Economy

The Challenge of Globalisation?

Intro:The challenge before the new government is to adopt calibrated globalisation instead of the mindless integration with the global economy ?

There appears to be a consensus on some of the steps to be taken by the new government. It includes increasing public investment in infrastructure especially agriculture, instituting a transparent process of auction of natural resources like coal and spectrum, implementing legal reforms and Goods and Services Tax (GST) and improving the functioning of PSUs. These steps are welcome but they will only be able to increase the growth rates marginally and will not be able to provide jobs to our teeming millions.
We are reaping demographic dividend at this time. Number of workers entering the economy is large. Therefore, it will be necessary to provide productive jobs to these entrants if we aspire to take the growth rate upto 10 percent or more.
The consensus appears to be in favour of deeper global integration. It is suggested that Foreign Direct Investment (FDI) should be allowed in all sectors except multi-brand retail. It is said that this will create jobs and enable us access frontier technologies. It is also proposed that import tariffs should be reduced in order to provide low cost imported goods to our people. Simultaneously, export should be facilitated to gain from our comparative advantage in areas such as pharmaceuticals and spices. This will create jobs.
Large numbers of jobs for the middle class have been created in the services sectors like call centers, software programming, research, medical transcription, processing of insurance claims, etc. courtesy global integration. But question still remains whether all this will be adequate for begetting us 10 percent-plus growth rate and provide jobs to our youth or not. The above model has been implemented across the world under the aegis of the World Bank and International Monetary Fund during the last two decades. But the results have not been encouraging. The International Labour Organization has pointed towards the worsening of the global employment situation in its report titled Global Employment Trends, 2014. It has reported that young people are not getting jobs: “The global youth unemployment rate has reached 13.1 per cent, which is almost three times as high as the adult unemployment rate. Indeed, the youth-to-adult unemployment ratio has reached a historical peak.” The second point raised is that the jobs are mostly being created in the informal sectors like that of rickshaw pulling and housemaids in South and East Asia: “In some countries in these regions, informality rates have reached up to 90 per cent of the total employment… and this lack of formal employment opportunities is likely to constitute a barrier for reducing poverty.

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Statistics provided by the Government of India confirm these trends. There has been a net addition of only 11 lakh jobs in the organised sectors in our economy between 2000 and 2011. About nine crore workers have entered the job market in this period. Only one out of hundred entrants has got a job in the organised sector. This indicates that the beneficial impact of global integration has proved to be grossly inadequate to meet the aspirations of our people.
The lack of employment opportunities is a logical result of the FDI-cum-free trade model. Large-scale production is undertaken by few highly skilled workers on automatic machines. These workers are paid huge salaries of Rs 1-2 lacs per month. As a result, the organized employment is shrinking while the unorganized employment is expanding. FDI and export industries are simply not providing high-quality jobs that are expected. Let me clarify that this problem is not restricted to FDI. Domestic big industries contribute to it as much.
There is a consensus that small and medium industries should be encouraged. But it is not recognized that there is a direct conflict between big- and small industries-They operate in the same market. If a big industry starts making eye glasses; the small industries have but to close down. It is like inviting a trained wrestler and saying that encouragement will be provided to the village youth suffering from malnutrition. The wrestler will invariably win. The mainstream economists do not seem to have a solution to this problem.
Say a MNC wants to open a furniture manufacturing facility in the country. Before giving it a go ahead, an overall assessment of how many jobs will be created directly in the facility; how much furniture will be produced by the MNC, how many carpenters will have to shut shop as a result of cheaper furniture from MNC becoming available in the market; its net impact on employment; how much benefit it will accrue to our consumers from the availability of cheap and good quality furniture; and, how much new technology will become available should be made. If it if found that the gains are huge then we must allow the big business to operate else the permission should be denied.
We may similarly assess the impact of free trade—item by item. Free trade in spices may be good while that in bicycle may not be so. Hence, it is essential that we adopt only such globalization practises that are beneficial for us and reject the rest.
The WTO will be a big hurdle in such calibrated approach. Either accept free trade in toto or be out of the WTO is the general norm. But this is only the larger picture, however, there are many provisions in the WTO that allow us to move in calibrated integration. There is a livelihood clause following which we are permitted to impose restrictions where livelihood of large number of people is affected. Other than this, we can impose non-tariff barriers on grounds of quality etc. If some effective way out is not found, we should even be
prepared to quit the WTO if we find that the net impact on our people is negative.
We will be reaping the demographic dividend in the next decade or so. Hence, the only way to attain 10 percent-plus growth rates is to convert this huge labour force into a productive asset instead of turning it into liability that it is already becoming. By doing this we will be saving huge expenses for welfare programmes like providing subsidized food to BPL, MNREGA, Right to Education, etc. The money that is saved can then be invested in infrastructure and can help jump start our economy.
The challenge before the new government is thus to adopt calibrated globalization instead of the mindless integration with the global economy that was blatantly pursued by the UPA government in the last decade.

-Dr Bharat Jhunjhunwala? (The w­riter is a former Professor of
Economics at IIM Bengaluru)?