The world today has been described as unequal, unbalanced, unsustainable and unstable. It is a paradox that it has become more so now when fruits of globalisation should have been available to all!!
The world has been interdependent for centuries through trade and war. But more recently, with advances in technology and communication, it has led to greater inter-dependence as trade, investment and money cross borders.
And yet, globalisation has not unfolded in the way we envisaged. Instead it has some unintended consequences. There is today a new world order emerging that is challenging some of our old assumptions about interdependence.
Our first assumption
- Assumption 1: That globalisation was irreversible– The entire world was to benefit from it; the developed world was to find a new level of growth. Instead it is struggling with recession, unemployment. So it is not surprising that it responds with Protectionism in terms of trade barriers and immigration rules. On the other hand, the developing nations feel that the advanced nations have tried to make globalisation work in their favour and that the benefits even in poorer nations have been reaped by a few at the top – no trickle down effect. Some of them are agitating against globalisation.
- Assumption 2: The epicentre for global energywould always be the Middle East. This has been the biggest upset with global ramifications – both economic and political. With the discovery of large reserves of shale gas and oil, the US is well on its way to becoming energy independent. This means a shift in its foreign policy – away from the Middle East and changing its geopolitical priorities. As it turns to Asia and Africa, leaders in the Middle East are concerned as the region struggles post the Arab spring. Is there a likelihood of an Israeli strike against Iran with US interest waning in the region? And if Europe can source gas from the US then it will deleverage from Russia. In addition a number of petro states are emerging in Africa which will rival the likes of Qatar. New economic and power centres emerging with declining power of the old petro czars. The cost of energy would become more reasonable across the world. Will that give a fresh impetus to India and China?
- Assumption 3: BRICswould lead the world back to prosperity – instead the two BRIC giants, China and India grapple with their domestic politics and the question on everybody’s lips is will China have a hard landing? Will India capitalise on its strengths faced with a menacing fiscal deficit. And of course the elections loom large and can UPA pull it off this time. In addition, China has been open for business for some time now with $50bn FDI. However, it is changing now – the price of entry and doing business in China is rising with a view to promoting national champions against international companies. Can the world rely on China anymore?
- Assumption 4: Economics always trumps politics– Eurozone crisis shows that politics trumps Merkel will find it hard to explain to her people why they must work harder to bail out Greece or Spain and Portugal. It is the rise of the Nation State –Germans views on bailouts, “Germany needs to look after itself, we cannot afford to bail out countries like Greece”, Spaniards want to drop the euro and return to the peseta. In India – stalled reforms and decisions that make clear economic sense are blocked by political compulsions.
National governments everywhere remain responsive to domestic needs while reluctantly submitting to the wider discipline of a global market
So we see that in some cases the world is actually trying to disconnect.
In summary – the key assumption was that The World is Flat – with equal opportunities for all based on the principle of comparative advantage of countries and economic efficiencies of capital and markets. Efficiency and Equitable growth were the promise of globalisation
Instead we see a world that is not flat and frictionless but a world that is curved.
So what happened?
Globalisation had several unintended consequences
- First – The developed world played by unfairrules that played to their strengths and yet it is not growing– we have recession, unemployment and flight of capital.
- Second – The world has become multi polar– for the last three decades the world was almost UniPolar with the US leading in every sphere. Today the world has many power centres. Several of the developing nations are now emerged markets soon to top the GDP charts of the world. These poorer countries are now the centre of resources – energy, cheaper manufacturing, IT services and large markets – 86% of the world lives in D&E markets. Can any multinational company or country ignore the Chinese market or the power of the RMB?
- Globalisation called for a global management system and governance. But a unipolar worldmeant that institutions like the IMF, World Bank, WTO and ILO failed to act as non partisan democratic global management bodies to check excesses of the big powers. Free trade can only work on the premise that all players are equal. In a relationship between unequal partners, might is right. Stiglitz argues that IMF and the World Bank overruled sovereign authority of the developing They were forced to adopt economic policies that would prove detrimental to them ultimately.
WTO failed to set proper norms for wages and environmental degradation. OECD’s attempts to set rules for governing foreign investment by multinational companies collapsed in the 1980s.
What is the road ahead – there are several lessons from the new changing order and the unintended consequences of globalisation. In a global economy serving self interest at the cost of others does not work whether it is the environment, trade, or capital flows. With such disparity in the world, powerful nations need to take steps to tilt the balance in favour of poorer nations.
– For fair not Free trade – Trade liberalisation needs to factor in weaknesses of their poorer trading partners – poor capital resources and knowledge gap. It is said that it is better to be a cow in Europe than be a poor person in a developing country – with a subsidy of 2USD per day – that is defined as the poverty line in developing nations. The developed world must reduce its own subsidies and non tariff barriers and allow the developing countries genuine access to its markets. This is especially true for agriculture which is the backbone of most developing nations.
-One of the ills of rapid growth in developing nations has been unrestrained corruption and bribery – resulting in flight of capital and environmental degradation – Particularly true for resource rich countries. This is fed and encouraged by developed nations and rogue global companies. In OECD countries bribery has been a tax deductible expense. Some of the largest democracies and global companies pursue undemocratic and covert practices to do business to their advantage and leave a mess. Union Carbide in Bhopal is just one example. The only antidote is complete transparency…………………………………………………. Flight of capital means destroying assets – So while the GDP rises, the country actually gets poorer – Illegal gains from several countries are finding their way into London property with its sound property rights. Recently in Chatham House in London Alexander Lebedev the Russian media oligarch warned of huge amounts of Russian black money finding its way into London property – POETIC JUSTICE?
-We know that monopolies and power in a few hands does not work in anybody’s favour. Powerful nations insist on IPR and patents – they benefit hugely by charging huge premiums. In the case of life saving drugs patents mean loss of lives in poor nations. Giving access to life saving medicines without the high prices and taxes and not delaying generics is in the best interest of everyone – IS THIS NOT BETTER THAN GIVING AID?
These are just a few instances how globalisation can be for the good of all.
Can globalisation be reversed ?– technology has released the genie out of the bottle and developing nations have benefited from it enormously– we have to now ensure how to make it not just efficient but good for everyone.
Does globalisation need global management systems and regulation? We have seen that lack of regulation and poor governance is leading to a reversal of globalisation. So it is important to create the right democratic institutions to regulate and monitor the process of globalisation.