Information Revolution - Utopia or Bust?

Re: Wasiq

An interesting article, which raises some very selective questions about the proliferation of info technology. First of all, this field is too new and too recent to confer a title of utopia or else to it. If there is a bust, it will not be a government sponsered act, but more likey due to an information overload, which will saturate the the person with too much information.

In this case, what we are increasingly coming up against is something called the Information Barrier; how much information is good before it turns into a law of diminishing returns and just what that state might be and when, not how, will it be reached.

As to an ordinary person following each thread of discussion, on Chowk, it would have to depend on his or her interest and the time they are willing to devote to it. In the example of Balkans, and other news worthy items, all the internet has done has offer more and varied choices, but the ability to sift through this mountain of information still rests with the human element and it is the human element, in this equation, who will have to make a choice as to which side is right.

As a professional political researcher who spends an inordinate amount of time on the net ferreting out news stories and chasing numbers on the net, I will be the first one to tell you that the net, to me, is just an another research tool and it is not the end in of itself. It helps in the process of research, but the ``final cut`` or analysis is still my option and it is me, and not the net, which determines what will be given piority over another item.

Intersting article. It seems to me that all this information revolution is speeding up the process of globalization, where the world becomes a consumer base for the rich and powerful. Maybe I am being too naive here, but lets take the example of e-commerce...suppose someone buys CDs from Amazon.com from Karachi. That money leaves the Pakistani economy...what enters pakistan are some CDs which wont help anything. The same will be true for other consumer products. All this free trade just causes a flight of capital from the poor to the rich. And this information revolution, it seems, will only accelerate that process. Free trade and globalization is not the way to go.Why do we let McDonalds, Dunkin Donuts, KFC open in our cities. I understand that we almost have no choice since we are caught in the debt trap...We should be striving for localization! for Local, federated, de-centralised comunities sharing common social and economic interests and arranging their affairs through mutual agreement and free contract amongst themselves. And that should be true at the international as well as national level. Ofcourse it is too vague...I can probably elaborate more later...this is the idea of anarcho-syndicalism.

Great to see you back on Chowk, Wasiq!

I agree that given current economic disparities around the globe, the Information Age looks more dystopian than utopian for the have-nots. To the vast majority of the world that cannot afford access to a computer or to the internet, Information Technology is useless and meaningless. The disparity will become much greater as the internet transforms from a luxury into a necessity. For instance, here in the US, many employers are now posting job openings EXCLUSIVELY on the internet and not bothering with newspapers or employment agencies. This, of course, saves them money, but it now automatically excludes all those candidates who may not have instant or constant access to the internet.

I particularly like your observation: ``It seems to me that in face of such overwhelming amounts of information, people will spontaneously and instinctively gravitate towards localized groups, sort of virtual communities, that share certain ideas. They will do so at the exclusion of other communities, so we haven`t really fulfilled our dream of a global village.`` This is a crucial point. Chowk, for instance, attracts Pakistanis and Indians mainly, or those who already have an interest in the region. The same can be said of other special-interest sites. People seem to be using the internet to deepen their understanding of certain categories they already regard as important or interesting, not using it to discover new ideas or interact with new people already outside the borders of their social and cultural landscape. Just like you don`t find African-Americans interacting on this site, likewise you probably won`t find Pakistanis interacting on some African-American focused website. The dream of a global village thus remains elusive. When we go searching on the internet, we automatically exclude all those terabytes of information and knowledge that we don`t value a priori.

Re: temporal

I agree that this article will get the short end of the stick because of the rapid succession of articles after the `boylove` controversy. The Chowk staff`s ``let`s shove this embarrassing boylove debacle off the frontpage as fast as we can`` tactic is SO transparent.

Wasiq:

Nice to see you here.

You say. `` there is no global body that is trying to level the playing field or reduce the ever growing disparity between the wealthy and the not-wealthy.`` Why should there be one?

WTO prodding to open up the global markets, to the benefit of guess who, and the relative emergence of middle class in third world, shall lead to an explosion in e-commerce.Much to the detriment of their local trade and industry. In that sense the West may well be the biggest beneficiary of this infoplosion.

``Dark age of cyber-colonialism`` can become very prophetic words, Wasiq.

Wish this article had surfaced another time. The `other` article that surfaced on Sep 1, has rec`d 87 inter-actions so far. And in its wake, perhaps it brought another 7, almost 8 articles on page 1, in two days. With attention thus divided, this article alongwith the other six may not get the attention it deserves. Just a passing thought.

regards

Wasiq,

I agree with you in general that the future could be one with a unified ``global society`` or a divided one with a ``new form of apartheid``. I think we will have something that includes both but is different from anything we can imagine today. ``Apartheid`` will probably be there, but will almost certainly be based on economics and not on race. And economic status will be based on innovation, not consumption, while production will become so easy as to be taken for granted like air and water.

Regrading Firaq` reply:



I am interested in knowing about anarcho-syndicalsim also. However, please try to be a little clearer in your replies. Both examples in your reply are fuzzy at best and plain wrong at worst. Somebody buying CDs in Karachi is not supposed to help anybody. Its a purely economic transaction. Japan and China are the biggest holders of US treasuries for the simple reason that they have a trade-surplus with the US. What else to do with the extra dollars? So even if the ``dollars`` leave the Pakistani economy, wherever they end up, someobody will eventually need to exchange an asset denominated in Pakistani rupees. There is a distinction between capital flight and pure economic transactions involving exchange of assets/currencies which most people confuse.

Also I don`t see any connection between multinationals opening up operations in third world countries and the debt trap. The Soros book mentioned by Wasiq gives a better description of capital outflows fron the center(the developed world) to the periphery(the ``developing`` world) and thereby the ensuing ``debt trap``.

Going back to the article, the future indeed is unwritten!! Here is an interesting thought about ``incumbent advantage``. How many websites do you regularly visit? Now compare that with the number of cable channels you watch regularly. I`d be interested in knowing if there is a correlation between the two numbers.

To UR,

I wish I could share your excitement about the IT revolution, share in the euphoric joy of swallowing the american propagenda, hook line and sinker, in this case with the chord, mother board and the moniter.

This is a new technology, there are not many skilled in it largely because of the language barrier (english), the wages are high, in a relative sense of the economies. The IT revolution is not going to reduce the rich poor gap, it is going to exacerbate it. Look at micrtosoft, hypothetically it can buy up all of the major assets of several countries, which was not the case a few years ago.

A software company in the thid world is very unlikely to market world wide a produt developed in the home base, primarily because of the `brand ` name difficulties and the lack of marketing infrastructure.

The big giants know this pretty well and that is why there is a major consolidation of software companies. Patent rights and the copy right regulations will ensure that `capitalists` will accrue most of the surplus, the third worlderes will be only wage earners.

