Globalization is stuck between Labor markets /Tax havens and Terrorists

The middle class in UK revolted against EU -seamless borders and trade and in US the victory of Trump is a big blow to Globalizers. He is unenthusiastic about Davos. The rise of Le Pen in France and Geert Wilders in Holland represent back to national sovereignty. Le Pen recently said in Koblenz “nation state” is back”, says the author.

Throughout the seventies and eighties, it was globalization [The G word] of manufacturing facilities that is Product Markets. The anecdotal evidence often told in many a business school classrooms used to be like this. The doors of the Ford car are made in Barcelona and the seat cushions near Budapest and gearbox in the suburbs of Paris and music system in Osaka and the assembly is done at Shanghai and the car is sold in Thailand. So, what is American about it? It is transnational and the geographical boundaries are crumbling and think global and act local we were told, and the term “glocal” came into existence. This was the ultimate in the process of global integration of economic activities through integration of manufacturing facilities to reduce cost, take advantage of pool of skilled resources available in the emerging markets. It also argued about “standardization “of live styles -mostly the American standards- in terms of Jeans, processed food and cola drinks.

Then the nineties saw the globalization of Financial Markets. You want to set up a facility in Chennai then you can think of raising funds from New York stock exchange or European Banks if the project is found to be attractive. Funds were looking for markets and “geographical diversification” became the buzzword. The pension funds were one of the largest investors running into nearly 18 trillion USD and at least 15 to 20 % of this was in non-domestic markets. The Funds started searching for markets instead of markets trying to attract funds. The life expectancy in the Europe and US increased significantly and the pension funds were to earn for longer period since old people have to be provided for. Then came the idea of consumption led growth and greed as the norm. On May 18, 1986 Ivan Boesky gave the commencement address at the University of California at Berkeley’s business school. “I think greed is healthy,” he told his wildly enthusiastic audience. “You can be greedy and still feel good about yourself.” A few months later Boesky was indicted on the charges that would land him in Southern California’s Lompoc Federal Prison, also known as Club Fed West.

The melt down of 2008 has impacted the idea of globalization. Suddenly countries which are supposed to be de-coupled from the global markets are considered smart. Not only that -The US congress included a “buy American” clause in the USD 787 billion stimulus package-2009- particularly mandating the use of U.S funded projects, it was clear that protectionism has trumped globalization. As a response, China has a “buy Chinese” clause in its stimulus package. So, the whole game is unravelling on the G front.

Interestingly, some US experts are suggesting a new grouping of G-2 to guide the world-This G-2 will have US and China as members. China has sold billions of Toxic Toys [chemical laced] to the USA and USA in turn has sold billions of its Toxic Treasury Bills to China. Hence there is a Mexican standoff between the two in Globalization sphere. Interestingly except India nobody is talking About the G-word in the Financial or Product sphere. Now Post-Trump victory Davos “Experts” wanting China to lead Globalization. Irony died multiple times!!

But the third and most important dimension of globalization is in the context of the Labor Markets to allow free flow of human beings to carry out brown collar work in the west.

There is aspecterhaunting the West. It is the specter of uncleared garbage, clogged drains and overflowing sewerages. It cannot be outsourced so easily as that of white collar work since the latter has significant content of software portion while as brown collar work still has requirements for human beings at locations. In the fifties and the sixties, millions of the Turks and Kurds and Iraqis went to Germany when that economy was booming and they were/ are called guest workers. The Algerians and Moroccans went to France and continue to be a significant minority in France and also active in their Soccer teams. More than a million Mexicans in USA are called “undocumented”-euphemism for “illegal”. These workers in France / Germany / USA etc. were mainly in the blue and brown collar jobs more so in the lower skill categories like cleaning restrooms and restaurants / meat cutting / grape picking/domestic help/ road laying/ garbage processing/plumbing/ handyman jobs; babysitting etc. The Demographic decline of Europe needed outside labor. Then came the economic slump in the early 2000 and these European countries have erected fences and reject visas etc. for third world labor.

The mass migration due to civil war in Yemen and Syria has added to the issue. If financial markets want a borderless world so be it for the labor markets but it is not acceptable by the West since they treat G as a one way street. Hence the presence of the “minutemen” in Arizona who will shoot illegals and rhetoric by Obama about Bangalore taking away the jobs from Buffalo and Trump talking about a wall and Brexit to split EU.

