The Future of Globalization

Authored By:- Rohan Kumar Tolani

Globalisation was a concept which was forced upon the world by the west since the 1980s and its biggest beneficiary was China. It is an engine that continuously brought countries towards prosperity since the 1980s, but it has faced three atomic bomb attacks.

These are:-

    Global Financial Crisis (GFC) 2007

    A trade war between USA and China

    Wuhan Virus

GFC 2007:-

It was caused mainly due to excessive monetisation expansion due to high confidence of the then Federal Reserve Chairman Alan Greenpens. Also, due to subprime loans which were given to people who were incapable of returning it, which created a housing bubble. It led to falling of Lehman Brothers. Initially, Obama let Lehman Brothers collapse. But after realising his mistake, he brought a stimulus package which helped globalisation survive. Although many countries fell into recession and in some cases like PIGS(Portugal, Italy, Greece and Spain) were unable to come out of recession properly. India, which saw a high growth rate of 7% and above from 2000-07 came to less than 5% after 2010-2014. As a result of GFC, trade and FDI as a percentage of GDP either became stagnant or fell in negative.

Trade War 2017:-

Trump’s narrative even before elected as POTUS was against globalisation. He started a trade war against China and mini trade war against many countries, including India. Many companies were in fear and started reducing the hiring of employees around the world. Since global trade is directly proportional to GDP growth. Hence as the worldwide trade was hit hard by the trade war and GDP growth rate of many countries also fell.

Wuhan Virus:-

Finally, Wuhan Virus came with massive lockdowns and curfews around the world. As a result, it was thought that the world’s supply chain might get disconnected. But after months we found out that the supply chains did not collapse, but the demand collapsed. Globalisation may get a hard hit after Wuhan Virus, and its most significant indication is the resignation of WTO’s Director-General one year before his term ends.

Today, the speed of globalisation has reduced to a level that it is now called slobalisation. According to this concept, the world GDP growth rate and world trade growth rate has been reduced. For example:- India’s Export in 2013-14 were $314B, in 2018-19 were $330B and in 2019-20 were $314B[Due to Wuhan Virus].

The era of integration:-                    

Integration had been ever in any form or other since centuries. It is not like countries were living in silos. Mahatma Gandhi gave the idea for Gram Swaraj[Gram Independent on its own]. But unfortunately, it was never fulfilled. Even Nehru left Gandhi’s plan since he wanted industrialisation. Nehru’s model was PSUs will reach commanding heights. Shastri’s model was of Jai Jawaan Jai Kisan(Green Revolution). Indira’s model was Pharma Industry manufacturing and Import substitution. Rajiv’s model was the Computer Revolution. Narsimha Rao’s model was based on Entrepreneurship, IT firms. Finally, Atal’s model was based on Scientific achievements.             

But the type of integration seen after the 1980s was incredible. As a result, we saw China’s rise and free movement of Capital, People, Technology, Science, Goods, Research and Development and Manufacturing. Globalisation also helped India as it saved India from the Balance of Payment crisis of 1991 and three new industries rose after LPG reforms between 2000-2010 as the IT industry, Pharma Industry, and Automobile Industry. However, no new industry was created after 2010-2020. Today the real economy and financial economy of the stock market is delinked because of the central bank’s monetary policy.

So has globalisation caused only damages? No. There are many positives of globalisation.

Positives of Globalisation:-

    Free movement of capital,

    Trade.[Which was correctly used by leaders like Deng Xioping]

    Free movt of people and their ideas.

                            

New Era of Slowbalisation or De-Globalisation:-

Modi’s call for self-dependent India is right. We should not be dependent on others, but also we should be not isolated from the world. Hence we should build our abilities. We should use Make in India.

Japanese govt is giving stimulus to Japanese companies coming back/ going out of China.

EU is saying the same thing, that is:- have Strategic Autonomy. Companies will not be allowed to be sold to other countries, especially China.

Trump’s model is to Make America Great Again by putting tariffs on China. But it did not stop Chinese exports. Hence Trump wants to decouple with China. If this happens and if countries want to bring the supply chains back to their country, supply chains will become either national or regional from global ones.

Therefore we can say that Modi’s call for self-dependent is not a new idea. But Modi’s appeal will be based on self-dependence on almost every aspect, and Earlier PM’s plan was specific. Hence it will be more challenging and if implemented correctly, will take India at new heights.

These self-dependency programmes all around the globe are the antithesis of globalisation

Therefore, we may see fractures in the integrated world 🌎 [Though not much visible today]. But if a drug or a vaccine do not come early[18 months atleast], these fractures may be visible.

Chine+1 Strategy:-

Once when Deng Xiaoping was asked, “Why China being a communist, is accepting America’s capitalistic money?”. He replied that it is Socialism with Chinese Characteristics. Now the world wants globalisation with fewer Chinese characteristics because till now it was like Globalisation = China.

So, are there any chances for India? We cannot defeat China in the coming 5 to 10 years because it takes at least 5 to 7 years to establish supply chains. It is not like a button to shift manufacturing plants. But after 5 to 10 years, it may/may not happen because today countries are working on China +1 strategy.

Once a company sets up a plant in a country and provides jobs to lakhs of people and spends 5-25 years there and creates a brand and goodwill in that country and after that if we ask the company to leave that country and move on to another country. It is nearly impossible for the company since it will lose money, time, brand equity and goodwill from that market also.

So what companies are doing is creating an alternative supply chain in the next decade and reduce China’s capacity but still keep it as a base.

Hence, what will happen to globalisation, we can see it only after the pandemic is over.