Globalisation as policy
While the steady progress of the internationally engaged economies of East Asia had long been noticed it was perhaps the collapse of the Berlin Wall that finally isolated those holding out for central planning as a model of economic arrangements. Even though the political significance of this event far exceeded the economic there was no holding back the vanguard of the market revolution so to speak. While the core of the economics profession remained more or less assured of the relative strengths and weaknesses of the market, the historical moment appeared to provide a window of opportunity to the `policy entrepreneur', a term due to Paul Krugman. The only model worth pursuing any longer, it was said, was one of free markets and open economies. This perspective, if one may call it that, was rapidly adopted by the influential multilateral lending agencies. The stage was set for the embrace of globalisation. The preponderant advice to governments now became one that exhorted the implementation of policies friendly towards the international investor. Two elements may be identified in this package. They revolved around procedures for quick approval of proposals for foreign direct investment (FDI) and the removal of erstwhile business barriers to commercial activity, including notably international trade. I shall deal critically with each of these proposals.
While attracting FDI is indeed useful, it is important to recognise two things. First, we know from history, that FDI flows to vibrant economics seemingly living by the adage "to him that hath will be given". This is clear from the history of the US economy which has remained the economy receiving the largest FDI flows for perhaps the past one hundred and fifty years. There is also a kind of contradiction in associating FDI with competition. Actually, given the uncertainty associated with investing in a developing economy, FDI requires high profit margins. High margins actually reflect the absence of competition.
Secondly, historically we would be hard put to think of FDI having contributed to the wider development of a country's economy. Even if FDI did not necessarily depend upon high growth in the destination economies it is of importance to ascertain the commitment of global investors towards local infrastructure, perhaps the one single most crucially absent element in a developing economy. There is of course the case of British capital in the building of the railways on the American continent, both north and south. However, while the figures may have been large by contemporary standards, the USA in the mid-1800s was a far less complex economy than India is today, and with a far lower backlog of poverty. Thus, by taking the economic history of the United States as the prototype, the developmental role of foreign capital it appears can be exaggerated.
The one economy held out as an example of the role of FDI is China, and unfavourable comparisons between India and China on this account are commonplace. This, however, stems from an inadequate appreciation of the nature of recent economic development of China. FDI begins to emerge as a major factor in the Chinese economy only in the 90s, perhaps a full decade and a half after the beginning of the liberalisation of the Chinese economic regime. Moreover, by then China had demonstrated quite extraordinary rates of growth of her agriculture, rates so high that the estimates have been queried.
But the feature of the Chinese economy that tends to get overlooked most is that it is an economy with very high rates of domestic investment. Investment as a share of national income is estimated at approximately 40 percent of GDP. This is very high by current and historical standards anywhere. In India it is barely over 20 percent presently. This must leave us to ponder the promise that FDI will flood India soon as we have an investor- friendly rule book. While no reasonable economist could have an objection to making the investment regime more friendly for potential investors, perhaps something more than altering the policy regime is necessary to ramp up investment in an economy.
In all of this there is too much emphasis on investment or factor accumulation - a strange throwback to debates on growth in the Former Soviet Union. But what of productivity growth? Perhaps FDI is needed for higher productivity growth? Technology and newer ways of organisation certainly are inputs into raising productivity, and these are seen as by-products of FDI. But these are not the only inputs into productivity growth, nor are new technology and newer ways of organisation solely dependent upon FDI.
