Bangladesh and the globalisation trilemma
From the pencil we use to write to the clothing we wear every day, globalisation has seeped into all facets of human life. But is this a short-lived positive or an ultimate disaster in the long term?
Globalisation has spread like wildfire over the last few decades, aided by the rapid growth of the internet and the strengthening of inter-connectivity and mutual reliance of nation-states. But, adoption of it comes at the cost of sacrificing certain factors.
Dani Rodrik, one of the leading economists in the world, has described this trade-off in the form of a trilemma: A nation operating in the world economy comes to a decision in adopting the three competing demands of hyper-globalisation, national sovereignty and democratic legitimacy. Dani Rodrik hypothesises that a nation can at most select only two of these while forsaking the other. A country opting to go for all three is likely to fall into economic chaos or internal anarchy. The trilemma centers around a few particular variables which includes how likely it is for a country to embrace globalisation, and maximise the resultant benefits by closely regulating its repercussions.
Globalisation in this day and age is an unavoidable constant, and we are subliminally getting intertwined with it. From the pencil we use to write to the clothing we wear every day, globalisation has seeped into all facets of human life. But is this a short-lived positive or an ultimate disaster in the long term?
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Globalisation is the coming together of countries and nations, opening up domestic markets for the free flow of trade. It reduces costs of production for countries leaving them to specialise on products or services that provide a competitive edge in manufacturing as well as increase competition. This creates a whole new sector which leads to employment creation.
It has been famously demonstrated in China where globalisation helped 400 million people raise themselves out of poverty. But, while it brings jobs in one country, it takes away jobs from another in the form of outsourcing.
Through the gates of globalisation, developed countries outsource their work to underdeveloped ones; thereby, exploiting cheap labor and overlooking worker's rights violations. A common example in this regard is how Foxconn, one of Apple's manufacturers, pays hourly $1.78 to its employees working in measly conditions. Another popular claim against the spread of Globalisation is that it contributes to adverse climate change resulting from more economic activities that include increasing transportation and industrial activities. This in turn reinforces the statement that Globalisation is more efficiency-oriented than it is welfare-based.
Economics is the art and science of trade-offs. And so, if a country wants to accept both hyper-globalisation and retain national sovereignty, it must let go of its democratic aspirations. This adoption is known as the 'Golden Straitjacket' and has been portrayed in history prior to the First World War. This system disregards any room for democracy as policymakers have to prioritise the demands of international markets over that of the people.
This is evident in nations' persistence in lower-wage offerings to maintain trade specialisation shunning aside people's demands of higher wages. Another reason for barring democratic legitimacy is the surge of Foreign Direct Investment (FDI), which eventually leads to nations getting debt-laden. Higher debt gradually leads to intensified redistributive conflicts, crowds out local investment, reduces the scope for counter-cyclical fiscal policy, eventually requiring higher taxation, and leaving domestic policymaking hostage to financial markets.
China's debt trap is a strong proponent of this hypothesis. Great Britain in the 1930s and then Argentina in the 1990s tried to revert back to this system but failed miserably because of its lack of equitable sustainability.
The second system, which is called the 'Bretton Woods Compromise', is more inclined towards manifesting national sovereignty and ensuring democracy over ultra-globalisation. Reducing over-dependence on trade leads to the flexibility of policy makers who remain free to formulate fiscal and monetary policies that are wholly beneficial to the mass.
China is exemplary to this system as it has adopted Bretton Woods by opting for international trade falling between Protectionism and consummate Trade Liberalisation under the World Trade Organisation regime. The 'Bretton Woods Compromise' is more compatible with countries that have large domestic consumption markets and lower export contribution to GDP.
Dani Rodrik has recommended that nations constantly try to uphold the principles laid out by the Bretton Woods compromise over that of the Golden Straitjacket to reassure the emancipation of the country in all aspects of decision making.
Rodrik also ventured a third option for managing where globalisation would be to establish a system of transnational governance, creating global institutions that would supersede national decision making. As he acknowledged, such a strategy would require significant curbs on national self-determination and would limit the scope for individual countries to pursue diverse policies.
There is also the danger that global institutions would be unaccountable, as democracy would remain at a national level. Rodrik's own view is that democracy and national self-determination must prevail i.e. the 'Bretton Woods Compromise'.
When it comes to Bangladesh, it can very easily be pointed out that the nation's disposition towards democracy, in a completely politically-disinterested avowal, is hardly thriving. This is in alignment with the country's deep economic integration into international trade. Bangladesh is a highly export-oriented country with a contribution of 15% to the GDP.
This deep integration manifests itself in national policymaking. A glaring example of this is the implementation of TK 8,000 as minimum wages for RMG workers in accordance with the international market demands, completely discounting the higher wages demanded by the workers themselves. And in order to sustain this integration, due to its relatively smaller economy, Bangladesh needs to considerably import more than it exports to maintain trade relations as showcased by a trade deficit of $7.66 billion. Higher imports mean foreign products crowd out local competitors, thus undermining democracy. Another such instance is the entrance of Multi-National Companies (MNCs) into the economy.
Bangladesh is one of the biggest beneficiaries of the World Bank's aid program offered through the International Development Association (IDA) and remains a major beneficiary of other aid programs offered by institutions such as the Asian Development Bank (ADB). Bangladesh received $2.7 billion in FDI last fiscal year, pushing the current account deficit to around $10 billion. This has further pushed external debt to $54.73 billion owed to a plethora of developed economies and lending partners; therefore, making it susceptible to global players.
This all indicates the fact that Bangladesh currently adopts the system of 'Golden Straitjacket' in Rodrik's trilemma. I agree with Dani Rodrik and highly recommend that Bangladesh opt for the 'Bretton Woods compromise', but only when it can self-sustain without global trade as one of the major economic contributors. In that particular scenario too, Bangladesh must have to accept some form of globalisation as it is indeed a necessary evil.
Tahmeed Rifa is an undergraduate business student currently studying at Bangladesh University of Professionals (BUP).
Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the opinions and views of The Business Standard.
