The Hindu Business Line : Globalisation and market mentality

FIVE decades ago, the Viennese social economist, Karl Polanyi, wrote a celebrated essay, "Our Obsolete Market Mentality," arguing that market-driven thinking was a vestige of the Industrial Revolution. Now was the time, he suggested, to transcend the age of the market and re-embed the economic system into society; little did Polanyi suspect what history had in store for contemporary man.

Today, half a century later, the market mentality is anything but obsolete. In fact, we are witnessing a market revival of an intensity and scope rarely encountered since the Middle Ages. Virtually everywhere, the role of government is being trimmed; social programmes questioned, weakened or abolished; social controls of the market being deregulated; and public enterprise privatised. In short, we are falling back head-over-heels to an age of economic laissez-faire.Although a globalising economy is subject to cyclical spurts of growth and periodic downturns (much like the cycles of domestic economies), the world economy has grown rapidly since the 1980s. Despite cyclical downturns, globalisation drove world economic growth by 140 per cent (in real US dollars) between 1970 and 1998, to nearly $40 trillion in annual output of goods and services.

International trade grew substantially during the last half of the 20th century. The value of world merchandise exports doubled from a little more than $2 trillion in 1980, to a little more than $4 trillion in 1994, and then rose to $6 trillion in 2001. The ratios of merchandise exports to gross domestic product (GDP) grew from about 8 per cent in 1960, to 13 per cent in 1990, and to nearly 18 per cent in 1998. In addition, the value of world exports of commercial services increased from $402 billion in 1980 to more than $1.4 trillion in 2001.

By the 1990s, economic globalisation was being driven more by FDI than by trade. Total world inward and outward FDI grew from 10 per cent of world GDP in 1980 to 31 per cent in 1999. The accumulated stocks of inward FDI rose from about $14 billion in 1914 to about trillion 1995, and to more than $6.8 trillion in 2001. Both trade and investment were driven by the expansion of multinational corporations (MNCs). Between 1996 and 2001 the number of parent MNCs grew from 44,000 to more than 65,000, and their number of foreign affiliates (enterprises in which they had a 10 per cent or more investment) from 2,80,000 to 8,50,000. The sales of foreign affiliates doubled during the same period from $6.4 trillion to $18.5 trillion, growing to twice the size of world exports. The total assets of MNCs' foreign affiliates grew from $8.3 trillion in 1996, to nearly $25 trillion in 2000. The gross product (value of output) of MNC parents of affiliates grew to $8 trillion in 1999, accounting for about 25 per cent of world GDP. Foreign affiliates of MNCs now employ more than 53 million people.

Criticism that globalisation rewards economic competitiveness at the cost of social progress often overlooks the substantial improvements in social conditions around the world during the period of rapid population growth and economic integration. Overall, social conditions and quality of life indicators improved in much of the developing world during the last half of the 20th century. The United Nations Food and Agriculture Organisation (FAO) reports that by 2000, global agricultural production was 1.6 times the level achieved in 1950, which in that year was the highest in 10,000 years of agricultural history. Between 1970 and 2000, infant mortality (per 1000 live births) dropped in sub-Saharan Africa from 132 to 92; in East Asia and the Pacific from 77 to 35; in South Asia from 138 to 75, and in Latin America and the Caribbean from 82 to 31.

The United Nations Development Programme's Human Development Report indicates that since 1990, 800 million people got improved water supplies and 750 million gained access to improved sanitation. Primary school enrolments worldwide rose from 80 per cent in 1990 to 84 per cent in 1998. Countries in which half the world's population live have reduced hunger by 50 per cent or are on track to do so.

It is true that globalisation does increase inequality, but it does not create a winner-take-all society, and the winners hugely outnumber the losers. Yes, it can make bad government worse, but the onus should be on crafting better government, not blaming globalisation. Yes, it curtails some of the power of nation-states, but they remain the fundamental unit of modern politics. Globalisation is not destroying geography, merely enhancing it; it benefits producers with greater choice over their raw materials, production techniques, and skills and equally benefits consumers by providing them with better goods at competitive price. It increases efficiency and thus prosperity.

Globalisation, a now fashionable phrase, has become a political and economic doctrine and is on the verge of becoming dominant global ideology, which has emerged after the collapse of the Soviet Union and the end of the Cold War and with the alliance of markets and foreign policy. The basic assumption on which globalisation's ideology rests is that prosperity and material progress had created political cohesion in the US — binding together a large and ethnically diverse nation. It could do the same abroad. But this marriage between economics and politics may be losing its power. What seemed to be the ascendancy of American ideas camouflaged new problems and conflicts.