The argument about FDI is really only a subset of the larger argument that openness is good for growth. Here the strategy, I mean the strategy of argumentation, has been to point to the extraordinary success of the East Asian Economics, the so-called Asian Tigers. It is indeed correct that these economies have leveraged globalisation with extraordinary success. They are, at least by today, relatively open economies both in terms of policy stance - employing a low tariff rate - and in terms of the share of trade in GDP. However, by my very reference to these two indicators of openness, i.e., tariffs levels and trade intensity, I have touched upon a contentious issue in the discourse on development strategy. A debate exists that revolves around the appropriate disentanglement of cause and effect. It has been pointed out that to say that exports are good for an economy in the sense that they raise the level of output is trivial. After all, we may recall from our first course in macroeconomics the national income identity Y = C+I+G+X-M. So, that exports are a good thing is not contentious. The real question is whether openness defined as low tariffs are a sufficient condition for bringing about an increase in exports. Apart from our knowledge that some of the principal East Asian economies - notably South Korea - had first pursued a policy of import substitution - presumably behind a tariff barrier - we have little ground in economic theory to believe that a policy of low tariffs and nothing else can do the trick. Indeed, and again from our knowledge of the history of East Asia there is every reason to believe that active 'export promotion' may be needed, even though this is proposal is anathema in some influential international policy circles. Succesful late industrialisers have, through an industrial policy, aligned interest-rate subsidy with export targets to ensure incentives for compliance and judiciously worked the exchange rate mechanism to maintain competitiveness. Of course, the challenge, however, is to ensure that interventions aimed at export promotion are not captured by vested interests, which has unfortunately been the record of so much of state intervention in India.
Globalisation as process
It may be argued that for serious economists all that I have said so far, though not without interest, is but peripheral to the central issue of globalisation. So what is the central issue then? It is that of convergence. What is this convergence being spoken of? A popular version of the convergence hypothesis is that poor nations will steadily approach the income levels of the rich, currently the industrialised ones. This implicitly means a higher growth rate for the poorer economies. But while the convergence hypothesis predicts a faster growth of the poorer countries why must there be convergence in the first place one might ask? There must be, is the answer, for as factor prices are equalised with globalisation - seen here as the integration of economies - so must become per capita incomes across the world.
Note then that the convergence hypothesis predicts three inter-related outcomes: faster growth of poorer countries, declining world poverty and, above all, declining income inequality. Given the extraordinary differences in income between countries currently, perhaps only a relative equalisation of incomes is being predicted. Strict 'catch up', or poorer countries becoming as rich as the richest ones is simply a useful myth to organise the work of economists.
Let us now look at the state of the current international debate on the
trends in poverty and income distribution as the global economy has become progressively integrated. The strongest claims on the trend in these two variables have emanated from the World Bank (even though at times from researchers based there but writing in their personal capacity). This is not surprising , for the Bank has a monopoly on the related data, supplied to it and to it alone by the national governments that form its membership. It is a strength and weakness. It is a strength of course in that any report on poverty and inequality issued by the Bank is based on actual estimates, however arrived at. It is a weakness in that rival sets of estimates are not easily found. Since the World Bank is a major player on the world stage and has a stake in the international debate on economic policy a conflict of interest surely arises. What do the numbers show us anyway? In a recent report on globalisation the institution has cited work by its researchers showing that between 1980 and 1998 the number of poor in the world have come down by 200 million. While 200 million is a very large number indeed it is yet not prepossessing when seen on a world scale. However, what invests the finding with significance is that this trend in the number of poor is seen to be one of the very few instances of reduction in poverty in close to two centuries. The Bank puts this down to the greater integration of the world economy since 1980, the period representing the most recent bout of globalisation.
Some scepticism regarding the finality of these estimates has been voiced by Robert Wade of the London School of Economics. While not providing alternative estimates himself, Wade has pointed out that these estimates are contingent upon the definition of the poverty line and the methodology used, being based on household surveys. While not proposing outright rejection of the Bank's claim of a lower number of persons in absolute poverty as the world has become more globalised since 1980, Wade recommends agnosticism. Wade has also contrasted this finding of a decline in poverty with the estimated constancy in the number of the poor - defined, as is the Bank's practice, as those living on less than one dollar a day - between 1987 and 1998 reported in the Bank's World Economic Indicators 2001, published only a little earlier in 2002. It is of some significance that two separate publications in the same year by the world's pre-eminent multilateral financial institution report contradictory findings on the trend in poverty during period since 1980. This points to the tenuousness of our knowledge on the matter.
