There is an old joke that when a man in New York sneezes, a man in Delhi catches a cold. Globalization has merely amplified this. Now, when a bank in New York sneezes, factories in Shenzhen cough, farmers in Kenya lose sleep, programmers in Bengaluru check their phones in anxiety, and someone in Iceland starts discussing the end of civilization.
The modern world is wonderfully connected—and therefore wonderfully vulnerable.
Globalization is, at its heart, the shrinking of distance. Goods cross oceans, capital crosses borders, ideas cross cultures, and information crosses the world before a government office has finished drafting its press release.
It has created opportunities on a scale previously unimaginable. Yet the same invisible threads that connect the world can also strangle it. Globalization is therefore neither a boon nor a bane. Like most powerful human inventions, it depends upon the hands that use it.
The blessings of globalization are difficult to deny. It has expanded trade and created enormous markets for goods and services. A farmer can sell produce beyond his village; a craftsman can reach customers abroad; a young Indian engineer can work for a company headquartered thousands of kilometres away without leaving her bedroom. Countries such as India have benefited enormously from the expansion of information technology, business-process services, pharmaceuticals and global supply chains.
Globalization has also carried knowledge across borders. A medical discovery in one country can save lives in another. Scientific communities can collaborate across continents. Students can attend courses offered by universities they may never physically visit. During the COVID-19 pandemic, the world saw both the power and the necessity of international scientific cooperation. The virus travelled globally with remarkable efficiency; fortunately, knowledge travelled almost as fast.
Perhaps the greatest gift of globalization is cultural exchange. Food, music, literature, cinema and ideas have ceased to respect customs officers. A Japanese anime can become popular in India; an Indian film can find an audience in South Korea; yoga can travel from ancient India to modern gyms across the world. Such exchanges can weaken prejudice by replacing the imagined “foreigner” with an actual human being.
Globalization has also contributed to poverty reduction by integrating developing economies into world markets. Hundreds of millions of people have gained access to employment, consumer goods, technology and better standards of living. In this sense, globalization has been one of the great engines of economic transformation.
But every engine has exhaust.
The first danger is inequality. Globalization may enlarge the economic pie, but it does not guarantee that everyone receives an equal slice. Highly skilled workers, multinational corporations and owners of capital often capture a disproportionate share of its benefits. Meanwhile, workers in vulnerable industries may find their jobs disappearing because production has moved to cheaper locations. The global market can reward efficiency while showing little sympathy for the man who has just discovered that his efficient replacement is a machine.
The second curse is the weakening of local economies and cultures. When global brands enter every street corner, small producers may struggle to compete. Traditional crafts can disappear under the pressure of mass-produced goods. Cultural exchange is admirable; cultural replacement is something else. A world in which every city has the same shopping mall, the same coffee chain and the same fast-food menu may be globally connected but culturally rather boring.
Then comes the environmental paradox. Globalization has encouraged production, transportation and consumption on an unprecedented scale. Goods are manufactured in one country, assembled in another, packaged in a third and sold everywhere. The result is economic efficiency accompanied by carbon emissions, resource depletion and ecological stress. The planet, unfortunately, does not recognize the distinction between a profitable supply chain and an unprofitable one.
Globalization has also created new forms of vulnerability. The pandemic demonstrated how disruption in one part of the world can paralyse production elsewhere. Semiconductor shortages, energy crises, wars and geopolitical tensions have shown that excessive dependence on distant suppliers can become a strategic weakness. What once looked like efficiency can suddenly look like fragility.
The digital dimension makes the paradox sharper. The internet has democratized information, but it has also democratized misinformation. Social media connects families and strangers, but it can also connect extremists, conspiracy theories and angry mobs with extraordinary speed. A lie can travel around the world before truth has found its spectacles.
There is, however, a temptation to respond to these problems by rejecting globalization altogether. That would be like burning the library because one of its books contains a bad idea. The answer is not isolation but intelligent integration.
The future requires a globalization that is more inclusive, sustainable and humane. Governments must invest in education and skills so that workers can adapt to changing economies. Social security must protect those who lose jobs through technological or economic disruption. International institutions must address tax avoidance, climate change, pandemics and financial instability. Supply chains must become resilient rather than merely cheap. And economic growth must be measured not only by the volume of goods produced but also by the quality of lives created.
India has a particularly important role in this transformation. As a large democracy with a young population, a growing economy and deep civilizational diversity, India need not choose between complete openness and complete protectionism. It can pursue strategic integration: welcoming technology, investment and global markets while protecting vulnerable communities, local industries, cultural diversity and ecological interests.
Mark Twain might have observed that civilization is the art of getting what we want without getting what we deserve. Globalization is a magnificent example. We wanted cheaper goods, faster communication, greater mobility and wider opportunity—and we received them. We also received inequality, cultural homogenization, ecological damage and global crises capable of arriving at the speed of a click.
