View of DEGLOBALIZATION:THE NEW REALITY “CHANGING MACRO ECONOMICS DIMENSIONS”

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Vol.04,Special Issue 05, (ICIR-2019) September 2019, Available Online: www.ajeee.co.in/index.php/AJEEE

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DEGLOBALIZATION: THE NEW REALITY

“CHANGING MACRO ECONOMICS DIMENSIONS”

Dr. Snigdha Bhatt LNCPS –Indore

Abstract - The dynamic process of economic globalization and de-globalization has been occurring in “waves” over the past 250 years. Diffusion models reveal how globalization policies occupy the policy centre stage when the global economy is booming and is cast on the back-burner when the global economy nose-dives into a slump. According to Walden Bello and Focus on the Global South, who coined the term "de-globalization", the objective is not to withdraw from the global economy, but rather to trigger a process of restructuring the world economic and political system so as to strengthen local and national economies instead of weakening them.

According to the diffusion models, when the global economy is booming the nodes that establish crucial linkages in the economy exceed the social optimum generating negative externalities thereby eroding social welfare in such a context policy intervention is justified to reduce the linkages that facilitate the spread of negative shocks or contagion that reduce the capacity for risk sharing. The globalization-de-globalization policy conundrum also resurfaces in relation to trade flows, cross-border capital mobility, current account sustainability and technology diffusion. The latter has exacerbated the “digital divide” that has accompanied the revolutionary changes in information and communication technology (ICT) revolution by overcoming the “tyranny of distance”. The recurrent global financial crises and speculative attacks on the currency peg have ignited the debate for reshaping the international financial architecture education of the current account deficit when the economy enjoyed fiscal balance. Section 5 examines the issue of convergence in the context of the neoclassical and endogenous growth models. Section 6 uses the gravity model to shed light on overcoming the “tyranny of distance” and the exacerbation of the

“digital divide” due revolutionary changes in Information and Communication Technology (ITC) revolution. Section 7 deals with the phenomena of currency crises and exchange rate misalignment. Section 8 examines the case for reshaping the International Economic Architecture. Section concludes the architecture in order to reduce the vulnerability of the domestic economy to the disruptive effects of the global financial crises.

Keywords: Globalization; De globalization; Diffusion Process; Macroeconomic Economic Models; “Digital Divide”; Global Financial Crises; The Global Financial Architecture

1 INTRODUCTION

De-globalization is the process of diminishing interdependence and integration between certain units around the world, typically nation-states. It is widely used to describe the periods of history when economic trade and investment between countries decline. The process of economic globalization that has occurred in “waves” over the past 250 year reveals the stylized fact that policies that promote globalization occupy the policy centre stage when the global economy is booming and gets cast on to the backburner when the global economy nose dives into a slump. The central aim of this paper is to explain this policy conundrum of globalization and de-globalization as the global economy flips from a boom to a slump. Conventional models shed light on the causes that underpin the policy conundrum and provide a rationale for the case for reshaping the global financial architecture aimed at reducing the vulnerability of the global economy to recurrent crises.

The rest of the paper is structured as follows: first it presents a critical review of the on- going heated debate between the proponents of globalization and de-globalization. Here, five of the major “waves” of globalization and de-globalization have been identified. it reviews insights from models of pure theory of international trade to demonstrate that free trade is best during episodes of global prosperity and protectionist policies comes up trumps during episodes of global downturns. It reviews the controversy about current account sustainability and the misguided case for policy targeting the reduction of the current account deficit when the economy enjoyed fiscal balance.

1.1 Objectives of the Paper

1. To explain the impact of de-globalization on world economy.

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2 2. To explain the indicators of de-globalization.

3. To indicate the targets for various macroeconomic variables and parameters.

4. To see the major changes in macroeconomic sectors.

5. To provide an insight on policies that promote globalization.

2 INSIGHT ON MACROECONOMICS

Five Year Plan aims at achieving an average growth rate of the Gross Domestic Product (GDP) of 8 per cent per annum over the period 2017 to 2024. This is no doubt ambitious target, but the five year Plan is predicted on the belief that the country has the potential to meet these expectations, provided that the appropriate policy measures and institutional changes are implemented expeditiously and effectively. There is no 13^th Five year plan for India .Last five year plan ended on 31^st march 2017 which was extended for six months enabling ministries to complete their appraisals. Economic growth should not be seen as an end in itself. Its true importance lies in the central role that it plays in realizing the core objectives of all planning and public policy, such as providing adequate and decent work opportunities, eradicating poverty, reducing disparities and, in general, improving the quality of life of the people.

The world’s center of economic gravity has shifted from the North America and Pacific region. Data on overall economic activity, national accounts, demographics, sexual specifics, health life expectancy, energy and output show that growth centers have shifted from North America and Europe to Asia and America according to Klen(7).Empirical studies show that this reduction led to the reduction of the tyranny distance for countries like Australia. The reduction of the distance from the North America-Europe to the Asian Pacific region has increased the potential for trade with the fast growing emerging market economies in China and India.

