Living with Multipolarity

LARRY KRAMER, VICE CHANCELLOR of the London School of Economics, had an interesting anecdote to share at the recently held Kautilya Economic Conclave (October 3-5) in New Delhi. On his trip to India, he watched an “old high school romance” movie. “Life in the end is like a romance movie or, at least, a comedy,” he said. The contemporary world, Kramer said, resembles a movie of this sort. “The US looks like a dumbo; Russia is like a kid who goes about troubling everyone, and India is like a kid that stays out of the big fights and everyone claps in the end,” he said. It was hardly surprising then that the theme of India’s efforts to navigate a complex and turbulent world dominated the conclave. Union Finance Minister Nirmala Sitharaman and Minister for External Affairs S Jaishankar gave illuminating answers about India’s challenges and choices. In his opening remarks, NK Singh, president of the Institute for Economic Growth and the moving force behind the conclave, outlined three key concerns: the stubbornly high level of the Incremental Capital Output Ratio (ICOR) that remains at 4.5. ICOR is a measure of the productivity of capital. Higher the ICOR value, less the productivity of investment. Singh then highlighted the need for growth to accelerate to 8 per cent; and finally the need for adoption of disruptive technology, especially for job creation. In her remarks while opening the plenary session of the conclave, Sitharaman highlighted the chiselling away of multilateral institutions when they are needed the most. She noted the “shifting gears” of the old order after World War II, one that is disappearing now. That old equilibrium is vanishing, she said: “What lies on the other side of this transformation? What will the new equilibrium look like? Who will shape it?” The finance minister then gave a synoptic overview of the situation confronting India and the world at large. The economic trade-offs now resembled a zero-sum situation unlike the mutually beneficial trading arrangements that had prevailed for more than a quarter-century. She said that over time, imbalances had crept into the world system. Overcapacity, high costs of energy and net-zero emission targets now threaten many countries. She said the task before us is also to confront imbalances, ensuring energy affordability, fair trade, solving climate issues, and reforming key institutions. The finance minister noted that for many decades Asian countries reaped the benefits of globalisation without adopting the political values of Western countries. She said, “The absolute power enjoyed by the global hegemon is now over.” Her hint was clear. In this context, Sitharaman mentioned India’s rise. India’s growth is anchored in domestic factors and is less susceptible to external shocks. But there is no room for complacency. Given the severe bout of global turbulence, it was not surprising to see Sitharaman making an analytical comment about multipolarity. The cognate aspect of her remarks was the comment made by External Affairs Minister S Jaishankar on domestic economic issues. It makes little sense to talk of foreign and economic policies in isolation in a world where every political tool (and trick) is being used to garner any and every economic advantage by different countries. SITHARAMAN WONDERED aloud if “Multipolarity is now a possibility. What will this be like? Will it be a plural and cooperative order? Or will it be a system of blocs rivalling each other?” The minister felt it was more likely to be the latter. She went on to add that prosperity had been long denied to India. Not by anyone outside but by factors that were not under our control. These remarks, and those of Jaishankar, found a ready echo among other participants and observers at the conclave. The special adviser to the president of Indonesia, Mari Elka Pangestu, noted that the world was in a condition of heightened uncertainty. Domestic constraints faced by many countries and economic volatility posed problems for many developing countries. “This is a different time. We are not going back to the old world and we can’t afford to sit back on the sidelines. The task before us is to build domestic capacities and strength.” Pangestu added, “We were in a rules-based order. Matters are different now. Interdependence was seen positively; now it is seen as a vulnerability and considered as something negative.” Her remarks were made in the context of US-China relations but have now acquired a much wider salience. The upshot of the deliberations at the conclave painted a picture where countries want to focus on domestic resilience and self-reliance. This is particularly painful for countries that have become prosperous in a globalised world by making the most of trading opportunities. The US has now practically ended that rules-based trading order and is now behaving as a country ready to seize any opportunity that comes its way even if it is done through coercion and less-than-savoury means. Another freewheeling discussion on contemporary economic issues centred on the possibility of an ‘Asian Century’ now that ‘advanced’ industrial countries of the West are in a funk. The session saw participation by Chief Economic Advisor (CEA) V Anantha Nageswaran; Chong En Bai, director of the National Institute for Fiscal Studies at Tsinghua University in Beijing; Kazuto Suzuki from the University of Tokyo; Hans H Tung from the National Taiwan University; and Chia Der Jiun, managing director of the Monetary Authority of Singapore. Nageswaran posed the question of the possibility of an ‘Asian Century’ from the perspective of kinship groups in business and their persistence in Asia. This was quite unlike the West where social and economic evolution led to the emergence of trust and trust-enhancing institutions that allowed strangers to interact with each other in economically fruitful ways. This stage of evolution had yet to fully emerge in Asia, he noted. In his presentation, Chong En Bai noted the strides made by China in renewables and more specifically in its adoption of electric vehicles technology where China is now the world leader. This led to the question that while Asia, and China in particular, could be the “world’s factory”, where would the demand come from? This, given the turbulence created by Donald Trump and the US—the “world’s buyer”—was a question that has exercised a large number of people. The answer given by Chong En Bai summarised the situation cogently. He noted that it was correct that China did not have the per capita income to generate the kind of demand that the US had. “That is one reason why China continues to call itself a developing country, he said. He further noted that even the existing advantages enjoyed by China did not go down well with the US. “The hegemon (the US) is uncomfortable. You are right that we (Asia and China) are way behind in per capita income. But sometimes size also matters. And even with our low per capita income, the hegemon is uncomfortable. That is why we are being subjected to containment and other measures.”

Living with Multipolarity

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