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The glory (gory?) days of globalisation are here

January 23, 2007

The cover story in the latest issue of The Economist brings to the fore all the hopes that people in growing economies have about their future and at the same time it delves into the fears that people in developed countries like the United States have about globalisation. The Economist (dated 20-26th Jan 2007) says:

Globalisation

“These are the glory days of global capitalism. The mix of technology and economic integration transforming the world has created unparalleled prosperity. In the past five years the world has seen faster growth than at any time since the early 1970s. In China each person now produces four times as much as in the early 1990s. Having joined the global labour force, hundreds of millions of people in developing countries have won the chance to escape squalor and poverty. Hundreds of millions more stand to join them”

BUT

“Signs of a backlash abound. Stephen Roach, the chief economist at Morgan Stanley, has counted 27 pieces of anti-China legislation in Congress since early 2005. The German Marshall Fund found last year that, although most people still say they favour trade, more than half of Americans want to protect companies from foreign competition even if that slows growth. In a hint of labour’s possible resurgence, the House of Representatives has just voted to raise the federal minimum wage for the first time in a decade. Even Japan is alarmed about inequality, stagnant wages and jobs going to China. Europe has tied itself in knots trying to “manage” trade in Chinese textiles. The Doha round of trade talks is dying.”

Sufficient noise is being made to make developing countries uneasy. Countries like India are in the race with China to grab all those lucrative jobs and any kind of restrictive legistation will harm both China and India. But I can’t help but agree wholeheartedly with the Economist when it explains:

“Widespread protection would surely meet with retaliation from abroad. Even if people gained as workers they would lose as consumers, investors and future pensioners. Moreover, the protection of jobs and pay would be short-term, because it would gradually lead to companies losing competitiveness as rivals in India and China innovated. Paradoxically, therefore, the greater the number of people threatened by globalisation, the less each of them is likely to gain from getting their governments to stand in its way.”

It is a complicated argument and a worker who has just lost his job due to globalisation may not want to hear it. Specially as there is a strong lobby supporting legislation to restrict foreign competition.
Is there a middle path? Well, having grown up in Indira Gandhi’s socialist India which was full of protectionism and laws (though of a different kind) to protect the poor from the ‘evil’ doings of capitalists, I quite abhor any kind of protectionism. I have also seen for myself what India was like before globalisation (with tough laws to prevent entry of foreign FDI) and can compare the India of the seventies to the India of this century. The prosperity now is in the words of The Economist – unparalleled! Why, even Bollywood movies of the time portrayed capitalism as the enemy of the poor! Well, the fall of Russia was the beginning of the end of this ridiculous idealogy…I vividly remember the discussions we had at our family dining table when TIME magazine came out with a cover outlining the reasons why the Russian economy folded up. Surprising though that a great capitalist country like America appears to be losing it’s nerve…when lessons from history make it clear that if a country has to retain it’s competitive edge, market forces need to prevail. I am not sure that there is a middle path…unless one wants to become a middling economy.

(Photo from about.com)

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9 Comments leave one →
  1. Sahil permalink
    December 22, 2007 2:01 pm

    Nita you should read a Times of India article dating few days back; Kapil Sibal our Science and Technology Minister, won an impressive battle against developed countries in a global environmental summit. With his impressive debating skills (he’s a lawyer by profession), he managed to convince them thar their double standards on greenhouse emissions will not be accepted by India. Basically, the EU and the US during their own development process over two centuries, have contributed to the present state of global warming we have today. And now they expect developing countries like India and those in Africa, to cut back on emissions. True I’m in favour of that as well- but not without free and uninterrupted transfer of clean environment technologies to India. Mr. Sibal’s arguments drove a wedge between the US and the EU and not only he managed to bring them around, he forced them to do a U-turn on their previous stance.

    We need more outstanding orators like Mr.Sibal – hats off to him!

  2. December 22, 2007 2:45 pm

    @ Sahil:

    Sibal did not say anything that his audience – and a billion people living in the western hemisphere and many more students of development policy – do not already know. The tragedy of life is that by citing old behaviours, we cannot justify them.

    If your neighbour, for instance, beats his wife and has done so for 30 years, does that make it acceptable for you to start beating yours? I didn’t think so. In today’s world, your neighbours will report you in a heartbeat and you will find yourself somewhere rather unpleasant.

