In the three months that Trump has been President of the most powerful economy in the world, he has brought back memories of the Jawboning American politics of the 1960s. Carrying his poll rhetoric to the Inaugural Speech, he played on nationalism and xenophobia, following it up with a temporary immigration ban on certain nations. Jawboning Ford, Toyota, Fiat Chrysler and Carrier into rethinking their outsourcing plans, within days of assuming office, he set the tone for his Presidential tenure.
Kick started by the Brexit vote in June 2016, the nationalistic sentiment has spread far and wide. Marine Le Pen, the French Presidential frontrunner, has risen sharply in poll popularity on the back of her populist commitments. In June 2016, like Trump she too hailed Brexit as “one of the most important events in building a new world”. Political leaders such as Le Pen and Trump are increasingly trying to blur the lines between Political Freedom and Free Trade. And, multinational firms that were once considered the predators of world economy, are perhaps falling prey to this denunciation.
With the prolonged economic downturn since 2008, those who championed capitalism seem to be loosing trust in the concept. Those very nations that have driven globalization for decades are today questioning and challenging well established principles of free market economics. While Brexit only created ripples, Mr Trump’s continued tirade against free trade has the potential to stir up a global Tsunami of sorts.
The question is can nations win by playing such zero sum games as Trump is beginning to play? Is jawboning the answer to the developed world’s economic growth woes? Have outsourcing and free trade been the only causes of job losses? Global trade experts, economists and several leading thinkers have been sharing their views on how nationalism makes for good politics but bad economics.
Over the last few months, I have interacted with experienced global experts such as Mr Robert Azevedo, WTO Director General while he was New Delhi earlier this month. I concur with his thought process that to bridge the gaps and inequities currently persisting in the global trading environment, there is a need to make trade stronger rather than limiting it. He is quite clear that the increasingly inward looking policies will be a setback for global trade.
Every nation has a right to put their interest first and to ensure that there is larger participation in the benefits of progress. Be it Japan of the Sakoku era in the 17th Century or India of the pre 1990s era, protectionist economic policies have not augured well for any nation. USA also is unlikely to come out a winner by imposing “America First” policies on the world, without any regard for the impact it might have on other nations. Restricted trade and borders will more likely lead to increased prices as consumers will have limited product choices, thus fueling inflation. And, as inflationary pressures increase consumers will be left with much lower buying power. In a low consumption market, a vibrant economy is a doubtful outcome.
At the root of the invective against global trade lies the increasing unemployment in the developed economies. All these years, politicians have tried to leverage the rising unemployment to their advantage. In the process they have fueled a fear psychosis by highlighting ills of free trade and migration. With the advent of social media, it has been easy for zealots to promote half truths and even lies. And, the masses have believed their “charismatic” leaders, often without weighing the consequences. A case in point is the thousands of Britons googling “What is Brexit” after having voted in favor of the referendum.
While building on his poll campaign against globalization, Trump had strongly accused China of following unfair trade practices and labelled the country a currency manipulator. He softened his stand on China because he “got along better with Xi Jinping than he had thought and because Xi Jinping is trying to help with North Korea”. While not saying much about his global strategies, the Trump turnaround on China also makes one wonder how far such poll rhetoric is sustainable. And, it only adds more uncertainty to the question of how US might evolve under the new administration.
Yet another example of the half truths is revealed by the American Made Index. While Trump blamed American companies for taking jobs out of the USA, this Index tells a different story. Amongst the top five in this index are three Japanese names – Toyota Camry at the top followed by Honda Accord and Honda Pilot at number 2 and 5 respectively. Though jobs were lost to outsourcing, several thousands were also created by companies such as these.
During the third industrial revolution, job losses were triggered by increasing automation which made plants made more competitive. Those that lacked the scale and cost competitiveness to remain sustainable had to pull down the shutters. There was little focus on reskilling and upskilling people to make them employable, of formulating robust industrial policies to encourage businesses. While inclusivity is the key to economic growth, politicians have linked it to bringing back jobs by closing their nation’s borders. And, the masses that got left behind in the growth process have been prone to believe such half truths. The real issues have been impertinently sidelined by those whose interests are served by doing so.
Going forward job losses are only going to increase. With Industry 4.0 rampant technological change is taking place, putting at stake, the jobs as they exist today. As has been highlighted by the World Economic Forum’s Report titled The Future of Jobs, “the skill sets required in both old and new occupations will change in most industries and transform how and where people work”.
Rapid technological advancements will create innovative business models and give a new meaning to customer centricity. A globally connected customer is already leveraging a transparently competitive landscape to seek best value for money options. The day is not far when a customer, sitting in Gurgaon, will have the option of co-creating a vehicle with a design center somewhere in Troy Michigan which will be delivered to him from a plant located in Manesar. In this scenario, it is highly unlikely that companies will turn the clock back on technology to adopt manual processes. With technology transcending borders, de-globalization will in all likelihood remain only a rhetoric.
In an uncertain global environment, the question is whether it is really globalization which has led to unbalanced growth or do the world leaders need to redirect their strategies on the larger issues of job creation? Will the jawboning strategy bring desired results of enhanced inclusivity for world economies? And, in the midst of these transformative shifts, can India become a global leader?
With India clocking in growth based on strong fundamentals, the country’s potential to become a global leader cannot be overstated. As the Government has been driving the Make in India initiative in a mission mode, the ease of doing business has improved considerably. The IMF has revised India’s growth prospects back to 8% as important structural reforms are beginning to bolster the country’s business ecosystem. The recent strengthening of the rupee, though making India’s exports expensive, is more a reflection of a positive macro economic movement of the economy.
While India has the potential to take on a leadership position, the country will have to transform itself in step with the evolving nature of globalization. Dismantling archaic laws and regulations, revamping the outdated education system, developing vocational skills, encouraging innovation and entrepreneurship, gainfully employing the large pool of labor will help improve the country’s competitiveness. To become a global frontrunner, both the manufacturing as well as the services sectors will have to leapfrog technologies, make quality their hallmark and enhance productivity.
At the upcoming CII Annual Session themed The Future of Globalization: Can India Lead, I am looking forward to hearing some fresh perspectives and engaging with global thought leaders on these issues and how India can lead.