By now the issue of the conflicting estimates from the World Bank has been addressed by one of the world's leading poverty researchers. Angus Deaton of Princeton is able to reconcile the two announcements in terms of a lag in the emergence of fresh information on poverty trends, and concludes that global poverty has actually declined since 1980. Further, in his view, this is not surprising once one takes into account the very significant decline in poverty following faster growth in China and India where most of the world's poor reside. Deaton does, however, caution against pronouncing with exactitude on the numbers given the nature of the data base.
Finally, and even though the World Bank's estimates of poverty reported here are of absolute numbers of poor, Wade has flagged the practice of evaluating trends in poverty on the basis of the head-count ratio. This measures the ratio of the absolute member of poor to the total population. As the total population grows, this measure must show a decline in poverty even if the number of the poor is constant. Thus a declining head-count ratio cannot by itself signal anything definitive about the impact of economic policy, or in the context of our present concerns, regarding the impact of globalisation per se. This needs to be borne in mind when evaluating the pronouncements on poverty of the Government of India which are routinely in the form of measures of the 'percentage of poor'. A declining percentage is also consistent with an increase in the absolute number of the poor.
Let us now turn to the recent evolution of inequality. It has been argued that as international equity measures are based on national income data, they are perhaps on a slightly better footing than global poverty measures based on household surveys. But this must be seen as a statement of purely relative strength, for despite any such strength deriving from the data reliability, the verdict on the trend in inequality is contingent on the index of inequality adopted and the underlying data used. Let us look at the various possibilities first.
A comparison of the incomes of different countries each measured in their national currencies is possible only with the aid of a numeraire. The dollar is inevitably chosen. Now the crucial question arises as to whether we ought to convert national income in domestic currency into their dollar equivalent using the current market exchange rate. When this is done we would have, say, India's GDP in dollars. Instead we may wish to correct for the deviation of market exchange rates from purchasing-power-parity (PPP), a metaphor for a virtuous, so to speak, exchange rate. When this is done we would have India's GDP in PPP dollars. Such an exercise usually has the consequence of raising a developing economy's GDP and lowering that of a developed one. For instance, India is the world's fifth largest economy in PPP terms, a rank much higher than what she can aspire to when her national income is converted to dollars using the market exchange rate. We can see immediately that an indicator of international equity would vary according to the measure of income used. It has been argued that when considering global equity income-comparison based on the market exchange rate alone is relevant, for global exchange is at international prices with payment inevitably to be made in dollars. The latter, it has been flagged, is particularly crucial for internationally indebted economies. The argument itself is, however, more relevant to inequality between countries rather than inequality within countries the evolution of which is no less important to us not only from a political standpoint but also from the point of view of assessing the impact of globalisation.
The second issue in the measurement of the trend in equity, whether global or domestic, is the index of inequality. At the cost of some simplification, we might say that there are two options. First, there are the measures that summarise the distribution such as the Gini coefficient which is a quantification of the extent of deviation from a perfectly equal distribution of income. Then there are measures based on a comparison of the per capita income of say the richest 10 per cent or top decile of the population with the per capita income of the poorest 10 per cent. Some argue that the latter is more appropriate in the context of globalisation for such a measure captures the 'polarisation' that may have occurred as part of globalisation. This has in turn been countered by the argument that, in the context, choosing to work with this measure would be tantamount to self-selection. Altogether, we can see that there is room for discussion on the appropriate measure of dispersion of income. At least, there is no single best measure.