This is no different from the coal miners of the industrial revolution. This time, the software developers job, though menial, is not dirty, not phisically demanding, hasn;t got the stigma of a manual work. That is why the indians have taken to it like poor to a soupe kitchen.

The IT revolution will be no different from the earlier one, this will be more devastating.

Every little identity one had will be destroyed, the uniformity and monotony of the cke and mackers will dominate and rule the net. A lot more will be deluded to believe that prosperity is round the corner.

The IT revolution, specially in the software area is the greatest thing that could have happened for the third world. Third world countries that missed out on the industrial revolution can leapfrog into the IT revolution, and catch up with the first world. Provided they play their cards right.

Already, one can see the beginings of the re-shuffling of the deck of economic power. America has left Japan far behind, because Japan has been slow to get onto the IT bandwagon. Singapore is now the new leader of the IT revolution outside of the US. Ireland is the second biggest exporter of software in the world. Because of this, Ireland has one of the fastest growing economies in Europe. Israel has the second highest no. of software engineers per sq. feet, in the world, after Silicon Valley. In the next ten years, India and China will produce more software engineers than the rest of the world combined. This asset alone could take India and China out of the third world. The above mentioned countries

are destined to be the leaders of the IT revolution, although many of them were not the leaders of the industrial revolution.

The point being, the IT revolution, if handled correctly, will reduce the difference between the have and have-not countries, and not increase it. It is extremeley human resource intensive, and not industrial resource intensive (at least on the software side).

First world countries will try to get as big a piece of the pie, as they can. This is survival of the fittest. However, the playing field in the IT revolution is far more level, then the playing field in the industrial revolution. A group of programmers sitting in Pakistan can write just as good a software program, as a group of programmers sitting in the US. However a group of engineers working in Pakistan could not build as

good an aircraft as a group of engineers working in the US.

Third world countries need to educate and churn out software engineers. The first world countries cannot stop them from doing that. India and China (both with a lower per capita income than Pakistan, five years ago) have done exactly that. Pakistan needs to do the same. The IT revolution is a God-sent opportunity for third world countries to catch up with the industrialized nations.

The only question is, which of the third world countries will have the vision to realize this opportunity, and take full advantage of it.

Re: Jay,

Interesting comments.

First of all, what I stated is not American propoganda. It is a result of observations I have made myself, as well as information from research carried out in different parts of the world. You can check the figures I have presented, in any of the leading journals that cover this aspect of IT.

Obviously, third world countries are not going to become first world countries overnight; nor is the vice-versa going to occur. However, there is definitely a subtle change of fortunes going on. Just the information I have presented, proves it.

I stated myself, America has increased its economic gap with the rest of the world (both third world, and first world). So because of IT, American is even more wealthier than it was before. However there are other industrialized countries in the world besides America. You should compare the third world countries with these other countries.

It is true that is difficult for third world countries to market software products. However, it is still easier for them to market software than it was for them to market industrial goods. Anyways, the actual asset of the third world countries will be, and is, there highly skilled software engineers.

Due to the high cost of IT labor, more and more companies are moving big portions of their operations overseas. This process will continue, at a very rapid pace. This is where IT (the software side) is different from other industries (the whole example about writing software and building aircarft, in my previous reply). Also, an overwhelming number of the software manpower in the US IT industry comes from the third world. 46% of the total H1-B visas given each year in the US, go to Indians. China is second with 10%. Pakistan is fifth with 2.5%. Phillipines also ranks up there. One can safely say, around 3/4 of the foreign software engineers are from the third world. 30 % of all IT companies started in Silicon Valley are started by an immigrant (primarily Indian or Chinese).

All this money and skill generated by third world engineers indicates how the IT revolution has created opportunities for the third world countries (the ones which take advantage of it) to close the gap with the industrialized nations (as I mentioned earlier, America being the exception, because it is widening its gap with the rest of the world as a whole). These skills and money will trickle down to the areas where these foreign workers came from (e.g the investments of Chinese-Americans in China). It just depends on which third world countries are ready to take advantage of these opportunities. But the opportunities are there, all the same.



During the industrial revolution, first world countries only went to the third world for cheap manual labor, not for intellectual labor (this is the big difference). Because of this, similar opportunities did not exist during the industrial revolution.

As far as third world IT professionals being equivalent to menial workers; I completely disagree. They have a internationally marketable skill. Countries all over the world (e.g. Canada, US) are trying very hard to get a hold of these engineers. I do not see these countries trying to get a hold of other, ``menial workers.`` I know in Pakistan, software professionals earn quite a bit more than other professionals.

I am not quite sure what point you are trying to make by stating that Microsoft is worth more than some of GDPs of certain countries. Infact, Microsoft`s market cap is bigger than the GDP`s of all but 8 of the first world countries, as well. Soon, Microsoft`s market cap will pass Spain`s GDP. This just indicates that Microsoft is a very fast growing company. Actually, Microsoft`s growth outside the US is higher than its growth rate inside the US.

...(continuation from above)

(Following is the preface of Soros` book)

PREFACE

My original aim in writing this book was to expound the philosophy that has guided me through life. I had become known as a successful money manager and later on as a philanthropist. Sometimes I felt like a gigantic digestive tract, taking in money at one end and pushing it out at the other, but in fact a considerable amount of thought connected the two ends.

A conceptual framework, which I had formulated in my student days long before I became engaged in the financial markets, governed both my money making and my philanthropic activities.

I was greatly influenced by Karl Popper, the philosopher of science, whose book Open Society and Its Enemies made sense of the Nazi and communist regimes that I had experienced at first hand as an adolescent in Hungary. Those regimes had a common feature: They laid claim to the ultimate truth and they imposed their views on the world by the use of force. Popper proposed a different form of social organization, one that recognized that nobody has access to the ultimate truth. Our understanding of the world in which we live is inherently imperfect and a perfect society is unattainable. We must content ourselves with the second best: an imperfect society that is, however, capable of infinite improvement. He called it open society, and totalitarian regimes were its enemies.

I absorbed Popper`s ideas about critical thinking and scientific method. I did it critically and I came to differ with him on an important point. Popper claimed that the same methods and criteria apply to both natural and social sciences. I was struck by a vital difference: In the social sciences, thinking forms part of the subject matter whereas the natural sciences deal with phenomena that occur independently of what anybody thinks. This makes natural phenomena
amenable to Popper`s model of scientific method, but not social phenomena.

I developed the concept of reflexivity: a two-way feedback mechanism between thinking and reality. I was studying economics at the time and reflexivity did not fit into economic theory, which operated with a concept borrowed from Newtonian physics, namely, equilibrium.

