Volume 19, Number 4 Article by Pradeep Banerjee December, 2007
Tectonic Shift – The Geoeconomic Realignment of Globalizing Markets : By Jagadish N Sheth and Rajendra S Sisodia, Response Books, New Delhi, 2006, pp 350, Price: Rs 550. :
As indicated by its title, this book is about the evolution of world markets in the context of globalisation, and the manner in which they are expected to realign on a large scale and form areas of trade-closeness. The later decades of the last century, particularly after the Second World War, witnessed economic growth of considerable magnitude. It was a golden era, particularly for the western world and Japan. This trend was however broken in the final decades of the century, causing several political upheavals.
It was on this wave that President Bill Clinton swept into office in 1992, pushing into the forefront matters that concerned the economy and ending twelve years of occupancy by the US Republican Party. In Canada, the Liberal Party was voted into power in 1993, routing the Tories who had been in office for nine years. In Japan, the Liberal Democratic Party, after a continuous reign for thirty-eight years, was ousted in 1993, as a result of the economy turning sluggish. In the UK, the Conservative Party, in office for eighteen years, lost decisively to the Labour Party in 1996. Similarly, economic downtrends brought about the ouster of the entrenched Christian Democratic Party in Germany the 1998 elections, to the advantage of the Social Democrat Party. Important shifts were seen in the developing economies too: the 1997 ouster of the Institutional Revolutionary Party (PRI) of Mexico, which had been in power since 1929, following a deep recession in the economy; the opting for ‘market socialism’ by China, the emergence of India as an economy with promise, and the growth of the Malaysian economy. These changes establish an important endorsement by voters of these countries: it is the primacy of economic growth that they want in their countries.
The challenge before all political parties in the developed world today is to address the problem of declining growth and the consequent decrease in employment. The solution advanced by the authors is to relate developed economies with those of the developing countries to achieve a ‘win-win’ situation for both. This would mean that the advanced economies would score on the growth front, while the developing economies would augment their development by accessing capital flows and technology resources from the former. The mechanism that can bring this about is international trade. The coming together of a developed economy and a developing country or countries in a trade relationship has brought about several trade blocs in the last decade or so. Such trade bloc partners have recorded beneficial growth and development results1.
Of these, the North American Free Trade Agreement (NAFTA), the Canada-US Free Trade Agreement (CUFTA), the European Economic Community (EEC), and the Association of South East Asian Nations (ASEAN) have emerged as the most important regional areas of mutual trade. These regional blocs, as currently constituted, do not include a number of economies that are high on promise (e g, China, India, Brazil and Russia) as trading partners. These economies are on the look out for growth and their search provides an effective leverage for trade. Trading economies are likely to coalesce in a particular manner, rather than in a random fashion. A process of consolidation, whereby existing regional blocs would continue to intensify trade volumes, is an outcome that can be expected. The process would have an expansionary component, with contiguous territories being added to existing regional blocs. Thus NAFTA is likely to expand to include Brazil and other South American countries, as well as the Caribbean economies, putting in place a Free Trade Area of the Americas. The EEC will probably expand to include East European economies and Russia, while the ASEAN comes together to include China, Japan, South Korea, Australia, and New Zealand.
These expanded associations will still leave a number of other countries out of the regional blocs. ‘Economic pragmatism’ is expected to drive those countries that are not members of any bloc to join one or the other regional blocs, and to move some countries out of their present regional bloc membership to be part of other blocs. The UK, Spain and Portugal, for instance, could become part of the FTAA: while the continuing political closeness between the UK and the US would help cement their trading relationship further, the commonality shared by Spain and Portugal with countries of Latin America would further the trade relationships between them. North African countries such as Morocco, Algeria and Libya, South Africa and Zimbabwe, and the Middle Eastern countries are expected to affiliate with the European Union. The authors expect India to join the US led regional bloc. It is unlikely to join the ASEAN regional bloc, because of the presence of China and the availability of the Chinese market to other countries of the bloc. India is again unlikely to be a partner of the European Union given that India brings in similar quality of resources that other East European countries bring in. From the US perspective, a partnership with India will also serve as a geopolitical advantage.
Having built a case for the emergence of three economic blocs, the reasons for the alignment of countries with a particular bloc, and the reasons for stabilisation of these blocs, the authors foresee obstacles to the emergence of these blocs from three sources. The first would be from entrenched private sector interests in the developed economies who would not easily relinquish their turf to firms from the developing countries. The second is the ‘political gridlock’ that currently ties up nations and prevents easy transformation as trade partners with other nations of a regional bloc. Finally, there are the rising expectations of people who would want a here and now solution to their problems. The authors emphasise that only visionary leadership in these countries can overcome the obstacles to the emerging realignment and enable the transition into a stable three-bloc world economy.
The basic thesis behind the book makes for interesting reading. However, globalisation is just a process: it is a proxy for trade and equated with all that is involved in trade transactions. The book’s centricity of economic reasoning, to the exclusion of political forces that shape domestic spaces and those that make up international relationships, make it lopsided and not entirely convincing. The politics of the economics of trade as practised by a state is a matter that cannot be overlooked. There can be little doubt however that the world is in for many a change and such unconventional windows of viewing these changes can help enrich our understanding.
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