However, it must also be recognized that the growth rate of the economy is probably the most important summary measure of the degree of success of the development strategy and macroeconomic management, to the extent to which the recommended measures have been implemented. The purpose of this paper is to indicate the targets for various macroeconomic variables and parameters which would be consistent with the overall growth rate. The strategies for attaining these macroeconomic targets and their implications will also be discussed in some detail.

3 THE GLOBALIZATION DE-GLOBALIZATION CONUNDRUM

The paper analyses mainly the dynamic processes of economic globalization whilst deliberately side-tracking the analysis of non-economic issues of globalization linked to cultural homogenization, climate change, human rights abuse and the war against terrorism based on the author’s own perceptions by drawing on other studies by O’Rourke and Williamson [1] and Dollar [2]. De-globalization have been identified in this paper see - Table 1

Table of globalization 1. Waves & delocalization

Duration Propeller Economy Architecture

(IFA)

Globalization I 1870-1914 Colonization Boom Gold Standard Deglobalization I 1914-1930 Protectionism Slump Inter –War Deglobalization

II 1939-1946 Inter-War Slump Inter-War

Globalization II 1946-1973 Free Trade Boom Bretton Woods Globalization III 1980-2009 Capital Mobility Slump Generalized

Float Source: O Rourke et al .(1)and Dollar(2)

A major bone of contention between the globalizers and deglobalizers relate to the issue of reduction of poverty and income inequality. The deglobalizers have alleged that despite waves of globalization more than 1 billion people live below the poverty line of less than 1 US $ per day. In this morass of poverty more than 30,000 children were perishing daily due to malnutrition and over 72 million children of whom 57% were girls had no primary education and entered the new millennium as illiterates. The above poverty facts and stats

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constitute a strong indictment of past globalization as it has failed to work to improve the welfare of the poor in developing countries as observed by Shah [3] (Table 2).

Table 2. Poverty facts and stats Indicator of Developing Country Poverty

1. 50% of the world population (3 billion) lives on less than2 dollars a day.

2. 80% of the world’ population live in countries widening income inequality.

3. 20% of the world’s rich enjoy 75% of the global wealth while 40% of the world’s poorest account only 5% of the world’s wealth

4. 30,000 children die every day due to poverty (UNICEF).

5. 28% of children in DCs are underweight or stunted.

6. 72 million children of primary school age do not attend school, 57% are girls.

7. Over 1 billion people entered the new millennium illiterate.

Source: Shah(3)

Globalization refers to the economic, social, and political integration of nations. Economic globalisation can be seen in the exchange of goods. It can also be seen in the rising movement of people and capital around the world.

However, Globalization is under attack these days from all quarters. It is because the race of globalization has left majority of the world's population far behind. According to UNICEF, the richest 20 per cent of the population gets 83 per cent of global income, while the poorest quintile has just 1 per cent. This trend is getting worse. A new UNDP report called "Humanity Divided" estimates that 75 per cent of the population lives in societies where income distribution is less equal now than it was in the 1990s, although global GDP ballooned from $22 trillion to $72 trillion.

Also the fundamental challenge posed by the increasing reach of global markets is that global markets are inherently dis-equalizing, making rising inequality in developing countries more rather than less likely.

3.1 Tihs is due to following reasons:

 First, the tremendous economic gains associated with deeper and more efficient global markets are not equally shared. Markets, after all, reward those who have the right assets - financial capital, human capital, entrepreneurial skills.

 A second reason why globalization is dis-equalizing is that global markets are far from perfect. They fail in many domains. The classic example of a market failure is that of pollution, where the polluter captures the benefits of polluting without paying the full costs. At the global level, high greenhouse gas emissions of the US are imposing costs on poor countries. Similarly with global financial crises; the financial crises was due to policy errors in few countries. But a healthy portion can be blamed on the panic that periodically plagues all financial markets.

Developing countries inequality In is economically destructive; it interacts with underdeveloped markets and ineffective government programs to slow growth - which in turn slows progress in reducing poverty. Economic theory suggests why: weak credit markets and inadequate public education mean only the rich can exploit investment opportunities. Middle income and poor households cannot borrow and miss out on potentially high returns on their own farms and small business ventures for example - often higher returns than the rich are getting on their capital. The most able children of the less rich miss out on the education and skills that would maximize their own economic prospects and their countries' own growth. Due to this, the trend has started to reverse to deglobalisation. Several prominent countries including the UK resisted globalisation by rising tariffs. Far-right parties in Europe gained popularity in this atmosphere of financial weakness and supporting deglobalisation.

3.2 What are the indicators of deglobalization?

Apart from rise of right wing parties across globe, which is political manifestation of deglobalization, economic indicators show that post 2008 economic slowdown deglobalization is becoming the norm.