The reason why the market has been on a winning streak can hardly be explained in terms of moral considerations or a revival of traditional values of liberty understood as the freedom to choose and the just rewards for talent and hard work. These moral underpinnings of free exchange and the market have always exerted a steady influence. Similarly, the popular idea that unencumbered markets tend to promote economic efficiency is hardly new. Instead, the real reason for the sudden resurgence appears to be not so much any change in the market's appeal per se, as a strong deterioration of the public confidence in the market's archetypal rival: The government. In public consciousness, the latter increasingly appears inept, indifferent, bureaucratic, unfair and, if nothing else, certainly "too big." Moreover, scandals, both numerous and widespread, involving government officials have raised the spectre of moral corruption on an international scale. Not surprisingly, market ideology has capitalised on these developments.

Terrorism demonstrated, if nothing else, that the very nature of globalisation — the openness of borders to people and goods, the rapid spread of new technologies, the interdependence of nations — creates new vulnerabilities and opportunities. SARS and AIDS have made the same point differently. Globalisation encourages the spread of disease and hatred in addition to hope and higher living standards. But, in another sense, globalisation has fallen victim to its own success. It is precisely because so many countries have embraced the idea that foreign trade and investment are essential to their prosperity that globalisation has proved less manageable and less malleable.

The critical question now is whether the global economy can wean itself away from the dependence on the US and resume faster and more balanced growth. If growth in the US falters, protectionism and economic nationalism could intensify, as countries seek to safeguard jobs and industry. The most recent example of passing federal law, banning American companies from outsourcing to India US government contracts is a severe blow for globalisation process and free trade.

Globalisation gives rise to new problems, new conflicts and new competitors. Many people think globalisation is raising the power of the multinationals. In fact, corporations have never been as vulnerable as today.The new economic realities are that every continent must be open to global competition or fall behind; that every continent must focus on its competitiveness and flexibility or lose business, jobs and wealth.

It is not as simple as the phrase "think globally, act locally". Business today must do more: it must think globally, act globally, but it must also think locally and act locally too — all while making sure the company as a whole is consistent in its actions wherever it does business. No easy task.

What now seems clear is that the whole debate over globalisation has been skewed. People have argued whether it is good or bad, as if it can be stopped or started depending on the conclusion. But globalisation is not automatically either a panacea or a calamity. It is not an inevitable process but an all-too-human one, in which success has to be fought for rather than simply assumed. It is a condition — a state of being. It cannot be undone, because the forces that have brought it about (lower communication and transportation costs, the transnational spread of business) cannot be undone. It has the potential for good-reducing poverty, increasing individual opportunity and freedom — and the potential for bad-fostering economic crises and abetting terrorism — depending on how it evolves and is managed. After all, globalisation is a savage process, but it is also a beneficial one, in which the winners far outnumbers the losers.

Prof Joseph Stiglitz has been one of the greatest critics of globalisation, particularly economicglobalisation. According to him "Today, globalisation is being challenged around the world. There is discontent with it, and rightfully so. It can be a force for good: The globalisation of ideas about democracy and of civil society have changed the way people think, while global political movements have led to debt relief and the treaty on land mines. Globalisation has helped millions of people attain higher standards of living, beyond what they, or most economists, thought imaginable but a short while ago. But for millions of people, globalisation has not worked. Many have actually been made worse off, as they have seen their jobs destroyed and their lives become more insecure. They have felt increasingly powerless against forces beyond their control. They have seen their democracies undermined, their cultures eroded.

The international institutions must undertake the perhaps painful changes that will enable them to play the role they should be playing to make globalisation work, and work not just for the well off and the industrial countries, but also for the poor and the developing nations. The developed world needs to do its part to reform the international institutions that govern globalisation.

However, the other perspective hasbeenrepresented by Prof Jagdish Bhagwati, who has termed Prof Joseph Stiglitz's remark as a false alarm.

He focusses on its economic dimension, as "diverse forms of international integration such as foreign trade, multinational direct foreign investment, movements of `short-term' portfolio funds, technological diffusion, and cross-border migration."

The main thesis is that economic globalisation is an unambiguously good thing, with a few downsides that thought and effort can mitigate. His secondary thesis is that globalisation does not need to be given "human face", it already has one. A thoughtful and objective evaluation will make this clear.

According to Prof Jagdish Bhagwati, globalisation brings openness, which brings growth and reduces poverty. Since globalisation delivers new capital and technology to developing countries, it may actually raise wages and shift production away from labour-intensive goods.

The more successful globalisation becomes, the more it seems to whip up its own backlash in the form of "World Social Forum", Third World Forum."

The undoing of globalisation would come not just from losers resenting the success of the winners but also from the winners themselves losing their appetite for the battle.

Globalisation's power, and much of its efficiency, is founded on its ability to keep on exposing weaknesses and imperfections.

This is good for us all in the long run, but it makes it difficult for even the winners to enjoy the quiet life. The more relentless economic integration seems, the greater the short-term appeal of politicians who seek to resist it.

(The author is a member of the Indian Revenue Services and the views are personal.)