Actually, it’s, now, been almost three-decades since the process of liberalization started in the year 1990-91 and our departure from our Hindu-growth-rate of 2-3% to 8-9% in the past decade, is a testimony to the hypothesis that “liberalization pays better than other forms of growth-models” mainly the closed ones with an emphasis to rely on augmenting domestic consumptions level and capital-formation rather than on foreign demand. Both, the level of consumption and the rate of capital-formation are more or less interdependent but the process starts with a certain level of demand for the mechanism to work and here the foreign demand steps-in. To be clearer, an entrepreneur, as against a social-entrepreneur, only takes risk of investment only when he thinks that there is a demand for his investment and that he is going to make profit from, either, just form supplying his good/service or by sharpening the competition.
The problem before the
year 1991 was mainly low levels of domestic-demand, so, the initiative to cash
foreign demand, as against, the former, was not a bad idea, anyway, and we can
clearly compare the results before and after. Reduction in the level of poverty
and employment-scores may not at their maximum, but they are satisfactory.
Atleast, we started realizing it. And, again, since we did not have a strong
domestic-demand, therefore, the supply of foreign goods/services has never been
an issue except foreign currency, capital or investment, which kept pouring in
since the process started and India’s huge foreign exchange reserves and its
ability to pay for food-security, a pre-condition for economic-growth, is
commendable and can not be underestimated.
But, as with any stream
of thinking, Globalization, still incomplete in concepts, is not different form
Free-Market and Lassiez-Fare ideology. Both support free-movement of labour,
capital, and goods, and production-functions. Even the preliminary models,
advocating International-Trade and specialization, did not assume shifts in
production-functions and relied on domestic capital-labour ratios very
different from the profit ideology of entrepreneurs, which believe in
exploiting the best conditions of investment. Capital-labour ratio is the
equivalent of the ratio of cost of labour and cost of investment. But, another
type of cost, and an important one comes-in, the transport cost, which is
important in international-trade-settings and is the base of our
purchasing-power-parity theory. It says, transport-cost is an important factor
in determining the purchasing-power of our respective currencies.
But, the transport-cost
in the long-run, 10-15 years, becomes a sunk-cost when compared to the cost of
setting-up of production of normal goods/services, especially in case of
venture-capital and Franchise-models. Moreover, erasing poverty, generation of
employment, and capital formation, all culminates in a higher domestic rate of
growth. The purpose of the discussion, just above, is to discriminate between
liquid and illiquid investments crossing national boundaries. Liquid
investments and mainly the ones in a stock-market lack the content of stability
not only because it is liquid but also because it depends upon domestic
environment –policies and prospects of growth. A policy conducive to growth
will attract inflow of capital and vice versa. Moreover, they also depend upon
political and domestic-weather conditions, and inflation, which retard the
growth of investment. Liquid investments are easy to withdraw as against to
illiquid and makes an already deteriorating system more unstable as a result of
domestic changes, whatsoever.
Therefore, a short-term
liquid investment does not make a case for Globalization because liquid and
speculative investment, just for profits and not betting on the long-run growth
and development prospects of a region, is not very reliable, especially in case
of developing economies but may support the idea of Globalization in
developed-economies with infrastructure for economic-activities. And, in
between there may be varying cases that may or may not to support the concept.
But, the one thing to keep in mind is that, “short-term liquid/speculative kind
of investments will always add to the instability of a system.”
I would like to point
out a difference between the ideas of “liberalization” and “globalization”,
based on terminologies. The path of liberalization, on which India embarked
almost three decades ago, believes in lowest possible tariff-barriers and not
the removal of them, altogether, as evident. But, the concept of globalization
would support tariffs, as tariffs, i’m not sure. In form of taxes or some other
kind of levies it may be, because even regional-governments can not do away
with taxes and revenues, in case of public-goods. The case of
Corporate-Governance is better untouched here, because it is also a
hypothetical concept like Globalization and is still in the making, as well.
To conclude, may be too
early, we can say that; “The idea of Globalization is still evolving and is
more appropriate in the sense of globalization of welfare and localization of
in-stability. A globe without boundaries is not conceivable. May be regions
with more manageable, in economics optimal, sizes seem to be more logical. Only
optimal families, societies, workplaces and production functions, and
governance will be conducive for optimal environment, whatsoever.”
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