Two decades of globalisation, and where has it got us?

There was a return to free-market economics all over the world because social democracy did not work. This historical context explains the origin of globalisation.

Globalisation gained wide currency following the collapse of the Soviet Union in 1991. The term denoted a measure of triumph because capitalism no longer faced any large-scale barriers to its expansion. Consumer choice widened and this implied expanded levels of prosperity. 

The question is whether globalisation has transformed the world for the better. Economists, who advocate extending globalisation in its current form, and those who are critical of this concept and call for reforms to make globalisation work, argue that it is the only path to a more prosperous and peaceful world.

Globalisation has created increasing economic interdependence of national economies through a rapid increase in cross-border movement of goods and services, technology and capital. It has resulted in increasing economic integration between countries, leading to the emergence of a global marketplace. Multinational companies manufacture products across many countries and sell them all over the world. Money, technology and raw materials have broken international barriers. The developed economies are integrating with the less-developed through investment, reduction of trade barriers, economic reforms and, in many cases, immigration.

China started opening up its economy in the 1980s. It has now attained a degree of openness that is unprecedented among large and populous nations. Foreign direct investment has helped to improve quality, technology, knowledge and standards, especially in heavy industry. China’s experience supports the assertion that globalisation enhances the wealth of poor nations. Shanghai boasts one of the world’s busiest ports. Some observers note that China’s ascendancy and the relative decline of the US is a fallout of globalisation. America contends with a high trade deficit. China is on track to overtake the US by 2025.

In India, economic reforms were initiated in 1991. It has been estimated that in 2010, about 300 million people had been spared extreme poverty. India’s GDP increased by more than 9 per cent in 2007-2008. Subsequently, however, the growth rate declined. Even with globalisation, the condition of agriculture has not improved. It is still at subsistence level, and suicides by farmers are reported frequently. India has to overcome these hurdles to reap the benefits of economic integration. 

Certain demographic changes in the developing world in the aftermath of economic liberalisation and international integration resulted in a marked increase in welfare. This reduced inequality. In the developing world as a whole, the infant mortality rate declined from 107 per 1,000 to 55 in 2007 thanks to improvement in standards of living and health conditions. Relatively prosperous and educated parents with fewer children have chosen to withdraw their children from the labour force to give them education. To an extent, this has addressed the problem of child labour.

It is commonly believed that globalisation alone can generate wealth and the state should abrogate its authority in favour of corporations. This has given rise to some anxiety. Globalisation now carries with it the disturbing imagery of deforestation, desertification, the decline of small producers in both agricultural and commercial sectors, the primacy of foreign direct investment and transformation of economies to create the right investment climate. This could work to the detriment of labour, sidelining of unions or making them illegal, a drop in real wage rates in the formal sector, increased participation in the informal sector, an increase in child labour and a return to human trafficking.

Globalisation  can fly in the face of an egalitarian society. Multinational corporations with immense financial resources can dictate terms to nations, thereby subverting legislation and policy. As long as the profit-motive remains the sole principle of the production process and capital accumulation, the world will face rising unemployment and poverty. Violence, sparked by unfulfilled needs, will persist.

Even staunch advocates of globalisation now concede that some of the concerns of pessimists are legitimate. They have called for the creation of institutions to make globalisation function in a manner that leaves the most vulnerable members of society less exposed to the vagaries of the international market. Professor Jagdish Bhagwati has recommended that institutions to mitigate increased economic insecurity must develop in parallel with globalisation. Joseph Stiglitz claims that the right kind of regulation is preferable to an unfettered market. Indeed, the trend towards ethical considerations is quite a recent paradigm shift and a radical departure from economic theories that tend to ignore the question of ethics. If the collapse of the Soviet Union is taken as the cut-off date, globalisation as an economic concept has a history of only 20 years. 

In this short period, it cannot be subjected to a rigorous test. Globalisation also has a political and managerial dimension. The dynamics of international relations, such as changing geopolitical relations and tensions among states keen to build and preserve economic competitiveness, will exert considerable influence on the prospects of more effective economic integration beyond the confines of nation-states.

At the global level, enduring asymmetries of power, resources, institutional capacity and access to technologies mean that the critical issues of inequality and justice require attention. Total return to free-market economics, which is called neo-liberalism, is not possible on a global scale. Governments of sovereign states, depending on their resource mobilisation and ability, will have to continue with their safety nets and social welfare schemes to protect large sections of society. Social democracy has not lost its relevance. All economic stakeholders ought to be given sufficient rights of co-determination and co-existence. This is the lesson of globalisation.