Globalization and other such dope...

I usually refrain from posting serious stuff here, but am now posting this essay that I’d written back in early-November 2008 because, with my shares and mutual funds still at an all-time low, I can look back and laugh at it a bit, and can also hopefully impress with my “accurate insights”

Is Globalization a blessing or a curse for India? Is it avoidable or inevitable?

Communist China’s first premier, Chou En-Lai, who held the office from 1949 to 1976, was once asked for his assessment of the 1789 French Revolution. He smiled and replied, “It is too early to say.”

Although this story is probably apocryphal, it serves in warning us of trying to assess current affairs by treating them as history. Historians look at events at least a generation after they have occurred, to ensure that they are looked at in the proper perspective, and that all their implications and ramifications have played their course. Globalization, by its very nature, is all the more difficult to analyze this early in the day. Things are made even tougher when one tries to analyze its impact on a booming yet diverse economy as that of India – a nation unique amongst all developing ones, unique amongst all democracies and the youngest amongst the trillion-dollar economies. One should bear all these pitfalls in the assessment in mind to put it in the proper perspective.

It is widely agreed now that globalization is the new world order that has replaced the Cold War world order. It must be noted though that globalization still existed before the collapse of the Soviet Union; it just wasn’t as prevalent as it is since that earth-shattering event. Gorbachev’s Perestroika – economic reforms – were aimed at opening up the Soviet economy, a process that we now, thanks to Friedman, recognize to be an essential step that a country needs to take for plugging into the global economy. The problem for the Soviets was that they introduced Glasnost alongside – too much of a good thing. This may explain why opening up their economy resulted in catastrophe, while two other large emerging economies that introduced reforms succeeded spectacularly. China introduced its own version of Perestroika, but they haven’t yet gone as far as the transparency of Glasnost, remaining totalitarian. India never was totalitarian – Glasnost came at birth by default, so the introduction of the Indian version of Perestroika had the desired effect and only the desired effect. It was almost as though globalization came at the right time for India, placing her in that enviable position that all businesses want to be in – the right place at the right time.

The story of how India took to globalization like a duck to water has been well-documented. The skilled technical labour, the large English-speaking middle-class, etc, have been acknowledged to be the oars that the country used for gliding through the waters of the global opportunities that India found herself in. Yet, India did not entirely shed its circumspect nature, a policy that has proved to be providentially (?) advantageous when globalization suffered its first major setback with the Asian economic crises of the late nineties – one that left South Korea nearly bankrupt and caused Malaysia to turn its back on reforms momentarily. Yet India marched on steadily, with its various ceilings on FDIs and refusal to implement capital account convertibility.

The recent global financial crisis brought about by the subprime mortgage crisis of 2007 and the accompanying liquidity crunch has awoken the Cassandras. A global crash followed by prolonged worldwide recession is said to be imminent and the argument for unplugging India from the global economy could find takers. Nothing, in my opinion, could make the situation worse. Unplugging India Inc. at this stage would be equivalent to digging a moat around a castle and hope that those on the outside won’t be able to swim in. The situation though is that even those on the inside are capable and willing ot swim out. The only alternative to globalization is isolationism à la North Korea and Myanmar. Can India be imagined to follow the path of this latter unfortunate neighbour, whose ruling junta is so paranoid of outside influence that it won’t even allow indispensable foreign aid to flow in after being nearly wiped out by catastrophic weather brought about by Cyclone Nargis? One shudders to think exactly what it is that the Myanmar establishment is trying to hide from the rest of the world. It is a path that India simply cannot take. Globalization, therefore, for India, is inevitable. Once we accept that, dealing with the pitfalls along the way will be much more easier.

Jawaharlal Nehru was widely acknowledged across the world for his modern views and impatient irritation towards the more superstitious and fate-believing people of his country. He was once asked by an American editor on how he reconciled free will and destiny, given his background. Nehru’s reply is constructive and for-all-seasons, but especially for the current one: “I compare life to a game of bridge. The cards dealt to you are out of your control, but the way you play your hand is your free will. Given a good hand, you can still mess up the game, and vice versa.”

Thus while it is too early to tell whether this inevitable globalization is a blessing or a curse, it can be entirely in our hands to ensure that we can harness all we have to turn it into a blessing. India has been dealt an average hand, one that may not be good enough to be used to win on one’s own, but a hand that, with a good partner, can be turned into a winning one. And increasingly, especially with the signing of the nuclear deal and the NSG-waiver, India has several partners to choose from. Also, it should be remembered that this is not the first economic crisis that India has faced. We began in the post-colonial darkness with a negligible economy, and then moved falteringly through the ill-informed socialist years until collapse seemed imminent in 1991. Opening up the economy was the solution that was used then – a solution that has brought us back from the brink. The world was not facing a crisis then, but India certainly was. We are thus uniquely equipped to deal with economic vagaries.

India’s regulatory bodies in the financial field, viz. the reserve Bank and the Finance Ministry, have been acting proactively to inject liquidity and boost FDI. Also, a Democrat president with a strong mandate and a majority in Congress to boot will be taking over in the driver economy of the current globalised world order.

When the time therefore comes to assess the globalization of our economy, we might well look back at this phase as one where we played our hand well and triumphed by creating our own blessings.