Oh Poor English!

There is nothing more potently destructive than a stupidity whose time has come. The Americans saw it in Vietnam when their stupidity backfired and the Soviets saw it in Afghanistan when it almost destroyed them. Biggest of empires have been brought to dust at the hands of foolest of notions. Even in India we are no strangers to stupidities at the highest level – be it 1948 Nehru’s handling of the Kashmir issue or 1950s handling of Chinese.

But perhaps in what he (if he is still interested and can read this small font article from above) can still console in is the fact that he was not alone in being a victim of stupidity in contemporary India. Even the mighty British Raj owed its downfall to one of the same kinds – The Drain of Wealth. This doctrine propounded by the early nationalists after ‘careful research’ pointed fingers at the Englishmen (something our culture is so adapt in doing even today) that they were draining India’s wealth out to England. Strictly speaking the drain of wealth refers to the excess of a country’s exports over its imports for which it gets no corresponding returns. In other words, India exported more to British and imported less and didn’t get anything for the difference. This drain was pegged by some to be as high as 6% of Indian GDP at that time. But the real beauty of the theory lay in its appeal. It didn’t exactly require a rocket scientist in a peasant to get a feeling of it for he saw after every harvest the white man coming with his goons in uniform and taking away all his produce. The artisans could see their jobs being taken away by the Manchester machines. Here was a potent tool in the hands of the frustrated Indian middle class of educated and the industrialists with which they could mobilize the peasants and the laborers to fight for their cause. The tigers of emotions had been unleashed.

Well the idea here is not to deny that Britishers exploited India. They may have or may not have, this article doesn’t really want to concern the reader with that. It merely wants to expose a long held myth that drain of wealth is negative for a nation. I can swear that if those Englishmen of the Raj were to descend down from heavens (or hell, whatever) and see the curremcy regimes followed by the free governments of their erstwhile diminions like China, India etc.they would surely beat themselves to death again.

In the name of making exports more competitive countries like India and China have followed a deliberate policy of keeping their foreign exchange rates artificially low. The rationale is simple. Lets say something costs Rs. 50 in India. If the Indian Rupee is at 50 to a dollar, that article would be cheaper ($1) in US compared to say if the Rupee were to be at 25 to a dollar ($2 cost in that case). Cheaper exports mean more exports mean more industrial production means more jobs mean more prosperity means everyone is happy. But wait, isn’t this a form of Drain of Wealth – only more disguised this time? Thats because for its exports India is now getting lower ‘value’ than the fair value and for its imports, it has to pay a higher ‘value’. And think about it, where is the compensation for this ‘excess of exports over imports’? If this is not drain of wealth then what on earth could be drain of wealth?

But wait, isn’t this a contradiction? I mean drain of wealth was bad! (The gentlemen from the Raj will tell that now.) But here lies the distinction – drain of wealth is not bad in itself.

Drain of wealth can be seen as a sacrifice which the present generation makes in order to bring greater benefit to the future generations. Its like your parents cutting down their current expenditures to ensure better education and health for you. And it is exactly the oppposite of running a fiscal deficit economy where we finance our current expenditures from the earnings of our future generations as eventually a fiscal deficit has to be met by additional taxes on the future generation.

But does this mean that Englishmen of the Raj were really innocent victims of a stupid and populist theory? Not quite. It is true that drain of wealth is not bad in itself. The early nationalists also rightly criticized the English practices of implementing the drain of wealth policy. The drain becomes bad when the present value of the perceived future benefits becomes less than the value of the present sacrifices the society is making. This can happen in two ways. First, if the cost of present sacrifices is made so high that the society simply isn’t able to survive to see that “prosperous” future or second, if the value of the future benefits is diminished seriously. Though the English failed in both aspects the more visible and serious failure was in making the current sacrifices unbearable. (And I hope I don’t have to give a proof of that here.) Had it not been for the high sacrifice levels imposed on the contemporary Indians, the rhetoric of the nationalists would have fallen on deaf ears.

Oh Poor English… Not exactly… Rather it should be Oh Poor Drain of Wealth… Another innocent victim of social stupidity…

16 thoughts on “Oh Poor English!”

  1. Amit ji, thanks for leaving your comments here. I appreciate your gesture but if I may express my views fully and independently here, you have always been a man of unstable emotions and frivolous mind. No wonder you could never keep them under check and always managed to land yourself in troubles. Had it not been for some good friends of yours, you would have been rotting in tottenham by now.

    1. this is a dead question. rupee is one of the fundamentally weakest currencies and the recent depreciation serves well as a lesson to the complacent babus in our corporates who like to take on risk without knowing what they are getting into.

    1. ahraaz bhai, sorry, what you are referring to is merely unfavorable terms of trade. it is not drain of wealth in any sense. in fact, if you had paid attention to international finance classes and understood the theory of comparative advantage, you would have learnt that such a kind of trading pattern is in fact kinda inevitable and works the best for both countries in a real world. problems arise when the element of coercion creeps in.

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