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October 22, 2016

The winners and losers of globalisation


October 22, 2016

Anger and frustration is sweeping across large swaths of population in rich and developed countries against the free movement of capital and labour across borders in a globalised economy – even as globalisation has immensely enriched these countries. This anger is now threatening to kill the very goose that has been laying golden eggs for these countries.

In the US, the spectacular rise of Bernie Sanders and passionate support of millions of young, educated Americans underlined this anger against a system that was leaving them out in the cold while wealth multiplied by globalisation was monopolised by the very few.

And on the right, against all predictions of every pundit in town, Donald Trump, a rank outsider, emerged from the revolt of the right against the political establishment and has been receiving support from those who also see their jobs and business opportunities threatened.  

The sentiments behind Brexit were no different. Even as the financial district of London – the City – multiplied the wealth of its members, the majority in the UK sent shock waves throughout Europe against the conventional wisdom of both conservative and labour parties.

That is one part of the story. The other part will become clear when we ask: why were these jobs and business losses occurring and where were these moving to from the US and UK? This gives us a glimpse into how the centre of gravity of the world economy was shifting towards Asia, as these employment and business opportunities were moving – along with FDI by western companies – to China, South Korea, Vietnam, India, Malaysia, Thailand, Indonesia and elsewhere. And this was happening because these Asian nations had acquired the wherewithal of becoming competitive producers of goods and services and because the globalised economy was helping them sell their products far beyond the confines of their national markets.

In its first wave, Asian nations thought globalisation was a one-way street, which the West had invented for the economic domination of the rest of the world. But capital has no country; it goes wherever it can earn higher rates of return. As Asian nations created a large pool of educated and skilled workforce force and set up investment friendly policies and institutions, capital fought its way to enter those markets as they provided higher rates of return to capital.

As Asia started becoming a large factory for competitively producing consumer and other products, globalisation helped place their products on the shelves of markets around the world.

Around this time, the earlier complaints of Asians against globalisation also started to die down as new job and business opportunities were lifting millions of people out of poverty in Asia. Slowly but surely, Asian nations were moving from the losing to the winning side of globalisation and talk of the 21st century being ‘the Asian century’ started gaining ground. Globalisation now became a two-way street as goods and services produced in Asia were filling up world markets just as Western goods and services had earlier been filling up Asian and other markets.

Although not a panacea, and despite complaints of inequalities, globalisation is going nowhere. Its driving forces are too strong as it has multiplied wealth of the world and enriched winners beyond belief. Even as some of its earlier patrons are becoming sceptical, others are happy to own it for their benefits.

The route to be a winner in this globalised economy is quite clear. Instead of cursing it over the penalties it imposes upon lazy and incompetent systems of governance, people should hold their governments accountable for lack of vision and strategy for acquiring the wherewithal to become efficient producer of goods and services and let the forces of globalisation work for them also to open up new job and business opportunities. 

That is the 101 of globalisation and was the reason behind the creation of the Board of Investment in Pakistan in 1989 – not as another bureaucratic organisation but as a pathway to wean Pakistan away from the begging bowl of aid and loans and become one of the winners of globalisation in Asia.

Creating institutional and policy frameworks for investment and technology flows was the necessary first step in this strategy. The other component of this strategy was to create a large pool of educated, skilled and disciplined workforce – which would be a receptacle to absorb the investment and technology flows that this institutional framework will bring in. If Pakistan had continued on this path over this quarter century, its economy would have expanded, opened new opportunities and become an efficient and competitive producer and exporter in world markets. 

But investment flows into manufacturing and value additions have evaporated and Pakistani exports suffer from low volumes and low value addition. This is for the simple reason that there can be no exports without investment nor value addition without technology and skilled workforce.

More than anything else, this required a cultural change towards governance driven by knowledge, efficiency, work ethics and accountability, which cares for expanding opportunities for the people and works hard to create ingredients for a competitive economy.

Reliance upon aid (charity) and loans (indebtedness) is a hallmark of a lazy and incompetent system of governance. It mortgages the future of the people, keeps them in the zone of dependency, saps entrepreneurship and condemns them to remain the losers of globalisation.

That this has been happening is borne out by the latest World Economic Forum Competitiveness Index, which shows the Pakistani economy close to the bottom in the world and even less competitive than that of Zimbabwe, Nigeria, Uganda and Ghana. In other words, our products cannot compete in world markets, cannot create jobs and business opportunities and poverty, unemployment and indignities would continue to be the fate of majority of people. But this arouses neither shame nor anger nor urge to reform and remove the causes.

Thus as population increases, so do unemployment, poverty and the have-nots in the country, who have been forced by an insensitive, self-serving system of governance to accept the denial of their basic rights as their destiny. No one in the system feels any moral or legal obligation to provide them a ladder of equal treatment and equal opportunities to climb out of the loser’s corner of globalisation.

A recent Harvard Business School study led by Michael Porter – the author of the ground-breaking book ‘Competitive Strategy’ – argues that the US’ dysfunctional political system has emerged as the biggest threat to its economic competitiveness and that this political system “is no longer delivering good results for the average American.” The study calls for political reforms, especially in the election processes, cutting down the role of money in politics, and for reforms in legislative rules and norms of behaviour.

More than the US, Pakistan needs to follow that advice. A reformed political system must surrender space for education, law and order and economy to work professionally, improve meritocracy, public safety and competitiveness to let this nation also graduate and become a winner of globalisation in Asia.

The writer designed the Board of Investment and the First Women’s Bank.

Email: [email protected]

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