Changing face of globalisation
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Heading towards zero-sum outcomes that are likely to restructure the world
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Sameer Sharma
Based on the nature of trade and investment patterns, India’s globalisation process can be divided into two parts. The first phase, from 1947 to the 1980s, was characterised by inter-industry foreign trade. Sometime during the late 80s and early 90s, India’s interaction with the external world gradually turned to the intra-industry variety, which has the potential to rapidly converge incomes between India and the developed nations.
Today, the developed nations practically enjoy similar lifestyles. Admittedly, technology spread and gains from trade were important in bringing about a convergence of incomes among the developed nations. For example, rising wages in Japan and Europe led to expansion of domestic market, which increased demand for goods and services, similar to the U.S. In turn this led to increased intra-industry trade, among the U.S., Europe, and Japan. Intra-industry trade is different from the inter-industry type. Inter industry trade takes place between dissimilar economies, is based on the principle of comparative advantage, and is often disadvantageous to one partner. On the other hand, intra-industry trade occurs between similar economies, is based on competitive advantage of nations, and leads to convergence of incomes because domestic and international firms compete to manufacture similar products to sell in the domestic market. Empirical evidence supports the shift of Indian foreign trade to the intra-industry variety during the 1990s. as a result of India’s economic liberalisation pursued from the 1980s and 1990s.
India’s intra-industry trade, however, is greater with high-income countries, than with low and middle income countries, and an explanation for this anomaly lies in the increased wages in India due to globalisation of services.
Several factors have contributed to wage increases, but a major factor is India’s emergence as a service provider to western firms. Services in the developed nations command high wages, and the advantage of high wages could only be enjoyed by physical migration to the high-income countries. Now software professionals produce services in India, and get paid high wages without having to actually move to high-income countries. High wages earned by the software professionals has led to market demand for products, similar to developed nations, thus, accelerating intra-industry trade.
Outsourcing services
India’s rise as an outsourcing centre, however, was the result of several unintended events. Modernisation of manufacturing technology permitted different components of manufactured products to be split and done in several geographical locations. Equally important, outsourcing of service components and services to India was made possible by advances in information technology. Furthermore, India was fortuitously placed twelve hours away from the west – while the west slept, India worked, leading to unimaginable increases in firm productivity. Besides, the Y2K scare led to increased investments in software research, and one of the unintended outcomes of the research effort was the creation of tools that accelerated outsourcing of services. In the 1990s higher technical education in India was opened to the private sector leading to the production of surplus technical personnel who were willing to work as software professionals, irrespective of their specialization.However, the present version of globalisation is going to come up against limits to growth. For example, the sudden increase in oil and commodity prices is an indicator that we are reaching points of uncertainty, if not actual limits. If substantial numbers of people living in India and China are to achieve consumption levels identical to the high-income countries, overall global growth will come up against limits set up by uncertain climatic conditions and inability of the free market and technology to fully and timely compensate for ecological scarcity.
In future, global growth will be a zero-sum situation - if India and China are to grow in double digits, high-income countries have to stop growing or start contracting, which is in contrast to the earlier version of globalisation, which witnessed the simultaneous growth of U.S., Japan, and Europe.
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