MANILA, Philippines - As the economies of the United States and Europe threaten to fall back into recession, some Western economists have begun to question the foundations of both globalization and capitalism. In a recent Financial Times column, Jeffrey Sachs of Columbia University wrote about “The great failure of globalization” (18th August 2011). Another well-known economist, Nouriel Roubini went so far as pull out old Marxist arguments in a recent syndicated column called “Is Capitalism Doomed?”. It is obvious that economic pain is frightening western intellectuals. However, their arguments not only distort the facts but, if taken seriously, run the risk of driving Western civilization into permanent decline.
The basic argument being put forward by these economists is that globalization has hurt the poor by allowing rich capitalists to invest in emerging markets. To quote Prof. Sachs, “They have been able to invest in new and profitable projects in emerging economies”. He then deduces that globalization is a failure because of the “simple fact” that unskilled workers in developed countries have been hurt by this shift. However, he does not spare a thought about the hundreds of millions of people in China, India and other emerging markets who have used global trade and investment to climb out of abject poverty. As China has become richer, we can now see how industries are moving to even poorer countries like Vietnam and Bangladesh.
Surely, the success or failure of globalization should be judged from a global perspective and not only from that of rich countries. While income inequalities may have increased within each country, they have fallen sharply between countries as emerging markets have used globalization to grow. As someone who grew up in the autarchic stagnation of pre-liberalization India, I know from personal experience that humanity as a whole is clearly better off today. Moreover, the gains from globalization go beyond economics. Young people from Cairo to Delhi are using globalizing technologies like Twitter, Facebook and mobile phones to demand accountability from entrenched elites. How is this a bad thing?
I agree with Prof Sach’s recommendation that western governments need to invest in education in order to move the workforce up the value-chain. However, there is a danger that by deeming globalization and capitalism as failures, we will give in to the slippery slope of trade protectionism and restriction of capital flows. This will hurt everyone but Asia is now strong enough that it will eventually recover and go ahead. The real long-term danger is to Western civilization itself. In order to understand this, consider the long histories of the two emerging giants, China and India.
In the first millennium AD, India was the world’s dominant economy. Angus Maddison estimates that it accounted for 33 percent of world GDP. Its merchants plied trade from the Persian Gulf to the South China Sea. The remnants of this age of India dominance are still clearly visible across South East Asia in archeological ruins, culture, language and place-names (Singapore, for instance, means “Lion-City” in Sanskrit). Unfortunately, when faced with competition from the Turks, Arabs and Chinese, Indian society decided to turn inwards in the twelfth century. Caste rules were imposed to discourage Indian merchants from sailing across the seas. The consequence was that Indian civilization went into centuries of decline.
By the fifteenth century, China replaced India as the world’s largest economy. Between 1405 and 1433, Admiral Zheng He led a series of grand voyages that explored South-East and the Indian Ocean. There is speculation that they may even have visited the Americas. Chinese naval technology of this period was so advanced that Europe would take another three centuries to catch up. Yet, it was not China that would dominate the following centuries but the “barbarians” from Europe. Why? The success of the naval expeditions had made court-eunuchs like Zheng He very powerful and the Confucian mandarins decided to cut them down to size. The fleet was destroyed and their records suppressed. China closed itself from the world and, like India, suffered centuries of decline. It was only after these ancient civilizations opened out to the world again, in 1978 and 1991 respectively, that they came back as major global players.
Roubini writes that “the world’s middle classes are feeling the squeeze of falling incomes and opportunities”. This is simply not true. China’s salaries are rising at 15-17 percent per annum. Even as I write this article, India’s confident new middle-class is demanding accountability from its politicians by marching – entirely peacefully - through Delhi in the tens of thousands. This is hope, not hopelessness. The lesson to be learned from history is that globalization is not the problem but the ability of a society to deal with a changing world. Western societies would do well to ignore the insecurities of its economists and embrace the new world. Otherwise, it runs the risk of turning a few years of fiscal pain into a few centuries of civilizational decline.
Sanjeev Sanyal is Deutsche Bank’s global strategist and was named “Young Global Leader 2010” by the World Economic Forum in Davos. He has worked in financial markets since the mid-nineties and till 2008 was based in Singapore as Deutsche Bank’s chief economist for the region.