- Raisina Debates
- Apr 27 2017
With globalisation-led economic growth shifting to the East, it is only a matter of time that China, India and Southeast Asia create a counter realignment to the one being crafted in the West.
With an updated 3.5% world GDP (gross domestic product) growth in 2017, the International Monetary Fund’s (IMF) World Economic Outlook, released last week, is optimistic about the global economy. Up 0.4 percentage points over 2016, and raised by 0.1 percentage points over its previous forecast, IMF expects growth to rise further in 2018 to 3.6%.
Statistically, India will lead this recovery with a 7.2% growth, though its absolute contribution to world GDP would be lower than what China at 6.6% growth or the US with 2.3% will bring.
But how good is this growth? Taking the data of the past six decades, this is a return to normal. It lags the entire 1960s that grew by 5.5% on average; it is behind in eight years of the 1970s (average: 4.1%) and half of the 1980s (3.1%); it is ahead in nine years of the 1990s (2.7%) and half of the 2000s (2.8%); and barring the 4.3% growth achieved in 2010 as the economy recovered from the financial meltdown, it is higher in seven out of the eight years till 2018 (average: 3.2%). When we run a trend line through these volatile numbers, it reveals a downward incline, with a huge volatility, telling us the unpredictability of GDP movements. The volatility has come at various points. The oil shocks of the 1970s, for instance, saw it fall sharply to 0.9% in 1975 from 6.5% two years earlier. The global economic crisis led by loose banking and financial sector regulations of the US led to a crash in 2009, when it contracted by 1.7%.
Statisticians will be statisticians and their analyses would hinge around the past, the seeking of the familiar, and forecasting on the basis of trends. But as we all know, economies, like individuals, aren’t always rational. They have minds of their own, and to the irritation of statisticians, are often unreasonable. These minds don’t listen to logic. They don’t see the past. They don’t worry about the future. It’s only the present that concerns them. That’s what’s happening today, when a large number of individuals in developed nations are seeing job losses for several reasons --- innovations, technology, migration and so on --- and their miseries are beginning to crowd together in a political corner. In no time, that corner has become a constituency. Out of which has emerges a new hero, with a strong personality as force, rhetoric as tools.
While being optimistic about growth, the IMF outlook takes the latest political inward-looking rhetoric as real. “One salient threat is a turn toward protectionism, leading to trade warfare,” the report states. “Mainly in advanced economies, several factors --- lower growth since the 2010–11 recovery from the global financial crisis, even slower growth of median incomes, and structural labour-market disruptions --- have generated political support for zero-sum policy approaches that could undermine international trading relationships, along with multilateral cooperation more generally.” In other words, the internationalisation of economic policy and its benefits that began soon after World War II, with Bretton Woods institutions and created a collaborative economy, are now under threat.
This is morally perverse, politically short-sighted, economically retrograde --- and hugely wishful. All the new political westerlies are doing is carrying a dark and intimidating rhetoric --- closing down economic borders, restricting trade and supporting a new nationalism --- to the rest of the world. From the aggressive speeches of US President Donald Trump to UK’s Brexit to France’s presidential candidate Marine Le Pen, these westerlies may carry different hues but the overarching implications are the same. Taken to extremes, what these voices of electorates, simultaneously nurtured, captured and articulated through a new band of leaders, are saying is this: enough of globalisation --- nationalism is the new political stock-in-trade, and autarchy its economic arm.
But the 21st century has no place for, or patience with, autarchies --- closed economies that do not engage in international trade. The nation-first rhetoric, the inward-looking drive to self-sufficiency, the powering of economic growth on your own steam when specialisation of technology as well as labour have been well established in global transactions, will only bring nations and their people to Nowhere land. If inequality is the issue, the knee-jerk of autarchy may seem politically attractive in the short term as the Trump win shows. But it cannot sustain. In a word, autarchy captures the conflict of democracy and capitalism and its trading arm, globalisation. The former is the voice of the mass that grants legitimacy to a nation, the latter individual expressions that convert ideas, effort or simply inheritance into wealth. Caught between the two are the have-nots, who think they can bring political change to counter economic disparities through their vote.
These voices coincide with another trend --- the shifting of economic growth to the East from the West. Take France. Over the past six decades, its economic growth has been falling steadily --- its average economic growth in the 1960s was 5.6%; in the 1970s it fell to 4.1%; in the 1980s to 2.4%; in the 1990s to 2.0%; in the 2000s to 1.4%; and from 2010 through 2015 it fell to 1.1%. The equivalent numbers for the US are 4.7%, 3.5%, 3.1%, 3.2%, 1.8% and 2.2% --- as an innovating and open nation and one that attracts the best minds from across the world, the US has the resilience to reinvent itself and return to growth. These trends of the West are diametrically opposite to those in the East. Look at China’s numbers: 3.4%, 7.4%, 9.7%, 10.0%, 10.4% and 8.3%. Or India’s: 3.9%, 2.9%, 5.7%, 5.8%, 6.8% and 7.3%. So, when the IMF, warns that protectionism will lead to lower global growth, it is this shift the institution is also alluding to.
In the short term, barriers to trade may actually rise. After all, the rhetoric Trump has created and is riding, and which other leaders in the West may follow, is not going to end simply because of economic logic. As the leader of the world’s largest economy, the US President still sets the economic agenda, as the recent meeting of G20 finance ministers showed. “We are working to strengthen the contribution of trade to our economies,” the 22 April 2017 communique of the International Monetary and Financial Committee stated. Compare this enfeebled stance with the strong and decisive conviction in free trade seen in the G20 declaration of 15 November 2008 in Washington DC: “We underscore the critical importance of rejecting protectionism and not turning inward in times of financial uncertainty.” The economic crisis behind us, politics has managed to edge economics out.
But the interdependence of nations on one another through trade is not going away --- what’s needed are welfare schemes to cushion those who lose jobs and opportunities from globalisation, as this paper by Stefanie Walter argues. That said, with globalisation-led economic growth shifting to the East, it is only a matter of time that China, India and Southeast Asia create a counter realignment to the one being crafted in the West. Of these, China, while being the largest economy, is selective, its economic strength often financing its coarse military and strategic ambitions. That leaves India to hold, develop and push the free trade narrative. The writ of packaged ideologies doesn’t run for too long. Finally, it is benefits of economic growth through taxes, jobs and citizen well-being that drive nations. For which, trade is an inevitable building block.
The current dalliance of the West with an insecurity-led autarchy is an experiment destined to fail. It will fail from within, as capital loses patience and moves Eastwards. When jobs follow the capital, it would be yet another transfer of wealth from the West to the East. It is unlikely that navel-gazing leaders will allow that to happen. IMF has rightly pointed it out as a risk to growth today. But it is not a risk that will last too long. The need for economic growth will smother this foolish upsurge. In the 21st century of constant disruption, there will be several constraints to, and opportunities for, economic growth. But like it or not, trade will be the strongest underlying idea driving it --- from ideation, to production, to consumption, the economic world is one market. Now, it must come together to ensure it stays that way.
The views expressed above belong to the author(s).