We may now turn to the extant set of results on the trend in inequality in recent decades, the period treated as representing a quickening of globalisation. A broad account of the finding is that: when the trend in inequality is captured via a comparison of the relative incomes of persons at the extremes of the distribution - say the distance between the incomes of the richest and the poorest deciles - at different points in time, inequality has unambiguously worsened around the turn of the last century. On the other hand, when a summary measure of the distribution of income is adopted the inference is contingent. Overall the evaluation of the state of our knowledge on the issue by a leading international observer of globalisation's progress, Robert Wade. Wade has written: " Purchasing power parity figures show trends in world income distribution that are more ambiguous than market exchange rate figures, more conditional on precisely which combination of measures one uses. But we can be confident of the following three propositions. Purchasing power parity figures show trends in world income distribution that are more ambiguous than market exchange rate figures, more conditional on precisely which combination of measures one uses. But we can be confident of the following three propositions:
(1) Using decile measurements of inequality (richest decile of the world’s population over median, poorest decile over median) rather than the Gini or other measure of inequality over the whole distribution, PPP-adjusted income distribution has become much more unequal over the past two decades, whatever the other choices. World income polarization, in other words, has increased unambiguously, and the results would be still more dramatic using just the top 1 percent over the median.
(2) Using a measurement of the average distribution and weight countries equally (China = Uganda), inequality between countries’ average PPP-adjusted income has also increased since at least 1980. Measuring inequality in terms of the dispersion of per capita GDPs across the world’s (equally weighted) countries, this too rose between 1950 and 1998, especially fast over the 1990s. The dispersion of per capita GDP growth rates has also risen over time, suggesting wider variation in performance among countries at each income level. One study using these dispersion measures concludes that there is "no doubt as to the existence of a definite trend towards distributive inequality worldwide, both across and within countries" .
(3) Using a measurement of the average distribution but weighting countries by population, inequality between the country averages has been constant or falling since around 1980. This is the result that …. many …. celebrate. But it comes entirely from fast average growth in China and India. If they are excluded even this measure of inequality shows inequality widening since 1980.
In any case this last measure - the average income of each country weighted by population - is interesting only as an approximation to what we are really interested in, which is income distribution among all the world's people or households regardless of which country they live in. We would not be interested in measuring income inequality within the United States by calculating the average income for each state and weighting it by their populations if we had data for all households."
Even as we note that Wade's own summary is less than clear always - whatever, for instance, may be meant by "a measurement of the average distribution" - it alerts us to the feature that the extant results on the trend in inequality depend closely upon the methodology of measurement and on the definition of income. What is of great interest is that the one instance of improved equity internationally is dependent upon the superior performance of China and India during the 90s. As these are low-income countries, a faster rate of growth in their per capita income would lower any measure of the global distribution of income when national averages are weighted by country populations. As country distributions are weighted by country populations, faster growth in China and India lowers the inequality between these countries and those richer than them.
The findings on global poverty and inequality that I have discussed thus far have mostly emanated from the World Bank, even though very often via independent writing by its staffers. This monopoly on research on these two variables has been challenged by Surjit Bhalla. Bhalla has been particularly critical of the very high increase in the global Gini coefficient as estimated by Branco Milanovic of the Bank, flagging its "statistical impossibility" in light of changes in inequality over the earlier part of the twentieth century. Focussing on the very same period looked at by the Bank's researchers Bhalla has presented estimates to show that in the years since 1980 there are significantly less poor people in the world and that the distribution of income has become more equal than ever before since the time a record is available. However, Bhalla's principled objection to comparing segments of the world income distribution - say the richest in the United States with the poorest in Africa - as involving a selection bias is a non sequitur. For while the distance between the richest and the poorest within any distribution would always remain of the highest, it is nevertheless of interest to us to know how this metric has fared under globalisation. Thus a finding that the distance itself has widened would legitimately be part of the evidence - other factors having been controlled for - that globalisation is generating inequality.
It may be of interest to instinctive critics of the World Bank that on the question of the consequence of globalisation early research from that institution has generally shown itself to be more pessimistic of its benefits than that of some independent researchers! At another level, the conflicting findings on the trend in world inequality - dependent as they are upon conscious choice of data and methodology - should not trouble a sturdy economist, but may well trouble those who expect final answers to questions the response to which may involve some judgment.