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 Trade: With global demand weak, and many nations erecting import barriers, trade is slumping. Measured as a share of global gross domestic product, trade doubled from 30 percent in 1973 to a high of 60 percent in 2008. But it faltered during the crisis and has since dropped to 55 percent.

 The flow of capital - mainly bank loans - is retreating even faster. Frozen by the financial crisis and squeezed afterward by new regulations, capital flows have since slumped to just under 2 percent of G.D.P. from a peak of 16 percent in 2007.

 The flow of people is slowing, too. Despite the flood of refugees into Europe, net migration from poor to rich countries decreased to 12 million between 2011 and 2015, down by four million from the previous five years.

3.3 What are the reasons for this new trend?

There are several reasons behind this trend today. Some of them are:

 from developing MNCs across the countries and workers from developing countries benefitted the most leading to perception that workers countries have stolen jobs from developed countries. This led to demands of stricter visa regime and relocation of industries.

 Global slowdown exacerbated the above mentioned situation and led to increase in demand for protectionist measures across globe.

 Unequal distribution of benefits of globalization, rising inequalities, job loss especially in developed countries.

 Rise of populist leaders globally re-enforces the trend 3.4 Concept of de-globalization

According to Walden Bello and Focus on the Global South, who coined the term

"deglobalisation", the objective is not to withdraw from the global economy, but rather to trigger a process of restructuring the world economic and political system so as to strengthen local and national economies instead of weakening them.

De-globalisation questions the integration process dominated by the logic of capital and the supposed rationality of the economy that erodes the decision-making capacity of the people and States. Deglobalising means starting to think and build an integration process based on the needs of peoples, nations, communities and ecosystems.

Deglobalization does not oppose trade nor the exchange of products or services, but proposes that trade is not done at the expense of the communities, the local and national economies and the diversity of its products whether agricultural or industrial.

The one size fit all policy of structural adjustment programs pushing countries to only remain producers of particular cash crops or goods, destroys that country's ability to satisfy people's needs, diversify and more importantly, be self-reliant in its ability to feed its people.

3.5 Principles of De-globalization by Walden Bello

1. principle of subsidiary should be enshrined in economic life by encouraging production of goods at the level of the community and at The the national level if this can be done at reasonable cost in order to preserve community.

2. Trade policy - that is, quotas and tariffs - should be used to protect the local economy from destruction by corporate-subsidized commodities with artificially low prices.

3. Industrial policy - including subsidies, tariffs, and trade - should be used to revitalize and strengthen the manufacturing sector.

4. Long-postponed measures of equitable income redistribution and land redistribution (including urban land reform) must be implemented to create a vibrant internal market that would serve as the anchor of the economy and produce local financial resources for investment.

5. De-emphasizing growth, emphasizing upgrading the quality of life, and maximizing equity will reduce environmental disequilibrium.

6. The power and transportation systems must be transformed into decentralized systems based on renewable sources.

7. A healthy balance must be maintained between the country's carrying capacity and the size of its population.

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8. Environmentally congenial technology must be developed and diffused in both agriculture and industry.

9. A gender lens must be applied in all areas of economic decision making so as to ensure gender equity

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Concluding Observations : The structural malaise that has trapped DCs in a vicious circle of poverty retarding their capacity to harness the benefits of globalization has sparked off a debate between the Geography School spearheaded by Diamond [30] asserts that the vicious circle of poverty that impedes the globalization of DCs occurs because of the impediments imposed by geography resulting in debilitating tropical disease and unfavorable climate. The Institutional School associated with Acemoglu et al. [31] contends that the lack of proper institutions (enforcement of law and order, property rights) resulting in corruption retards growth and globalization of DCs. Although these rival schools offer new policy insights on why poor countries remain poor they have not yet distilled meaningful policy guidelines to tap into the virtuous cycle of globalization and growth in order to release DCs from the trap of grinding poverty and income inequality. Perhaps modern econometric analysis using appropriate instrumental variables on time-series cross-section data may offer solutions to this policy problem. The central thesis addressed in this paper is that mainstream macroeconomic models provide insights that both support policies that promote the globalization or deglobalization of DCs depending on whether the global economy is experiencing economic prosperity or an economic downturn. Until recently the long wave (Wave III) of economic prosperity provided support for policies that promoted globalization of DCs as a way to reduce poverty and income inequality. However, the recent crisis contagion emanating from the global financial crisis triggered by the US subprime mortgage crisis has raised serious questions about the benefits of unregulated free market capitalism as the vehicle for promoting the globalization of DCs. The global financial crisis has reignited the debate on deglobalization or delinking of DCs from the international economy in order to avoid the recurrent crises originating from policy mistakes in ACs from keeping the DCs entrapped in vicious circle of poverty and income inequality.

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