I was bemused (not amused) when I read articles in the media last week of Indian Internet poster boys clamoring for ‘government protection’ aka protectionism.
One of their sillier arguments go like “We should be like China of the past, who told the world, ‘We want your capital, not your Companies'”
What a boat load of bunk!
Just because a couple of engineers turned entrepreneurs have finally figured out that running a successful business is not just about raising money but actually making profits, it does not mean that we must listen to their stupid ramblings and humor them.
Imagine an India without a Vodafone, Siemens, Star TV, Disney, Sony, Singapore Airways, Samsonite, Benetton, Nike, Samsung, Apple, Starbucks etc etc etc. These folks especially want Amazon and Uber to be extinguished. Heck – throw in Facebook, Linkedin, Twitter, AirBnb, and everybody else for good measure…?
You can imagine what life would be if the best Companies in the world were not allowed to participate in the MAGIC of India.
These are 4 compelling reasons why the argument of protectionism lacks all merit:
1. Protectionism does not work.
Take the case of the biggest and the mightiest nations in the world – the US:
– In 1977, President Jimmy Carter slapped restrictions on imported Japanese televisions to protect American producers. The result? As Japanese sales went down, South Korea’s and Taiwan’s went up. When those imports were restricted, imports from Mexico and Singapore went up. Japanese and Taiwanese companies began assembling televisions in the U.S. using imported sub-assemblies, which weren’t restricted. (via the WSJ)
– When Mr. Carter imposed limits on imports of shoes from Taiwan and South Korea, those countries raised the quality and thus value of the shoes they did sell. In industry after industry, the hoped-for job revival never happened; in some sectors, jobs went down. (via the WSJ)
– Something similar happened when Mr. Obama imposed tariffs on Chinese tires in 2009: Chinese imports plummeted while other countries’ jumped. The action saved at most 1,200 jobs, a study by the Peterson Institute for International Economics found, at a cost to consumers of $900,000 per job because of higher prices. (via the WSJ)
A must read is this exhaustive study by the National Bureau of Economic research on this subject and its conclusion
“Evidence from section 203 investigations by the ITC and our econometric analysis of the relationship between trade barriers and domestic output in five industries lend support to the proposition that protection is not an effective means of stimulating domestic output.
Various reactions by users and producers of the protected product tend to offset its output-expanding effects. Not only has the imposition of higher tariffs and more restrictive non-tariff trade barriers often produced a disappointingly small output expansion, but in some cases the barriers appear to have had no success in accomplishing their intended purpose of increasing domestic output or even preventing a further output decline. Ironically, recent trade policy changes that enable industries to secure import protection sooner and more easily than before tend to make it easier for foreign suppliers to avoid reducing exports to the protected market.”
More conclusive data from this blog report
History tells us, protectionism has had terrible, and often unintended, economic consequences.
2. Companies and Capital are NOT separable.
The argument that ‘We want your Capital, not your Companies’ sounds like a very amateur argument
Let’s consider the natural life cycle of a successful startup. An entrepreneur has an Idea – Idea gets funded – A business takes shape – More VCs start funding – Company goes IPO or more often than not (especially in tech startups), Company gets acquired.
Now, who acquires startups? Company’s with cash and capital that see synergy with what the Startup is doing! Just look at some of the well-known acquisitions of Indian Startups by Global Multinationals, and you will see the link!
- Sharad Sanghi’s Netmagic was acquired handsomely by NTT Communication returning multiple returns to its investors and backers
- Ronnie Screwala’s UTV was acquired by the Walt Disney Company
- Hey – I sold Mobile2win China (yup in CHINA) to Walt Disney and recorded my first exit as an entrepreneur!
How could these acquisitions happen and the bigger and better ones that lie ahead for Indian entrepreneurs be possible if foreign Companies are not welcome here?
Companies & Capital come together like hydrogen and oxygen to form water. You can’t have one and leave the other one out.
3. Protectionism leads to decay, delay, death.
Have you been to North Korea? Are you saving up money to vacation there soon? I hear you saying, “Are you nuts??” North Korea is the extreme example of protectionism. Everything that happens in that unfortunate country is controlled and regulated. It’s the worst example of life on earth.
In India, we had what I term ‘domestic’ protectionism – which was the business of protecting select affluent, politically connected and established ‘capitalists’ from internal competition – via the business of ‘License Raj’.
In the 60s and 70s, there was a license to do any sort of business in India, and as my dad who ran a socks factory told me, “There was nothing we could do except travel to Delhi every week and beg the Babus in the Government offices for licenses after licenses to keep the factory going”.
A very visible product of that ‘License Raj’ was the monopoly that the Indian Government created for the industrialists that created the ONLY 2 cars Indians drove for decades – The Padmini Premier (Fiat) and the Ambassador car.
Can you imagine what would have happened to us if that sort of protectionism was still allowed to be continued?
Probably our cities would still look like this!
P.S. – The current state of the two Companies that produced the Fiat Padmini and Ambassador is testimony to what happens when they were finally denied protectionism. They both went bankrupt.
Let us never ever think of making our Country go bankrupt.
4. Don’t pray for Intervention – Innovate instead!
In the same market where Entrepreneurs are wailing like spoilt children whose ice cream has fallen to the floor, there are shining examples of Innovation!
- Redbus – Created a bus seat platform from scratch
- PayTm – Created the concept of a digital wallet (Pre-Monetization)
- Freecharge – Created a neat idea of getting brands to subsidize mobile recharges for branding
Even a Bookmyshow has massive innovation attached to it given the long arduous journey of how they have powered up the back-end of many cinema owners as a software service provider before becoming the #1 Entertainment Booking Consumer service in the country!
Why aren’t these entrepreneurs clamoring for protection?
Jugaad (local innovation) is our trademark. Why aren’t we invoking it fully?
5. Competition is the solution
For ten odd years, Indian Mobile users suffered under the hands of Airtel, Vodafone & the rest of the Mobile Networks Mafia that offered us a scam riddled, completely fraudulent “VAS” (Value Added Services) offering. A billion Indian consumers were (and are being) cheated every year for services such as Ring Back Tones, Astrology, Live Cricket Matches etc. that no one really wanted. An innocent click here or a mistaken tap there could lock you into a monthly plan of paying Rs 5-50 that would be IMPOSSIBLE to unsubscribe to. Add to this misery, the semi pornographic services that operators sold (and continue to) of wallpapers and games that do nothing but ruin the business model of content creation for Mobile Games.
It was the arrival of the iTunes and Google Play stores that changed this fraud. Now, we have the world’s best content available at our fingers tips – 99% of which is free. The best content Companies in the world compete to appease you – the ‘spoilt for choice’ Indian consumer!
So, would it still make sense to propose that Indians use HIKE Messenger (Never seen anyone using it in my life) vs. Whatsapp, just because it’s NOT made in India?
Tell anyone who suggests the same to take a Hike. Pun intended.