The contested terrain of the trend in global inequality does not take away from a claim highlighted by champions of the globalisation project that China and India are in the last decade the world's fastest growing economies. But what conclusions regarding the beneficial causal impact of globalisation are we to draw from this feature? While both China and India are indeed among the world's fastest growing economies right now, it cannot be said that they are the most globalised of the developing economies. Let us scrutinise these two economies both with respect to their respective external-policy regimes and with respect to some (outcome) indicators of openness. It may surprise many that tariffs remain high in both China and India - in fact South Asia is the region of the world where tariff levels are the highest reflecting yet another feature that we share with Pakistan. Secondly, neither India nor China has adopted capital account convertibility, thus seriously questioning the importance of also this aspect of policy regimes for faster growth or economic development.
Now onto a consideration of some outcome-indicators of globalisation. India has exceptionally low levels of FDI for a country its size. China on the other hand has in recent years received the largest annual flows of FDI into any one country, very recently even more than the United States. However, as observed earlier in this lecture, even in China FDI volumes are low relative to estimates of aggregate domestic investment there. What of the most crucial outcome indicator, the trade - exports plus imports - to GDP ratio? While this statistic has risen for both India and China, they are yet among the least globalised of the world 's economies going by it alone. We are able to see then that going by a range of indicators, there are several developing economies which are far more globalised in terms of the share of trade in GDP, notably the economics of sub-Saharan Africa. Their growth performance is not only below that of China and India but also in some cases these economies are actually regressing. It has been estimated that sub-Saharan Africa has, at 29 percent, a higher export/GDP ratio than even the developed economies. Clearly, the outward orientation of an economy does not guarantee its development
This quick survey of the field of developing economies reveals a pattern that is counterintuitive in terms of the claims made on behalf of globalisation. It appears that in the early twentyfirst century it is the least globalised countries that are the best performers. A rhetorical flourish is often produced to account for this by adopting the category 'globalising' instead of 'globalised'. Now China and India are argued to be the fastest globalisers, i.e., integrating with the rest of the world the fastest, even though they are not the most globalised yet. But there is something incomplete here. We have been served with a post hoc or self-serving explanation rather than an account of how globalisation actually works to raise the rate of growth of an economy. The examples of China and India, however, do point out how integration with the rest of the world certainly is not decidedly disadvantageous in every case. Indeed the recent experience of both China and India holds a lesson to many other developing countries. Clearly even the poorest economies can engage with the world beneficially through trade. China actually exports mostly low-tech manufacturing goods such toys, household articles and bicycles.
Before concluding this section, I have a final issue to discuss. It concerns the relation between trade, openness and growth. Our resolution of this nexus has serious implications for the appropriate strategy to be adopted by developing economies that are being exhorted to embrace globalisation over everything else. I shall make my position clear by pointing to the temporal relation between economic resurgence and globalisation - measured by the very outcome indicators I have referred to - in the economies of both China and India. We have reason to believe that in both these economies accelerated growth occurred prior to their increased integration with the rest of the world or globalisation. For close to a decade after the introduction of the household responsibility system in 1978, China's powerhouse of an economy has been driven by peasant agriculture, hardly an identifiable feature of the new global capitalist amphitheater. But before I go I must also mention that there is some scepticism among economists regarding the reliability of the extant data on China's economy.
