Global Warming Threat.............

Global warming threat looms over economies

Carbon emissions have pushed up global temperatures by half a degree Celsius. If no action is taken there is more than a 75% chance of global temperatures rising by more than 2 degrees Celsius over the next 50 years. Ignoring the change would lead to major disruption in global economies and social activities on a scale similar to those associated with previous great wars and the economic depression in the first half of the 20th century.

These were some of the key observations of the UK based Stern Committee report on the economics of climate change, which were reiterated on Wednesday by Justin Mundy, senior advisor on climate change and Dimitri Zenghelis, senior economic adviser, the UK government. They were speaking at an interactive session, organised jointly by British Deputy High Commission (Kolkata) and the Indian Chamber of Commerce.

The top level British government officials were in the city as part of the UK government's mission to create awareness about the devastating impact of global warming on the world economy and build public opinion on what actions could be taken on the issue in line with recommendations made by the Stern committee.

The UK committee, headed by Sir Nicholas Stern had presented the report to the UK government in October 2006. Mr. Stern, former chief economist of the World Bank, heads economics service department of the UK government and is adviser to the UK -government on the economics of climate change. The committee's review on the pace of global warming and its probable impact on global economy today form the foundation of UK's policy on tackling the issue.

Addressing the session, Mr. Zenghelis said the Stern committee report is intended not just to guide UK policymaking in curtailing greenhouse gas emission, but to underpin discussions about the wider international policy framework, adding, that UK makes up only 2 % of global greenhouse gas emissions.
Mr. Mundy said since the climate change is global in its causes and consequences, international collective action is critical in driving an effective, efficient and equitable response to the problem. This response' should be based on deeper international cooperation in many areas- most notably in pricing the carbon market, development of clean technology and its free transfer, adaptation to the changing climate and finally promoting innovative technology to control greenhouse gas emission.

The Stern committee report said the current level of greenhouse gases in the atmosphere is equivalent to around 430 parts per million (ppm) compared to only 280 ppm before the Industrial Revolution.

Inclusive Globalisation via Innovation(part-3)

The essential difference is that work is not merely being transferred from one location to another -- as is done, for example, in traditional out-sourcing of manufacturing-but that it is being done differently. It is this difference, this innovation in solving a process or design problem, which makes for exceptiola1 value-addition and enables sharing of benefits for mutual gain. Thus, innovation-driven, global knowledge trade creates, in effect, new wealth which enriches all.

In the past to the world has witnessed the economic impact of innovation. New technologies --electric power; the steam engine, the aero plane, new strains of wheat, vaccines- have transformed not just countries, but the world. The twentieth century saw an abundance of such technological advances, making life everywhere better - though (due to the weapons of war), not necessarily safer. Disparities have grown, as have the super-rich, who have cornered a hugely disproportionate share of the world's wealth; yet, most of the poor are better off than they were a century ago, and a large new middle-class has developed.

We are now on the threshold of an even more substantial change. Innovation, combined with large scale global trade in the knowledge sector, is creating wealth and new opportunities. IT has made it possible to disaggregate work, get it done at remote locations and then reintegrate it; more importantly, it has created tools and platforms for simultaneous location independent work Innovation can, therefore, be a team effort involving multiple locations in different countries; increasingly, it often is.

This form of collaboration is resulting in a new model of globally inclusive innovation, with immediate gains to participating countries, and the final gains going to all through greater global wealth. The success of this model depends upon free and easy movement of ideas data and people, for it is only then that collaborative innovation is possible. It converts customer-client and vendor-supplier relationships into partnerships. Cooperation, collaboration and inclusiveness are the keywords. India has both the opportunity and responsibility of re-shaping thinking on global trade and globalisation. As we export this concept of inclusive innovation for inclusive globalisation, we can benefit equally by importing it into our own domestic system

Inclusive Globalisation via Innovation(part-2)

