The new era will continue to bring growth in developing countries
Interview with Reuben Abraham by Manuela Mirkos
The richest societies, mainly in the West, are entering the Fourth Industrial Revolution still grappling with the consequences of previous stages of globalisation. At the same time, emerging markets are taking advantage of the vast opportunities offered by a more competitive and open global economy. Asia, Africa and the Middle East will continue to experience steady growth rates thanks to, among other factors, access to technology, opening up of markets and higher investment rates. The next stages of globalisation will not come without challenges, but they will continue to represent an enormous opportunity for developing economies, says Reuben Abraham, CEO of the Infrastructure Development Finance Corporation (IDFC) Institute, in this interview by Manuela Mirkos.
The Western view is that globalisation started with Christopher Columbus, but in fact it started well before all of that. There was maximum amount of trade happening all across the world - not massive amount in absolute number – but still, it is not that people ignored each other. So for instance my home territory in India, which is Kerala, was trading already 2000 years ago and there are very detailed historical records showing that. This whole idea that globalisation started in the 14th century has already a euro-centric bias. Worries about globalisation are things you feel if you are in the US or Europe, but if you come to Asia, or in the Middle East, you will not see anyone worried about globalisation. Same for some parts of Africa, like East Africa or South Africa...they are actually benefiting hugely. So we have 70 per cent of the world population that still thinks about globalisation very favourably while 30-25 per cent of the world has doubts.
Still, because of digital technologies, changes are now happening at an unprecedented speed…
That is true. My personal view on this is that we are paying too much attention to economic factors and not enough attention to social factors. What I mean by that is that economic globalisation has profound social consequences and there is profound social dislocation that happens as a result. Social dislocation is changing and upsetting the way people lived for hundred years. And now, because of technology, these changes are happening in a much narrower window of time so people do not have the coping skills to deal with changes of this magnitude. The problem is not the fact that these economic factors are at work, but the scale and speed of the change.
One of the negative side effects of globalisation is the increasing level of inequality. Do you see this as an issue even in developing countries?
I think inequality will eventually become a problem, there is no question about that. But in countries like India I believe our focus should now be poverty rather than inequality. A friend of mine just wrote a piece where he takes as an example two Russian peasants, he calls them Igor and Boris: both are poor, but Igor has a goat. Boris has a dream in which a fairy godmother promises to grant him whatever wish he wants and Boris chooses to have Igor's goat killed. Now that the goat is dead, Igor is worse off, but Boris is not better off, even though you might say you decreased inequality. That is why I believe in most of these countries the priority should be getting rid of poverty. The policies we have in place to reduce inequality do not necessarily address poverty. In India in the Seventies we were all poorer, so inequality was lower, but I think nobody wants to go back there. Again this is an issue that is very relevant to the West and is becoming an issue in places where it should not be.
There is no doubt the next stage of globalisation will see societies and economies increasingly based on digital technology. Do you think we have the right infrastructures in place for that?
No, we absolutely don't. We just set up a data governance network and it is precisely for this reason: we do not even know what the problem is other than these big words about what data and technology are. But the truth is: everyday you learn something new about how for example Facebook is using your data. I do not think we are remotely prepared. We do not even know exactly what privacy means and how much privacy is too much privacy. Responses like GDPR (General Data Protection Regulation) are too blunt of a weapon in my view. What I need as a consumer is to know that my data is not being misused but you should not take away the right to use my data, if I give consent. But that opens another can of warms, about what that consent means. So when we all sign these agreements, we do not understand a thing of what we are signing. The real issue here is how we make these rules user friendly and not driven by compliance requirements like they are now.
What do you think of the state of international institutions like the WTO: do you see a need to modernise them in order to keep up with the new global order shaping up?
Personally I do not see any problem with the WTO and in general a multilateral trading system is better and more efficient. But again even with this we go back to the issue raised by the first question: at some point, especially as the world rebalances, the question that is going to be asked is whose rules. When president Trump says for example that this rule or that rule is out-dated, what he is really saying is the world is not playing according to our rules anymore. But that is inevitable. What you are seeing today is just the beginning, since at a certain point China is going to say that it needs to weigh more on the international stage, at the World Bank, the IMF and so on and if they do not reform, these institutions are going to become irrelevant.
How will the next stage of globalisation affect infrastructures in your view? What are the main challenges here?
If you compare developed countries and developing countries, the first thing you ask is what is their competitive advantage. In developing countries, the competitive advantage is the labour force. In the developed countries the most competitive advantage is capital. When it comes to rules, you see a world where there is pretty much free movement of capitals, but there is nothing like free movement of labour. And I do not believe this is going to change because of technology or at least it will depend on the type of job. Anything that is routine based can be easily outsourced and exported, but anything that has an element of blue-sky thinking will still require physical presence.
On infrastructure, when you look at long term capital, like pension funds, sovereign wealth funds, my estimation is that there is probably 25-30 trillion dollars of that money floating around and there is a very nice marriage possible between infrastructure and long term capital. The question now to ask is: in a country like India, which desperately needs to build its infrastructures, why are we unable to attract this long term capital. And I think the reason for that is the lack of execution capability inside of India: I do not know whether a particular project can be executed in time, on budget and whether my investment is actually protected. It is a much deeper issue, but these are the problems we are facing in developing countries when it comes to infrastructures.
How do you think governments in those countries should intervene to narrow the gap then?
I believe if you decide that infrastructure is your focus and it certainly should be for India, then you should think about the institutional mechanisms you need to put in place to protect investors, give them safety, better dispute resolution mechanism and arbitration systems. The other priority would be finding new and interesting ways of insuring these projects. You have to say to the potential investor: yes, this is a tricky environment, but here is the level of protection we can offer you.