Winds
of Deglobalisation Are Getting Stronger
Globalization
is now coming under attack, as the indiscriminate opening up of trade and
investments across the borders has left majority of the world's population far
behind. According to UNICEF, the richest 20 per cent of the population gets 83
per cent of global income, while the poorest quintile has just 1 per cent. This
trend has been seen to be getting worse with ever deeper globalization of
markets. The UNDP report called "Humanity Divided" estimates that 75
per cent of the population lives in societies where income distribution is less
equal now than it was in the 1990s, although global GDP has ballooned from $22
trillion to $72 trillion.1 Now, it is almost $87.5 trillion
in 2018. A perusal of this UNDP report also reveals that income inequality has
increased by 11 percent between 1990 and 2010 in developing countries. The
report also addresses inequalities beyond income, including education, health
and nutrition, as well as gender inequality.2 The per capita
incomes and per capita manufacturing value additions, as well as the GDP growth
rates are subject to much sharper disparities and distortions, deepening due to
the elimination of geopolitical barriers from cross-border trade and
investments in the post-globalisation era.
Almost 60
percent of the world manufacturing has now got concentrated in 6 countries viz
the China, US, Japan, Germany, South Korea, and UK. India accounts for 17.8
percent of the world population, yet it has only 2.1% share in world
manufacturing. The per capita manufacturing value addition of Switzerland is
around $12000, whereas it is mere $200 for India and much lower for several
countries. China has singularly expanded its manufacturing clout to 22.5% of
global manufacturing, from a paltry share of 2.4% in 1991. It has been most
aggressive in acquiring companies abroad with advance technology or high brand
equity in last two decades out of its quest to become the factory of the world.
Examples of such acquisition are like buying of the personal computers division
and server division of the IBM in the US and NEC in Japan by the Lenovo to become
the largest PC manufacturers. Likewise, Chinese investors have bought hundreds
of companies abroad in Euro-American countries and even in India, like the
Motorola in the US or Gland Pharma in India and so on. US administration has
long-back started wielding veto to Chinese takeovers, including the one with
respect to the one with respect to the Unocal, as early as in 2005. Though, now
the US has also opened the front for trade war by slapping tariffs on Chinese
as well as European goods, paving way for more pronounced de-globalisation.
“Germany
is also joining the U.S. and Canada in taking a tougher line on Chinese
takeovers. Merkel’s government has been at the forefront of moves to bring in
European Union-wide screening of outside investments after being the target of
Chinese acquisitions in recent years. Policy makers are acting out of concern
that China is seeking access to sensitive technology or wants to boost its
global influence by acquiring key infrastructure including ports and
electricity networks. Since Germany tightened its measures blocking unwanted
takeovers in July 2017, more than 80 deals have been probed, with more than a
third of those involving Chinese investors directly or indirectly, an Economy
Ministry spokeswoman said. The government hasn’t used the law to block an
investment since it was established in 2004.”3
“Merkel’s
Cabinet in Germany on Wednesday the August 1, 2018 voted to block the potential
purchase of German machine tool manufacturer Leifeld Metal Spinning AG by a
Chinese investor, the Economy Ministry said in Berlin. The government took the
precautionary measure even though Yantai Taihai Group indicated at the last
minute that it will withdraw its offer.”4 “In May 2018, Canada too blocked a
proposed takeover of construction firm Aecon Group Inc. by a unit of China
Communications Construction Co., while the U.S. House of Representatives in
July voted to expand reviews of foreign investment in sensitive industries.
Chinese investment in U.S. technology companies probably would become more
difficult and time-consuming under the legislation, with an increased risk of
being blocked by a U.S. government panel that examines national security risks.”5
Indeed, all
economic indicators show that post-2008 economic slowdown, de-globalization is
finding favor in several countries to restrict free flow of goods, capital and
manpower. With the weakening of demand many nations are now erecting import
barriers, trade is slumping. Consequently, share of trade in global gross
domestic product, which doubled from 30 percent in 1973 to a high of 60 percent
in 2008. But, it has faltered to drop to 55 percent in pursuance of
de-globalisation. Flow of capital - mainly bank loans - is retreating even
faster. Capital flows have slumped to just under 2 percent of G.D.P. from a
peak of 16 percent in 2007. The flow of people is also slowing, too despite a flood
of refugees into Europe. Net migration from poor to rich countries has decreased
to 12 million between 2011 and 2015, down by four million from the previous
five years.6
In tune
with these de-globalisation-moves of the western countries, India too should
take care of its burgeoning trade and investment-income deficits-almost nearing
$200 billion as combined deficit ($151 billion trade deficit and $47 billion
investment income deficit). So, now instead of further easing imports and
foreign investments, endeavors to bolster domestic manufacturing under
indigenous ownership and control are need of the hour. This can alone enhance
employment, income, demand and investments to promote inclusive growth for
enhancing quality of life.
Notes:
- Deglobalization: An Introduction, Online available: “http://www.iasscore.in/topical-analysis/deglobalizatio n-an-introduction”.
- Wahlen,Catherine Benson, UNDP Report Discusses Inequality in Developing Countries, sdg.iisd.org, January 21, 2014.
- Arne Delfs, Germany Blocks China Deal to Buy Machine Tool Manufacturer, https://www.industryweek. com/economy/germany-blocks-china-deal-buy-machine-tool-manufacturer, Bloomberg, August 1, 2018.
- Ibid
- Ibid
- Deglobalization: An Introduction, Online available: “http://www.iasscore.in/topical-analysis/deglobalizatio n-an-introduction”.
