By Alam Srinivas
Has the Coronavirus pandemic change the dynamics of globalization globally. Soon, most countries will put a strong emphasis on local products.
IT is a reversal of roles. If one considers the manner in which four nations – India, China, the US, and Russia – reacted to the global COVID-19 pandemic, one can witness a slew of contradictions, and expected responses.
At crucial levels of governance, public health, and economy, the world’s superpower, two wannabes, and a former behemoth offered insightful glimpses of how things ought to be done, and how to make colossal mistakes. They failed, recovered, stumbled, and mumbled through the emergency.
Dictatorships did what they do best – impose a total clampdown on people and information – to counter a catastrophe. Once they had a grip on the grim situation, they were forced to behave like democracies.
Enamoured by such initial successes, the democracies aped the totalitarians and thundered their way to blunders. Some of the distinctions between the two forms of governance were blurred, as the overriding desire that emerged was to somehow fix and remedy the respective economies.
What emerged from these moves and countermoves, back-and-forth-and-sideway-movements was dictatorial China’s attempts to rewrite the rules of globalization, and democracies’ emphasis on economic nationalism (dubbed as ‘America First 2.0’ in the US, and ‘Swadeshi 3.0’ in India).
As usual, Russia watched intently from the fringes, ever-willing to grab
any opportunity that came its way to impact and influence the making of the new world order. It was fascinating to watch how rhetoric became policy.
Ostrich mentality
In the four nations, the initial default belief, at various stages of the pandemic, was that the effect was localized and limited. In China’s Wuhan, where it started, people were allowed to go back to their villages and rural peripheries, and foreigners were allowed to fly back home.
India did not take any concrete steps in the first three months (January-March 2020). The US ridiculed the public health disaster, and compared it to ‘common cold’.
Russia assumed smugly that it was immune to COVID-19. The overriding objective was not to rock the economic boat for different reasons. Wuhan was the global manufacturing hub, and Beijing didn’t want to create a
worldwide scare of shortages and disruptions in global supply chains.
Washington was on its way to growth after years of grappling with the Financial Crisis of 2008. New Delhi felt that it couldn’t allow a virus in China to impede its efforts to combat an ongoing slowdown. Moscow was concerned with its initiatives to impose its say across the globe.
An article in Foreign Affairs compared the public health crisis to military wars. It stated, “What is true of wars against armies is also true of a campaign against the disease.”
Subsumed by the manner in which rulers had thought about previous wars, the present regimes assumed that the extent and shock of the viral crisis would be short-term. Hence, they naturally prepared for the best-case scenario, a return to normalcy within a few weeks.
China’s seeming-ability to combat the virus within two months gave a boost to such thoughts.
COVID-19 ACCELERATED THE GLOBAL TREND TOWARDS ECONOMIC NATIONALISM. INDIA ANNOUNCED A SWADESHI MOVE IN THE ‘VOCAL FOR LOCAL’ STRATEGY. EUROPEAN NATIONS CLAIMED THAT THEY WOULD PRODUCE MORE GOODS IN THEIR OWN TERRITORIES.
“At the onset of the First World War, in August 1914, Kaiser Wilhelm II told the German troops they would be ‘home before the leaves have fallen from the trees’, and in England, the talk was about the war being over by Christmas,” said an article on McKinsey’s website.
The same happened during World War II when Adolf Hitler was convinced that his ‘blitzkrieg’ strategy will bring down the European powers to their knees within years. Iraq felt the same when it engaged in a 10-year brutal war with neighbouring Iran.
Lockdown approach
By March, the democracies were frightened by the immediate prospects, as the number of Corona cases raced up to unbelievable numbers, especially in the West (the US, Italy, Spain, and other European nations), even as China seemed to be successful in its ‘containment’ bid.
On March 25, New Delhi opted for a complete nationwide lockdown. So did the Europeans. Washington too imposed strict lockdowns. It was evident that the global economies were in a tizzy, caught in a public health whirlpool.
The respective governments realized that they were caught, at worst, in a situation that was as bad as the Great Depression of the 1930s, and, at best, the possibilities of post-war depression and recession after the two world wars.
Globally, the various estimates showed negative growth in 2020; the same was the case with the US and several nations in Europe. India finally admitted to a possible negative growth this year. The fact remains that we are in this crisis for the long haul; there are no short-term ‘flu shots’.
Most experts are now unsure about the V-shaped recovery in 2021 that they predicted a few weeks ago. The economies may rebound but in a haphazard and chaotic manner.
Some sectors may ramp up immediately within months, as was evident from the boom in the online retail sector in China. Others may flounder for years – stay in the low terrain for several quarters, and even a couple of years.
In fact, in most cases, lockdown decimated several sectors like tourism, aviation and hospitality, and may continue to do so.
India’s migrant economy
Two issues plagued the Indian lockdown. The first was that it was imposed without adequate warning. Suddenly, on March 25, the 1.3 billion people, with exceptions, were confined to their homes, or wherever they were.
Unlike Singapore, which gave a five-day time, or China, which locked down the critical regions, the Indian one was all-encompassing. It implied that the entire economy shut down, apart from the supply of essentials. No discrimination was made; no ground was given, only taken.
