GS Paper 1
Syllabus: Effects of Globalisation on Indian Society
Direction: The article highlights the evolution of globalisation to hyper-globalisation and signs of the end of the era of hyper-globalisation.
Context: Two wars (Russia’s invasion of Ukraine and an economic war – a geopolitical confrontation between two superpowers – the US and China) are raging in 2022, which have undermined the assumption of “hyper-globalisation”.
- Though the term “globalisation” refers to the increasing integration of world trade and financial markets, the term “hyper-globalisation” refers to the dramatic increase in international trade.
- This occurred for about a decade and a half beginning in the early 1990s, resulting in unprecedented capital and human movement across borders.
Ups and downs in the globalisation era:
- The first golden age of globalisation (1870 – 1914): It saw the world trade in goods surging from 9% to 16% of global GDP, leading to the internationalisation of economic and social life.
- This led the British journalist Norman Angell (in his book ‘The Great Illusion’) to claim in 1910 that war in the modern era was an economic impossibility due to the sheer extent of financial and commercial interdependence between countries.
- This made conflict as futile for the conqueror as the conquered.
- The era of world wars and the decline in world trade:
- In 1914, World War-I broke out and War War II began in 1939.
- The share of merchandise trade in global GDP had collapsed to 5.5%, recovering gradually to reach the pre-World War-I levels only towards the late-1970s.
- The second golden age of globalisation – The era of “hyper globalisation”:
- Between 1990 and 2008, global trade in goods soared from 15.3% to 25.2% of the world GDP.
- Thomas L Friedman asserted in 1996 that no two countries with Mcdonald’s have ever fought a war against each other.
- Hyper-globalisation’s chief protagonist was China which emerged as the “world’s factory” and a “mega-trader.”
- China’s estimated share in world merchandise trade has risen from 1.8% in 1990 to 11.1% in 2012 compared to the US (11.3% to 8.4%).
- Characteristics of a hyper-globalised world:
- In such societies, there was the absence of wars and economies largely followed the laws established by late-18th/early-19th century economists Adam Smith and David Ricardo.
- According to Smith (in his book ‘Wealth of Nations), if a foreign country can supply us with a commodity at a lower cost, then we should buy it.
- Ricardo gave the concept of “comparative advantage” – each country devoting its resources to produce goods most beneficial to each. For example, wine shall be made in France and Portugal, corn shall be grown in America and Poland, etc.
- The entire system of free trade was founded upon trust and comparative advantage trumping geopolitics. For example, Russia supplied close to 40% of the European Union’s total natural gas consumption in 2021.
- The end of the era of hyper-globalisation: It formally ended in 2022, which has seen not one, but two wars.
Impact of the end of the era of hyper-globalisation:
- The greatest collateral damage is to the global trading order. From production based on comparative advantage and gains from trade, it’s each nation for itself now.
- For example, India is granting incentives amounting to 30-50% of project cost for semiconductor units manufacturing less-sophisticated chips that can be used in mobile phones, home appliances and cars.
- Five years ago, it may not have considered this to be worth spending taxpayer money on.
According to the French philosopher Montesquieu – “Commerce heals the most harmful biases,” and “peace is the inevitable result of trade.” However, rebuilding trust and restoring global trade from the ravages of militarism takes time.
Impact of globalisation on the Indian economy
Q. Are diversity and pluralism in India under threat due to globalisation? Justify your answer. (UPSC 2020)