Calcutta Notebook
B J

Prime Minister Manmohan Singh is trying to adopt all-round globalization—goods, capital and technology in all sectors of the economy.

Presumption is that globalization is enabling Indian producers to access foreign markets and leading to generation of jobs. Problem is that benefits for a selected few come with an increase in domestic inequality which is destabi-lizing the inner fabric of Indian society.

True, Indian access to global markets has improved, at least marginally. Cars made in India are running on the roads of many countries. Software exports are spreading across the globe. But a handful of workers are employed in these sectors. About a tenth of the one crore workers in the organized sectors, or about 10 lac, are employed in these export-oriented units. Total number of adult workers in the country is about 60 crore. The employment benefit accrues, therefore, to barely 0.002 percent of Indian workers.

The Chinese experiment with globalization may not be replicable for India. The Chinese experiment suffers from three problems. First is that natural resources are being exploited at throwaway prices leading to their depletion and also environmental degradation. Made in China idols of Ganesh and Lakshmi are available cheap because price of petroleum, electricity and land is less. This is like a farmer selling the topsoil of his field to a brick kiln and boasting that he is doing good agricultural business. Overexploitation of natural resources is not sustainable. Second problem is that the long term negative impacts of FDI will become more visible as fresh inflows continue to decline. Profit repatriation will take its toll on the Chinese economy after some time.

The current slowdown in China, owes itself partly to these repatriations. Third problem with the Chinese model is that it is not replicable. The developing countries can be classified in 'lower', 'middle' and 'upper' classes with China and India placed in the middle class. These countries are able to access global markets and their workers are getting some benefits. But large numbers of countries such as Bangladesh, Nepal and Sudan are left out of the race. A village cannot be said to have 'developed' on the back of one government employee making a pucca house. Similarly, globalization cannot be said to be beneficial for the developing countries in general on the back of a few middle class developing countries. The Chinese model is neither sustainable nor replicable.

Mainstream economists say that globalization is leading to creation of jobs. This can clearly be seen happening in IT, auto, pharma and few other sectors. But this is only part of the story. Large scale loss of jobs is taking place in other sectors—courtesy globalization. Large numbers of workers were making a living earlier in weaving of cloth. This sector has more or less disappeared today. Entire production of cloth is being made in modern automated factories. The overall effect of globalization on jobs is not positive if one takes this job loss into account.

A study by Charles Gore, Senior Economic Affairs Officer of UNCTAD is useful to grasp the impact of globali-zation. He says many countries are getting into a 'poverty trap.' "The poverty trap," he says, "can be described as international because an interrelated complex of trade and finance relationships is reinforcing the cycle of economic stagnation and generalized poverty within many Less Developed Countries." He suggests that the current form of globalization is tightening rather than loosening this international poverty trap. Globalization, therefore, cannot be held as a general solution for global poverty even if it helps certain countries like India and China.

Another argument is that globali-zation helps India get scarce capital. MNCs like GM, Suzuki, Ford and Toyota have indeed brought large amounts of money into India. But the otherside of the story is conveniently forgotten. A reduction in official flows is occurring along with. But this too has another side to it. The UNCTAD study says: "In terms of access to foreign savings, a positive trend is that private capital flows to LDCs have been increasing in 1990s. But the increase has been much slower than the decrease in official capital flows. Thus LDC access to foreign savings decreased in the 1990s. Real long-term capital flows per capita declined by 21 percent between 1990 and 2000." If anything this trend has become stronger since then. The 'middle class' among developing countries has also become net exporter of capital on account of outward FDI, accretion in forex reserves and capital flight through hawala-like transactions.

Frontier
Vol. 45, No. 31, February 10-16, 2013

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