    Changed circumstances require changed negotiation tactics, not moralising or lecturing, which only serve to sustain an impasse, not catalyse a movement in either direction.

  3. Sahil permalink
    December 22, 2007 3:17 pm

    SHEFALY

    If you go through my script again, I did mention “I’m in favour of that as well (cutting emissions for India)- but not without free and uninterrupted transfer of clean environment technologies to India”. And it’s only a fair demand for the benefit of all nations.

    BTW This is only a rhetorical demand. India is one of the most attractive sources today, in the field of non-renewable sources of energy. Suzlon, an Indian company, is today the world leader in wind energy equipment manufacture; Bio-diesel is becoming common today. Some Indian cities have switched to CNG vehicles. Most new cars come equipped with a CNG/Electric transmission capability,

  4. December 23, 2007 12:22 pm

    Sahil:

    My comment was about Sibal’s oratorial style and the unsuitability of using that sort of rhetoric – combined with the argument of whose development was fostered in a protectionist environment – to today’s circumstances.

    When protectionist domestic and trade policies were applicable, the world was far less interconnected and less mutually dependent. Now it is different. Surely new negotiation techniques are called for.

    I find it interesting – in your original argument you say “not without free and uninterrupted transfer of clean environment technologies to India” and in your second comment, you suggest that “India is one of the most attractive sources today, in the field of non-renewable sources of energy”. If the latter is true, why is the former needed? I do find rhetoric a less than compelling argument to explain the co-existence of the two.

    And I daresay that if India aspires to the global crown, developing some technologies at home – not just those for the bottom of the pyramid but the kind other aspire to import – would not go amiss.

    Negotiating on emission targets is one part of the story; it is inextricably linked with domestic policies on funding of science education and research, on which front too less rhetoric – both from politicians and from observers and commentators – and more action and real outcomes would be more welcome.

  5. December 23, 2007 12:33 pm

    @ Sahil:

    “Bio-diesel is becoming common today. Some Indian cities have switched to CNG vehicles. Most new cars come equipped with a CNG/Electric transmission capability,”

    In a country like India, where there is technical food sufficiency but not enough efficient distribution to ensure there is no hunger, bio-diesel and other bio-fuels are a double-edged sword.

    CNG/ electricity-run machinery and vehicles are also reliant on derivative power sources. After all the car has to be charged and unless electricity production is sustainable – and given the state of domestic power supply it is fair to conclude that is a far cry from the truth – such cars will largely run on CNG whose prices are reliant on petroleum prices and whose supply mainly on imports, as India does not produce nearly enough domestically.

    Derivative fuels while clean are not a sustainable answer which is why end-of-pipe technologies are more likely to continue to enable the fuelling of India’s economic growth than beginning-of-pipe solutions. The former allow for our reserves of coal to be used in a cleaner manner than old style technologies might allow.

    Thanks.

  6. Sahil permalink
    December 23, 2007 12:46 pm

    Shefali

    I see where you coming from on this; what I meant was that a majority of R&D in the field of non-renewable energy sources’ development -takes place in Western (especially EU countries) nations. Indian companies have “just recently” jumped on the bandwagon. It is possible for India to achieve low-emission sources on a macro-scale, on its own standing -but Western aid will only “accelerate” this process. Environmental problems are a common issue for both India and the West. Some countries like France, Germany and the Netherlands have developed improved technologies and India needs all the help it can.

    I also see your concern on derivative fuels. Indeed, derivative energy sources are dependent on fossil fuels indirectly -but if you see the larger picture, using them cuts back on fossil fuel usage by 20-30% on average- and that’s significant considering India’s oil deficits are running at tens of billions of dollars.

    I welcome the India-US Nuclear agreement. It’s an important landmark deal that will ensure India’s dependence on traditional sources paves way for more advanced, and scientific alternatives. Given the fact that the Communists have hijacked this deal somewhat, chances look bleak until this government ends its term in office. True, some parts of the deal are lop-sided in favour of the US (they’ll have increased leverage to Indian internal affairs once this deal is put in place). But it should be kept in mind, we really don’t have any other alternative.

    Without Energy Security, any hopes and vision of a Developed India look far from a reality. Some necessary compromises in India’s foreign policy will actually not hurt that much in our longer-term interests.

  7. December 23, 2007 1:17 pm

    Sahil:

    “Some countries like France, Germany and the Netherlands have developed improved technologies and India needs all the help it can.”