In India itself the external sector reforms are as recent as July 1991, while an acceleration of the economy was noticed in the 1980s itself. The 1980s saw two significant developments. First, agricultural growth accelerated. Secondly the public sector, notably its infrastructure segment, began to perform better. There was some easing of quantitative restrictions in trade but any significant liberalisation of the external sector was a long way away. The acceleration of growth in India predates its heightened global integration. Along with that of China, the Indian experience presents us with a question often raised in the debate on globalisation. Between observed high domestic growth and openness measured by the share of trade lies the issue of causality. Has trade caused faster growth or faster growth lead to more exports, in turn enabling higher imports, and all of this showing up as a high trade-to-GDP ratio? To cite the latter possibility is not just to throw a spanner in the works of conventional economic reasoning, we can actually propose a mechanism that links prior growth to external success. Increasing your market share requires your goods to become more competitive in world markets. From Verdoorn's Law we know that with faster growth of output we may expect higher productivity growth. Productivity increase reduces costs, making exportable goods more competitive. Nicholas Kaldor was prone to highlighting this sequence of events, which in turn would lead to our questioning of an automatic link between prior openness and economic expansion. Indeed we could conceive of an economy's expansion being in turn reflected in a higher trade to GDP ratio, often celebrated as 'openness' and misconstrued to be the cause of the expansion.
Globalisation as justice
Thus far I have spoken exclusively on the trends in growth, poverty and inequality in the era of globalisation. An international debate has focussed on the question of whether the world economy has improved in terms of these indicators. An implicit approach here appears to be that if there is an improvement in these indicators then we may conclude that all is well with globalisation. It would pay us to reflect on whether this is a credible approach. As always, Amartya Sen has enabled us to ask the right question. It is whether the arrangements underlying the current phase of globalisation are just? Therefore, to simply state that there is both growth and less poverty is not good enough. For instance, we may wish to know how the increased growth has been shared. Now the question of justice emerges directly. Of course, we had considered the trend in inequality at the very outset. But no concrete idea of justice had intruded there, or did so only to a very limited extent. We had been interested in the inequality between nations for that is a central prediction of mainstream economics. Recall that convergence means precisely that. However, this is positive economics, so to speak; there is no evaluation in it, and we cannot duck this exercise altogether.
In a brief passage here I shall raise two matters. First, I shall point to the appropriate domain when we speak of justice in the context of globalisation. Secondly, I point to a fundamental lack of justice under the current global economic order. Not only do I flag a certain failure of current practice, but I also point out that it is a departure from the arrangement even in recent history. This, I consider, will provide a useful perspective for it challenges the idea that the current pattern of globalisation is the only one possible, a suggestion inherent in the use of the term ‘inevitable’ that is so often encountered in current discourse. It is proper for sure, however, that the issue of justice be brought into discussions of globalisation. When addressing this issue we are immediately confronted by the anomaly that global justice is mostly identified with international equity. As Sen has pointed out, however, these are not the same, and as notions differ both in terms of their constitutive context and in terms of their policy implications. The contrast between global and international equity bring to the fore two issues. These are the domain of social justice and the concept of a person.
As regards the domain of justice, the question is whether justice is to applied only to individuals within nations with anything of cross-border significance being seen as relations between nations. As regards the concept of the person we may wish to ponder whether a person's identity is contained by nationality, giving this aspect priority over any other identity that he or she might adopt. What are some of these other identities? Well, these may be based on the person's profession, political beliefs, religion, gender or sexual orientation. Are all of these to be resolutely ignored in favour of nationality? Once we acknowledge that individuals have plural affiliations, as Sen terms it, we see that international relations are a hopelessly inadequate basis for arriving at global justice or equity. As citizens of India we may choose to subscribe to global religions. As citizens of Singapore we may choose to lead what our leaders see as non-Asian lifestyles. An English labourer may empathise more with the rights of Indian workers than with the concerns of British multinationals, as many did in the nineteen forties when Gandhi explained to them the rationale of his swadeshi movement. A concept of justice based on a parity between the world's nations as enshrined in the concept of sovereignty cannot handle these issues. Global equity means something far wider than the international equity that gets focussed upon in world fora today. It must address interpersonal equity among the people of the world.
