No matter which country you look at today – you see big problems. Emerging problems are currently grappling with massive monetary expansionism triggered by a need to keep currency stability in face of periodic bouts of Quantitative Easings. For example see the article “Rajan Warns of Policy Breakdown as Emerging Markets Fall”. China is grappling with its own issues – including commodities stockpiles and shadow banking – Copper Caps Longest Fall Since 1995 on China Industry Use. Europe continues to be a basket case and US recovery is in doubt – both are well documented in financial press and tweetosphere. It appears that these problems are so massive that there is no way out of them. At national and even regional level – being close to the problems – it appears that there is no resolution is sight. Again, this type of thinking is well document in the financial press and tweetosphere – hence I am not giving any specific links. My key point for this blog is that ‘a problem cannot be solved with the same mindset that created it’. A local, or regional mind-set with never solve the problems that were created with this mind-set. If you look at it from a global perspective the problems do not look as big. Before your biases make you stop reading let me reiterate what I wrote in my book “The 5-STAR Business Network“.
Whatever be the reasons, or the outcomes, of this current global economic scenario, it cannot be denied that eventually only the business will lead recovery in the economy. The failures of command economies in the erstwhile Soviet bloc have demonstrated beyond doubt that statist policies, while good short term band-aid solutions, can rarely lead to true economic prosperity.
Globalisation has been blamed by both the extreme right and extreme left for a host of economic ills facing various nations. Having seen the effects of globalisation at close quarters in more than 100 countries, I cannot disagree more. In my view the results attributed to globalisation are more attributable to other factors such as human malfeasance, institutionalized corruption even in the highest places, laziness, a sense of entitlement to riches without working for them and herd mentality leading to action without thinking and many such factors – all part of basic human nature.
It will be fair to say that one of the most alarming trend has been the continued shifting of the global manufacturing capacity to China. Just like a giant vacuum cleaner, China has sucked in the manufacturing capability from rest of the world at an intense pace over the past 15 years. Isolated stories of reversal of this trend apart, China continues with its policy of government aided industrial expansion far and wide beyond what might be good for Chinese or global economy. Its companies invest even in industries where labour provides little competitive advantage, and China has little capability advantage. This sets up a scene for an international showdown either on economic front or on a military/political front – either of which scenarios will be an unwelcome backlash against globalization leading to a reversal of global economic fortunes.
In the midst of this macro situation, business continue to suffer from intense uncertainty and anxiety. Investment decisions are delayed for months, if not years due to inability to project cash flows and the expected rate of returns for the investors. Waiting for consumer spending to pick up has been futile so far.
The intense volatility in the commodity prices is leading to speculation and perhaps even manipulation in the commodity markets on a global level. At a micro level, this volatility in the prices of raw materials has made it nearly impossible to make and keep budgets, make any price promises, and stabilize customer-supplier relationships in a stable manner professed by traditional supply chain management pundits.
Yes, I have seen the impact of globalisation on ground in more than 100 countries. And yes, it is largely positive. Does Globalisation mean doing away with the rule of law? Obviously, no. I cannot imagine today’s big problems will be solved any other way. That is why Globalisation is inevitable and good. Companies, institutions and governments will do well to prepare for it, and position their constituencies appropriately.