Group 6@Paris IMBD: Pros and Cons of Globalization

Summary of the term Globalization:

The phenomenon of globalization thus characterized by the gradual disappearance of national borders, whether productive or financial. Indeed, international trade barriers have been reduced, it is not just about tariffs, but also the costs of transport and communication facilities especially with the advent of the Internet.
Globalization is it an unavoidable? What are its benefits and limitations?

Pros:

–        Producing specific goods and services at a low marginal and opportunity cost

–        Countries benefits from competitive advantages

–        Cheaper and easier access to information, knowledge, technologies and health

–        Opening of new markets

–        Integration of developing countries by sharing information and technologies

–        More competition in all markets: cheaper prices and better quality

–        Mobility: people are mobile and go abroad to improve their skills

Cons:

–        Uniformization of cultures

–        Unfair competitiveness

–        Distorted growth process between and within countries

–        Too interconnected economies (a failure in one country can lead to bad things in others)

–        Small businesses are being eaten by big businesses

–        Outsourcing, job losses in developed countries (manufacturing sector)

–        Health (contagions can occurs more easily)

–        Illegal immigration

–        Global warming: destruction of the environment

 

Conclusion:

As globalization has progressed, living standards have improved significantly in almost all countries. However, the developed countries and a few developing countries obtained the best results.
How globalization can reduce inequalities?

Group 6 IMBD@Paris:Europe’s rebalancing is not borne by Europe

Sep 26th 2014, 21:41 by G.I. | WASHINGTON, D.C.

While doing some research for an upcoming article, I checked on the evolution of current account imbalances since the recession and was struck by how China and Europe have traded places. China’s surplus has fallen from 10% of GDP in 2007 to a little over 2% this year (I’m using data from the IMF’s April World Economic Outlook which is probably a bit out of date). China’s GDP has grown a lot in dollar terms since 2007 so the decline in the absolute size of the surplus is much less impressive, from a peak of $421 billion in 2008 to $224 billion now. In the same period, however, the euro-zone has gone from a deficit of $96 billion to a surplus of $391 billion and by next year, its surplus will exceed China’s in 2008.

Given the depth of the recession Europe’s peripheral economies endured, one shouldn’t be surprised that its current account balance has improved. What is truly remarkable is that peripheral Europe’s improved current account has not come through rebalancing within the euro zone; Germany’s surplus has actually grown, from $226 billion to $284 billion. In fact, the rebalancing of the rest of Europe has occurred primarily by forcing other countries to reduce their surpluses or increase their deficits. This is an unavoidable result of the European Central Bank’s monetary policy. Since lower interest rates cannot seem to spur Germany to invest more and save less by enough to reduce its current account surplus, more of the work of stimulus must come through a weaker euro, which means it’s the rest of the world that bears the brunt of peripheral Europe’s rebalancing. This of course adds to the global saving glut, and is another reason not to expect long-term interest rates to shoot significantly higher any time soon.

http://www.economist.com/blogs/freeexchange/2014/09/europes-current-account-surplus

 

Group 6 IMBD@Paris:Time to make in India?

Sep 25th 2014, 12:35 by A.R. | DELHI

NO ONE doubts that Narendra Modi, India’s prime minister (pictured), is a capable speaker. On September 25th he called together hundreds of diplomats, business leaders, journalists, ministers and others to a swanky hall in Delhi to launch his latest marketing push. The event was broadcast live across India and to diplomatic missions abroad. A remarkable cast of industrial heavyweights were called on to show support, including Cyrus Mistry of Tata Sons, Reliance’s nervy-sounding boss, Mukesh Ambani, the chairman of Wipro, Azim Premji, the chairman of Aditya Birla Group, Kumar Mangalam Birla, and the chairman of ITC Limited, Yogesh Chander Deveshwar.

Over the course of two hours these business cheerleaders, along with ministers and then Mr Modi himself, took turns to explain why it would be a great thing if industrial production, in particular labour-intensive manufacturing, could blossom in India. They are absolutely right. India needs to create lots of jobs—perhaps 1m additional ones a month—if it is to employ its booming population. One speaker suggested 90m manufacturing jobs could be created in India over the next decade. Mr Premji set out how Wipro—better known for IT—has five manufacturing units in India (they make hydraulic cylinders) and overall relied on a broad network of 1,200 Indian suppliers, meaning lots of jobs created indirectly.

Mr Birla spoke of a new high-end aluminium manufacturing site in Odisha (formerly Orissa) which now does quality work for the firm that used to be done in a British factory. A representative from Lockheed Martin, an American defence firm, explained how its factory near to Hyderabad makes component parts for its global production of the massive C130-J Hercules plane. A stronger manufacturing sector could help in a host of other ways, suggested speakers, linking India into global supply chains, boosting exports, helping to reduce the current-account deficit and so on. Mr Ambani concluded that India’s economy could boom in the long run, at a sustained rate of 8-10%, growing quicker than China, if only the right conditions were created.

All this looks and sounds attractive. So, too, do a flash new website that Mr Modi inaugurated, a new symbol—a lion made up of cog-wheels—and some new brochures that set out how India is a bit more welcoming to manufacturers. But was the exercise anything more than a PR event? As one cynical member of the audience grumbled, it seemed to be a big palaver for the launch of a few marketing tools.

