There has been talk about globalisation, the flat world and jobs being outsourced to China and India for probably 25 years now, but governments in Europe and the US have largely continued to flog the easy political solutions. Chinese labour conditions need to be improved, Indian IP rights need to be tightened, China needs to let its currency appreciate, and so on. The myth is that if, by magic, all these changes came to pass, the US and Europe would suddenly become globally competitive again. The truth is that none of these is fundamental to competitiveness.
The only way to deal with globalisation was very well described by the prime minister of Singapore in an article in the Financial Times. “Globalisation poses significant challenges to countries. Competition is intense, change is continuous, and the fruits of prosperity are unevenly distributed… The only reliable strategy for improving the lives of citizens is for countries to upgrade the skills of their people and the capabilities of their economies. This means educating the population to enhance their earning power, investing in technology and infrastructure to raise overall productivity, developing new industries to replace declining ones, and constantly adapting to stay relevant in a changing world.”
Other than Singapore, the most successful players in this new world have been China — of course — and, to a great extent, Germany and other countries in Northern Europe. China has been single-minded about its need to lift hundreds of millions out of poverty, and if this leads to global censure, ha ha. Facilitating this process, the Chinese government has not had to worry too much about domestic political pressures, but, as China takes the lead globally, these “democratic” forces are beginning to get louder. However, I believe it will be at least another decade before they begin to make dents in Chinese single-mindedness.
Germany has also made something of a success of globalisation, despite having to manage its European connections. This is mainly because it has always been a paragon of good sense. While this was much-mocked in the pre-globalisation days, the virtue of understanding that you have to pay for your pleasures and work for your money has stood the Germans in good stead. Of course, Germany, too, had fallen prey to the high-end welfare state syndrome — indeed, for a long time, it was the leader of that pack — but the lessons learned during the integration of East Germany, long, hard years of very high unemployment, have come home to roost. I think Helmut Kohl can well be considered the father of modern Germany. Perhaps, Angela Merkel will go down as its mother.
But in America, the structural problems leading to the decline in American competitiveness — primarily the failure of education policy — have been papered over, certainly during the last 15 years of financialisation, by making it easier and easier for people to buy homes and increase consumption, culminating in the financial crisis of 2008. Mr Obama does appear to have a clearer idea of the problems facing his country, but, at this point, he, too, is focused on politics and his re-election.
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In some countries in Europe, the problems are even more fundamental. Much of the population of Southern Europe have got so used to the good life that they can’t imagine that anyone has to pay for it. Getting two or three generations to change the way they think about work is an extremely tall order.
Young people in Europe, in particular, are the most affected. My wife had her hair cut (in Bombay) by a young French woman, who moved here about a year ago, since she found that it was getting very difficult to find meaningful employment in France and, more importantly, that “nobody seems to really work there”. The son of an Italian friend of mine, who works for a multinational, requested and took a posting in Thailand a couple of years ago, and, while he misses his family and the Italian way of life, has no plans to return — indeed, he recently married a Thai girl. While these are anecdotal, the press is full of stories about the “brain and skills drain” from Europe.
The good news, if it can be called that, is that the financial crisis of 2008-09 and the sovereign debt crisis in Europe have highlighted the current losers. The threat is that these crises also appear to have created an inflexion point, beyond which globalisation will accelerate.
The Indian government needs to jerk into action urgently, focusing much more effectively on education, technology and infrastructure. We have been beneficiaries of globalisation so far, but as it accelerates, we have to up our game continuously if we are not, like the US and some of Europe, to stumble or even fall.