Globalization is not a Zero Sum Game

Paul Samuelson, the Noble Laureate in Economics has written this short but excellent essay, "Globalization and Its Discontents." What is nice about this article is that it is not just a blind one-sided tirade boosting globalization. He also points out the potential for misuse of technology advancements, which are inevitable, in the form of weapons. He also warns against exploitation of the environment for economic advancement.

At a time when H1B visas, outsourcing and offshoring are all debated vigorously, it is worth reading articles like these so that you don’t react disproportionately to fix a problem. Instead of fixing it, you may aggravate it, making the solution worse than the disease.

Samuelson rightly points out that global trade isn't a zero sum game, meaning that developed nations can benefit even more from globalization than developing nations as long as they make due note of changing conditions and plan appropriately to counter the effects of local job loss.

There aren’t that many small farms in the U.S anymore producing staple crops like wheat or corn. There are only large ones with huge harvesters that can handle miles and miles of farmland a day. The only way left to do farming is to do it the most efficient way possible.

The same thing is happening to services, whether they are centralized in one place as shared services within the country or outsourced or offshored to another country. If Washington Mutual does not outsource its operations when ABN Amro bank does, the U.S bank will at some point in time get eaten up by banks like ABN Amro in the Netherlands. You can pass laws and shut down all outsourcing tomorrow. You will only postpone the inevitable. Your company may only provide the likes of Trabants in Russia or the Amdassador or Premier Cars in India. Many of them are still running, but those will be the only choices available.

Let’s not forget the thousands of jobs that are supported in Palo Alto and elsewhere with the earthmoving equipment, technology, computer hardware and software that’s growing at phenomenal rates in India and China. Ask HP. Their Asia growth is outstripping growth in every other continent and making them profitable overall. It is not because you and I in the United States are buying new PCs. We are not. This market is already saturated.

This is not even talking about the U.S companies that are still not in India or China selling to the rising middle class there. If U.S companies don’t do it, the Taiwanese, South Korean and even Chinese companies like the one making the Chery automobiles are all ready to serve these markets.

As for India’s side of the globalization, there are definite battles worth fighting from the Indian point of view, such as genetically modified food crops pushed hard by the multinationals.

I read an interview with Gurcharan Das, ex-CEO of Procter and Gamble, India and author of the book, India Unbound. In this interview Mr. Das brings to the fore the benefits of India’s globalization and deregulation as far as the rural poor are concerned. We read interminable blogs from the U.S and U.K by people who visit India and the incredible juxtaposition of highrises with incredible poverty. However Das cites U.N statistics that show substantial reduction in Indian poverty rates (below $2 a day) from about 40% five years ago to 25% today.

Sort of makes sense. If you visit India often like I do, you see changes every two months and you realize the network effect of every information technology and ITES job that is created in India. 20 other jobs in real estate, services, etc. are created for every high paying high tech job. The fact remains that these were not available five years ago. If you are a U.S company, just remember that these can all be your customers just as many before them already are.

Indian opponents of globalization have some valid points in certain issues but blind opposition to any globalization is just dumb. The alternatives are much worse. Inefficient manual agriculture is modernizing and the resulting out of work farmers need to do something else. Globalization side effects seems to be providing alternative employments -- as we are seeing from the reduction in poverty rates above.

This is not to talk about local Indian manufacturers having to compete with the quality and costs of the likes of Toyota, Hyundai and Suzuki. The TVS Group in South India learnt a lot from their colloboration with Suzuki in making motorcycles. Now their own indigeneously designed motorbikes are even better than when they had the collaboration. They have a new bike they are exporting to Indonesia. Opening up Indian markets benefits Indians more than the incoming multinationals. They are learning to fish, not just how to consume fish.

Something to think about when evaluating globalization. It has many facets. Surface level scanning does great injustice and may do harm in the long run, if decisions are based on such analyses, whether you are in the United States or in India.