization vs. Indian traditionalism. It's about the destruction of jobs. The NY Times reports:

"Those against private retail say 40 million jobs will be lost, against the 2 million that modern retail promises to create.
"They have government support, financial muscle. It is like they are boxing with gloves and we are being asked to fight bare-handed without any protection," said Sharadkumar Maru, head of a grain merchants' association."

Some Indian activists argue that the erosion of small-business market share by Western multinational retailers (not just Wal-Mart) will have a far larger impact than 40 million jobs. At a talk in Washington, D.C. in September, Vandana Shiva said:

"India is a huge, huge land of bazaars, of huts, of markets. Every street is a market. Hawkers come down in the morning, get us our vegetables to our doorstep. Of course, that's not very good for Wal-Mart so they're manipulating zoning laws, shutting down hawkers, shutting down businesses in town, so that we will have a Wal-Mart model. But that means 100 million people out of retail and we don't know how much more carbon emissions, while Wal-Mart talks about going green."

In 2006, Wal-Mart was ranked at #2 on the Fortune 500 list of the most profitable U.S. companies, with revenues of $315.65 billion. (The #1 spot went to ExxonMobil.) Wal-Mart cashiers in the U.S. are paid at or near the minimum wage, like their counterparts at Burger King drive-thrus. The Indian jobs that Wal-Mart will create, in place of the many more it will destroy, will be low-wage, "flexible" and temporary ones. Most of the wealth will be repatriated to U.S. shareholders.

The funny thing about neoliberalism is that it's preached by protectionists. Open your economy to our multinationals, its apostles tell the countries of the South, and in return we will accept migrant workers, light industrial products, and low-wage business services in addition to cash crops and raw materials. Slash tariffs, they say, while we maintain subsidies. Sometimes the hypocrisy goes further. In an amusing article in the Financial Times on Wednesday, it was reported that the OECD has published a new economic survey of India. Its authors call on India to "step up reforms":

"India's economic growth per capita was now rising annually by 7.5 per cent versus the 1.25 per cent seen between 1950 and 1980. The faster growth, the OECD said, had resulted in India becoming the third-largest economy in the world in 2006 in purchasing power parity terms behind only the US and China and slightly ahead of Japan.

But it warned India was not fully exploiting its advantage as a labour-abundant economy because of high levels of employment protection that particularly deterred larger manufacturing companies from hiring workers.

Work in companies with more than 10 employees accounts for 3.75 per cent of employment in India, a much smaller proportion than any OECD country. India has stricter job protection laws than China, Brazil and all but two OECD countries.

It echoed longstanding calls for reform of the Industrial Disputes Act that requires businesses to obtain government permission to lay off even a single worker from manufacturing plants with more than 100 employees. "Reduction in the stringency of employment protection is needed and could be balanced by an increase in the extent of accrual-based severance payments," said the OECD report. Reform would help shift rural labour to productive areas.

It also urged the government to open the economy more rapidly to international trade and to foreign direct investment in tightly protected service sectors, such as insurance and retailing.
Small traders have been holding regular protests against the inroads being made into the fragmented retail sector by big business houses such as Reliance Industries, which plans a $5bn-7bn investment in a farm-to-fork supply chain."

So, in other words: it's too hard to fire Indian factory workers; there are too many small businesses in India, and not enough conglomerates; India needs to follow the Chinese model of export-oriented industrialization driven by foreign multinational investment and rural-to-urban migration; Western insurance and retail multinationals need to be allowed to compete with Indian businesses. The report also called on India to cut agricultural subsidies (this is like Union Carbide calling on Bhopal to reduce pollution). Never mind that rural-to-urban migration vastly exceeds the rate of job creation in the formal sector; or that the jobs that are created by Western multinationals exist largely because the wages are lower than in the EU or US.

Small businesses in Vietnam are facing a similar threat. Under the terms of Vietnam's accession to the WTO, it has to open its market to foreign retailers, including ones that are 100% foreign-owned (with maximum repatriation of profits to Germany, the U.S., etc.).