Prof. Anup Sinha
Business School, Kolkata, Chairman, Bandhan Bank, and former professor
Any big innovations can reverse the slowdown of the global economy
The proponents of economic globalisation in the late twentieth century thought that after the liberalisation of economies, individual economies would be the gainers by achieving higher GDP and better economic prosperity as compared to their earlier positions. It was true that in the transition phase, not all individual economic agents would be gainers. Then the losers would be compensated. It was also propagated that the total quantum of economic gains would be so big that even after the redistribution of a portion of gains from the gainers to the losers by the governments, the total gain of all would be positive.
But in course of time, in the liberalisation phase, it was felt that a small portion of persons have gained very highly, some have gained in a positive way but not in a big way. But a huge number of people have either been losers (in many cases by huge amounts by losing jobs or in other ways) or gainers by very little amounts. Therefore, globally, income inequality has been rising significantly in the last two decades.
As a result, an urge for de-globalisation has been rising in many cases. After the global financial crisis of 2007-08, this has been more pronounced. The losers and also a section of observers are in the forefront in raising the demand for de-globalisation. The emergence of the ongoing US-China trade war has been mainly a result of growing dissatisfaction of a section of losers in the US. The trade war has been hampering world trade increasingly. There is a similarity on the rising discontent about economic prospects of the present era in the US and India.
In both the countries, a section of people had looked for strong political leaders who could solve their economic problems. Both in the US and India, the strong leaders - Donald Trump and Narendra Modi, respectively - have diagnosed economic problems in their own countries in a similar fashion. Each of them has found a country and a former leader as the main responsible factors. Trump diagnosed that China and the policy of Barack Obama are the main offenders for the US economy and Modi found Pakistan and Jawaharlal Nehru as the main culprits.
But the solution of the economic slowdown may lie elsewhere. Global economic prosperity has been a far-cry. Even the uncertainty in the economic front is rising. Scope for new investment has been declining. The growth rate of world trade has also been falling. The ongoing global economic slowdown is also affecting the economic growth of India.
The future is uncertain. The steps like trade war, demonetisation or support of xenophobia in many countries cannot be policies for solving economic problems. Several researchers have found that migration of cheap labour from one country to another expands the space of economic activity. It does not lower the wage rate of the existing labourers and reduces the scope of employment of them. In the era of globalisation, free mobility of capital has been in vogue. But free mobility of labour should also be allowed. But the ongoing slowdown is not a new phenomenon in economic history and hence one can hope that some new and big innovation in advanced countries may reverse this downward trend.
Statistical Institute, Calcutta and Chairman, West Bengal Industrial Development Financial Corporation
Future of the global economy still uncertain
Around the world, economic inequality has beenrising high. Quite a large amount capital is moving from developed countries like the US to Malaysia, Mexicoand China. The Chinese goods are sold everywhere in theworld. Jobs in the US are decreasing. There is a rising resentment about this among a section of people there. The main gainers are investors and the main losers are thelabourers. There has been a sentiment against globalisation among a large section of people in the developedcountries, especially in the US. The policy of Brexit is also a consequent phenomenon of this growing anxiety in Britain about immigrant labour from the European Union. In this process, the consumers are gaining. But they are not organised. Actually the interestof the organized section generally is considered withpriority in economic policy making.
Trade volumes are decreasing throughout the world. From IMF data, it is seen that global growth rate has fallenby 3%. One thing should be noticed. The establishedeconomies like the US, Europe, Japan and China havebeen less affected. The most affected have been the emerging countries. This is because quite a number of emerging countries had gained more in the liberalised world. At the same time, some countries like Russia, Brazil Mexico, have specific problems like stringent labour laws and involvement in conflicts. So, it can be said that the future of theglobal economy is still uncertain.
In the case of the Indian economy, there are enoughevidences that it is going to enter into a phase of economic recession. The main reason of this is the impact of demonetisation. Even after fall of GDP after demonetisation, it had again picked up. But one has to findout why it fell again. Actually, demonetisation has done maximum harm to the unorganised sector. We need tohave a separate survey on the impact of demonetisationon the unorganised sector.
The rural purchasing power has fallen. The average percapita spending is known to have fallen for the first time in several decades. It has, perhaps, happened only twice prior to this. One was in the time of the Food Movement in the 1960s and then in the 1970s during the oil crisis. But this has resulted in stress in the organised sectors. In this situation, the economic policy prescriptions like reduction of interest rates will not give desired results. The purchasing power of the common people is to be improved.
There has been a long persisting problem of incomeinequality in India. An article named “Indian Income Inequality, 1922-2014: From British Raj to Billionaire Raj?” written by two famous economists Thomas Piketty and Lucas Lancer has pointed out this phenomenon. Theyobserved that in between 1950 to 1980, the average growth of GDP was moderate. At the same time, the incomeinequality also did not increase significantly. Actually, the growth of income of the super-rich fell by 0-2%.
The opposite scene was experienced in between 1980 and 2005. The income of the bottom 50% people increasedon an average by 1.9%. But that increased by 9.4% forsuper-rich. This rising income inequality had bad consequences for the Indian economy.
— As told to BE’s Kishore Kumar Biswas