Reuben has his priorities wrong

Reuben argues that a free trade deal between the EU and India may undercut the terms and conditions of European workers. Of course it fucking undercuts the terms and conditions of European workers! Citing Mr Tata’s expectation that everyone keep silly hours, the ability of firms to import cheap (and more importantly powerless) foreign labour and European firm’s keeness to benefit from upcoming Indian privatisations Reuben is worried.

I don’t want this to come across as some sort of Brad DeLongesque left-baiting screed but Reuben’s priorities seem entirely wrong. Number one priority needs to be to get Indians, and other poor people, as wealthy as quickly as possible. This free-trade deal needs to be assessed in two ways, what effect will it have on condition in the EU and what effects will it have on conditions in India. With only regard to population we should regard its impact on India as 4 times more important. With respect to gdp per capita, a rough proxy for wealth, we should regard its impact on India as 30 times more important.

One of Reuben’s main complaints about this deal is with regard to its impact on European Labour. Within the deal would be a provision which would enable bosses working in Europe to bring in foreign workers without advertising a job in the UK first. That undermines the position of European workers and also leaves that foreign worker vulnerable because they are working here on a employer sponsored visa, escaping bad employer is very difficult under those circumstances.

Reuben misses two things.

First of all, having millions of talented Indians enter the labour market will tend to make it more profitable to deploy business innovations in India. This will in turn bid up the price of Indian labour but at the price that European labour is bid up less. This sucks for European labour but this process plays a major part in successful developmental policy. And it will happen whether we let Indian bosses employ Indians in Europe or in India.

Secondly, labour markets are segmented. These workers will be brought in and compete with people in computing, communications or business services, not the poorly paid in the UK I’m concerned about. They are only available for graduate level jobs and those paying over £24,000, oh and they will be included in the Tories’ ludicrous migration cap once it is operational (pdf). Allow me to emphasise, once I graduate, these Indians will probably be competing with me, and I’m okay for that. Restricting trade to marginally bid up the wage of UK professionals is not good policy.

Good policy, with respect to this trade deal, this will involve assessing to what extent it will allow India to assimilate more of its rural peasantry in the global division of labour and to what extent it will allow India to improve its productivity. India’s manufacturing exporters are somewhat underdeveloped, that is, compared to India’s very advanced IT and services exporters.

Dani Rodrik has been posting for a while on a topic which should be of the utmost importance. Some industry show productivity convergence even amidst terrible policies. Many manufacturing industries, regardless of policy, tend towards best practice and tend to improve their productivity. So a good trade deal for India will leave it leeway to push its firms towards those industries which most easily catch up with Western levels of productivity. These are what drives convergence between third world and first world living standards. If this policy will undercut these progressive industries it may need to be opposed. If this policy will support them it should be supported.

I don’t know either way, but arguing the merits of this policy with respect to its effects in Europe still only tells a 30th of the story that needs telling.


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