Event ReportsPublished on Feb 24, 2016
Competition and cooperation in an inter-dependent world

Future of the world will largely depend upon the interaction between the rise of emerging and developing economies, and the increasing interdependence across countries. The forms of interdependence will have implications on political, social and geostrategic contours both within the countries and the world as a whole. Considering this, Dr Robin Niblett, Director, Chatham House, London discussed the state of affairs worldwide and how and what will shape the future policy debates at Observer Research Foundation, Delhi on February 19, 2016. The session was chaired by former ambassador H.H.S Viswanathan, Distinguished Fellow, ORF, New Delhi.

In the past 30 years, the world has witnessed a period of unprecedented economic interactions. The period is framed by the entry of China into the World Trade Organisation, completion of previous trade agreements, and deepening of the single market in Europe.  The rise of the internet, proliferation of open markets, and technological innovation, gave countries a somewhat homogenous model of economic growth despite variations in political systems. It can be argued that there are three broad dimensions of cooperation and competition in an inter-connected world — globalisation 2.0, geopolitical competition, and state fragmentation.

The first avenue, Globalisation 2.0, is defined by the shift in the global balance of powers, diversification of markets, and the rise of a global middle class. Despite multiple global financial crisis (in the 1990s, 2000s), the world economy has maintained an average 3-4% economic growth, largely due to emerging markets like China and South-east Asia. Growth in the ‘middle class’ is another critical factor in driving economic growth by way of increasing domestic consumption and demand. The ‘global middle class’ is expected to reach 4 billion by 2030 as compared to 1.8 billion in 2009. Western countries, on the other hand, have hit a period of ‘secular stagnation’, a term coined by Larry Summers that explains the reasons for the recent financial crisis. Put simply, stunted growth and shortfalls in demand occur when the desired saving levels surpass preferred levels of investment. While the western countries struggle with this, middle-income countries face the challenge of moving towards higher levels of economic growth. The emerging and developing countries will need to move from export-investment based growth to consumption and service-led growth to complete this transition. Trade declining as a proportion of GDP, the return of localism as the internet is reducing the cost of manufacturing and industrial production, and diversification of economic activities on-shore, challenge the model of economic growth of the previous century. Stumbling growth rates from Brazil, Turkey and parts of South-east Asia etc. also point towards a bumpy period for Globalisation 2.0.  Experts predict another period of global economic slowdown in the next 10-15 years. Economic rebalancing is required wherein the earlier detachment between the size of the GDP and population of a country can be reconnected and the transition to value-added forms of economic interactions can be smoothened.

Second, Geopolitical Competitions are exacerbated by the slowdown in geo-economics. The changed geopolitical contours start to look sharper as the economic growth starts to level down. The emerging countries, challenged or exposed, start to see themselves as winners or losers. As a result, they resort to focussing on geopolitical and security posturing to disguise their difficulty in coping with Globalisation 2.0. Russia with its belligerent attitude and China trying to manage the slowdown in its economy while trying to raise its geopolitical influence within the region stand as an example. Other such examples of this focus include Iran’s nuclear deal, which may provide economic opportunities but has amplified nervousness among other country.  Additionally, Saudi Arabian concern on its domestic economic slowdown is forcing it to transition from a highly energy-dependent economy to a more diversified one, achievable by advancing its geopolitical posture in a more aggressive manner. These geopolitical challenges are poised to be so strong that current international institutions may be too weak to manage or address them.

Third, state fragmentation referred to as the disintegration of a given political regime, process or structure, is closely associated with the concept of ‘Global Political Awakening’, a term coined by Zbigniew Brzezinski, counsellor at the Centre for Strategic and International Studies (CSIS). The rise of the internet, enhanced global connectivity, and positive aspects of globalisation 1.0 have raised public expectations from the government — not just about economic opportunities but also regarding social and environmental issues. Arab springs, the collapse of political parties in Western Europe, Middle-east political row, ‘Trumpism’ and US loss of faith in the establishment all point toward the significance of this phenomenon and its increasing contribution to global state fragmentation.

In a nutshell, each of these three dimensions are inter-connected. Globalisation 2.0 enhanced geopolitical competition. The ability to manage the geopolitical tensions might get weakened by the forces of state fragmentation. What is worrisome though, is the sequence of these occurrences. How these forces interact with each other poses multiple challenging questions for the world and for India, responses to which will most likely shape future policy debates. For instance, the Middle-east will have to respond to growing frustration that the US can only drive security to a certain point, and is up to the countries to be responsible for their own regions past that. The EU is adjusting to the challenges of globalisation 2.0 and is finally undertaking structural shifts. Whether it is able respond quickly and stem the forced of fragmentation while managing the forces of populism, is the question at hand. The fear of Britain leaving the EU, for example, can have a deep disruptive impact on the geopolitics of the region and unintended consequences for the entire globe.  It will be interesting to see China’s reaction to the signing of the TPP, which ignored China and signed with Japan. In some ways, China’s One Belt One Road (OBOR) is seen as such a reaction, but given the risk of chaos and fragmentation in China, it is still too early to tell. Where does this leave India?

India is one of the big players not just because of the size of the population but also given the potential prospects it has for geopolitical influence and providing economic opportunities for its citizens. Like China, India also has a troublesome relationship with its neighbours. India is chaotically governed internally which impacts building a strong domestic platform required for playing a constructive international role. India doesn’t have its OBOR vision or ambition yet but is signatory to key international bodies such as G-20, BRICS, IBSA etc. However, while these bodies may be symbolically interesting, they are geopolitically and geo-economically relatively irrelevant. The most important question for India though asks whether India, like America in the 19th and 20th centuries, can catch up with globalization 2.0? The other important question to address would be to understand where and how globalization and fragmentation will connect to each other.  India’s vulnerability lies in the pattern of its domestic industrialisation which may not follow the path China or western countries followed in their own development. Profound disparities of caste, gender, access to economic opportunities will require substantially effective governance and resilient institutions — so that the forces of fragmentation doesn’t affect India’s opportunity to ride the wave of globalisation 2.0.

This report is prepared by Sonali Mittra, Associate Fellow, Observer Research Foundation, New Delhi.

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