Originally Published 2004-09-08 07:28:23 Published on Sep 08, 2004
It has become increasingly fashionable in academic literature, seminars, conferences and private interactions to talk of emerging markets and to use the pression "emerging growth regions" to signal some kind of change in the structure of the world economy.
Into the light
It has become increasingly fashionable in academic literature, seminars, conferences and private interactions to talk of emerging markets and to use the expression 'emerging growth regions' to signal some kind of change in the structure of the world economy. The change, however, is not simply that growth is taking place in different geographical regions but that the fundamental structure of supply and demand in the global economy is evolving. <br /> <br /> What do 'emerging growth regions' mean? Does it imply a shift in the geographical location of growth or is the fundamental character of the world economy changing? Is it the players or the playing field that is changing? In fact, the real change is both in terms of demand and in terms of potential for integrated supply chains. <br /> <br /> On the demand side, the following changes are apparent: <br /> <br /> Global culture - in terms of access to the internet, to movies and to art - is synchronising tastes. Consumer demands are more likely than ever to be common across national borders, as opposed to the smaller markets of before. <br /> <br /> ** As world economies become more integrated, business cycles become more co-related so that managing demand risk over time is a far more daunting challenge. Risk management requires forward-looking predictions of market trends and shaping of demands. This requires more sophisticated marketing strategy than before. <br /> <br /> On the supply side, the factors affecting the change are these: <br /> <br /> ** Information technology has provided greater ease of communication, shortening the effective distance between centres of economic activity. The fact that the sun never sets on stock trading activity is one manifestation of this trend. <br /> <br /> ** Transport infrastructure - for both people and goods - contributes to interweaving economies into a global marketplace. <br /> <br /> ** The new, more inter-connected geography of economic activity expands possibilities for new ways of managing supply chains and frees the way to locate manufacturing and services more efficiently. <br /> <br /> In this sense, Nation-States are becoming less relevant divisions in the world economy. The boundaries drawn over the last century are looking increasingly arbitrary in terms of the location of economic activity and migration patterns, not to mention security issues and conflicts. Of these trends, however, migration is one of the most important (and potent) changes in the global economies. We may not move toward 'nations without borders', as some eminent scholars have predicted, but the changes will certainly have significant impacts on political, economic and social changes within Nation-States around the world. <br /> <br /> We have begun to see increased attention to discerning the economic and social roots of migration, and the emergence of immigration controls as a controversial political issue. Most nations have not yet given serious consideration to the problem of how to integrate migrants into a cohesive society. <br /> <br /> The drivers of the ongoing transformation of the global economy on the demand side have significant implications, as also the dynamics of the supply side responses. On the demand side: <br /> <br /> ** It is apparent that it is not just growth that will determine the new demand-side market geography, but the distribution of gains from growth. <br /> <br /> ** Rising average per capita incomes may have very different implication for overall demand, depending on whose incomes are rising - the already rich or the emerging middle-class. Obviously, the latter creates better conditions for expanding markets since the marginal propensity to consume additional income is higher for those on the lower end of the income scale. The multiplier effect of moving from poverty to the middle-class, in terms of purchases of durable goods in particular, is higher than for moving from high income to still higher income groups. <br /> <br /> Similarly on the supply side: <br /> <br /> ** Nations must shed old biases and predilections for the location of economic activity and for controlling migration as well as regulating flows of goods. <br /> <br /> ** The current debate on outsourcing will be transitional - reason will prevail in the end. Short-term electoral rhetoric, in the long run, would be replaced by sensible decision-making as the advantages of more open borders become apparent and policies for addressing transition costs are developed. <br /> <br /> So, in short, the new global competitive playing field requires strategies for long-term competitiveness in an integrated world economy, not merely strategies for addressing demand and supply-side competition from the geographic location of 'emerging growth regions'. <br /> <br /> And what of India's place in this new global economy? Is it simply a new locus of growth, or is it a new kind of player with long-term sustainable advantages for a new kind of global competitive playing field. <br /> <br /> It can be one or the other, depending on the kinds of policies that are adopted over the course of the next few years to consolidate its many advantages. We must also ensure that the fruits of growth trickle down so that those now living in poverty move toward being part of the middle-class, with all of the expanded demand for consumption that such a shift is likely to bring. It is also important to maintain social cohesiveness during the process of change, which ensures that all segments of society are participative gainers from the growth process. <br /> <br /> The demographic dividend, in terms of a young population, has obvious advantages, as the savings of the young can be reinvested and the young skilled workers are also a valuable resource base for other nations. This implies that the pursuit of sensible policies for human resource development, not merely in areas of technical excellence, but more so in primary and secondary education will be necessary to ensure that pool of young skilled workers is large enough to sustain our competitive advantage. <br /> <br /> The provision of gainful employment opportunities through sustained high growth and policies to address the neglect of agriculture (which still remains the single largest provider of employment) will be crucial. Policy changes in other areas such as the urban sector, transport and the construction industry, which have a high employment potential, need priority attention. <br /> <br /> India's ability to become a large common market depends on significant improvements in the quality of infrastructure (railways, roads and airways) so that human capital inputs can flow as easily within India as across its borders. Otherwise, the vast potential of the country gets trapped, not within national borders, but within sub-national entities. Of course, politics are the key to all of these changes. <br /> <br /> The debate on emerging markets has thrown up new possibilities, opportunities and challenges. The priorities mentioned here must be addressed to ensure that India does not lose out again on these opportunities. Inadequate policy response to the current challenges could indeed make the gains of the last few years transient. <br /> <br /> The cornerstone for future policy-making is a common understanding of critical issues. Mainstream parties must work to develop a core set of agreements that bridge critical issues with sensible economic strategies. <br /> <br /> The author, a former Member of the Planning Commission, is Distinguished Fellow at Observer Research Foundation. <br /> <br /> Courtesy: Hindustan Times, New Delhi, September 8, 2004. <br /> <br /> <br /> <em>* Views expressed in this article are those of the author and do not necessarily reflect those of Observer Research Foundation.</em>
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