The concept of reflexivity came in very useful to me when I became engaged in managing money. In 1979, when I had made more money than I had use for, I established a foundation, called the Open Society Fund I defined its objectives as helping to open up closed societies, helping to make open societies more viable, and fostering a critical mode of thinking.

Through the foundation, I became deeply involved in the disintegration of the Soviet system. Partly as a result of that experience and partly on the basis of my experience of the capitalist system, I came to the conclusion that the conceptual framework I had been working with was no longer valid. I sought to reformulate the concept of open society. In Popper`s formulation, it stood in contrast with closed societies based on totalitarian ideologies, but recent experience taught me that it could be threatened from the opposite direction as well: from the lack of social cohesion and the absence of government.

I expressed my views in an article titled ``The Capitalist Threat,`` published in the February 1997 issue of The Atlantic Monthly. This book, which I started writing shortly thereafter, was meant to be a more thorough elaboration of those ideas. In my previous books, I had relegated my conceptual framework to an appendix or served it up buried in personal reminiscences. Now I felt that it deserved a direct hearing. I had always been passionately interested in understanding the world in which I lived. Rightly or wrongly, I felt I had made some progress and I wanted to share it.

The original plan for this book was, however, disrupted by the global financial crisis that began in Thailand in July 1997. I was exploring the flaws of the global capitalist system but I was doing it in a leisurely fashion. I was fully cognizant of the Asian crisis - indeed my fund management company anticipated it six months before it happened - but I had no idea how far-reaching it would turn out to be. I was explaining why the global capitalist system was unsound and unsustainable but until the Russian meltdown in August 1998, I did not realize that it was in fact disintegrating. Suddenly my book took on a new sense of urgency. Here I had a ready-made conceptual framework in terms of which the rapidly evolving global financial crisis could be understood. I decided to rush into print.

My view of the current situation was summed up in the Congressional testimony I delivered on September 15, 1998, where I said, in part, as follows: The global capitalist system which has been responsible for the remarkable prosperity of this country in the last decade is coming apart at the seams. The current decline in the U.S. stock market is only a symptom, and a belated symptom at that, of the more profound problems that are afflicting the world economy. Some Asian stock markets have suffered worse declines than the Wall Street crash of 1929 and in addition their currencies have also fallen to a fraction of what their value was when they were tied to the U.S. dollar. The financial collapse in Asia was followed by an economic collapse. In Indonesia, for instance, most of the gains in living standards that accumulated during 30 years of Suharto`s regime have disappeared. Modern buildings, factories and infrastructure remain, but so does a population that has been uprooted from its rural origins. Currently Russia has undergone a total financial meltdown. It is a scary spectacle and it will have incalculable human and political consequences. The contagion has now also spread to Latin America. It would be regrettable if we remained complacent just because most of the trouble is occurring beyond our borders. We are all part of the global capitalist system which is characterized not only by free trade but more specifically by the free movement of capital. The system is very favorable to financial capital which is free to pick and choose where to go and it has led to the rapid growth of global financial markets. It can be envisaged as a gigantic circulatory system, sucking up capital into the financial markets and institutions at the center and then pumping it out to the periphery either directly in the form of credits and portfolio investments, or indirectly through multinational corporations.

Until the Thai crisis in July 1997 the center was both sucking in and pumping out money vigorously, financial markets were growing in size and importance and countries at the periphery could obtain an ample supply of capital by opening up their capital markets.

There was a global boom in which the emerging markets fared especially well. At one point in 1994 more than half the total inflow into U.S. mutual funds went into emerging market funds. The Asian crisis reversed the direction of the flow. Capital started fleeing the periphery. At first, the reversal benefited the financial markets at the center. The U.S. economy was just on the verge of overheating and the Federal Reserve was contemplating raising the discount rate. The Asian crisis rendered such a move inadvisable and the stock market took heart. The economy enjoyed the best of all possible worlds with cheap imports keeping domestic inflationary pressures in check and the stock market made new highs. The buoyancy at the center raised hopes that the periphery may also recover and between February and April of this year most Asian markets recovered roughly half their previous losses measured in local currencies. That was a classic bear market rally.

There comes a point when distress at the periphery cannot be good for the center. I believe that we have reached that point with the meltdown in Russia. I have three main reasons for saying so. One is that the Russian meltdown has revealed certain flaws in the international banking system which had been previously disregarded. In addition to their exposure on their own balance sheets, banks engage in swaps, forward transactions and derivative trades among each other and with their clients. These transactions do not show up in the balance sheets of the banks. They are constantly marked to market, that is to say, they are constantly revalued and any difference between cost and market made up by cash transfers. This is supposed to eliminate the risk of any default. Swap, forward and derivative markets are very large and the margins razor thin; that is to say, the value of the underlying amounts is a manifold multiple of the
capital employed in the business. The transactions form a daisy chain with many intermediaries and each intermediary has an obligation to his counterparties without knowing who else is involved. The exposure to individual counterparties is limited by setting credit lines.

This sophisticated system received a bad jolt when the Russian banking system collapsed. Russian banks defaulted on their obligations, but the Western banks remained on the hook to their own clients. No way was found to offset the obligations of one bank against those of another. Many hedge funds and other speculative accounts sustained large enough losses that they had to be liquidated. Normal spreads were disrupted and professionals who arbitrage between various derivatives, i.e., trade one derivative against another, also sustained large losses. A similar situation arose shortly thereafter when Malaysia deliberately shut down its financial markets to foreigners but the Singapore Monetary Authority in cooperation with other central banks took prompt action. Outstanding contracts were netted out and the losses were shared. A potential systemic failure was avoided.

These events led most market participants to reduce their exposure all round. Banks are frantically trying to limit their exposure, deleverage, and reduce risk. Bank stocks have plummeted. A global credit crunch is in the making. It is already restricting the flow of funds to the periphery, but it has also begun to affect the availability of credit in the domestic economy. The junk bond market, for instance, has already shut down. This brings me to my second point.

The pain at the periphery has become so intense that individual countries have begun to opt out of the global capitalist system, or simply fall by the wayside. First Indonesia, then Russia have suffered a pretty complete breakdown but what has happened in Malaysia and to a lesser extent in Hong Kong is in some ways even more ominous. The collapse in Indonesia and Russia was unintended, but Malaysia opted out deliberately. It managed to inflict considerable damage on foreign investors and speculators and it managed to obtain some temporary relief, if not for the economy, then at least for the rulers of the country. The relief comes from being able to lower interest rates and to pump up the stock market by isolating the country from the outside world. The relief is bound to be temporary because the borders are porous and money will leave the country illegally; the effect on the economy will be disastrous but the local capitalists who are associated with the regime will be able to salvage their businesses unless the regime itself is toppled. The measures taken by Malaysia will hurt the other countries which are trying to keep their financial markets open because it will encourage the flight of capital. In this respect Malaysia has embarked on a beggar-thy-neighbor policy.

