Dutch Disease Disturbing the Universe

Do I dare
Disturb the universe?

The Law of Unintended Consequences is pretty well known, I suppose. It is part of a more general law which I call the Zeroth Law of Ecology which says that you can never really do only one thing. That is, you want to do only A and instead you find that you have also done B and C, both of which you had no inclination to do. This is because the universe is complex and all its parts are interlinked and so when you do something to one bit of the universe, you end up disturbing the whole universe.

There must be many reasons why we cannot see all the connections. There may be ignorance, willful or otherwise, for instance. Or it could be that we are not omniscient. But, I believe, it is mostly due to what is called our bounded rationality, that is we are not clever enough to think through all the complexities of the universe.

I find paradoxical stuff fascinating. A paradox is puzzling only as long as you have not figured out the full story. Counter-intuitive stuff also give me thrills. Take, for instance, the observation that many people who win lotteries end up being not lucky after all. A good many of these lucky winners end up broke and sometimes worse off than they were before they got the windfall. It is like a winner’s curse with vengeance.

These unlucky lottery winners seem to be having a sort of their own personal DUTCH DISEASE. What is the Dutch disease and how can I avoid catching it? you ask. I will tell you. Here is what I found on the web (I have lost the link, unfortunately):

In 1959 a large reservoir of natural gas was discovered in the Netherlands, which by 1976 earned that country revenues of some $2 billion in addition to an estimated $3.5 billion of savings in imports. By the mid 1970s, gross corporate investment had fallen by 15% since the start of the decade, while employment in manufacturing had declined by 16%. The total level of unemployment had risen from a modest 1.1% to 5.1%, while the share of profits in national income which had averaged 16.8% in the 1960s had fallen to 3.5% in the first half of the 1970s. While the first oil crisis had a devastating effect on most of the western industrial base, why did The Netherlands, with its new-found fortune in natural gas, fare worse than most?

This process of de-industrialisation of the existing manufacturing base was attributed to the upward pressure that the energy discovery placed on the Guilder and the wage rate, and was dubbed the Dutch Disease. Since then, the term’s use has widened considerably to encompass any situation whereby a country’s apparent good economic fortune ultimately proves to have a net detrimental effect.

So where am I going with all this, you ask. Is there a Dutch disease lurking in India’s future? That question has been bothering me. Here is what I mean. I will present only the outlines of my concern and if there is sufficient interest, I will expand on the issue.

India is a two-sector economy: the urban educated sector and the rural uneducated sector. The latter forms the base of the huge pyramid and toils away at a subsistence existence. The urban sector is seeing a boom what with BPO and ITES and all sorts of stuff. Policy makers, politicians, journalists, management gurus, TV reporters, and everyone and his brother are totally wrapped up in this incredible phenomenon. India, they all scream, has arrived. Having convinced themselves of that, they focus entirely on that part of the urban sector that is involved in the boom. This leads to a shocking neglect of the larger rural sector. Then when the boom runs out of steam, the country is worse off than what it would have been without the boom at all.

This is Dr. Atanu “Dooms” Dey signing off for now.

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