Is Globalisation as we know dead?

Globalisation has been under attack for decades. The global financial crisis in 2008 gave it a big blow and global trade as a percentage of GDP has not recovered ever since. In the last 10 years it has suffered multiple setbacks in the form of Brexit, US-China trade war and the Pandemic.

If these were not enough, Russia-Ukraine war is now sounding its death knell. Today, globalisation as we know it is facing an existential threat and new world order may soon replace it. This change will come at a severe cost to many countries, including India.

Warts and all, globalisation has had its benefits. Opening up of international trade has helped many countries grow much faster than they could have otherwise. Asian Tigers — South Korea, Taiwan, Singapore and Hong Kong, are a few examples. Not to mention China. It has lifted millions out of poverty and gave many a better quality and longer life. It has offered developing countries like India access to capital and technology.

It has led to reduction in cost of goods and services across the world, thanks to the competition and efficiency it ensures. India’s GDP has risen from $270 billion in 1991 when it liberalised its economy to $2.66 trillion in 2020. Globalisation has had a big hand in it.

Unequal growth

The anger against free trade, however, is not unwarranted. The accelerated pace of economic growth it has generated has not been equitable. If the number of billionaires has increased sharply, so have those in poverty. Inequality has widened, especially in developing and poor countries. Globalisation promised stability in the world — financial and otherwise.

But it could not prevent the East Asian crisis, economic collapse in Latin America and of course, the Global Financial Crisis in 2008. It assured a new liberal world order but today, 50 per cent of the world is not a democracy. Wars are being fought as before and human rights violations continue. The unbridled growth it triggered has also been counter-productive for the environment.

Nobel laureate and former Chief Economist at the World Bank, Joseph Stiglitz in his book `Globalisation and its discontents’ says that globalisation itself is neither good nor bad. He blames its failures on implementation. He argues that it has done wonders to countries which embraced free trade at their own pace such as East Asian countries including China. But for those that were forced into it like Russia, Romania, Ecuador, Argentina and other Latin American countries, it has been a disaster.

World Bank and IMF, he says, drive globalisation through the lens of ideology (free market) rather than data and without any regard for the unique position of the nation adopting it. Their one-size-fits-all prescription has caused the problems. He also accused the advanced countries of using free trade for their benefit by cleverly eliminating trade barriers of poor nations while selectively keeping theirs. Poor countries, he says, had no say in implementing globalisation. As a result, rich nations got a disproportionate share of the benefits at the cost of poorer ones.

The discontent has led to the rise in nationalism across the world. This, even in advanced world (Brexit in the UK). Right-wing governments have come to power and erected defences against free trade. Donald Trump, as President of the US, started the trade war with China. President Biden has not reversed many of Trump’s policies against free trade. In fact, he has said that US will not sign any new free trade agreements (FTAs) till big time investments are made domestically. His $1 trillion infrastructure plan is replete with `buy in America’ clauses. Multilateral deals have given way to FTAs and World Trade Organisation is at its weakest since inception.

Russia’s invasion of Ukraine appears to be the tipping point. Many countries have banned export of food grains (both Russia and Ukraine are major exporters) fearing disruption in supply and shortages. It has already driven up the prices. Massive co-ordinated sanctions to punish Russia for its uncalled-for aggression has booted the country out of the SWIFT payment system.

The US has banned Russian oil/gas and Europe, which is a lot more dependent on it, is trying to wean itself away by looking at alternative sources of energy. Global brands have exited China. Former RBI Governor Raghuram Rajan refers the sanctions as economic weapons of mass destruction. “..if they (sanctions) are used too widely, they could reverse the process of globalisation.,” he said in a recent article.

While these sanctions will, no doubt, cripple the Russian economy, the lessons other nations, run by autocrats and others, will learn is the need to sanction-proof their economy. This will push them towards self-sufficiency and strategic autonomy – which is necessarily a move away from free trade.

‘Protectionist’ India

India, for its part, has been a big beneficiary of globalisation with its economy growing 10x in three decades. It benefited from inflow of capital, technology and exports of merchandise and IT services. To achieve a rapid pace of growth and improve the living standards of a large swathe of its people, India cannot give up on free trade.

But, of late, it is perceived as turning protectionist. In 2019 it pulled out of Regional Comprehensive Economic Partnership. Since 2014, experts say, it has raised tariff in 3,200 items. India’s average import tariff is among the highest in the world. Its Atmanirbhar Bharat economic philosophy is seen as inward looking and protectionist.

Much of India’s action can be explained as an attempt to move away from China dependence. Its productivity-linked incentive scheme aims to ensure that India is not dependent on its adversarial neighbour for raw material that its pharma sector needs, mobile phones, batteries for electric vehicles or semi-conductor chips.

Likewise US is also de-coupling from China as their relationship changes from `co-operating rivals’ to `competing rivals’. Now large part of the world is moving away from its dependence on Russia. Does all this mean we are heading into a cold-war era type of trade blocs? It is unclear as yet but what is certain is that globalisation as we know it is probably dead.

COMMENT NOW