The average Indian will live better

Fri, 30 Jul Pre-Open

   Previous Close   

   09:30 am   

   11:30 am   

   01:30 pm   

   Closing   

'Arbitrage' is an activity where you attempt to take advantage of price differences between the same commodity in two different places. So if the same oil is selling for Rs 100 in one market and Rs 105 in another, you could easily make a fortune buying from the first and selling in the second.

This process of arbitrage can extend far beyond just commodities and financial assets. In fact, this process is now more relevant than ever before. As the world is now realising, it can even extend to humans themselves.

It is common knowledge that the developed countries are now growing at a much slower rate than developing countries like India and China. One of the roots of this phenomenon is nothing but the above mentioned concept of arbitrage. Manpower, both skilled and unskilled, is currently significantly more cheaper in developing countries. It is only natural that any profit oriented company will seek to take advantage of this.

If it can make products by spending less money in India than in the US, and if it is possible to do that considering the nature of the company's product or service, it will most certainly do so. That's how a capitalist economy works. And regulations like the ones that the Obama administration has tried to put in place in the US can only postpone this phenomenon. But it certainly cannot stop it.

But that's only one side of the coin. The other side being that there will also be a tendency for people looking for employment to move from places they would get paid less to places where they would get paid more. That's why you have youth from developing countries looking to settle down in developed countries. And not the other way round.

Take the above two points together and what emerges is one distinct and inescapable global trend. The supply of jobs is increasing in developing countries. And the supply of manpower is increasing in developed countries.

That leads us to another distinct feature of the concept of arbitrage. When big price differentials exist between two similar commodities in two different markets, one particular thing is bound to happen. An increasing number of people will seek to make money out of this differential. And as more and more people jump into the band wagon, the demand supply dynamics in both markets will keep changing. And this will happen until the time the price differential between both markets comes down to zero.

Something similar is in the process of happening in the global economy today. And this process is unlikely to stop until it reaches its only logical conclusion – the convergence of average wage levels between the denizens of developing and developed countries. Consequently, the same is bound to happen to the lifestyle of the average Indian. It can go in only one way from here – up. Until it reaches closer to developed world levels that is.

The surprisingly higher GDP growth rates in the East and soaring unemployment levels in the West are only manifestations of this trend.