The Financial Express

Intertwining of the global economy

| Updated: October 24, 2017 21:32:17

Intertwining of the global economy

Brexit and President Trump's 'America First' rhetoric notwithstanding it is unlikely that nationalism and economic nationalism would be able to arrest the march of globalisation. The world has become too complex and politico-economic relations have become intertwined for other ideologies to interfere in the conduct of global affairs. 
A few examples below to point out the intertwining of the global economy:
n A rise in the price of onions in India has increased its price in Bangladesh. Bangladesh has contracted to buy rice from Cambodia because the price in Vietnam and Thailand has gone up. It is reported that a possible rice deal with Thailand may also be in the offing.  For building infrastructure Bangladesh has to borrow money and expertise from China. 
n Sri Lanka-China agreement on building Hambantota port has debt-equity swap of 80-20 for China and Sri Lanka with China controlling stake in the port leased for 99 years with the possibility of Sri Lanka buying back the shares after 60 years. Many fear that Sri Lanka may fall into a Chinese debt-trap because its economy would not be able to afford the buyback. This caused last month both domestic and international concern due to suspected Chinese design to increase influence in the South Asia and Association of Southeast Asian Nations (ASEAN) regions (Africa also remains a Chinese target).  
n The Bolivian, Venezuelan   and Russian reassertion of state control over energy and industry would not be sustainable in the long run. These are bravados of Bolivian President Evo Morales, Venezuelan President Nicholas Maduro and Russian President Vladimir Putin bravado for their domestic audiences. 
n Before David Cameron's departure from No. 10 Downing Street the British demands to the European Union (EU) reportedly included EU make  two "explicit statements":  the UK will be excluded from any moves towards a European super state, and secondly, the Euro is not the official currency of the EU. Albeit late in the day, the pro-remain group argued that the vast majority of British and foreign economists warned that Brexit would be a disaster. The EU remains the world's largest economic area. Brexit would mean loss of hundreds of thousands of jobs and would have marginal control on immigration. In short, Britain remains in a flux as the negotiations have just begun and is expected to continue for two years. 
n One could also mention Donald Trump's 'America First' dubbed by The New Yorker magazine as "Trump's dark nationalism" which is in stark contrast with the final inaugural address of Franklin Delano Roosevelt (FDR); Dwight Eisenhower's pledge to build strength to deter the enemy; John Kennedy's summons to the young Americans to fight for liberty; and Roland Reagan's call to fight "communist enemies".  The latest warning that President Trump has given to North Korea to cease its nuclear programme or to see its total annihilation   in a war is something that the world has never seen before. Though political in nature the economic policies successive US Presidents followed had little to do with protectionism. 
TWO FACETS OF GLOBALISATION: Globalisation has not been bliss for everyone. Some have described it as "the aggressive programme for the imposition of Western norms of national economic management, economic deregulation and market opening, and facilitating takeovers of indigenous industries and agriculture by multinational companies." Predictably, the international financial institutions and other establishment "experts" have enthusiastically endorsed the expansion of unbridled capitalism throughout the world. The International Monetary Fund (IMF) officials argue, "Globalisation offers extensive opportunities for truly worldwide development." From their perspective, the increasing global integration of national economies holds great promise because "markets promote efficiency through competition and the division of labour...." Still, the IMF concedes, "markets do not necessarily ensure that the benefits of increased efficiency are shared by all." In his well-known book, The Lexus and the Olive Tree, the New York Times columnist Thomas Friedman insists, "Globalisation has fostered a flowering of both wealth and technological innovation the likes of which the world has never before seen." However, he admits that this historical process has produced substantial "disruption and dislocation". 
A contrary opinion sees globalisation as "corporate-led globalisation" and the "unrestricted movement of capital" generating enormous profits for transnational corporations but producing significant economic, social, and political harm for the majority of nations and peoples. According to this opinion, "The undermining of small-scale, diversified, self-reliant, community-based agricultural systems and their replacement by corporate-run, export-oriented monocultures" is "a major contributing factor to global environmental devastation." 
INTERDEPENDENCY OF ECONOMIES AT DIFFERENT LEVELS: But the call for economic nationalism/protectionism has not come about despite the financial crisis of 2007-2008 considered by many as the worst economic crisis since the Great Depression of 1930s. Contributing factors, as described by an economist, could have been (1) the integration and therefore interdependency of economies; (2) the complexity of the global economy, making it all but impossible to separate by nationality; (3) the greater extensity of world markets compared to the mid-20th century; (4) the redundancy of the various models of economic nationalism. 
The question that arises is whether interdependency of economies at different levels can be beneficial. For example, a least developed country (LDC) lacking in physical and human capital, small population and lack of legal institutions that would guard foreign investment is unlikely to have close economic relations with a developed economy. In this case the developed economy is more likely to adopt an extractive policy towards the LDC if it is endowed with natural resources like oil and gas. 
In the case of the USA and Europe, economic relations are likely to be more balanced not only because of the comparable economic factors but also because of similar political institutions and values. One can   bring into this debate of economic interdependency Samuel Huntington's hotly contested  Clash of Civilisations thesis in which he classified Western civilisation as comprising North America, Western and Central Europe, Australia and Oceania. He was in two minds whether to include Latin America and the former member states of the Soviet Union or to treat them as their own separate civilisations. 
The close economic relations with the emerging economies like China and India with the Western world belies the thesis that trade is possible only with politically compatible countries. Up to June 2017 US exports to China amounted to $ 59338.9 million and imports amounted to $ 229909.9 million leaving a trade deficit of $ 170671 million. In 2016, deficit was $ 347016 million. President Trump is unhappy with Chinese alleged theft of intellectual property and he is pressuring China to cut steel production to ease global over supply. 
With India, US imports until June 2017 has been $12105.9 million and imports have been $ 23610 million leaving a deficit of $ 11504 million. Trump had in the past included India in the list of countries stealing US jobs. During the recent visit of Indian Prime Minister this question was not raised. 
The US, Chinese and Indian examples demonstrate an interdependent world where economic crisis in any one part affects, in varying degrees, other parts of the globe. It would be wise for the South Asian Association for Regional Cooperation (SAARC) region (Indo-Pakistan animosity remains an impediment) to start closest possible  economic relations while continuing to deal with the developed and developing regions of the world.  
The writer is a former Ambassador and Secretary. 
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