Now, for the first time, we sea a possibility of change, on a scale sufficient to make an impact. Creating this new paradigm of global trade in India, and its lead export sector: IT software and services. This industry helps its customers to improve the quality, cut down time-cycles and reduce costs for their services/products. Increased efficiency is a net gain for the customer, even as the Indian company profits from the deal. Thus, this is truly a win-win situation of mutual benefit. A study by the Mc Kinsey Global Institute in the US quantified this in relation to India doing IT work for US companies. It found that for every dollar of outsourced work, there ' was return of $ 1.46. Of this, 67 Cents was a saving and return to the US, 45-47 cents was potentially gained by the US through re-deployment of workers, and 33 cents went to India. Thus, the overall global economy gained as did both sides-US and India -of the transaction. Moreover, separate studies showed a redeployment of workers, but not net job loss. What better way to create a win-win situation?

Amidst the strident debate on globalisation not enough attention has been paid to this potentially dramatic new development. Both sides are currently caught up with mind-sets and rhetoric of the past. Most globalisers take recourse to the theoretical constructs of the economics of comparative advantage, but are faced with the discordant evidence of the human cost of imperfect globalisation. Anti-globalisation forces find their “neo-colonial West” argument undercut by dying western manufacturing units, even as the economies of China and India power ahead. Clearly, something new and different is happening and it cannot be fitted into or understood through intellectual frameworks of the past.

Of course, much of the total global trade is in traditional items and has well-understood, conventional impact. What is new is the large sca1e, technologically-facilitated trade in knowledge-services. This goes beyond the traditional IT outsourcing of the Y2K type, when millions of lines of computer code were written in India to modify programmes so that the change of year 1999 to 2000 - did not result in mistakes and chaos. Today, this trade also involves R&D being done in India, computer-based architectural design, new drug discovery through in-silica modeling, studying the impact of using a new material for a car part or an aero-engine turbine blade, equity analysis and a whole range of other diverse activities. All these are done in India because they can be delivered sooner, better or cheaper - resulting in gain for the immediate/corporate customer and ultimately for the end-consumer/individual.

Inclusive Globalisation via Innovation(part-1)

“We are on the threshold of substantial change. Innovation, combined with large-scale global trade in the knowledge sector, is creating wealth and new opportunities.”

(Kiran Karnik)

To many people, the arena of business is epitomised by Shylock demanding his pound of flesh - a world of greed, profiteering, and cold, inhuman calculations. In traditional Indian social stratification, the businessman is near the bottom of the hierarchy. A great deal of this negativity stems from the perceived role of business, which is seen as taking rather than giving a heartless pursuit of profit, based on using market dynamics to exploit people. Trading and services are considered 'transactional' and therefore, more prone to manipulation, profiteering and one-sided deals. These are seen as a zero-sum game, in which, gains of one party depend upon the loss of the other.

While this is, undoubtedly, exaggerated -a caricature as it was- there are enough real life examples to make the charges stick. The reduction of tariff barriers and the big increase in global trade - the process of " globalisation - have made this a particularly sensitive area, as whole countries (and not merely individual, firms) feel exploited and perceive themselves as losers in a zero-sum game. Thus, subsidies to a small number of US cotton farmers cause havoc to some African - 'economies and trigger farmer suicides in Vidarbha.

False promise of liberalisation(part-2)

To understand what is going on, we need a different explanation of what keeps investment and growth low in most poor nations. Whereas the standard story is that developing countries are saving-constrained, the fact that capital is moving outward rather than inward in the most successful developing countries suggests that the constraint lies elsewhere. Most likely, the real constraint lies on the investment side. The main problem seems to be the Paucity of entrepreneurship and low propensity to invest in plant and equipment - what Keynes called "low animal spirits" - especially to raise output of products that can be traded on world markets. Behind this shortcoming lay various institutional and market distortions associated with industrial and other modern-sector activities in low- income environments.

When countries suffer from low investment demand, freeing up capital inflows does not do much good. What businesses in these countries need is not necessarily more finance, but the expectation of larger profits for their owners. In fact, capital inflows can make things worse, because they tend to appreciate the domestic currency and make production in export activities less profitable, further weakening the incentive to invest.

