Redrawing globalisation

Developing countries must accept only those aspects of globalisation that do not have a negative impact on the livelihood of the people.

Prime minister Manmohan Singh is trying to adopt all-round globalisation -- goods, capital and technology in all sectors of the economy.

Presumption is that globalisation is enabling our producers to access foreign markets and leading to generation of jobs. Our people are getting cheap imported goods which are leading to betterment in their standard of living. We are also getting advanced technologies such as in the automobile sector. These benefits are not disputed. Problem is that these come with an increase in domestic inequality which is destabilising the inner fabric of our society.

True, our access to global markets has improved. Cars made in India are running on the roads of many countries. Our software exports are spreading across the globe. But employment in these sectors is limited. Total numbers of adult workers in the country is about 60 crores. The employment benefit accruals, therefore, barely touches a minority of our workers.

The Chinese experiment with globalisation may not be replicable for us. Nay, we should consciously stay away from it. That experiment suffers from three problems. First, the natural resources are being exploited at throwaway prices leading to their depletion and also environmental degradation. Made in China idols of Ganesh and Lakshmi are available cheap because price of petroleum, electricity and land is less. This is like a farmer selling the topsoil of his field to a brick kiln and boasting that he is doing good agricultural business. Overexploitation of natural resources is not sustainable.

The second problem is that the long term negative impacts of FDI will become more visible as fresh inflows continue to decline. Profit repatriation will take its toll on the Chinese economy. I did a regression analysis of relationship of FDI and growth rate in China a few years ago. I found that the impact of FDI in the past 10 years is positive on growth; but the impact of FDI in the decade before is negative. This happens because MNCs start extracting profits with the passage of time. These repatriations are a net loss to the economy somewhat like blood being removed through a catheter.

 The current slowdown in China, I reckon, owes itself partly to these repatriations. Third problem with the Chinese model is that it is not replicable. The developing countries can be classified in ‘lower’, ‘middle’ and ‘upper’ classes with China and India placed in the middle class. These countries are able to access global markets and their workers are getting some benefits. But a large number of countries such as Bangladesh, Nepal and Sudan are left out of the race. A village cannot be said to have ‘developed’ on the back of one government employee making a pucca house. Similarly, globalisation cannot be said to be beneficial for the developing countries in general on the back of few middle class developing countries.

Part of the story

Mainstream economists say that globalisation is leading to creation of jobs. This can clearly be seen happening in IT, auto, pharma and few other sectors. But this is only part of the story. Large scale loss of jobs is taking place in other sectors — courtesy globalisation. Large number of workers were making a living earlier in weaving of cloth. This sector has more or less disappeared today. Entire production of cloth is being made in modern automated factories. The overall effect of globalisation on jobs is not positive.

A study by Charles Gore, a senior economic affairs officer of UNCTAD helps us grasp the impact of globalisation. He says many countries are getting into a ‘poverty trap.’ “The poverty trap,” he says, “can be described as international because an interrelated complex of trade and finance relationships is reinforcing the cycle of economic stagnation and generalised poverty within many Less Developed Countries.” He suggests that the current form of globalisation is tightening rather than loosening this international poverty trap.

Another argument is that globalisation helps India get scarce capital. MNCs like GM, Suzuki, Ford and Toyota have indeed brought large amounts of money into India. But this only a part of the story. A reduction in official flows is occurring along with. But this too has another side to it. The UNCTAD study says: “In terms of access to foreign savings, a positive trend is that private capital flows to LDCs have been increasing in 1990s. But the increase has been much slower than the decrease in official capital flows.” My understanding is that this trend has become stronger since then. The ‘middle class’ among developing countries has also become net exporter of capital on account of outward FDI, accretion in forex reserves and capital flight through hawala-like transactions.

Conclusion is that globalisation is not creating jobs or reaching capital to the developing countries as a group. If at all, the ‘middle class’ among them alone is a beneficiary. The only clearly positive impact of globalization can be seen in technology.

We need to revisit the policy of all-encompassing globalisation. Developing countries must accept only those aspects of globalisation that do not have negative impact on the livelihood of the people. It is necessary to make a study of impact of different components of globalisation on different sections of our society. We should accept only those components that are beneficial even for the poor.

This might require rewriting the WTO agreement. The present provisions enabling member countries to impose certain restrictions on grounds of loss of livelihood should be actively utilised. We should even consider initiating a movement for renegotiating the WTO treaty with the support of the ‘lower class’ developing countries if these provisions prove inadequate.