Global turmoil an opportunity to bridge gap between rich & poor

A friend of mine narrated this story to me. He was escorting his classmate, a blind person, to his hostel room in St Stephen's College. On reaching the room my friend groped to find out where the light was. The blind student suddenly said he did not want the light, He knew exactly where things were. But my friend could not do without the light.

History is replete with instances where people have converted difficult phases or situations to their advantage.

The moral of the story is that the blind man had converted adversity into an opportunity.

The global slump, too, needs to be converted into an opportunity.
It can be used to narrow the gap between the rich and the poor within the country. Or so it appears is going to be the inevitable logic of the situation. It is also an opportunity for India and other developing countries to bridge the wide gulf between the industrialised world and the emerging markets.

It is argued in this piece that the developing countries have been affected by the global slowdown for no fault of theirs. The crisis, which has its epicentre in the United States, has seen the contagion spread far and wide. India is a victim of this global crisis.

But will it be wise to find solutions in isolation or remain a part of the global system. If the Western world and its allies want to avoid the trap of the world getting into isolationism, then they will have to bail out the ailing developing world. Perhaps, as never before the concept of globalisation is being challenged.

This has repercussions elsewhere. The reflection of this will be seen in the World Trade Organisation fora.

Some other comments are in order.

The current economic crisis has not only jolted the world but also warranted that the economists go back to their textbooks to find out where they have gone wrong. The magnitude of the crisis has left few in doubt that all is not well with the world of economics and a new economic model needs to be be evolved if the world has to stave itself from similar happenings.

The meltdown, downturn or slowdown, whatever one may call it, it has already left economists confounded and in soul-searching mode. Trillions of dollars have been pumped into crisis-ridden America without knowing what impact it will have. The world seems to be in desperate haste to save itself from collapse of financial structures which could cause irreparable damage to society.

Global efforts visible so far have brought forward another dichotomy. How is it possible that the very people who were responsible for this mess have been given the responsibility of repairing the damage? Already all Government treasuries are under pressure, millions of jobs have been lost, development processes have come to a halt and yet no conclusive cause of failure has been established.

Sub-prime crisis, the most commonly attributed reason for the current crisis, has emerged as the most important reason for its origin in the United States. It then spreads to the financial sector and has now brought under its fold the entire real economy. This is notwithstanding the fact that developing countries like India are claiming that its effect on them would not be very acute as regulatory mechanisms are well established to take care.

The grassroots realities are different. India and China till recently were considered to be doing extremely well and all set to challenge strong economies like the United States and many European countries in future. In a matter of just six months, things look different.
Both India and China have already pumped in crores of currency into the system, yet growth will be faltering in both the neighbouring giants.

Interestingly, few till now are speaking about any faults with either the economic planning or the model being pursued in these countries even though the downturn is getting deeper. With a virtual collapse staring them in their face.

Apparently, it is clear that globalisation has harmed them – a theory so strongly propagated by global thinktanks. India, for example, has been a victim of large-scale withdrawal of peripheral investments by leading foreign investors. Thousands of crores of rupees have been lost in the stock markets because of unchecked withdrawals by Foreign Institutional Investors. In the name of fair play, the Indian
Government has chosen not to react, probably to keep their interest alive in the Indian market.

But this does raise an important issue -- would the US government react in a similar fashion if various other governments decide to withdraw funds from American securities?

Would it be a mute spectator to such an affair just as the Indian Government has been?

Another issue that surfaces in the midst of the snowballing crisis has been that if problems of developing countries are owing to failure of developed economies, what have they done to save them. Everybody seems to be fending for himself. Is this the type of globalisation that developed countries are striving to reach? Does it mean that globalisation was meant to serve the interests of developed economies primarily because they are saturated and need external avenues to maintain their growth.

The present crisis has raised two fundamental issues – should the world continue with unbridled globalisation or do developing countries need to insulate themselves from industrialised economies and how can social behaviour of extreme lust for profits be inbuilt into economic models.

The failure of World Trade Organisations to make countries reach a multi-lateral agreement needs to be taken as an indication of developing countries refusing to take dictates from developed countries. The failure of international institutions, which surfaced as an outcome of economic crisis the world faced in the 1930s, has further firmed up the opinion that there cannot be constructive cooperation between the haves and the have nots.

The sanctity of the WTO would certainly come into question in the near future.

India has emerged as the leader of the developing world in the WTO fora. It has been leading the boxing match right from Doha Ministerial onwards which primarily include Cancun and Hong Kong. India is now perceived differently by the developed countries in all matters pertaining to international trade negotiations, not only because of its acceptance as an economy of consequence but also because it wields significant influence among poor nations in multilateral trade talks.

Many in the developing world would expect India to take more forthright stand at all future negotiations and not toe the line of the West, as sometimes it is perceived to be doing. The poor nations expect India to be a bulwark on onslaught of unbridled globalization professed by some Western nations.

From whatever is available about the roots of the present crisis, it is clear that individuals' desire to create more avenues of income and financial institutions' resolve to expand business even at the cost of increased risks has played a major role. This phenomenon would naturally not be covered under any economic model.
Developing economies like India have so far not felt this problem but cannot rule it out for all time to come.