What has actually changed in India as Mr Modi pushes manufacturing? First, discount the worst gush from business leaders. The likes of Mr Ambani and Mr Deveshwar may be embarrassed to be reminded of how sycophantic they were in Mr Modi’s presence. Mr Ambani waffled on about being “blessed with a leader”, the “unique leadership quality of a prime minister, a man who dreams and he does”, who has apparently motivated a billion Indians to “dream and do”. Mr Deveshwar was even more craven, thanking “the Almighty” for the leadership “given to us” in Mr Modi, for “your astuteness, your wisdom…Sir, I’m profoundly inspired by the boldness of your vision and the simplicity with which you have communicated.” Mr Modi sat stony-faced as they fawned. But he probably agrees with the implied message: that most of what it takes to boost manufacturing in India is strong leadership from him, as he showed when he was chief minister of Gujarat. Indeed, when he spoke, he referred back to his success in Gujarat, saying that with the same civil servants and resources as the rest of the country, he had produced striking industrial successes. He expects more of the same in the country as a whole.

Sadly, leadership alone will not do it. Matters are more complicated than that. Mr Modi, endearingly, admitted in his speech “I am not a big economist” while urging investors not to think of India only as a big emerging market, but also as a place for production. As he suggests, achieving that requires progress in a host of areas. He spoke of an urgent need for skills development as far too many of India’s youngsters are poorly prepared for globally competitive work (though that is a huge mission, since it means fixing a rotten school and university system) and identifying 21 clusters for industrial development. He spelt out how infrastructure would improve (but not where massive capital to fund that will come from). Laudably, he emphasised the need to make India a far easier place to do business by scrapping red-tape and oppressive rules, mentioning a recent meeting he had with the World Bank to discuss India’s awful ranking—134th—on its annual “ease of doing business” assessment. Mr Modi thinks India should aim to be ranked much higher, quickly, in the top 50 countries.

“Here is a government that is dedicated to development…it is an article of faith”, intoned Mr Modi, admitting that some constraints will persist. So far much of his emphasis has been on making officials work more efficiently. “We want effective government”, he repeated in his extempore talk. In India, however, there are several layers of government. He pointed to the fact that political decisions might be taken in the centre, in Delhi, but then they had to be implemented by states (too many of which are dreadfully badly run). So the centre and states have to learn to co-operate better. To that he, and others, point out how Rajasthan and Madhya Pradesh have begun to liberalise restrictive labour laws, with support from the centre. He obviously wants others to follow suit. In a typical rhetorical flourish, he noted how India was, before the industrial revolution, known abroad as a Golden Bird, suggesting it could once again be famous as being a golden opportunity.

Yet it is troubling what still goes unsaid. Mr Modi and his ministers are right to try to persuade investors that India can be an attractive place to do manufacturing. Where they fall short is in pretending that they have done more than tinker at the margins to open up. For example, in bragging that the defence sector is more willing to accept foreign investment, a salient fact is that no foreigner can have a controlling share of any joint venture in India (since the cap on foreign ownership remains at 49% after local firms lobbied against outsiders). Nor was any mention made of sectors, such as retail, where more severe limits on foreign capital are kept in place; nor that in insurance, which is supposed to be opening up too, reforms seem to have stalled.

As for wanting to boost India’s place as a site for exports, it would have been helpful if Mr Modi, or his colleagues, had explained how India will become an enthusiast at the World Trade Organisation, where it scuppered a global trade facilitation deal in July that could have been worth $1 trillion. India remains isolated as a trading partner, with little prospect of a free trade deal any time soon with the European Union, for example; no ambition to be part of the Trans-Pacific Partnership agreement; and an anti-trade stance at the WTO. That hardly meshes with aspirations to fit into global supply chains.

Even some matters that were brought out as examples of progress, while welcome, should be judged with caution. One or two businessmen—but no politicians—mentioned the transformative potential of achieving a national Goods and Services Tax (GST) that would help to make India into a more attractive single market. That would indeed be hugely welcome. Getting that agreed and implemented was expected to be one of Mr Modi’s early acts, but progress appears to have stalled. Similarly, there was no mention by anyone of India’s tangled laws on land acquisition, which make it hard in many states for manufacturers merely to find space to put up factories. Yet Mr Modi’s government appears to have no immediate plan to fix that law. Talk of foreign-funded industrial corridors, and getting manufacturing to account for 25% of the national economy, would be more convincing if Mr Modi spelled out how he would fix such problems.

Still, Mr Modi deserves praise for his frank style and his ambition. He is conscious that sceptical observers accuse him, so far, of not yet acting decisively. He mentioned a bureaucratic change he has enforced, allowing more “self-certification” (that is making certain businesses less exposed to corrupt government inspectors). He admitted that “you may not feel it is a big vision” but said, convincingly, how happy it makes small businesses. Broadly, he wants to build confidence and trust, to make India a less hostile place for investors, both local and foreign. In his aspirations he is absolutely spot on. He sounds passionate when he says it “pains my heart” that investors prefer to leave India than set up factories at home, and when he argues that must change. With luck it will begin to do so. But to speed it along, he could by now have been pushing for more radical changes. His finance minister, Arun Jaitley, is in hospital, but will face pressure soon for more decisive reforms before next year’s budget.

http://www.economist.com/blogs/banyan/2014/09/india-s-big-manufacturing-push