If this makes Malaysia look good in comparison with its neighbors, the policy may easily find imitators, making it harder for others to keep their markets open.

The third major factor working for the disintegration of the global capitalist system is the evident inability of the international monetary authorities to hold it together. IMF [International Monetary Fund] programs do not seem to be working; in addition, the IMF has run out of money. The response of the G7 governments to the Russian crisis was woefully inadequate, and the loss of control was quite scary.

Financial markets are rather peculiar in this respect: they resent any kind of government interference but they hold a belief deep down that if conditions get really rough the authorities will step in. This belief has now been shaken.

These three factors are working together to reinforce the reverse flow of capital from the periphery to the center. The initial shock caused by the meltdown in Russia is liable to wear off, but the strain on the periphery is liable to continue. The flight of capital has now spread to Brazil and if Brazil goes, Argentina will be endangered. Forecasts for global economic growth are being steadily scaled down and I expect they will end up in negative territory. If and when the decline spreads to our economy, we may become much less willing to accept the imports which are necessary to feed the reverse flow of capital and the breakdown in the global financial system may be accompanied by a breakdown in international free trade. This course of events can be prevented only by the intervention of the international financial authorities. The prospects are dim, because the G7 governments have just failed to intervene in Russia, but the consequences of that failure may serve as a wake-up call. There is an urgent need to rethink and reform the global capitalist system. As the Russian example has shown, the problems will become progressively more intractable the longer they are allowed to fester.

The rethinking must start with the recognition that financial markets are inherently unstable. The global capitalist system is based on the belief that financial markets, left to their own devices, tend towards equilibrium. They are supposed to move like a pendulum: they may be dislocated by external forces, so-called exogenous shocks, but they will seek to return to the equilibrium position. This belief is false. Financial markets are given to excesses and if a boom/bust sequence progresses beyond a certain point it will never revert to where it came from. Instead of acting like a pendulum financial markets have recently acted more like a wrecking ball, knocking over one economy after another.

There is much talk about imposing market discipline, but if imposing market discipline means imposing instability, how much instability can society take? Market discipline needs to be supplemented by another discipline: maintaining stability in financial markets ought to be the objective of public policy. This is the general principle that I should like to propose.

Despite the prevailing belief in free markets this principle has already been accepted and implemented on a national scale. We have the Federal Reserve System and other financial authorities whose mandate is to prevent a breakdown in our domestic financial markets and if necessary act as lenders of last resort. I am confident that they are capable of carrying out their mandate. But we are sadly lacking in the appropriate financial authorities in the international arena. We have the Bretton Woods institutions - the IMF and the World Bank - which have tried valiantly to adapt themselves to rapidly changing circumstances.

Admittedly the IMF programs have not been successful in the current global financial crisis; its mission and its methods of operation need to be reconsidered.

I believe additional institutions may be necessary. At the beginning of this year I proposed establishing an International Credit Insurance Corporation, but at that time it was not yet clear that the reverse flow of capital would become such a serious problem and my proposal fell flat. I believe its time has now come. We also have to establish some kind of international supervision over the national supervisory authorities.

Moreover, we have to reconsider the workings of the international banking system and the functioning of the swap and derivative markets.

The book is divided in two parts. The first part contains the conceptual framework. I shall not try to summarize it here, but in this age of keywords it can be represented by three keywords: fallibility, reflexivity, and open society. It contains a critique of the social sciences in general and economics in particular. I interpret financial markets in terms of reflexivity rather than equilibrium and I seek to develop a reflexive theory of history, treating financial markets as a laboratory where the theory can be tested. In Part II, I apply the conceptual framework described in the first part to the present moment in history. Although the financial crisis looms understandably large, the analysis goes much deeper. I deal with the discrepancy between a global economy and a political and social organization that is still basically national in scope. I explore the unequal relationship between center and periphery and the unequal treatment of debtors and creditors. I examine the unhealthy substitution of monetary values for intrinsic human values. I interpret global capitalism as an incomplete and distorted form of open society.

Having identified the main features of the global capitalist system in Chapter 6, I try to predict its future in terms of a boom/bust sequence in Chapter 7. Chapter 8 contains some practical proposals on how the financial disintegration of the system could be prevented. In Chapter 9, I discuss the prospects for a less distorted and more complete form of open society and, in Chapter 11, I outline some practical steps that could be taken to achieve it.

I had meant this to be the definitive statement of my philosophy. Due to the intervention of history, it has become what I would call an instant book.


Copyright © 1998 by George Soros.
Published in the United States by PublicAffairs®,
All rights reserved.

Dear Wasiq,

What a great theme you`ve touched upon. Before anything else, I`d just like to post excerpts from George Soros` recent book titled ``The Crisis of Global Capitalism``. I`ve noticed references to it in other messages, but I doubt if either of the writers has as yet read the book. (My copy is on its way from amazon.com by UPS Ground.) What Soros says is quite relevent to one major aspect of the discussion here: global economy in the next century.

What follows are George Soros words, not mine.

In The Crisis of Global Capitalism, Soros dissects the current crisis and economic theory in general, revealing how theoretical assumptions have combined with human behavior to lead to today`s mess.

Introduction

This book seeks to lay the groundwork for a global open society. We live in a global economy, but the political organization of our global society is woefully inadequate. We are bereft of the capacity to preserve peace and to counteract the excesses of the financial markets. Without these controls, the global economy is liable to break down. The global economy is characterized not only by free trade in goods and services but even more by the free movement of capital. Interest rates, exchange rates, and stock prices in various countries are intimately interrelated, and global financial markets exert tremendous influence on economic conditions. Given the decisive role that international financial capital plays in the fortunes of individual countries, it is not inappropriate to speak of a global capitalist system.

Financial capital enjoys a privileged position. Capital is more mobile than the other factors of production and financial capital is even more mobile than direct investment. Financial capital moves wherever it is best rewarded; as it is the harbinger of prosperity, individual countries compete to attract it. Due to these advantages, capital is increasingly accumulated in financial institutions and publicly traded multinational corporations; the process is intermediated by financial markets. The development of a global economy has not been matched by the development of a global society. The basic unit for political and social life remains the nation-state. International law and international institutions, insofar as they exist, are not strong enough to prevent war or the large-scale abuse of human rights in individual countries. Ecological threats are not adequately dealt with. Global financial markets are largely beyond the control of national or international authorities. I argue that the current state of affairs is unsound and unsustainable. Financial markets are inherently unstable and there are social needs that cannot be met by giving market forces free rein. Unfortunately these defects are not recognized. Instead there is a widespread belief that markets are self-correcting and a global economy can flourish without any need for a global society. It is claimed that the common interest is best served by allowing everyone to look out for his or her own interests and that attempts to protect the common interest by collective decision making distort the market mechanism. This idea was called laissez faire in the nineteenth century but it may not be such a good name today because it is a French word. Most of the people who believe in the magic of the marketplace and the merits of unlimited competition do not speak French. I have found a better name for it: market fundamentalism.

