SN Misra
In a recent article, Prof Reinhart of Kennedy Business School writes, “The pandemic has put the final nail in the coffin of globalisation.” She refers to the shutting down of borders, discouragement of export of food and even health products and countries trying for self-reliance in a big way. Macron, the French President talks of independence of France in technology and industry. Joe Biden, the internationalist during his election campaign has promised to create a $400 billion fund to promote ‘Buy America’. India has also unleashed a number of initiatives to promote domestic industry through the ‘Atmanirbharat’ programme. Quite clearly the spirit of free trade is giving way to protectionism and hype of nationalism.
Lenin had wittily observed, “There are decades when nothing happens, and there are weeks when decades happen”. We are going through such a time when history sped up. Fareed Zakaria, one of the ten global thinkers of the last decade, believes that such an epitaph of globalisation is unfounded. He brings out how export as percentage of global economy has gone up from 19% in 1990 to 30% in 2028. The FDI has gone up from $240 billion in 1990 to $2,700 billion in 2016. Most importantly the trade openness index (export and imports as percentage GDP has gone up from 10% in 1945 to 55% in 2016 – thanks to global interconnectedness and massive growth of digital economy. He believes that deglobalisation goes against the spirit of comparative advantage theory of David Ricardo (1817), as per which country should specialize in commodities in which it has a comparative advantage. He gives the example of Levis Jeans which costs $130. If it is produced in USA, it will cost around $350. The trade war between the US and China has made globalisation a troubled terrain. Zakaria believes that there is so much of interconnectedness between the countries that sustained conflict would be wrenching, costly and hugely counterproductive for average citizens.
It would be interesting to foray into the history of globalisation and its chequered history. John Maynard Keynes referred to the period (1871-1914) as the golden age of globalisation when countries based on gold standard and fixed exchange rate, traded in a world where transportation was cheap and travel passport free. After the three decades of uncertainty (1914-44) when the two world wars, hyperinflation and great depression of the 1930s intervened, the major powers of the world brought in sanity to the financial system by constituting IMF for exchange rate stability and World Bank for providing medium term loan to war ravaged Europe. The constitution of GATT in 1948 and WTO in 1995 have made trading of goods and services and protection of IPR, the major agenda for developed economies. The rise of multinational corporations has been a logical culmination of this process. Milton Friedman observes that through globalisation ‘it has been possible to produce a product anywhere using resource from anywhere to be sold everywhere’. This has put an end to geography and death of distance. Thomas Friedman also brought out how the process of globalisation has been facilitated by Internet and flattened the world in terms of access to knowledge and information. To quote him “every colour of human rainbow can now participate in the global chatroom”.
While globalisation has certainly improved the inter-connectedness between countries in terms of transfer of knowledge, technology and management practices, Paul Krugman has brought out how MNCs try to exploit cheap labour and lax environment control in developing economies like China, India, Thailand and Bangladesh by setting up manufacturing bases in these countries.
However, a balanced view would show that globalisation has ushered in larger market, cheaper products, modern management technology, increase job opportunity, improved wages and greater interdependence. On the other hand it has increased the power of the MNCs to exploit lack of environment laws, cheap labour, influence local policy and promote contagion effect.
In the Indian context, the economic liberalisation of 1990 changed the policy thrust of India from import substitution to one of export promotion. This has encouraged trade openness and helped to foster growth in GDP from the Hindu Rate of 3.5% to about 7% since 2000. Special Economic Zones have fostered exports and policy patronage to the IT has made them the mascot of India’s growth story. However, with the recent policy announcement for ‘Atmanirbhar Bharat’ has put the clock back, by increasing tariff and reserving product for local manufacture. The experience of India (1950-1980) has clearly revealed that protection has helped largely in perpetuation of inefficiency of domestic industries, poor quality affecting the interest of consumers.
In a recently released book “The Ages of Globalization”: the noted economist Jeffrey Sachs brings out how global change is due to interplay of geography, technology and institutions. He terms the age, post 2000 as the digital age where the countries have acquired outstanding capacity of digital technology, computers, internet, AI, mobile telephony and Industry and Industry 4.0, where robotics, IOT, machine language is completely changing the face of production. USA is no longer the single hegemony, and the world has become multi polar, with China trying to move up the AI ladder in a massive manner. The digital age has ensured that percentage of people who were below $1.9 a day has dwindled from 35.9% to around 10%. In contrast, India’s record in terms of reducing percentage of people below poverty line is from 49% in 1990 to around 23.7% in 2018. In contrast China has a more edifying record as it has brought down the percentage below extreme poverty to around 3.8%.
Zachary Karabell wrote: It’s easy to hate, convenient to target and impossible to stop the sweep of globalisation. For globalization to succeed in India, the major challenge of India would be how to improve the quality of human resources like quality education, skilling and health care, so that aspirational young Indians are globally employable. Openness of the world must be the rule and gates the exception. In 2018 Yuval Harari argued that advances in AI are heralding the rise of digital dictatorship. The digital divide needs to be compressed significantly to harness the full benefit of globalisation.
The author teaches Economics & Constitutional law.