No truly global “world order’ has ever existed. What passes for order in our time was devised in Western Europe nearly four centuries ago, at a peace conference in the German region of Westphalia, conducted in 1648 after the thirty years’ war. Nearly a quarter of the population of Central Europe died from combat, disease, or starvation. The exhausted participants met to define a set of arrangements for the world. The principle of the sovereignty of states and the principle of non-intervention of one state in the internal affairs of another state

Interesting, all these are questioned by contemporary leaders of West and radical Islam.

Tony Blair the then Prime Minister of UK in his famous Chicago Address -1999-suggests”The most pressing foreign policy problem we face is to identify the circumstances in which we should get actively involved in other people’s conflicts. Non -interference has long been considered an important principle of international order….

“But the principle of non-interference must be qualified in important respects”. The NATO intervention in Kosovo and Afghanistan as well as US intervention in Iraq provide recent examples of breakdown of idea of Westphalia.

Interestingly, Radical Islam also consider that the world order based on Westphalian consensus will collapse. “In the aftermath of the 11 March 2004 Madrid attacks, Lewis ‘Atiyyatullah, who claims to represent the terrorist network Al-Qaeda, declared that “the international system built up by the West since the Treaty of Westphalia will collapse; and a new international system will rise under the leadership of a mighty Islamic state.”

The spread of ISIS across countries and activities of Boko Haram based in Nigeria in Kenya and Chad re-emphasis this point. Radical Islam do not accept territorial boundaries since it works for a global regime for global Ummah. The talk about Caliphate indicates that they are trans-border organizations.

On the other side, we find global corporations transcending sovereignty in search of global profits. For this they use tax havens as a tool. Tax havens-numbering more than 70 jurisdictions-facilitate bank facilities with zero taxes and no-disclosure of the names and in many cases anonymous trusts holding accounts on behalf of beneficiary. In the case of Bahamas one building seems to have had tens of thousands of companies registered there.

USA is literally waging war with major Giants like Amazon/Google/Microsoft etc. for not paying adequate taxes in USA in spite of being US based companies. Most of these companies have moved their profits to other Tax Havens.

A simple method of trade mis-invoicing by global companies using tax-havens have impacted developing countries nearly 730Billion USD in 2012 says Global Financial integrity. There is an increasing clamor in USA and EU about closing down these tax havens.

So,Globalization is stuck between Labor markets /Tax havens and Terrorists.

The middle class in UK revolted against EU -seamless borders and trade and in US the victory of Trump is a big blow to Globalizers. He is unenthusiastic about Davos. The rise of Le Pen in France and Geert Wilders in Holland represent back to national sovereignty. Le Pen recently said in Koblenz “nation state” is back.

In this, the traditional division of Left and right have lost its meaning. In BREXIT, we saw left supporting EU and part of right opposing it. Now, the new divisions are Globalizers versus Nation states both from left and right.

(The author is a professor of Finance at IIT, Bengaluru).

We have risen to the occasion to actively engage oil-rich neighbors to our west, where over six million Indians reside and remit back over $50 billion annually. We can also be proud that we have dexterously maneuvered to avoid being drawn into the sectarian Shia-Sunni, Arab-Persian and other rivalries in the region. PM Narendra Modi has skillfully established an Indian strategic profile with key players in the region by his visits to Saudi Arabia, the UAE and Qatar, while seeking to forge an energy and a connectivity partnership with Iran, based on shared interests in Afghanistan and Central Asia”, says the author – G Parthasarathy.

Swallowing considerations of national pride, after inheriting a bankrupt economy with collapsing exchange reserves forcing India to mortgage its gold in 1991, PM Narasimha Rao undertook a policy of economic liberalization. These measures not only radically changed the contours of domestic economic policies, but also led to closer economic integration with our economically vibrant eastern neighborhood. Quite logically, this new dimension in our foreign policy was labelled as ‘Look East’. In our western neighborhood, we continued with ‘business as usual’. The only significant change was our long overdue establishment of diplomatic relations with Israel.

India is now, a quarter-century later, seizing the opportunities provided by the geopolitical changes that have followed the worldwide discoveries of shale oil and gas. Till barely five years ago, the OPEC cartel of oil producing countries, virtually held us all hostage to their whims and fancy because of their ability to raise oil prices at will. The discovery of huge resources of shale oil and gas, particularly in North and South America, Australia and even in parts of West Asia, has sent global oil prices crashing. It has also given new leverage to large consumers like Japan, China and India to get the oil-producing countries in our immediate western neighborhood, to deal on more mutually beneficial terms, with large neighboring oil and gas consuming countries.

