Bye bye, Globalisation!

Padma Bhushan Lord Meghnad Desai is a renowned academician and Professor Emeritus at the London School of Economics. He has 38 years of teaching experience and is a life peer at the British House of Lords. A popular panellist on Indian television, he is known for his sharp insight about the Indian economy over the last many decades. Excerpts from his talk on the future of globalisation against the backdrop of the Corona pandemic delivered to the Pune International Centre, a platform for stimulating debates, created by leading industry entrepreneurs and professionals

Lord Meghnad Desai in an intense and analytical talk spoke of the vulnerability of superpower USA which is feeling threatened by China, the fallout of Brexit, disruption of transportation across countries that has stagnated businesses, the likely dismantling of globalisation, and why India should be changing its mindset in order to become a better global player….

The USA feels threatened

‘There’s no doubt that American capital has benefited from the migration of its industries. I mean, look at Apple, which is more or less operating its manufacturing abroad, and so are many other American companies. The capital is abroad, hiring local labour and exporting to America or wherever, and that is globalisation. But there is within each country a simmering of doubt about whether the benefits of globalisation are equitably spread, or at least whether the country gets enough out of globalisation, or is it all taken away by the foreign land where the manufacturing units are set up. I don’t want to alarm people, but basically, the First World War ended that phase of globalisation precisely because Germany as a rising power was not sure that it was benefiting as much from globalisation as Great Britain.

Today, we are in a very similar situation. But today, China is the power that America is feeling threatened by. If you look at American economic and political history, it was dominant not only as a military power but also as an industrial power since 1941. When it joined the war, it proved it had an inherent industrial capability, which no other country had. And whatever the reputation of the USSR then, America out-performed and out-produced all other countries, as it showed bigger technological capability and innovative energy than any other country, even in space.

For the first time, America, which never felt threatened by the Soviet Union in terms of technology is feeling threatened by Chinese technology. The Huawei and 5G controversy is an example. America is dealing with the Chinese app TikTok in a manner that George Fernandes did with Coca Cola. And that tells you how big the change has been in American self-confidence about whether they can be on the top now or not.

So, right now, our problem is that we may be seeing the end of globalisation due to the dispute over the distribution of benefits of globalisation between different participants. And unless it stopped this free flow of technology and free flow of information, there was no other way of retaining confidence. This is further being reinforced by the coronavirus-the viability of an efficient inventory system and its spread-out production chain. The fact that supply chains can be spread over different countries requires an absolutely smooth and flawless transportation system. And this is really measured in terms of minutes and seconds, to be economically viable.

Disturbed supply chains

That smooth, borderless transfer of industrial production in big trucks across boundaries of countries internally or across the sea has been interrupted. Partly because countries, particularly America, are getting rather sensitive about tariffs. And secondly, the Covid-19 pandemic has alarmed us about infections.

Cost of proximity

The coronavirus has, for the first time in the history of economic theory, raised a very peculiar question. Are there costs to proximity? We never worried about the distance and proximity with each other. Clearly, our costs include the number of workers in a production setup. There is a cost to people gathering together, of interaction and proximity, which economists will have to suddenly take on board because we never worried about conglomeration earlier

Agriculture has been relatively unaffected by the pandemic, because in agriculture, the bigger the farm, the fewer the people operating on that farm. And so agriculture works not by crowding people in, but basically by expanding land and in keeping as few people as possible. Even in India, harvests have not been affected because coronavirus doesn’t impact agriculture.

Coronavirus impacts urban industrial processes, where there are people who have to build together in small locations. And so, we will have to formulate some ideas about what are the risks in close proximity, and do we need to redesign industrial production.

"Are there costs to proximity? We never worried about distance and proximity with each other. Clearly our costs include the number of workers in a production setup. There is a cost to people gathering together, of interaction and proximity, which economists will have to suddenly take on board"

New factors in global production

But even before that happens, it is quite clear that the free movement of goods, especially raw materials and intermediate inputs will no longer be as smooth as we thought. And so, the economics of global production is coming under question.

There’s one more technological factor. Even before the coronavirus happened, the development of Artificial Intelligence and Robotics impacted change in production. My daughter who works in an AI production system in a managerial capacity, tells me about the three-dimensional printing which is an absolutely amazing development because, in quite a lot of cases like in car production, you need not have certain parts imported from outside because you can do them on the same location as you are developing other parts. So it’s possible that you don’t need a stretch supply chain; you could go back to the old system of domestic production chain where all inputs are done on a single location, which was basically the technology in the 1960s and 1970s.

Globalisation will go

In 1968, the biggest American company was United States Steel. And now nobody remembers it because the whole technology was vertical integration in a single country. Detroit was one single location production, but that single location production could come back through technological progress, not just through negative things like tariffs. So it’s quite possible that the economics of transport movement may drive us to a phase other than globalisation from which we benefited very much. I’m a great supporter of globalisation, but it may actually disappear due to economic forces, aided by political forces such as the tariff battle between China and America. And it may become a well-remembered episode in global trade history

Right now, the logic seems to be that the end of globalisation will be catastrophic, but it may not be so. We could see a reasonable new development of production systems, which would be economical to be carried out at a single location. And we could have trade patterns that are very different.

Now, obviously, there are peripheral events like the UK decision to exit from the European Union. Today, we are in the final stages of negotiation. But let’s say if the UK goes out without a deal from the European Union, that will be the biggest disruption of production change, as it would spur de-globalisation.

But otherwise, I think the passing away of globalisation would be mostly a positive development of new modes of production, and new technology. And helped along by the difficulty of maintaining a WTO regime, because the WTO regime is also about to break up because Americans are going to walk out any day from the WTO as they walked out of the WHO. And the fact is that whether Biden wins or Trump wins is not going to make that much difference. The American perception of the benefits of globalisation has definitely changed. And if Biden wants to be pro-labour and pro-capital, he will definitely be de-globalising than globalising.

Mindset has to change

I don’t think India is a big player in all this because there is conflict in India between that and the idea of Atmanirbhar Bharat. The ‘self-sufficiency’ of America is not a new concept. In 1947, the Congress government also believed in national self-sufficiency. That madness has not left India and it will go on. For, if you believe in Atmanirbhar Bharat, you’re not going to be globalised.

As for the globalisation of the Indian agricultural sector, in particular, with respect to price fluctuations, as compared to other countries like China I don’t think India is a big player in the global agricultural market, as far as I know. I’m actually very much in favour of the most recent agricultural reforms. I’ve been in favour of them for the last 40 years. India could become a big player after these reforms because India could be a big player in high-value products like fruit and vegetables and flowers but I think India has acted below potential for 75 years. I don’t know when good sense will prevail in India and it will become serious about economic growth. India has to at some stage wake up and learn sensible economics. Even the present government has gone away after a brief spurt of sensible economics. And so I don’t know what will happen. But I think India is not all that important in global economics, sorry, to say, and India could become important, but it will require a very different mindset.