Has this global pandemic causing the world economy to crumble down like a house of cards?
The situation has definitely been aggravated across the world. But it is still possible to look at the condition with an optimistic perspective, to correct and overcome it. In the past, economies have overcome great calamities and economic depressions with resilience and there is no reason why we should not see a repeat performance.
Every economy in the world has its inherent strengths and unique characteristics. It does have its own consumption capacity and the means to contribute to global needs. What is required is the restructuring of every nation’s economy to fulfil as much of its own requirements and then also focus on fulfilling global requirements through exports. The major segments of GDP contributing to a nation’s economy still remain in the segments of services, agrarian produce, manufacturing of goods and natural resources including minerals. Tourism remains to be a mainstay of income for many smaller countries.
After the World War II, USA and certain European countries took the lead in industrialisation and manufacturing activities. In Asia, it was Japan which had aggressively taken on the path of industrialisation. While America followed capitalism, Germany was greatly influenced by Marxism and other European nations grew in a varied manner. The USSR took the Socialist path under Communism. The late 1980s saw the end of the USSR and its socialist economy which could barely sustain itself after the breakup of the Soviet Union. The 1990s saw the growth of the Asian economies with Japan leading followed by China, Korea, Taiwan and India. Strategically located ports became logistic super hubs and surprisingly trade exceeded the national GDP in Singapore, Hong Kong, Dubai and many more countries.
The internet invasion in the early years of the 21st century along with a sudden dip in crude oil price made globalisation the buzzword in the international arena. Efficient transmission of data & information and cheap transportation and became the two pillars of the international highway. Outsourcing became the norm across the world. Nations looked for avenues to outsource production with a view to reduce pollution within their state and also with the objective of getting cheap labour overseas. China with its state sponsored capitalism became the world’s factory and India at the same time became the global IT and automobile hub. Malaysia and Thailand became manufacturing zones for largely used FMCG and products as well as electronic products, while countries like Sri Lanka and Bangladesh became textile and garment hubs.
Nobel-Prize winning economist, Amartya Sen, said that globalisation “has enriched the world scientifically and culturally, and benefited many people economically as well”. International organisations even predicted that the forces of globalisation may help eradicate poverty from the world. Manufacturing facilities which catered to mostly local and some export demands grew in scale rapidly, they did provide employment to many more workers; however the income disparity between the rich and poor remained almost the same even if it did not widen. Capitalism pushed industries to manufacture far more than what they could sell to reduce production cost based on the economies of scale. Factories churned out smoke, chemicals and effluents polluting the environment, land, water bodies and even the oceans. This was more in developing countries where pollution control norms were found to be weak and not implemented strictly. Climate change became a topic of discussion in world forums but hardly any measures were taken to address the core issues. In spite of making and selling products at good margins industries were stressed because of over production and unsold stock piles. The FMCG segment, the automobile industry and the garment industry were good examples demonstrating this phenomenon.
The COVID 19 pandemic has drawn our attention to the present crisis and the impact on global economies. The shutdown in most countries has exposed the avoidable stress on the environment. The environmental pollution has reduced drastically and visible changes are being noticed. The amount of time and money spent on avoidable travel stares at us in the face, after the closure of international and most domestic travel. The disruption of the supply chain has exposed the external dependencies of many nations on even products of basic necessities. Policy makers and industry leaders are now are now looking at the obvious facts and the risks that nations had not foreseen. They will have to look for suppliers back home and promote them, even though their products may be expensive immediately.
Minimum sustainable domestic production and division of overseas out sourced products between multiple locations will be the bottom line of government policy. This will create opportunities within every nation. This re-shoring of manufacturing activities will seem like a kind of de-globalisation. While globalisation will not end it will definitely slow down in terms of volumes. Domestic industries will also demand some extent of protectionism. The sudden drop in valuation of stocks and financial market crisis will also influence government policy with regards to FDI, so as to regulate and avoid financial takeovers by predatory and opportunistic players. The European Union and the Indian government have already clamped down restrictions to block such buyouts. Many more states are likely to follow suit.
Companies will look to shift at least part of their manufacturing facilities centred in China to multiple locations overseas to continue to enjoy the benefits of low costs of production. Countries in the Asian region and the Indian subcontinent stand to gain immensely when this happens. Manufacturing of automobiles, ancillaries, FMCG goods, electronic hardware, ICT hardware and services, renewable energy as well as agricultural produce, processed foods, dairy and fisheries could well be sourced from this region. India, Sri Lanka, Bangladesh, Myanmar, Thailand, Malaysia and in recent times Vietnam have been successful in providing a good industrial climate. They have provided low cost labour, sufficient power and good supply chain and logistics in the past. The vibrant financial markets and efficient banking sector in these countries also offer an incentive important to any industry. But this will not suffice in the present scenario.
In order to attract industries to shift their base, government and industry will have to do more. The efficient handling of the COVID19 crisis will be a key factor that will catch the eye of industry leaders looking and willing to relocate their manufacturing units. While the present day digital economy is driven by artificial intelligence, e-commerce, e-banking & other services, it is also challenged by international hacking and cyber crime. Cyber security, strong cyber laws and IP regulations will be the responsibility of governments towards investors. Financial incentives alone will not bring in FDI at the cost of the recently realised risks.
Economic diplomacy will dominate international relations as this century turns towards sustainable globalisation. Nations will have to overlook their hegemonic ambitions in favour of offering their citizens good economic stability and a better quality of life. Democratic capitalism could do well if it could bring in responsible practises.
India could engage actively with USA the world’s largest democracy and economy and play a vital role in the balance of power. The Asian region could well be the next production and logistics super hub. This new era of reorganisation will bring to the forefront countries that keep investors happy by offering shared prosperity and security.
About the Author
Sumit Bothra is an international business consultant and a scholar pursuing International Relations at the University of Madras, Department of Politics & Public Administration.) He can be contacted on sumitbothra@gmail.com
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