Globalisation

KEY POINTS

Positives of Globalisation

·         Developing countries have grown faster than the industrialized countries, and increased their share in global gross domestic product (GDP).

·         This is precisely because of globalization.

·         The big gainers have been Asian countries, led by China.

·         India is also in this group.

·         One of the successes of globalization is that private sector flows in the form of foreign direct investment (FDI) and foreign institutional investor (FII) flows have become much more important than flows from the World Bank Group and the ADB.

·         The end result has been a huge reduction in global poverty, and a reduction in inter-country inequality, even if inequality within countries has increased. In other words, globalization has made the world more inclusive.

What should be done?

• We should therefore push to build support for a new inclusive “Globalization 2.0”
• Industrialized countries are of the view that countries like India no longer need the World Bank/ADB.

·         This is incorrect. There is a case for giving these institutions a new mandate: helping achieve the infrastructure needs of economies like India which have just entered the bottom of the middle-income category.

·         Industry needs to be reassured that genuine problems will be addressed.

·         Standards can become a new form of protectionism, since products that don’t meet the standards will be denied access to industrialized country markets.

·         We can always refuse to harmonize our domestic standards and leave it to our producers who want to export to adopt higher standards. However, this presents two problems.

·         First, if our competitor countries join trade groups which harmonize standards, the group may impose stricter tests for exports from countries that don’t harmonize, which would make our exports less competitive.

·         Second, if we retain lower standards at home, firms that want to export will have to incur higher costs, putting them at a disadvantage in the domestic market, since their domestic competitors will not have to incur these costs.

·         A new twist in globalization 2.0 will be the role of industrial policy.

·         The successful exporters of the past—Japan, Korea and China—did not simply follow a passive policy of lowering tariffs and waiting for market competition to do the rest. They followed a much more active industrial policy and it is argued that we need to learn from that experience. There is a lot that government must do in terms of providing infrastructure and a supportive policy environment and we need to do much more of that.