Let’s talk about globalisation

Over the past several years, globalisation has been maligned and blamed for, among other things, income inequality, environmental degradation and exploitation of labour, especially in developing countries.

In light of recent trade discussions at various regional summits, globalisation has become an even hotter topic.

Should we be afraid of it?

Comparing globalisation to utopia, or a dream where everybody is a winner, does not help in any way

Allow me to share my experience. I spent the first 25 years of my life in India, a country that was among the least globalised countries in the world at the time.

During my time there, the perceived “best” scooter or motorcycle was a variant of a decades-old model of Vespa. The supply of scooters and motorcycles was held down artificially by the government, so much so that parents booked a Vespa when their child was born, hoping that it would be delivered by the time the child turned 18.

Millions of Indian citizens had their talents and creative energies stifled by similarly poor and inappropriate policies. But things changed after India began integrating into the world economy in 1991.

Consumers in today’s India have a variety of choices — they do not need to wait 18 days, let alone 18 years, to buy a product they like.

Between 1990 and 2010, India’s per capita gross domestic product grew from US$503 to US$1,265 (in 2010 dollars) and the official poverty rate dropped from 45.3 per cent to 32.2 per cent.

shoppers280Opportunities created by globalisation have lifted millions out of povertyOver the past 20 years, I have also seen Singapore, a tiny island nation with few natural resources, flourish while making a transition from a developing country to one of the richest in the world. Again, its integration into the world economy played a key role.

Let us examine the validity of some of the criticisms levelled at globalisation.

The first, and probably the most serious, criticism is that it leads to income inequalities.

But this is not borne out by figures. Data collected by Columbia University, the World Bank and the Organisation for Economic Co-operation and Development, and published in The Economist, showed that the global Gini coefficient (a measure of income inequality) in fact declined from 0.665 in 1980 to around 0.61 in 2006.

Admittedly, the same chart in The Economist also pointed out that the Gini coefficient measured for specific countries had risen between the mid-1980s and mid-2000s. The coefficient rose significantly for China, less significantly for India and the United States, and only marginally for Sweden and Japan.

But is the significant rise in formerly communist and socialist countries such as China and Vietnam directly attributable to globalisation? I do not believe so.

To be sure, globalisation has created huge opportunities for entrepreneurs such as Jack Ma of Alibaba. But super-rich individuals such as Mr Ma are very few and their high income levels would not significantly affect China’s overall Gini coefficient.

The rise in China’s Gini coefficient has more to do with the country’s policies and systems than with globalisation.

As President Xi Jinping’s crackdown has showed, graft was widespread in China, even at the highest levels of government. The prevalence of graft, in fact, was probably a bigger factor in creating income inequality, because graft has more to do with one’s position, with whom one knows and possibly who one has bribed.

walmart280Globalisation has opened up countries like China and VietnamThe absence of a safety net — such as unemployment insurance, pension systems, well-functioning healthcare systems — in some developing countries could also mean that income inequalities grow over time.

As developed-country governments fill the gaps for people adversely affected by the free market system, developing-country governments need to do more for citizens who need help in areas such as healthcare and retirement.

However, again, the presence of graft and the absence of a safety net have nothing to do with globalisation and a lot more to do with policies of the local governments.

Some countries with the highest Gini coefficients are in Africa and Central and South America — regions that can hardly be called globalised. Bolivia, Brazil, Colombia, Guatemala and Honduras all have Gini coefficients of around 0.55. In Africa, Namibia, the Seychelles and South Africa have coefficients of around 0.60. These countries are not highly globalised.

Let us now turn to the argument that globalisation has caused much displacement in developed countries such as the US, leading to income inequality.

An analysis by the US National Bureau of Economic Research revealed that Americans spent less than 4 per cent of their income on China-made goods. Instead, the bulk of American incomes go to goods and services made in the US and consumed in the country, such as housing, insurance, utilities, transport and healthcare.

Clearly, globalisation and exports from China or other developing countries are only a small factor of the job losses, if at all, and consequent income inequality in the US.

If that is not enough, two Massachusetts Institute of Technology professors, Dr Eric Brynjolfsson and Dr Andrew McAfee, concluded that technological progress — not globalisation — is eliminating the need for many types of jobs and leaving the typical worker worse off than before.

My intent is not to say that globalisation is not disruptive. It is. Despite figures showing otherwise, some may argue that globalisation, to a certain extent, causes income inequality in developed countries such as Singapore, where there have been concerns over a widening wage gap with the inflow of high-net-worth individuals and low-skilled, low-wage workers.

However, it is important to note that low-skilled workers are brought in to do jobs that locals do not want.

Without this “importing”, we may not have clean buildings, parks or roads in Singapore, nor will our Housing and Development Board flats be ready in time.

On the other hand, governments try to attract super-rich individuals such as Mr Eduardo Saverin, co-founder of Facebook, because they believe there are spillover effects. For instance, a successful entrepreneur such as Mr Saverin might mentor budding technology entrepreneurs in Singapore. Wealthy individuals could also consume more goods and services, helping the local economy and creating jobs.

But it is impossible to design a system in which everybody wins. Comparing globalisation to utopia, or a dream where everybody is a winner, does not help in any way.

We need to be realistic and accept a system where more people are better off. We also need to acknowledge that globalisation has lifted many people out of poverty in countries such as China, India and Vietnam.

Ill-informed arguments do not help in either diagnosing or solving problems.

This article first appeared in Today newspaper

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