Thus, the pattern in emerging market economies that liberalised capital inflows has been lower investment in the modern sectors of the economy, and eventually slower economic growth (once the consumption boom associated with the capital inflows plays out). By contrast, countries like China and India, which avoided a surge of capital inflows, managed to maintain highly competitive domestic currencies, and thereby kept profitability and investment high. The lesson for countries that have not yet made the leap to financial globalisation is clear: beware.

Nothing can kill growth more effectively than an uncompetitive currency, and there is no faster route to currency appreciation than a surge in capital inflows. For those countries that have already made the leap, the choices are more difficult. Managing the exchange rate becomes much more difficult when capital is free to come and go as it pleases. But it is not impossible-as long as policymakers understand the critical role played by the exchange rate and the need to subordinate capital flows to the needs of competitiveness.

Given all the effort that the world's emerging markets have devoted to shielding themselves from financial volatility, they have reason to ask: where in the world is the upside of financial liberalisation?

False promise of liberalisation(part-1)

(DANI RODRIK)

“* The predicted benefits of financial globalisation are nowhere to be seen
* Many emerging markets experienced declines in investment rates. Nor has liberalisation stabilized consumption.
* Capital inflows tend to appreciate the domestic currency and make production in export activities less profitable "

Something is amiss in the world of finance. The problem is not another financial meltdown in an emerging market. Even the most exposed countries handled the last round of financial shocks, in May and June 2006, relatively comfortably. Instead, the problem this time around is one that relatively calm times have helped reveal: the predicted benefits of financial globalisation are nowhere to be seen.

Financial globalisation is a recent phenomenon. One could trace its beginnings to the 1970s, when recycled petrodollars fuelled large capital inflows to developing nations. But it was only around 1990 that most emerging markets' threw caution to the wind and removed controls on private portfolio and bank flows. Private capital flows have exploded since, dwarfing trade in goods and services.

Freeing up capital flows had an inexorable logic - or so it seemed. Developing nations, the argument went, has plenty of investment opportunities, but is short of savings. Foreign capital inflows would allow them to draw on the savings of rich countries, increase their investment rates, and stimulate growth. In addition financial globalisation would allow poor nations to smooth out the boom-and-bust cycles associated with temporary terms-of-trade shocks and other bouts of bad luck. Finally, exposure to the discipline of financial markets would make it harder for profligate governments to misbehave.

But things have not worked out according to plan. Research at the IMF as well as by independent scholars documents a number of puzzles and paradoxes. For example, it is difficult to find evidence that countries that freed up capital flows have experienced sustained economic growth as a result. In fact, many emerging markets experienced declines in investment rates. Nor, on balance, has liberalisation of capital flows stabilized consumption.

Most intriguingly, the countries that have done the best in recent years are those that relied the least on foreign financing. China has a huge current -account surplus, which means that it is a net lender to the rest of the world.

Among other high-growth countries, Vietnam's current account is essentially balanced and India has only a small deficit, Latin America, Argentina and Brazil have been running comfortable external surpluses recently. In fact, their new-found resilience to capital-market shocks is due in no small part to their becoming net lenders to the rest of the world, after years as net borrowers.

Talent a big challenge(part-4)

"Years ago, we used to develop a new appraisal system in head-quarters and then take it to Europe or Asia. Now, we wouldn't dream of doing anything like that. We include virtual teams from all regions in devising systems because we have just one uniform system across the corporation," said Steve Bartlett, vice-president, HR programmes, Eaton.

Operational heads look at opportunities globally, rising above the regional and moving with markets. Every year, some business or other moves out of a location, to be relocated elsewhere, for a variety of reasons, including cost proximity to the Customer or talent pool. This presents a challenge, too.

Trying to find the middle ground has been her approach, she admitted. Among other things, this has lead her to try for a mix of people who have worked for a long time with one company and those who come from out-side, bringing with them a fresh perspective.

“The organisation gets better with a mix of long service people and those who come from outside with a fresh perspective," Ms Cook said.