It is market fundamentalism that has rendered the global capitalist system unsound and unsustainable. This is a relatively recent state of affairs. At the end of the Second World War, the international movement of capital was restricted and the Bretton Woods institutions were set up to facilitate trade in the absence of capital movements. Restrictions were removed only gradually and it was only when Margaret Thatcher and Ronald Reagan came to power around 1980 that market fundamentalism became the dominant ideology. It is market fundamentalism that has put financial capital into the driver`s seat. This is, of course, not the first time that we have had a global capitalist system. Its main features were first identified in rather prophetic fashion by Karl Marx and Friedrich Engels in the Communist Manifesto, published in 1848. The system that prevailed in the second half of the nineteenth century was in some ways more stable than the contemporary version. First, there were imperial powers, Great Britain foremost among them, that derived large enough benefits from being at the center of the system to find it worthwhile to preserve it. Second, there was a single international currency in the form of gold; today there are three major currencies - the dollar; the German mark, which is soon to become the euro; and the yen - which are rubbing against each other like tectonic plates, often creating earthquakes, crashing minor currencies in the process. Third, and most important, there were certain shared beliefs and ethical standards, which were not necessarily practiced but were nevertheless quite universally accepted as desirable. These values combined a faith in reason and a respect for science with the Judeo-Christian ethical tradition and on the whole provided a more reliable guide to what is right and what is wrong than the values that prevail today.
Monetary values and transactional markets do not provide an adequate basis for social cohesion. This sentence may not make much sense to the reader as it stands, but it will be expounded in the book. The nineteenth-century incarnation of the global capitalist system, in spite of its relative stability, was destroyed by the First World War. After the end of the war, there was a feeble attempt to reconstruct it, which came to a bad end in the crash of 1929 and the subsequent Great Depression. How much more likely is it, then, that the current version of global capitalism will also come to a bad end, given that the elements of stability that were present in the nineteenth century are now missing? Yet a calamity could be avoided if we recognized the deficiencies of our system and corrected them in time.

How did these deficiencies arise and how could they be corrected? These are the questions I propose to address. I argue that the global capitalist system is a distorted form of an open society and its excesses could be corrected if the principles of open society were better understood and more widely supported. The term open society was given currency by Karl Popper in his book Open Society and Its Enemies. At the time the book was published, in 1944, open society was threatened by totalitarian regimes such as Nazi Germany and the Soviet Union, which used the power of the state to impose their will on the people. The concept of open society could be readily understood by contrasting it with the closed societies that totalitarian ideologies fostered. This remained true right up to the collapse of the Soviet empire in 1989.

The open societies of the world - commonly referred to as the West - exhibited considerable cohesion in the face of a common enemy. But after the collapse of the Soviet system, open society, with its emphasis on freedom, democracy, and the rule of law, lost much of its appeal as an organizing principle and global capitalism emerged triumphant. Capitalism, with its exclusive reliance on market forces, poses a different kind of danger to open society. The central contention of this book is that market fundamentalism is today a greater threat to open society than any totalitarian ideology.

This statement is rather shocking. A market economy is an integral part of an open society. Friedrich Hayek, the greatest twentieth-century ideologist of laissez faire economics, was a firm believer in the concept of an open society. How can market fundamentalism threaten open society?

Let me make myself clear. I am not saying that market fundamentalism is diametrically opposed to the idea of open society the way fascism or communism were. Quite the contrary. The concepts of open society and market economy are closely linked and market fundamentalism can be regarded as merely a distortion of the idea of the open society. That does not make it any less dangerous. Market fundamentalism endangers the open society inadvertently by misinterpreting how markets work and giving them an unduly large role to play.

My critique of the global capitalist system falls under two main headings. One concerns the defects of the market mechanism. Here I am talking primarily about the instabilities built into financial markets. The other concerns the deficiencies of what I have to call, for lack of a better name, the nonmarket sector. By this I mean primarily the failure of politics and the erosion of moral values on both the national and the international level.

I want to say at the outset that I consider the failures of politics much more pervasive and debilitating than the failures of the market mechanism. Individual decision making as expressed through the market mechanism is much more efficient than collective decision making as practiced in politics. This is particularly true in the international arena. The disenchantment with politics has fed market fundamentalism and the rise of market fundamentalism has, in turn, contributed to the failure of politics. One of the great defects of the global capitalist system is that it has allowed the market mechanism and the profit motive to penetrate into fields of activity where they do not properly belong.

The first part of my critique concerns the inherent instability of the global capitalist system. Market fundamentalists have a fundamentally flawed conception of how financial markets operate. They believe that financial markets tend toward equilibrium. Equilibrium theory in economics is based on a false analogy with physics. Physical objects move the way they move irrespective of what anybody thinks. But financial markets attempt to predict a future that is contingent on the decisions people make in the present. Instead of just passively reflecting reality, financial markets are actively creating the reality that they, in turn, reflect. There is a two-way connection between present decisions and future events, which I call reflexivity.

The same feedback mechanism interferes with all other activities that involve cognizant human participants. Human beings respond to the economic, social, and political forces in their environment, but unlike the inanimate particles of the physical sciences humans have perceptions and attitudes that simultaneously transform the forces acting on them. This two-way reflexive interaction between what participants expect and what actually happens is central to an understanding of all economic, political, and social phenomena. This concept of reflexivity lies of the heart of the arguments presented in this book. Reflexivity is absent from natural science, where the connection between scientists` explanations and the phenomena they are trying to explain runs only one way. If a statement corresponds to the facts, it is true; if not, it is false. In this way, scientists can establish knowledge. But market participants do not have the luxury of basing their decisions on knowledge. They must make judgments about the future and the bias they bring to bear influences the outcome. These outcomes, in turn, reinforce or weaken the bias with which the market participants began.

I contend that the concept of reflexivity is more relevant to financial markets (and to many other economic and social phenomena) than the concept of equilibrium, on which conventional economics is based.

Instead of knowledge, market participants start with a bias. Either reflexivity works to correct the bias, in which case you have a tendency toward equilibrium, or the bias can be reinforced by a reflexive feedback, in which case markets can move quite far from equilibrium without showing any tendency to return to the point from which they started. Financial markets are characterized by booms and busts and it is quite amazing that economic theory continues to rely on the concept of equilibrium, which denies the possibility of these phenomena, in face of the evidence. The potential for disequilibrium is inherent in the financial system; it is not just the result of external shocks. The insistence on exogenous shocks as a kind of deus ex machina to explain away the frequent refutation of economic theory in the behavior of financial markets reminds me of the ingenious contrivances of spheres within spheres and divine forces that pre-Copernican astronomers used to explain the position of the planets instead of accepting that the earth moves around the sun.