We have risen to the occasion to actively engage oil-rich neighbors to our west, where over six million Indians reside and remit back over $50 billion annually. We can also be proud that we have dexterously maneuvered to avoid being drawn into the sectarian Shia-Sunni, Arab-Persian and other rivalries in the region. PM Narendra Modi has skillfully established an Indian strategic profile with key players in the region by his visits to Saudi Arabia, the UAE and Qatar, while seeking to forge an energy and a connectivity partnership with Iran, based on shared interests in Afghanistan and Central Asia.

Following the American-led military interventions in Iraq and Libya and the suffering inflicted on the hapless people of Syria by meddling from external powers like the US and Russia and regional powers like Turkey, Saudi Arabia, Qatar and Iran, millions of Syrians have fled from their homes. This is a region where national borders drawn at the end of World War I are susceptible to being redrawn. India has avoided getting drawn into these rivalries, from which there will be no real winners, while people suffer misery in countries like Yemen. The Trump administration’s first military operation in Yemen, undertaken a few days after he assumed office, was a fiasco. Pakistan has undermined relations with its traditional friends like Saudi Arabia and the UAE, by making promises of military assistance and then backing off in Yemen. China has, however, played its cards skillfully by keeping out of sectarian and civilizational rivalries, while securing substantial investment opportunities.

This year began with India hosting the ruler of the UAE, Sheikh Khalifa bin Zayed. PM Modi had earlier visited the UAE, Saudi Arabia, Iran and Qatar. The FDI from the UAE, which is India’s 10th biggest foreign investor, has been increasing. Collectively, the Gulf countries constitute our largest trading partner, accounting for 15 per cent of our global trade. The UAE and Saudi Arabia are individually our third and fourth largest global trading partners. Yet another country, with which we need to cultivate closer ties, is Iraq, whose oil exports to India are rapidly expanding, like exports of Iran after the end of UN sanctions. Iraq, with its immense oil production potential can also become a good investment partner, in the energy sector. We need to look at possibilities of linking oil purchases to investment in Iraq. Naval cooperation is also increasing with the Gulf countries, where proximity gives us some advantages over China. Following the visit of Sheikh Khalifa, the Naval Chief, Admiral Lanba, has scheduled visits to the UAE and Oman

We cannot, however, be sanguine about these developments as we are still perceived as a country which takes an interminably long time in finalizing investment decisions. Iran has always been a difficult partner, when it comes to issues of investment. While we now use the western Iranian Port of Bandar Abbas for the transit of our goods to Afghanistan, Central Asia and Russia, we appear to be facing delays in finalizing the terms of participation in the construction of the Chabahar Port. This project, given Pakistan’s disinclination to give us transit facilities and its propensity to squeeze Afghanistan by delaying transit of its goods, is crucial for both Afghanistan and India. It needs careful follow-up and monitoring at the ministerial level to remove bottlenecks.

The tie-up with Arab monarchies will be reinforced during the proposed visit of the King of Jordan to India. Given our wise decision to delink our relations with Israel and the Palestinians, Jordan could serve as a good connecting point for visits of Indians, to meet leaders of the Palestinian Authority. Moreover, the monarchy in Jordan has continuously maintained a personal rapport with Indian leaders. We also have a moral obligation to stand by our principled position of supporting a two-State solution to the Israel-Palestinian issue, which while guaranteeing Israel’s security, also leads to the establishment of a viable Palestinian State.

India has come a long way from the days in the 1970s, when Saudi Arabia threatened to cut off oil supplies if we did not close down the Israeli Consulate in Mumbai. Not surprisingly, then PM Indira Gandhi flatly rejected the Saudi demand, despite our foreign exchange reserves being precariously low. It is heartening that Mr Modi is undertaking a standalone visit to Israel in coming months. It was shocking how our defense and other ties with Israel were undermined in the recent past by some of our senior ministers seeking to keep a distance from meeting their Israeli counterparts because of narrow, partisan, domestic political considerations. Israel has been a reliable friend of India and has stood by us in times of conflicts, including Kargil. There is no need for us to be apologetic about our relations with the Jewish State, especially at a time, when many of our Arab partners are finding Israel a useful ally, amidst the sectarian and civilizational rivalries and tensions prevalent in the Islamic world.

(The author is an Indian  career diplomat)