The second was that it didn’t take cognizance of the sprawling unorganized sector, which is larger than the organized one. In a flash, millions of migrant workers, who make the long trek from their villages in Bihar and Uttar Pradesh to far-flung zones of economic activity like Maharashtra and Tamil Nadu, were stranded.
With no jobs, no money, no food, and no shelter, they had no option but to either remain at the mercy of the governments and civil society or go back home, thousands of miles away.
According to reports, these temporary, non-contractual, and non-registered workers walked. “40 million migrants walking makes it the largest migration in human history, and this tragedy even dwarfs what was seen during Partition.”
The inter-state bottlenecks and security barriers made life hell for them. Many died on the way; many reached homes and infected their friends and families.
There is now a scare that instead of flattening the disease curve, India has heightened it in myriad ways that may become visible now.
ON MARCH 25 1.3 BILLION PEOPLE WERE CONFINED TO THEIR HOMES, OR WHEREVER THEY WERE UNLIKE SINGAPORE, WHICH GAVE A FIVE-DAY TIME.
One of the unintended consequences of this reverse migration may be that a large proportion of the workers may not come back to work. They may seek employment locally, even under the expanded MNREGA.
This will ensure that the economic recovery, when it happens, is delayed.
The other is that the various central and state regimes had to impose policies to ensure that those who hadn’t gone home for various reasons were forced to work in miserable conditions. This was to unshackle the shuttered businesses.
Economic nationalism
COVID-19 accelerated the global trend towards economic nationalism. India announced a Swadeshi move in the ‘vocal for local’ strategy. European nations claimed that they would produce more goods in their own territories.
The US was more vociferous with it’s ‘America First’ slogan. China too initiated a discussion of whether to focus its next five-year plan, which is to begin in 2021, internally, rather than merely bank on export-led growth. The inward-looking moves hinted at trends towards de-globalization.
This happened for various reasons. One of the most important was to decouple one’ economy with China, which had emerged as the major and single supplier of manufactured goods in the world. Now, nations clamoured for decoupling or diversification in global vendors.
They wanted two, three, and even four suppliers. It also meant that attempts would be made to make more components and goods in their own countries. Import substitution, apart from import diversification, was the key.
Ironically, this surprisingly coupled de-globalization with g-localization. The latter was the emerging trend in the past three decades when foreign firms decided to ‘think global, act local’, i.e. to set up subsidiaries in several attractive investment destinations across the world to enhance their global strategies.
Such efforts were encouraged by countries like China, India, Vietnam, and several Latin American ones to woo foreign investment. Thus, concepts like ‘Make in India’, and others caught on.
ONE OF THE MOST IMPORTANT WAS TO DECOUPLE ONE’ ECONOMY WITH CHINA, WHICH HAD EMERGED AS THE MAJOR AND SINGLE SUPPLIER OF MANUFACTURED GOODS IN THE WORLD.
Logically, in the near future, the decisions to consume local goods, as is the case in India, will imply goods made in India, not just by Indians, but even the subsidiaries of foreign MNCs.
The mindset may not be brand-specific, i.e. buy Dabur and not Unilever products. It may be location-specific, i.e. as long as the products are made in India, it didn’t matter who made them.
Henceforth, globalization will get a boost from nations that wish to invite foreigners, and not due to the latter’s vision to enter new lucrative markets.
More important, as economies flounder, COVID-19 may prove to be the second nail in the coffin of export-led strategy. The first nail was driven after the brief recession and longer slowdowns witnessed in several countries in the decade after the 2008 global crisis.
Now, as countries learn that external markets are unavailable, they will veer towards the other extreme, local markets. India and China are lucky to possess huge untapped local demand. So are several Latin American nations, and the combined European Union.
India has announced that it will focus on local demand and local consumption by the Great Indian Middle Class. China too hopes to drive future growth through internal markets, and stay glued to exports.
In a bid to hike local consumption, China may allow its workers, who now
travel from rural to urban areas every day, to seek residencies in cities. This will enhance urban consumption, and possibly unleash a new wave of latent consumption. The US too hopes to do the same through tax and other measures.
Given this economic mindset, a dictatorial approach to governance may not work. The US has realized its folly and has taken a more democratic U-Turn. So has India, which has now provided the states with flexibility to decide how and when to open their respective economies.
China, as we mentioned earlier, hopes to implement long-standing structural reforms to unleash local demand. The European nations may be caught in the middle, unable to decide to go the ‘Brexit’ way or to stick with the Union.
At the same time, ironically, the respective governments may emerge as much bigger actors, and play more influential roles to steer their economies.
According to the McKinsey article, “growth in government consumption is what will keep GDP growth going as households cut back on consumption, businesses cut back on investment, and exports fall”.
Elected leaders in democracies, saddled with “re-election anxieties”, may avoid future bungles as these can lead to their removals from offices.
Soon, therefore, the policymakers will decide the fate of their economies. At present, most of them have placed their bets on ways to boost business sentiments through huge liquidity measures and stimulus packages.
However, unless these are enmeshed with short-term decisions to place more money in the hands of the consumers, growth may not happen. To do both may require regimes to pursue more socialistic actions to help people, along with democratic ones to save businesses, along with dictatorial decisions to push and pull their economies on to the growth path.
WRITTEN BY
Alam Srinivas