Reflexivity is not a widely accepted concept, at least in mainstream thinking, and it will take more than a few sentences to explore all its implications. It will occupy much of Part I of the book. In Part II of the book, I then use this framework to draw some practical conclusions - about financial markets; about the world economy; and about such broader issues as international politics, social cohesion, and the instability of the global capitalist system as a
whole.

My second main line of argument is more complex and more difficult to summarize. I believe that the failures of the market mechanism pale into insignificance compared to the failure of what I call the nonmarket sector of society. When I speak of the nonmarket sector, I mean the collective interests of society, the social values that do not find expression in markets. There are people who question whether such collective interests exist at all. Society, they maintain, consists of individuals, and their interests are best expressed by their decisions as market participants. For instance, if they feel philanthropic they can express it by giving money away. In this way, everything can be reduced to monetary values.

It hardly needs saying that this view is false. There are things we can decide individually; there are other things that can only be dealt with collectively. As a market participant, I try to maximize my profits. As a citizen, I am concerned about social values: peace, justice, freedom, or whatever. I cannot give expression to those values as a market participant.

Let us suppose that the rules that govern financial markets ought to be changed. I cannot change them unilaterally. If I impose the rules on myself but not on others, it would effect my own performance in the market but it would have no effect on what happens in the markets because no single participant is supposed to be able to influence the outcome. We must make a distinction between making the rules and playing by those rules. Rule making involves collective decisions, or politics. Playing by the rules involves individual decisions, or market behavior. Unfortunately the distinction is rarely observed. People seem largely to vote their pocketbooks and they lobby for legislation that serves their personal interest. What is worse, elected representatives also frequently put their personal interests ahead of the common interest. Instead of standing for certain intrinsic values, political leaders want to be elected at all costs - and under the prevailing ideology of market fundamentalism, or untrammeled individualism, this is regarded as a natural, rational, and even perhaps desirable way for politicians to behave. This attitude toward politics undermines the postulate on which the principle of representative democracy was built. The contradiction between politicians` personal and public interests was, of course, always present, but it has been greatly aggravated by prevailing attitudes that put success as measured by money ahead of intrinsic values such as honesty. Thus the ascendancy of the profit motive and the decline in the effectiveness of the collective decision-making process have reinforced each other in a reflexive fashion. The promotion of self-interest to a moral principle has corrupted politics and the failure of politics has become the strongest argument in favor of giving markets an ever freer reign. The functions that cannot and should not be governed purely by market forces include many of the most important things in human life, ranging from moral values to family relationships to aesthetic and intellectual achievements. Yet market fundamentalism is constantly attempting to extend its sway into these regions, in a form of ideological imperialism. According to market fundamentalism, all social activities and human interactions should be looked at as transactional, contract-based relationships and valued in terms of a single common denominator, money.

Activities should be regulated, as far as possible, by nothing more intrusive than the invisible hand of profit-maximizing competition. The incursions of market ideology into fields far outside business and economics are having destructive and demoralizing social effects. But market fundamentalism has become so powerful that any political forces that dare to resist it are branded as sentimental, illogical, and naive.

Yet the truth is that market fundamentalism is itself naive and illogical. Even if we put aside the bigger moral and ethical questions and concentrate solely on the economic arena, the ideology of market fundamentalism is profoundly and irredeemably flawed. To put the matter simply, market forces, if they are given complete authority even in the purely economic and financial arenas, produce chaos and could ultimately lead to the downfall of the global capitalist system. This is the most important practical implication of my argument in this book.

There is a widespread presumption that democracy and capitalism go hand in hand. In fact the relationship is much more complicated. Capitalism needs democracy as a counterweight because the capitalist system by itself shows no tendency toward equilibrium. The owners of capital seek to maximize their profits. Left to their own devices, they would continue to accumulate capital until the situation became unbalanced. Marx and Engels gave a very good analysis of the capitalist system 150 years ago, better in some ways, I must say, than the equilibrium theory of classical economics. The remedy they prescribed - communism - was worse than the disease. But the main reason why their dire predictions did not come true was because of countervailing political interventions in democratic countries.

Unfortunately we are once again in danger of drawing the wrong conclusions from the lessons of history. This time the danger comes not from communism but from market fundamentalism. Communism abolished the market mechanism and imposed collective control over all economic activities. Market fundamentalism seeks to abolish collective decision making and to impose the supremacy of market values over all political and social values. Both extremes are wrong. What we need is a correct balance between politics and markets, between rule making and playing by the rules.

But even if we recognized this need, how could we achieve it? The world has entered a period of profound imbalance in which no individual state can resist the power of global financial markets and there are practically no institutions for rule making on an international scale. Collective decision-making mechanisms for the global economy simply do not exist. These conditions are widely acclaimed as the triumph of market discipline, but if financial markets are
inherently unstable, imposing market discipline means imposing instability - and how much instability can society tolerate?

Yet the situation is far from hopeless. We must learn to distinguish between individual decision making as expressed in market behavior and collective decision making as expressed in social behavior in general and politics in particular. In both cases, we are guided by self-interest; but in collective decision making we must put the common interest ahead of our individual self-interest even if others fail to do so. That is the only way the common interest can prevail.

Today the global capitalist system still stands near the height of its powers. It is certainly endangered by the present global crisis, but its ideological supremacy knows no bounds. The Asian crisis has swept away the autocratic regimes that combined personal profits with Confucian ethics and replaced them with more democratic, reform-minded governments. But the crisis has also undermined the ability of the international financial authorities to prevent and
resolve financial crises. How long before the crisis starts sweeping away reform-minded governments? I am afraid that the political developments triggered by the financial crisis may eventually sweep away the global capitalist system itself. It has happened before. I want to make it clear that I do not want to abolish capitalism. In spite of its shortcomings, it is better than the alternatives. Instead, I want to prevent the global capitalist system from destroying
itself. For this purpose, we need the concept of open society more than ever.

The global capitalist system is a distorted form of open society. Open society is based on the recognition that our understanding is imperfect and our actions have unintended consequences. All our institutional arrangements are liable to be flawed and just because we find them wanting we should not abandon them.

Rather we should create institutions with error-correcting mechanisms built in. These mechanisms include both markets and democracy. But neither will work unless we are aware of our fallibility and willing to recognize our mistakes.

At present there is a terrific imbalance between individual decision making as expressed in markets and collective decision making as expressed in politics. We have a global economy without a global society. The situation is untenable. But how can it be corrected?

