India should focus on how many are living below the poverty line instead of comparing the growth rate with the rest of the world, says an economist and global strategist.
Pankaj Ghemawat, who entered Harvard at 16 and became the youngest full-time professor at Harvard Business School, says India's per capita income is a fraction of the per capita income in the west.
India cannot change its neighbours, but it can change a lot of things when it comes to trade, says the Anselmo Rubiralta Professor of Global Strategy at IESE Business School in Barcelona, Spain, in an interview to
Faisal Kidwai
The New York Times columnist Thomas L Friedman has stated that the world is flat, but you have contradicted his claim in your book, Redefining Global Strategy. Why do you think the world is not flat?
The world is flat notion is the idea that borders don't matter and that international integration is close to complete.
And one of the points I have made in my work is that when you actually look at the things that could happen across borders or within borders, look at the cross border component as the percentage of the total, the result is much closer to what I think is 10 per cent globalization or semi-globalization rather than 100 per cent globalization.
So, if you think of the people flows, only three per cent of the world's population is accounted for first generation immigrants, these are long-term people flows.
If you think of short-term people flows, the percentage of students studying in countries other than the ones they are citizens of is only two per cent. If you want to think about information flows, the percentage of phone calling minutes that cross national boundaries is only two per cent of all calling minutes.
Even when you turn to something like the Internet, estimates are that less than 20 per cent of the bits transmitted over the Internet actually cross national borders at any point in their journey. And, finally, when you talk about money, foreign direct investment represented about nine per cent of all the money invested in the world last year.
So, it's hard to reconcile those kind of data with the notion of the world is flat.
It's hard to reconcile with just our personal experience. If you talk to any business person about whether it is easy to do business abroad, in a flat world it would be just like doing business at home, but that's clearly not the case.
You have said that the world is semi-globalized. What do you mean by that?
Well, this is to call attention to the fact that the world is far from a 100 per cent globalized.
The reason why I invented the term is that unfortunately people assume that if you say the world isn't globalized you are meaning that globalization levels are zero.
It's precisely to draw attention to the intermediate possibility highlighted by the data where levels of integration are neither zero per cent nor a 100 per cent that I invented the term semi-globalization because otherwise people resort to the dichotomy of the world globalized by which they mean a hundred per cent or zero per cent and neither of them in my views are very interesting end points to focus on.
The United States was once a champion of globalization, but now there are growing demands of protectionism, halting outsourcing and hiring locally in the US. What are your thoughts?
Well, at one level it's sort of typical kind of thing that happens when it's an even year in the US. Even years are years in which there are election in the US and, if you go back and look at the rhetoric last time between Hillary Clinton and Barrack Obama during the Democratic nomination race, some incredibly hair raising things were said about what they intended to do.
You are starting to see something similar happening with Mitt Romney, who's running to secure the Republican nomination, declaring that he would declare China a currency manipulator on his first day in office and Obama feeling obliged to shift a little bit in the direction of going after China again.
So, some of this is just a vagaries of the US election cycle. What I do find a bit concerning is the fact that historically while Democrats have been relatively protectionist, at least in articulation if not in terms of action, Republicans have been less so.
Unfortunately, there is now a general shift among both Republican as well as Democrats that the openness is somehow responsible for all sorts of social consequences, which frankly to me - given that I believe that only 10 per cent globalization has happened - doesn't make much sense to blame it for all kinds of social consequences.
The worrying thing is that if you look at the bases of both parties, there is a significant shift in the last decade away from the pattern in which Democrats tended to be relatively hostile to free trade but Republicans generally positive to a situation where both groups, and that even includes college educated Americans, have big concerns about trade.
So the positive way of looking at recent developments is that with unemployment dropping in the US and, of course, at some point even the presidential campaign will come to an end, it will be go back to business as usual.
The worrying thing is that with the shift taking place in the US's status in the world economy and the tendency to blame foreigners for whatever bad things happen to themselves, some of the sentiments that we are seeing right now may persist and have an impact well after the elections.
That could hurt India's economy.
If you look at the crackdown that has already on US visa policy, and Infosys has been very much in the crosshair in particular on that, but that's something that has made on-sight operations difficult for all firms.
And there are two reasons for that. Firstly, you are uncertain whether the visas will be approved and the second is the huge increase in visa fees, which has significantly dented the economics of on-sight software development.
The other big problem, from an Indian prospective, is that we were kind of late to the globalization party, unlike China.
While China is the focus of much of the current legislative activity in the US and Europe, the point is the Chinese have already kind of maxed out in terms of what they wanted to do in the export front and there is a shift away from thinking about export growth to the domestic market.
In contrast, India still trails very badly in this regard. I had prepared a study that we had rolled out at the Apec Summit on global connectiveness with the DHL Gobal Connectiveness Index.
When you look at where India ranks currently, it becomes clear that India needs to become much more integrated with the world economy than it currently is. That becomes harder, obviously, in a climate of protectionism.
When I look at India's trade, India ranks at 109 out of 125 countries in our sample in terms of overall intensity of trade with the rest of the world. And while it does a bit better on service than on merchandise trade, these are not numbers to be very happy about.
Why does it fare so badly in global trade?
The causes are multiple, ranging to historical reasons to the Licence Raj. I remember when I was doing a study for CII with Mike Porter on Indian competitiveness in the 1990s; we had more that one industrialist tell us 'look we have a huge protected domestic market, so why bother with exports'.
That is a problem.
There are some structural issues, such as the conditions of the ports, in particular, and the general state of Indian infrastructure. One of the reasons why software has managed to defy some of these general trends is because they don't have to rely on Indian ports. Most of the barriers are geographical and artificial ones, for example our failure to improve our infrastructure.
Then there are other natural geographic barriers, it's better to call them political barriers.
India has very poor trade connectivity with its neighbours. When you run a cross country regression that sort of tries to predict how much a country should trade with each other based on proximity and compare Indian results with the results for the world at large, the biggest deviation from the cross country relationship are the top country regression plan is the fact that India trades much les with Pakistan
than any normal model would predict.