The challenge, therefore, is not to decide whether globalization is a blessing or a curse. It is both. Fire cooks our food and burns our house; the ocean carries ships and drowns sailors. The moral question is not whether we should abolish fire or drain the ocean, but whether we possess the wisdom to use them.
Globalization has made humanity more connected than at any other point in history. The real test is whether it can also make humanity more cooperative. If it can, globalization may become not merely the triumph of markets over borders, but the triumph of human imagination over distance. If it cannot, we may discover that the world has become one village—and that, unfortunately, everyone in the village has learned to shout at once.
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Steve Ovett, the famous British middle-distance athlete, won the 800-metres gold medal at the Moscow Olympics of 1980. Just a few days later, he was about to win a 5,000-metres race at London’s Crystal Palace. Known for his burst of acceleration on the home stretch, he had supreme confidence in his ability to out-sprint rivals. With the final 100 metres remaining,
[wptelegram-join-channel link=”https://t.me/s/upsctree” text=”Join @upsctree on Telegram”]Ovett waved to the crowd and raised a hand in triumph. But he had celebrated a bit too early. At the finishing line, Ireland’s John Treacy edged past Ovett. For those few moments, Ovett had lost his sense of reality and ignored the possibility of a negative event.
This analogy works well for the India story and our policy failures , including during the ongoing covid pandemic. While we have never been as well prepared or had significant successes in terms of growth stability as Ovett did in his illustrious running career, we tend to celebrate too early. Indeed, we have done so many times before.
It is as if we’re convinced that India is destined for greater heights, come what may, and so we never run through the finish line. Do we and our policymakers suffer from a collective optimism bias, which, as the Nobel Prize winner Daniel Kahneman once wrote, “may well be the most significant of the cognitive biases”? The optimism bias arises from mistaken beliefs which form expectations that are better than the reality. It makes us underestimate chances of a negative outcome and ignore warnings repeatedly.
The Indian economy had a dream run for five years from 2003-04 to 2007-08, with an average annual growth rate of around 9%. Many believed that India was on its way to clocking consistent double-digit growth and comparisons with China were rife. It was conveniently overlooked that this output expansion had come mainly came from a few sectors: automobiles, telecom and business services.
Indians were made to believe that we could sprint without high-quality education, healthcare, infrastructure or banking sectors, which form the backbone of any stable economy. The plan was to build them as we went along, but then in the euphoria of short-term success, it got lost.
India’s exports of goods grew from $20 billion in 1990-91 to over $310 billion in 2019-20. Looking at these absolute figures it would seem as if India has arrived on the world stage. However, India’s share of global trade has moved up only marginally. Even now, the country accounts for less than 2% of the world’s goods exports.
More importantly, hidden behind this performance was the role played by one sector that should have never made it to India’s list of exports—refined petroleum. The share of refined petroleum exports in India’s goods exports increased from 1.4% in 1996-97 to over 18% in 2011-12.
An import-intensive sector with low labour intensity, exports of refined petroleum zoomed because of the then policy regime of a retail price ceiling on petroleum products in the domestic market. While we have done well in the export of services, our share is still less than 4% of world exports.
India seemed to emerge from the 2008 global financial crisis relatively unscathed. But, a temporary demand push had played a role in the revival—the incomes of many households, both rural and urban, had shot up. Fiscal stimulus to the rural economy and implementation of the Sixth Pay Commission scales had led to the salaries of around 20% of organized-sector employees jumping up. We celebrated, but once again, neither did we resolve the crisis brewing elsewhere in India’s banking sector, nor did we improve our capacity for healthcare or quality education.
Employment saw little economy-wide growth in our boom years. Manufacturing jobs, if anything, shrank. But we continued to celebrate. Youth flocked to low-productivity service-sector jobs, such as those in hotels and restaurants, security and other services. The dependence on such jobs on one hand and high-skilled services on the other was bound to make Indian society more unequal.
And then, there is agriculture, an elephant in the room. If and when farm-sector reforms get implemented, celebrations would once again be premature. The vast majority of India’s farmers have small plots of land, and though these farms are at least as productive as larger ones, net absolute incomes from small plots can only be meagre.
A further rise in farm productivity and consequent increase in supply, if not matched by a demand rise, especially with access to export markets, would result in downward pressure on market prices for farm produce and a further decline in the net incomes of small farmers.
We should learn from what John Treacy did right. He didn’t give up, and pushed for the finish line like it was his only chance at winning. Treacy had years of long-distance practice. The same goes for our economy. A long grind is required to build up its base before we can win and celebrate. And Ovett did not blame anyone for his loss. We play the blame game. Everyone else, right from China and the US to ‘greedy corporates’, seems to be responsible for our failures.
We have lowered absolute poverty levels and had technology-based successes like Aadhaar and digital access to public services. But there are no short cuts to good quality and adequate healthcare and education services. We must remain optimistic but stay firmly away from the optimism bias.
In the end, it is not about how we start, but how we finish. The disastrous second wave of covid and our inability to manage it is a ghastly reminder of this fact.