This book is quite specific with regard to the deficiencies of financial markets. With regard to the moral and spiritual fields where market fundamentalism is squeezing its way into the nonmarket sector, my views are, of necessity, much more tentative.

To stabilize and regulate a truly global economy, we need some global system of political decision-making. In short, we need a global society to support our global economy. A global society does not mean a global state. To abolish the existence of states is neither feasible nor desirable; but insofar as there are collective interests that transcend state boundaries, the sovereignty of states must be subordinated to international law and international institutions.

Interestingly, the greatest opposition to this idea is coming from the United States, which, as the sole remaining superpower, is unwilling to subordinate itself to any international authority. The United States faces a crisis of identity: Does it want to be a solitary superpower or the leader of the free world? The two roles could be blurred as long as the free world was confronting an ``evil empire,`` but the choice now presents itself in much starker terms. Unfortunately we have not even started to consider it.

The popular inclination in the United States is to go it alone, but that would deprive the world of the leadership it so badly needs. Isolationism could be justified only if the market fundamentalists were right and the global economy could sustain itself without a global society. The alternative is for the United States to forge an alliance with like-minded nations to establish the laws and institutions that are necessary to the preservation of peace, freedom, prosperity, and stability. What these laws and institutions are cannot be decided once and for all; what we need is to set in motion a cooperative, iterative process that defines the open society ideal - a process in which we openly admit the imperfections of the global capitalist system and try to learn from our mistakes.

It cannot happen without the United States. But conversely, there has never been a time when a strong lead from the United States and other like-minded countries could achieve such powerful and benign results. With the right sense of leadership and with clarity of purpose, the United States and its allies could begin to create a global open society that could help to stabilize the global economic system and to extend and uphold universal human values. The opportunity is waiting to be grasped.

(...continued immediately below...)

To UR

The general discussion is about the fortunes of the countries, not the ones who emigrate. There is a demand for software engineers, met by immigrants to the US, and most of them are from the third world, primarily from India. No doubt about it, it is good for the ones in the Us, but how good is it for india. Leaving aside the `brain drain` rhetoric, in economic terms the effects are near zero. The relatively high salaries in the west is accompanied by high expenses and expectations, the net result is fun transfers from the US is negligible when compared to those, the `un-educated` workers from the middle east.

A good example is the `Resurgen India Bonds``, 80% of it was itt was subscribed by the middle east workers while the US indiancontribution was less than 3%. I do not deny the intangible benefits of indians being in the US.

One of course should not forget the parallels of the present indian emigration to that in the earlier times. Majority in Surinam and Fiji are indian origins, may be in those days I am sure those fortunate indians also might have echoed your sentiments, but all that happened is they got integrated into the host country.

Now about the Microsoft comparisons. I believe that the market capitalisation of MS cannot be usefully compared to the GDP. GDP is the annual production in the country, which at best can be compared to the turn over, or total revenue of MS. The total productive assets of a country, even a small country will be much larher than that of MS.

To SR

I know of one person who doesnt share the truth uttered by Soros, that is Malaysian PM Mahatir Mohammed. At a time when currency speculation is wreaking havoc in the small economies where people are loosing real jobs, when the amout of money flowing in the speculative funds are comparable to the total forign exchange earnings of countries like Thailand, it is depressing to see the ramblings of a speculator and gambler, occupying so much of space on the chowk. Of course, success is every thing, and everything is money which gives one the right expound a world view.

Interesting discussion!

I think it was Jay and UR who were debating about the nature of American economy, which was becoming increasingly Information Technology based and thus, creating more wealth than most other countries for the USA.

This is highly true and the fact of the matter was that since the middle 1980s and then from the 1990s, Americans have ``cornered`` this market and are now well into what can termed as an information industry and that they are well poised to control the global flow of information.

This is where I would like to add a caveat to this scenerio. There was an interesting interview with US Secretary of Labor, on one of those of Sunday talk-show circuits, which I accidently surfed into, thanks to Wasiq and the interest his article prompted in me on this topic.

According to the US SecLabor, the US economy in is becoming global in the information sector and it is by far the fastest growth industry in the nation, thanks to new emerging technologies as internet etc. However, the down side to this, shown by a Labor Dept. internal study, was that this info economy`s strenght is based on foreign workers who have H1-Bs for temporary work in the US. According to Labor Dept. data, US schools and colleges are not producing the required numbers of graduates, which this info industry requires and hence, in the future it will see a slow, but marked down turn, because of what can be called as a recession as the industry levels out and a new round of growth can not be generated due to a lack of skilled American employees.

This then nicely compliments the recent Congressional attempts, by both Republicans and Democrats, to increase the cap of H1-Bs for foreign workers in computers and to create a new class for student visas, for science, which would enable a student to work and study at the same time. Though the Americans business see this a viable alternative, to a lack of American talent, to recruit foreign workers, the American government is becoming increasingly concerned, because though these foreign workers generate wealth for the American IT sector, their talents are ``fluid``, that is open to international job mobility and hence, not subject to American control and in fact, pose a ``brain drain`` for the American IT industry.

This is specically worrisome to the Americans in the defense R&D spheres, given the recent case at Los Alamos, that these foreign workers pose a threat to the security of the United States, but to ban them from working, would in fact mean crippling and degrading its own defense, because there are very Americans with required skills to replace the foreign workers in the US without causing severe internal problems for the IT industry in the States.

This is becoming a serious problem and it is igniting considerable interest and so far, this problem has fully escaped the notice of the press in these Ego-Centric States.

Dear SR:

To quote you:

``I`ve noticed references to it in other messages, but I doubt if either of the writers has as yet read the book. (My copy is on its way from amazon.com by UPS Ground.)``.

Notice any inherent contradiction in your reply my friend? Please get some jolt cola or whatever libation you need to loosen up and don`t mess up what seems to be a very entertaining discussion.

Also the chowk staff should be careful about infringing copyright laws when they allow verbatim copies of Prefaces to a book to be published on their websites.

Going back to the article at hand,I would argue that software is a commodity just like cars.

Whereas the high-end stuff may continue to some out of Silicon valley or Seattle(:-)), the low-end stuff may end up in places like Bangalore or Singapore. The growing trend toward server-centric programming may actually accelarate that trend. I would highly recommend Peter Yourdon`s 2 books(something titled the Death of the American programmer and then the Rebirth(?) of the American programmer) that delve in greater detail on the subject.

My optimism is not because I feel the IT revolution will somehow or the other transform third-world countries into the first world. This may or may not happen. However, I am very optimistic about the opportunities that the IT revolution has created for poor nations. Whether third-world countries take advantage of these opportunities is a different story. But, at least there exist opportunities now for the poor nations, that could never have existed through the industrial revolution.