I now turn to a strictly economic relation and point out that global justice is yet to be achieved, in fact is unattainable, under the present regime of globalisation which is based on international relations. I refer to a central relation in economics, that between capital and labour. In attempting to evaluate the extent of justice adhering to the rules governing their interaction in the current world order we are in need of a theory of justice. While there may be more than one, I am sufficiently persuaded by the Rawlsian notion of 'justice as fairness' to work with it.
For Rawls, fairness for a group of persons involves rules and guiding principles of social organisation that treat equally every individual's interests, concerns and liberties. Rawls is able to persuade us of his conception of justice by suggesting that this is the most likely outcome of a co-operative exercise of arriving at principles of self-governance by individuals gathered in the `original position', an imagined state of primordial equality. Central to this exercise is the so-called ‘veil of ignorance’ which ensures that not knowing what exactly they will be, in selecting social rules they will not be influenced by a vested interest in their actual position in the imagined society.
Rawls then proceeds to the identification of particular principles of justice. The first principle enshrines the ‘priority of liberty’ and prescribes maximal liberty for each person subject to similar liberty for all. The second principle deals with equity and efficiency in the distribution of opportunities. It includes the 'Difference Principle'. The Difference Principle recommends that alternative social arrangements be judged in the terms of the difference they make to the holding of 'primary goods', which are some kind of general-purpose resources including self-respect, by the worst-off in society. This privileging of the worst-off renders the Rawlsian allocation rule `lexicographic maximin'.
We are now sufficiently well-armed to appreciate that the current world economic order, in respect of the rules governing the relation between capital and labour, is far from just in a Rawlsian sense. Not only is capital mobile across borders but its mobility as FDI inflow into the developing countries has been aggrandised as being central to their development. As I have argued, the idea is debatable, but this need not hold us back at this stage. We only need to remain aware that nothing like a similar freedom operates for labour. Entry restriction is rife with respect to unskilled labour. Compared to the barriers to immigration, capital today is spoilt for choice in terms of the earth's geography. The rules governing the movement of capital and labour are therefore asymmetric. This is so despite the case that some economies may be starved of labour resources as much as others need capital. Not just the territories of white colonisation during 19th century but also the economy of the UK as late as the ‘50s and ‘60s benefited immensely from immigration. In fact, the UK has benefited from outflow in the mid-nineteenth and inflow in the mid-twentieth centuries, respectively. Labour outflow keeps up the wage rate in basin of emigration. Though it must keep down the wage rate at the point of entry this need not always be disadvantageous to labour, for wherever there may be indivisibilities in the use of labour, immigration will actually help maintain employment levels when it enables production. This is the sense in which immigration is likely to have aided economic expansion of the US in the late 19th and early 20th centuries when it rose to become the world’s leading economy.
The asymmetry between the respective rules for capital and labour demonstrates how in a globalising world economy justice means something other than international equity or equity between nations. While the absence of immigration opportunities for Indian labour protects the wage rate of American workers the mobility available to American capital ensures that the employment of the latter cannot be guaranteed. When capital moves just across the border to Mexico to take advantage of lower wages, lax environmental regulation and often lower taxes it is as if US jobs are being exported. Were labour free to move at will Mexican wages would be equalised with American ones, and capital would be left without an incentive to look outside of the US economy. This example makes it clear to us that not all issues in the context of globalisation revolve with the narrow compass of international relations and national sovereignty. The domain of justice, or the terrain over which justice must be brought to bear, is broader and more complex than what is focussed upon in the United Nations, often seen as the arbiter of global justice which, abetted by the instrumental reasoning of the Cold War era, was erroneously identified with international equity. Many tend to see the restriction on the migration of labour to the US co-existing with the freedom to US-based capital to flow out as an issue of international equity. But they are wrong. There is actually a formal parity between nations here, for neither can American labour move internationally as Indian and American capital can and do. Only there is no parity between capital and labour. Clearly US workers are left worse off. This also partially explains the presence of the American Federation of Labor in the so-called `anti-globalisation' protests in the US in 2001. To return to some nuts and bolts economics, when the mobility of a factor is restricted its elasticity of demand rises. Thus under globalisation even a small increase in the US wage rate could lead US-based capital to relocate to Mexico. This leaves labour vulnerable, and insecure, in a way that it would not be were both labour and capital equally mobile.
