The Hindu Business Line : `Globalisation is a source of productivity miracle'

As globalisation captivates countries, cutting across continents, how to leverage its benefits while safeguarding the interests of stakeholders in an open economy is a tough task even for advanced countries. Hence, the various outbursts against outsourcing and cross-border take-over of companies.

Answering a range of questions on not only globalisation and outsourcing, but also integrated trade and how companies from advanced countries can exploit the major export opportunity that India offers as it puts in place a massive infrastructure network, Mr Stephen S. Poloz, Senior Vice-President, Corporate Affairs and Chief Economist of Export Development Canada (EDC), said: "The exporters must first invest in the Indian market." It may be like carrying coal to New Castle but that does not detract Mr Poloz from emphasising the need for companies abroad to invest in India before they reap the returns.

EDC provides financing and insurance help to Canadian exporters and investors expand their global business. It helps 7,000 Canadian companies and their global customers in up to 200 markets worldwide. EDC's support to 129 Canadian exporters and investors in India in 2004 helped realise $611 million in exports and investments. Its remit enjoins that all transactions it supports must be assessed against country benefits criteria. Hence, EDC considers the overall value of Canadian content in the exported goods and services; the economic spin-off in both countries such as employment generation; the ongoing trade creation, and the positive contributions to the economic prosperity of both the countries. EDC's financing facilities include direct buyer loans, lines of credit, note purchase, loan syndication and leasing. Mr Poloz, in India to deliver lectures in the capital and in Mumbai, spoke to Business Line on a range of issues. Excerpts from the interview:

On globalisation and its spreading sway: The underlying principle of globalisation is that specialisation and exchange make everybody paranoid.

With distances rendered shorter by technology, globalisation has a deeper content and will continue till such time things or energy to globalise are exhausted and till everyone has exploited its strengths as opposed to its weaknesses.

The problem arises when during the transition people do things that they ought not to.

Take the case of India, they don't see the big picture that by doing globalisation we expand the opportunities for income growth for the economy.

I speak of fears in my own country when people ask when will globalisation end? What comes out of it? They fear that all the jobs will wind up in China, India, Mexico or Poland and there will be none in Canada.

The end product of globalisation is good if you see how the US had globalised during the last 50 years. One job in three was in manufacturing 50 years ago in the US but today less than one job in 10 is in manufacturing. In fact, the number of people in manufacturing, world over, is the same today as 50 years ago but they are six times more productive.

All the rest of prosperity and all the rest of growth in the US for the past 50 years has happened outside the economy.

And you know why? Because, they have globalised extensively during that period and that is the source of productivity miracle.

Every country can do it; if they globalise they increase their own productivity.

The main relationship between US, Canada and China is that China is a supplier but before that it is a bigger consumer. India is a more diversified economy with Canada and India trading in specialised goods, facilitated by globalisation and through foreign direct investment, building supply chain and incorporating our strengths into a single process.

We source components from India for a product we finish in Canada and then sell all over the world. That is the trade between Canada and its Canadian affiliates in India; it is a trade whose purpose is to supply the third market.

That is trade triangle — Canada-India-third country. Canada-India-US or Canada-India-Europe.

When we work at bilateral trade, it does not give any hint of the importance of what we call integrated trade because it integrates ordinary export sale with ordinary imports for supply to third country using FDI and other trade tools.

On outsourcing: If the low productivity job is shifted — as it happened some 30 years ago in a shoe-making company from Massachusetts in the US to China — , the productivity in other jobs goes up, say, in the construction industry that brought about a housing boom and employment to many.

On India's position in the global economy: India has all the right ingredients to grow very rapidly in the next 20-25 years and what companies need is the right infrastructure and end to red-tape.

It is a competitive game that can be driven by investments by domestic companies in India or abroad and foreign companies in India.

But the best thing the government can do is to focus on creating the conditions for all this.