I have had a chance to work in both the aerospace, and software industries in Pakistan as well as in the US. Aerospace is on the cutting edge of the industrial revolution, while software is on the cutting edge of the IT revolution. The dissimilarities in both these industry, with regard to third world countries, are astounding.

The international aerospace industry has hardly any state or individual level participation from the 3rd world. The deck is stacked highly in favor of the 1st world countries. The infrastructure required to produce one aircraft is astronomical. It requires excellent test facilities, wind tunnels, a well-developed mettalurgy industry, an advanced avionics industry, a gigantic amount of capital etc. etc. This is true for other by-products of the industrial revolution, as well. 3rd world countries can never have access to all these facilities.

However, the IT industry is different. It does not require nearly the same facilities. Due to the microscopic infrastructure requirements (in comparison to the industrial products), it is much easier for 1st world IT nations (basically the US) to shift their software houses into the third world. Individuals from the 3rd world already control a chunk of this industry, in comparison to the 1st world countries (not including the US). I am willing to bet, that the combined market cap of the IT companies, started in the last 10 years, by Indians based in America is higher than the combined market cap of IT companies, started by certain 1st world European coutries, during the same time. AST Research, a company started and run by a Pakistani-American, at its peak, had annual revenues of over 2 billion dollars. I believe (not 100% certain) this is higher than the total annual revenue of the Pakistani IT industry, as a whole.

You cannot look at the IT industry (or any other industry, for that matter), by simply looking at the products produced and exported by 3rd world countries. In this scenario, the 3rd world countries will not immediately be able to match the 1st world countries, due to the reasons mentioned in other replies. You have to take a look at the amount of capital, resources, and institutions controlled, and influenced by 3rd world individuals. Whether not all of them are currently living in the 3rd world will not make too much difference in the long run. Israel, plays a much larger role in the international economy as compared to the size of its population, or to the number of products it exports. That is because, a lot of the economic institutions of the world are controlled by pro-Israel individuals.

So there are definitely more opportunities out there because of IT. The question is how can the 3rd world governments tap into the opportunities that 3rd world individuals have already tapped into. This is the 64 million ruppee question.

So far China is the only country that has succeeded in doing the above. Before the IT revolution, China was a third world country, with a per capita income less than that of Pakistan. Its technological exports consisted of unreliable copies of Russian defence, and aircraft technology. Its main source of export were simple items like pencils, and children`s toys. After the IT revolution, China is on its way out of the third world, and destined to become an economic power. It certainly did not do this by selling cheap pencil sharpeners. It also did not do this by exporting proprietary software. Hardly any of the major software programs are written by Chinese companies. It did so by utilizing the human resource capital of professinals, both inside and outside China. India sends over four times as many software engineers to US, as does China. However, the amount of money pouring back into China per US-based Chinese software engineer is much higher than his/her Indian counterpart. Also, the amount of foreign investment flowing into the Chinese IT industry is much higher than that flowing into India, or Pakistan. Why? Becuase, the Chinese govt. is playing its cards right; the Indian govt. is playing its cards only partially right; the Pakistani govt. is not playing its cards, at all. The way to attract foreign investment is not by offering high interest rate bonds, or by relying on the goodwill of expatriates. It is done by offering the correct business climate that can tap into the IT skill and money, controlled by 3rd world individuals, all over the world. Pakistanis and Indians would love to invest in their countries of origin, if they were provided the proper business climate. This is human nature.

The IT revolution has given the 3rd world countries access to the economic pie, that the industrial revolution could never have provided.

Re: Wasiq

I do not think, ``The actual outcome will be somewhere between the extremes that people are apt to go to in their projections.``

Infact, I see just the opposite. There will only be extremes. The third-world countries that get IT (no pun intended) will surf the IT wave out of the third world. The poor countries that do not get it, will be wiped out by this wave, and sink even furthur into the third-world black hole. I do not see a middle ground.

Re: Jay

Your point about the high-rate bonds was answered above. That is a very naive way to convince businessmen to invest in their countries of origin. Almost as naive as the, ``Qarz utaro, Mulk sawaron.`` scheme started by Nawaz Sharif. The reason money does come into these schemes from the middle east is, because the middle eastern Pakistani and Indians send the money to support their home-based relatives.

Re: sac

I read both books by Yourdon. I remember his name to be Ed Yourdon, but I must be mistaken. In both his books, he mentions the impact and importance of 3rd world engineers in the IT revolution.

To UR,

There is an old economic theory by Milton friedman that under free international trade, the wage rates will become equal. In the case of because IT, because of it ethereal nature, is instentaniously trasportable at low cost, there is an evergrowing trade and the wage rates are tending to level out. A simple help desk job, or a call centre function in the US can be easily tranfered to some one in india. It is unlikely that a plumbing job could be. That is why the plumbers in the US are paid 100 times than the indian counter part, in the case of IT, this is fast declining and I know of cases where the tax paid salaries are comparable.

I do recognise most of the points you raised, particularly the low capital intensity, from a theoretical perspective. From a practical point of view, in the absense of venture capital and the free wheeling individual spirit, hardly any `new` IT companies have come up in India. The largest in India, Tatas, L&T, Infosys, Mahindras and Wipro were all established industrial houses before they ventured into IT. I wonder why the GE and EXON and United technologies did not venture into IT.

Now about China, I completely disagree with your view that chinas industrialisation is pioneered by IT. Far from it, Chinas IT exports are only 20% of Indias, so is the share in the GDP. Chnas economy and all the rest that go with it is a beat up, it is only based on the foreign exchange surplus. It is simply used as a `model` to ask the other countries to allow `export` processing zones, and other forms of subsidy. If you ever cared to look at the price of chineses products in the US supermarkets, allow for the margins (i know it is 120% at the retailer) and other costs, you will realise the product is subsidised, in chinese currency to earn foreign exchange. The way of reporting the GDP, problems of calculating price in a communist economy and my direct observations in china, yes i am inclined to believe that it is a `conspiracy`.

Israel, you should recognise cannot be compared to other countries. To give you an example, the US military budget expense incurred in Israel is treated as the same as that incurred in the US. Now think of the US budget, it is more than a trillion annually, and what can a trivial element of it do the economy of any country.

It is not my intension to devalue or belittle thetremendous contribution of IT professionals who are in say, india and who have and are emigrating to other countries. But I cannot but ignore the parallels in an earlier time, the sugar cane cutters from north india who went to Fiji, The south indian plantation workers who went to Malaysia and srilanka, the farmers who went to Surinam and the traders and miners of South Africa.

Can I not just add another group, THE IT PROFESSIONAL OF USA. will they do anything different from the ones listed above. If so why and how.