It is this regime of asymmetric rules between capital and labour that gives capital so much power globally today, and it is this arrangement that has earned the description ‘corporate globalisation’, indicating that what we are witnessing is less than true globalisation. This is the appropriate stage for me to clarify that neither theoretically nor in fact is this form of globalisation the only alternative. Historically the world has seen an equally free movement of capital and labour, notably prior to 1914. Indeed many have pointed out that the world was much more globalised then than it is today. Passports were unheard of before the First World War. Since then the world has settled into a regime where immigration is not always welcome, and even if it is, entry is only on the host country's terms. It is the case though that since the 1980s the US has permitted the migration of highly skilled labour, culminating in the influx of IT professionals in the 1990s, a feature that we in India are by now familiar with. But all this is a miniscule proportion of the world stock of labour, and does not even begin to take away from the feature that currently labour’s mobility is curtailed while capital mobility is rife.
I conclude with some observations about India and the world in recent years. In the process I shall attempt to convey that the economic constraints that bind its economy are very likely internal ones rather than anything external. The current bout of globalisation is unlikely to affect her fortunes dramatically either way. A useful indicator upon which to peg one’s evaluation is poverty. If July 1991 may be treated as the beginning of an increasing integration of India with the world economy it would then be pertinent for us to ask what has come of poverty since then. Perhaps the most authoritative recent study on the issue is the one by Deaton and Dreze published late last year. They have concluded on the basis of their own and extant estimates that poverty decline in the 1990s proceeded more or less in line with earlier trends. They have also briefly examined other development indicators relating to health and education, and found that most indicators continued to improve in the 90s. On the whole, they conclude that there is no support for sweeping claims that the nineties have been a period of either "unprecedented improvement" or "widespread impoverishment". This is about as clear a message as one is likely to get on the impact of globalisation on the Indian economy as a whole, as opposed to segments of it that are highly integrated with the rest of the world. The simple matter is that most Indians have either very low incomes or very low skills to be affected by globalisation either way. Low incomes imply that imports don't swamp domestic markets thus protecting workers somewhat. Low skills imply that Indian workers cannot, under present arrangements, take advantage of greater integration of the Indian economy with the rest of the world. Clearly, integration brings threats and opportunities. In the context then, low buying power wards off the threat to Indian producers from multinationals while low skills leave opportunities unutilised.
The relative importance of economic policy for India’s economic welfare with or without globalisation may be understood by looking at the record of growth in India in the last fifty years of the twentieth century. It may be the case that the rate of growth of the economy is higher since 1991, but it would be wrong to attribute this entirely to globalisation. An even higher rate of acceleration had occurred in the early 1980s when the external sector had yet been liberalised very little. In any case, none of this can match the acceleration in the economy-wide rate of growth after Indian independence when those responsible for her economic policy had, for better or for worse, consciously turned the country away from the rest of the world. Recall that per capita income was more or less constant in the first half of the 20th century when India had remained under colonial rule. The resurgence in the economy under the leadership of Jawaharlal Nehru can hardly be put down to merely closing the country’s borders. On the other hand, it has everything to do with the bold thrust to expand the economy. It remains clear that, with or without globalisation, India’s performance will largely depend upon the policies adopted.
Whatever may be one's reservations regarding fairness in the current economic order, where a national interest may be identified, there is no doubt that the gathering integration of the world economy - termed globalisation and exaggerated for its newness - is actually an opportunity for India to assume a leadership role in the world. As has been remarked, the world can do nothing to marginalise India, a vast region with great potential, a feature only partly reflected in the narrowly economistic statistic that it is the world's fifth largest economy in PPP terms. However, she could marginalise herself by not engaging with the rest of the world.
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