Taking a step back, globalisation and actual free trade started getting realised in the present form around the mid-to-late 1980s. The Gold Standard had disappeared a few years previously. The winding up of empires and colonies in the 1960s and the disintegration of the "blocs" in the 1980s permitted nation-states to enter into a variety of voluntary trading arrangements (GATT/WTO, Preferential/Free Trade areas, et al). Erstwhile colonies, earlier exploited via "imperial preference" disguised as free trade, now used the increasingly free "free trade" to accelerate their growth rates on the strength of external demand emanating from high-income countries.
Concurrently, the technological revolution in computational power (documented pithily by Moore's Law, which postulates that computational power doubles every two years) had resulted in the birth of the internet and the explosive growth of an informational democracy. The coincidental enhancements in transportation technology had meanwhile transformed the very concept of distance. These led to fragmentation of production/value chains. Production could now be planned wherever the support ecosystem was conducive, regardless of where demand was located. Jobs could also be exported and unemployment imported by nation states, regardless of local demand conditions. Services could get disembodied and remotely managed. The share of services in international trade rose sharply.
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The evolution of the internet also led to rapidly changing tastes and demand patterns, thereby resulting inevitably in faster product obsolescence. Skyrocketing aspirations and the desire for upward mobility fostered rapidly increasing rates of intra- and inter-country migration. The growth in inter-country migration can best be understood by using a proxy variable. The World Bank periodically reports on global remittances. These are mostly workers' home remittances and have more than tripled since 2000. A high of $592 billion was reached in 2014 before contracting to $581 in 2015. The share of emerging markets as recipients in this total pool was $431 billion in 2015. India tops the list of beneficiaries.
A suitable proxy for intra-country migration is the urbanisation index. World Bank statistics indicate that the global index inched up from 34 per cent in 1960 to about 40 per cent in 1980 and 47 per cent in 2000, and is now around 54 per cent. The US and UK are above 80 per cent. India was 17.8 per cent in 1961 and is "officially" currently at 31 per cent, but at 55.3 per cent in terms of the World Bank's agglomeration index.
The global consulting firm McKinsey has been studying 2,600 cities around the world as an index for forecasting economic performance. It had pointed out a few years ago that two-thirds of world GDP growth comes from the top 600 cities. Also, while in 2007, 50 per cent of world GDP came from 380 cities in the developed world, this was set to change. Some 136 new cities, mostly from the emerging markets, were to enter this list. Today, only four of the 25 wealthiest cities, but as many as 21 out of the 25 fastest growing cities, are in the emerging markets. It was then also estimated that 12 out of the 13 new megacities in 2025 would be from the emerging markets - but what if the markets close?
The opening decade of the 21st century had been characterised by remarkable global macroeconomics: Record levels of output growth but mainly witnessed in the emerging market economies (EMEs), where output growth rose from 3.8 per cent during 1989-98 to 6.4 per cent during 1999-2008. In 1990, the combined share of EMEs in global GDP was 20 per cent at market exchange rates and 30.7 per cent in PPP terms. By 2013, these share ratios were 39.3 per cent and 50.9 per cent respectively, combined with sharply reduced inflation - from 3.3 per cent to 1.7 per cent in the same period in the advanced economies, from 9.7 per cent to 3.1 per cent in Asia and from 134 per cent to seven per cent in the hyperinflationary EMEs of the western hemisphere.
The Goldilocks period of globalisation suffered a check with the onset of the Lehman crisis in mid-2008. The immediate provocation was undoubedtedly the machinations of Wall Street bankers. It is also very much true that what ought to have been an internal problem for US regulators suddenly (and to the surprise of all) became a "global financial crisis" engulfing national growth rates across the globe. This too could be blamed to a very large extent on the high priests of high finance. They were irresponsible but where will the ultimate adverse effects lie? The growth slowdown has already created a variety of problems across South America and Africa, and is now doing so in Asia, too.
We recently celebrated the silver anniversary of the Indian experiment with liberalisation that began in 1991. However, few analysts reflected on how much of our successes rode on globalisation. Also, while India, even seven to eight years after the onset of the slowdown, has so far not been as obviously affected as countries in other parts of the world, its global outreach in the form of migrant workers in Saudi Arabia and other West Asian countries is starting to experience the initial frost bites. China is reacting by pushing forward on increased internal economic liberalisation while insistently articulating the importance of keeping markets open. But then, China, after Deng Xiaoping's reforms, has consistently been for free markets, trade and globalisation.
The Indian government is also focussed on reform. However, in a multi-party democracy, governmental intent succeeds only if there is broad across-the-spectrum support. Will our Left parties change their stance or continue to think that for India, old is gold? Admittedly, India's Left parties had always ignored Marx and his dictum that socialism can only come after, not before, the inevitable collapse of the highest stage of capitalism. But will they travel with Donald Trump?
The writer is former chairman and managing director, EXIM Bank of India