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Monday, June 09, 2008

A Threat to Globalisation

Let me first categorically state that I am pro-globalisation. Recently there is a careful weighing of pros and cons of globalisation. You can read Tyler Cowen, Mark Thoma and Brad Delong on this. I have a few points to add to this:
Globalisation as envisaged in theory and the practial globalisation that we are experiencing are two different animals. The first is the goal where the world economic system intends to move to. The second is represents a deviation, an intermediate stage, from the prior status (pre-globalised industrialsation) towards our goal of true globalisation. Let me hypothesize what differences we have.

  • We have relatively free capital movement but we have a little restricted labour movement. The difference is in quantum and direction both.
  • We have locally-wealthy-but-globally-poor pools able to kick start local economic development - but do not "export" this development through "consumption".
  • We have economies that articificially create/sustain some competitive advantages longer than its "best-before-date" either through currency pegs, money market intervention or other things.
  • We have created higher income polarity - possibly -keeping certain section of population in the low-income pole through a combination of slower skill-upgradation programmes or by keeping industry profitability low throguh subsidies or under the pretense of inflation targeting. Classic case oil and food - future case WATER!
  • On the other pole - i.e. high income pole we have multiplying effects of first - increasing savings for similar incomes and second - increasing incomes through market mechanics. The increased savings are result of either flexi-taxes courtsey capital account convertibility or lower costs courtsey inflation control and subsidy. The increasing incomes is what accelerates the income differential - recently this has happened through asset price bubbles and otherwise through productivity gains as a result of globalisation.
  • Further there is huge - amazingly huge - increase in cost of the tools of success in globalised world - parimarily higher (grad and post grad) education, health care (i.e for maintaining employability and lower cost when sick).
  • Finally - globalisation, in all probability, seems to be irreversible development and will proceed towards the goal (i.e. real globlisation!).

Therefore, the current state has the pros and cons mixed up. The matter needs more debate and in-depth analysis. Today was just a welcome start!

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