    Alas that is a catch-22. They are in their rights to allow access to such technologies if and only if India agrees to emission targets. So isn’t India better off developing its own?

    Interestingly many things that work for France (nearly 80% nuclear-generated electricity), Holland (sea-facing for the large part so placing bets on offshore wind and at the moment only 3% electricity from renewable sources) and Germany (largely land-locked, great domestic engineering talent) may not work for India where a large number of people are (rightly) consumed with security of food supplies rather than of energy.

    I think co-development of technologies, rather than in-sourcing or in-licensing, is the best alternative that India has.

    The nuclear deal with the US is not a technology deal, it is a geo-political strategic deal. Unlike the bipartite system in the US, India’s complex realpolitik is predictably proving to be difficult. What you call lop-sided is just strong bargaining by the US – the kind India has to develop, rather than rely on rhetoric.

    And even if the deal were through, it is still unclear how the public would take setting up of large nuclear plants since unlike the US, we have a larger density of population per sq km; unlike Sweden, who have a great public consultation model, we have neither a small population nor a history of or institutions for great public consultation; and anyway nobody has quite worked out how to dispose of nuclear waste in the long run. So it remains to be seen how it will work in practice.

    The challenges of globalisation I think call for better governance and institutions in India than we have developed so far. In my observation, India is a product of individual enterprise making it big and succeeding despite not because of institutional frameworks. A different tack however is needed now..

  8. Sahil permalink
    December 23, 2007 1:49 pm

    Shefali

    Unfortunately, our past record in R&D makes it sound like a very bold statement. I read an article which states out of 1500 top R&D firms in the world, only 6 belong to India (Tatas being No.1 from India); an overwhelming majority of innovation still takes place in Western countries and Russia. Not even China and Japan (which is a developed country) come any close. Whether we like it or not, India is dependent on Western nations for sale/transfer of innovative technologies. Putting a few rockets in space and developing a few missiles (and now we talk of putting Indians on Moon and Mars) doesn’t really make the mark for India. Ironically, a disproportionate amount of research work in Western nations (especially the USA) is undertaken by Indian science/engineering graduates (especially IITians).

    India’s premier technology institute IIT’s are not even mentioned among the world’s best institutions because of a lack of original R&D work.

    The only bargaining chip India has under such conditions, is the sheer amount of Indian graduates abroad who the Western nations need for sustaining their innovation efforts. It’s highly unlikely that the “centre of innovation” in this world, is going to shift from Western countries to India anytime soon – it may never happen!

    Just look at the state of India’s software industry for comparison- even as the government self-congratulates itself for making India a lanmark IT destination, all the work that our major software firms do is – coding for US-based firms. Modern day sobriquets for Indian IT workers can be derogatory, “software coolies”, “code monkeys”, “curry programmers”….(I have worked in the IT industry so I know what is our real reputation in this field).

    However, IT is perhaps the only field where Indians have a more or less fair chance to compete with the best and brightest abroad. Many original innovations are indeed coming from India now. That is the only reason companies like Dell, Microsoft and GE have put up their R&D hubs in Bangalore and such places. India is a key player to reckon with in the IT field -no doubt in it. But we really need to focus more on original software/hardware development – and less on outsourcing.

    As far as advanced scientific technologies such as nuclear power is concerned, India is way behind Western countries at present. Indian research institutions like PRL, BARC and others are also dependent on Western countries for sale/transfer of technologies. Eventually, this should change with India’s economic development. But considering that even developed Asian countries like Japan and South Korea haven’t got rid of their Western dependence for original innovativeness, the future doesn’t look bright for India or even China.

    To give you the sheer glimpse in figures, the annual turnover for ONE US company, Lockheed Martin which deals in military/aerospace technologies (and is a key supporter of US Republican Party) is the same as current GDP of India!

  9. vish permalink
    December 23, 2007 2:32 pm

    I remember the ‘Asterix’ comics…the ‘menhir’ business in ‘Oblix & Co’. I would like somebody to explain the sustainability of this economic model which requires a market that can absorb all the ‘menhirs’ that we are producing? What will be the impact and maturity of our people to absore the shocks if there is a downtrend?

    Before we claim success, we need to look at the sustainability right? Also, whats happening to our agricultural sector? Are we achieving the same progress in that? Afterall, there is always a demand for food with the ever growing population. This is one market that can absorb any amount of production if I am right. How independent we are here?

    These are a layman’s questions…

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