C Gopinath

Economic navel-gazing has begun

C Gopinath | Updated on May 31, 2020

Going local is becoming the new mantra

Economic globalisation has certainly taken a hit. Global trade is estimated to have shrunk by about 33 per cent and foreign direct investment flows by about 35 per cent. Even if you say you will wipe the containers with disinfectant, nobody is buying. Governments suddenly realised that if they want swabs or personal protective equipment, they have to stand in line behind many other countries to source from a limited number of suppliers, and so turned their focus to domestic manufacturing.

Companies, also hit by obstructions in their carefully crafted global supply chains, began thinking that regional supply centres may make more sense. Not too long ago, mass customisation was catching the fancy of manufacturers. If you can individualise efficiently, surely regional distribution of manufacturing facilities should be achieved without sacrificing scale economies. Many leaders, including US President Donald Trump and French President Emmanuel Macron, have begun to stress domestic manufacture. When Prime Minister Narendra Modi announced the need for self-reliance and how he would make efforts to attract companies seeking to move out of China, there seemed an apparent contradiction. If we seek self-reliance, would others want to depend on us? Perhaps one should clarify the difference between self-reliance and self-sufficiency. The former does not mean making everything you need. It also means looking to domestic customers rather than focussing on exports. Some commentators have begun to shudder that we would go back to the Nehruvian era.

But if they read further back, they would realise that the Nehruvian era was a gut reaction to centuries of being decimated by a colonial policy that was meant to benefit the UK. And the broad base of industries that came up under the umbrella of the planning framework has held us in good stead. The problem was that it overstayed its welcome. Yet, if targeting domestic customers comes with shutting out imports, it can blunt the competitiveness of domestic manufacturers.

Many cities and towns in America have a thriving ‘farmers market’, where vendors gather in the town plaza or on a blocked-off street once a week to sell their wares. One common rule in most markets is the local focus, that what you sell is grown or made by you, to prevent traders buying from elsewhere and re-selling. Price is usually higher than supermarkets but you get to talk to the grower and taste unique products. There is a festive air. You will still have to visit the supermarket for all your ‘normal’ needs.

If supply chains shrink to only what is locally produced, that will be a big change to consumer patterns. You can’t taste that out-of-season kiwi. But Mahatma Gandhi would have loved it! He believed in a local economy, using materials locally produced, preferably village-based. He favoured decentralisation of production. But, as Professor Vasudevan (Gandhian Economics, Bharatiya Vidya Bhavan, 1967) noted, India has been ‘drawn into the vortex of the world economy.’ If even then, more so now.

So it is intriguing that even in the world’s largest economy, a new industrial policy is drawing businesses back into the country. When America found that it couldn’t even get the chemicals to test for Covid-19 (leave alone protecting its healthcare workers with N95 masks) without being dependent on those super-efficient global supply chains which have all been upended, it started its ‘navel-gazing’.

Some early results of localisation are appearing. Zoom Video Communications, whose ubiquitous software could be based and operated from anywhere, said it would open engineering centres in the US (they are mostly now in China). Taiwan Semiconductor Manufacturing Co the world’s largest manufacturer of silicon chips, is committing to invest $12 billion in a chip-making unit in Arizona. And GE appears to be selling its lighting division to a domestic company in preference to a Chinese buyer.

The writer is a professor at Suffolk University, Boston.

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Published on May 31, 2020
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