Americans may take some time to come out or witness a temporary fall in their consumption pattern but they are well-placed to absorb this shock. But can countries like India have inherit strength to absorb shocks of such intensity and magnitude.

Prime Minister Manmohan Singh told the G-20 Summit in Washington recently that enlightened self-interests expected of economic actors, in a capitalistic society was not visible. It should, thus,leave no one in doubt that those working out future models would need to take this into consideration to ensure credibility.

The analysis about the impact of the global slump on the Indian economy varies from catastrophic fallout to temporary and minor downturn.

What is already on the horizon is that the saving and investment pattern have already been affected with foreign investments being out of gear -- albeit temporarily. In such a situation corporate savings are bound to be diverted towards capital investments. This would bring down the capital holdings or wealth of the rich, who would do so to keep their industrial empires going.

It is, however, incumbent that the Indian States maintain the pace of development and those vulnerable sections of society are protected. This would obviously require diversion of the states' resources towards social sectors with better targeting for people with low per capita income. Enhanced resources for the infrastructure sector would also contribute to growth and employment creation. For instance, building of highways would ensure that growth moves away from metros into the hinterlands.

Surprisingly, it appears that the government is no longer concerned about the monies that it proposes to spend on these sectors, even though the fiscal deficit target will be going for a toss. No longer there is talk in the government that such funds are a constraint and very ambitious programmes are being worked out to ensure social justice and infrastructure development.

The entire cycle when completed -- liquidation of wealth for investment purposes and thrust on social sectors infrastructure --when completed will reduce the gap between the rich and the poor and pave the way for more sustainable development.

The basic problem the Indian economy and industrial development face is the small base on which it is pegged. It remains largely an underdeveloped economy. Re-engineering the development process in favour of the poor will enhance not only the consumption of these segments but prop consumption expenditure for the entire economic system.

The slowdown of the industrialised world at an enhanced pace in economic activity in emerging markets will bridge the gap between the rich and the poor nations.

Unfortunately, the Brandt Commission report on transfer of resources from the rich to the poor nations remains unimplemented for lack of political will on the part of the powerful countries, which only care for the markets of the developing world.
The panel had suggested that the rich nations transfer 0.7 per cent of the GNP to the developing world.

The United Nations Millennium Development Goals also remain unfulfilled with the question mark as to whether they will ever be fulfilled. Nor there is any recent great effort on the part of the industrialised countries to shift resources to the emerging markets in turmoil as the consequence of their actions. Protagonists of the globalisation argument would say that it is too short a time to assess the outcome of the G-20 Summit while sceptics believe that there was much talk but little action.

All said and done, more has been said than done for no real resource transfer has thus far taken place.

Global economic strategists are keeping a close watch on what India and China do to get out of their present difficulties for it is not without reason that they are the preferred investment destinations not only for the present but also for the future.

To remain indifferent to the problems of the poor can perhaps both be tempting and seductive. It is so much easier to look away from victims of collapse to avoid rude interruptions to one's work, one's dreams and one's hopes. It is, after all, awkward and troublesome to be involved in another person's pain and despair. It is this inertia which has engulfed both the rich nations and the rich of the poor nations.

It is not a hopeless time to write in defence of public action. Proactive advocacy of public action was first enunciated by Lord J M Keynes to get the world out of the Great Depression of the 1930s.
But today it requires further reinforcement for the world in recent years has moved decisively towards unhesitating admiration of private enterprise and towards enlarging and advocating reliance on market mechanism.

The West appears to a majority in India as the source of all hope, a place of luxury, affluence and ease. The one-dimensional exchange reinforces the most simplification and damaging implication of the real relationship between the North and the South. What is suppressed in this traffic is the endurance, courage, heroism of millions of people in India for their daily survival and in uncelebrated struggles against injustice and insufficiency and the sacrifice and altruism of popular movements. The Western reform packages, many argue, demand their pound of flesh from the poor and the most vulnerable on the earth.

This apart, many would want India to reinforce itself before the global community of the huge reservoir of its spiritual wealth.
India is a country where all religions flourish, be it Hinduism, Islam, Christianity, Jainism, Sikhism or Buddhism. Their adherents have equal opportunity to profess what they believe in. It is inherent in India's culture that even the Dalai Lama was given asylum in this ancient land. The apostles of these religions prayed not only for benediction of planet Earth but the entire universe.

The common threat that runs through these religions is the belief that mankind is one. In an inter-linked and interdependent world coordinated action based on reciprocity can help solve economic problems better than isolational.

Vivekananda and Yogananda uncaged the soul of the West, enmeshed in mindless pursuit of materialism. India's messages to the spiritual world have travelled far and wide and its wisdom revered in many parts of the globe.

As the world braces for a tougher year ahead and people's problems mount perhaps Indian wisdom is of great relevance. In the global village not only material good but also ideas flow freely. A well-known Sanskrit Shloka reads as 'Asatoma Sadgamaya, Tamasoma Jyotirgamaya', which means take us from darkness to light.

Let there be peace and prosperity all over the globe.


Gurdeep Singh
Head of Business & Economy and Vice-President FFW
Gursingh111@rediffmail.com