Social contracts must be updated to reflect the evolving nature of the workforce, and protection systems modified to fit a dynamic job market
There have been umpteen deliberate attempts to deconstruct the flow of globalisation. It is often done through localization and post-neoliberalism. Now, it is reverse globalization. Recently, the decision by Air India to buy its aircraft from Airbus and Boeing is an illustration of reverse globalisation. Air India recently unveiled deals for a record 470 jets from Airbus and Boeing, accelerating the rebirth of a national emblem under new owners, the Tata Group. Europe and the United States have hailed deepening economic and political ties with New Delhi. It happens when governments are in crisis and giant corporations are on the brink of bankruptcy. There are mass layoffs, sector-wide closures, and even complete closures of some companies.
Reverse globalisation, also known as deglobalisation, is a process that causes the production of goods and services to move closer to the point of consumption. Costs and carbon footprint can be decreased through this process, preserving jobs. What motivates Air India to resort to reverse globalisation? The choice seems to have an economic justification. Air India can anticipate significant cost savings in terms of logistics, labour, and technology transfer by purchasing from Airbus and Boeing.
The fact that Boeing and Airbus will have to transfer technology to build the aircraft has advantages for the Indian aerospace industry as well. This will help increase the capabilities and capacity of Indian aerospace companies, which will result in higher exports.
There are added reasons which resonate with the flow of reverse globalization. Another regional Indian airline, Indigo, placed a $33 billion order with Airbus for 300 aircraft. This suggests that other Indian businesses might reproduce Air India and benefit from the potential advantages that reverse globalisation may offer. India will gain from the newest technology, job opportunities, and sustainable economic growth thanks to reverse globalisation.
Reverse globalisation has several benefits. The choice has strategic implications as well because it is likely to strengthen ties between India, Europe, and the US. The strong economic ties that are anticipated to emerge as a result of this agreement may one day result in political and diplomatic ties. It is quite apparent that economic growth has been mediocre which is plagued by several factors in Europe. This took place at a time when economies were going through a lot of change. What are the forces driving change, how are they influencing the dynamics of growth, and what do these things mean for policy are the questions to be thoroughly probed for correct answers.
Productivity & investment decline shift
The primary long-term driver of economic growth is productivity. Innovation made possible by technology is the main driver of rising productivity. However, despite the explosive growth of digital technologies, productivity growth has paradoxically slowed. It has generally been less than half the pace of the previous 15 years among advanced economies over the last 15 or so years. Although technologically advanced companies have seen significant productivity gains, these gains have not had a strong impact on productivity, generally. The outcomes of the new technologies have a history of being winner-take-most. Market structures have become less competitive, dominant firms have increased their market power, and business dynamism has decreased.
Dynamism in labour market
The Labour Market cannot be scot-free when technologies keep on hammering the labour market. The labour markets are being significantly impacted by technology. Labour demand is shifting away from routine low- to middle-level skills towards higher-level and more sophisticated analytical, technical, and managerial skills as a result of automation and digital advancements. On the supply side, workers’ access to complementary skills has lagged, which has obstructed the wider diffusion of innovation within economies. The race against technology has vanished with the incorporation of education and training. The issue of an ageing population affects the majority of major economies. To achieve economic growth, these trends place an even greater emphasis on productivity and the technological advancements that support it.
Inequity and the dichotomy
Additionally, growth has become less inclusive and restless. In most developed countries, including the United States, income inequality has been increasing. In some of these countries, the increase has been particularly pronounced. A decline in the income shares of labour and an increase in wage inequality have been attributed to new technologies that favour capital and higher-level skills. They have also been linked to industry structures that are more concentrated and dominant firms' high economic rents. The distribution of both labour and capital income has gotten worse, with income shifting from labour to capital. Political polarisation and social tension have increased as a result of rising inequality and mounting job anxiety. Numerous nations have seen a rise in populism. The onus is on us on how and what we should do and adopt for the betterment.
Narratives in growth pathways
Choosing machines over men has been a vital question. Even though income disparity has increased within many nations, it has decreased between nations as faster-growing emerging economies close the income gap with advanced economies. New technological challenges are presented by this economic convergence. Emerging economies' comparative advantage in labour-intensive production, based on their sizable pools of low-skill, low-wage workers, has been the dominant driver of convergence. With the automation of low-skill work, this comparative advantage is eroding, necessitating the creation of alternative growth pathways in line with technological change.
The 4IR, robotics and AI
As artificial intelligence, cutting-edge robotics, and cyber-physical systems advance the digital revolution, technological change that is reshaping growth will only accelerate. What has been dubbed the ‘Fourth Industrial Revolution (4IR)’ may be just around the corner. Additionally, globalisation is becoming more digital, undergoing a change known as "Globalisation 4.0" which is analogous to 4IR.
Digital technology advancements have a great deal of potential to accelerate economic growth and productivity while also creating new, better jobs to replace obsolete ones. The new digital technologies may account for as much as two-thirds of the potential productivity growth in major economies over the coming ten years. However, technological change is by its very nature disruptive and involves challenging transitions. Like globalisation, it inevitably produces winners and losers. Policies play a critical role.
New technology, new agenda
Better utilising the potential of new technologies is the central goal of the future policy agenda. Reforms must work to create a more favourable environment for businesses and employees to increase both their access to opportunities brought about by technological advancement and their capacity to meet new challenges.
The institutions and policies that control markets must adapt as technology changes how business is done. To ensure that markets continue to provide open and level playing fields for businesses, maintain strong competition, and restrain the development of monopolistic structures, competition policies should be updated for the digital age. The digital economy's lifeblood, new regulatory issues involving data, must be addressed. The ability of markets to adapt to disruptions and structural changes brought on by digital transformation will be crucial.
The way forward
The technological innovations should be harmonious and strike a right chord with the passage of development. It must not be a blind rush, leaving other factors aside. The technological frontier should continue to be pushed by the innovation ecosystem, which should also encourage broader economic effects from the new developments. To encourage a wider diffusion of technologies incorporating new knowledge, research and development systems and patent regimes should be improved. It is necessary to strengthen the basis of digital infrastructure and digital literacy. Although there are still wide gaps, the digital divide is closing. Investment in education and training needs to be increased and refocused on emphasising the skills needed for future jobs.
The goal of labour market policies should change from trying to protect current jobs to enhancing workers' flexibility to change jobs. Social protection systems, which have historically been based on formal, long-term relationships between employer and employee, should be modified to fit a more dynamic job market. Social contracts must be updated to reflect the evolving nature of the workforce.
The implications of the changes taking place in business and the workplace, as well as the new dynamics of the income distribution, should be considered when reviewing tax systems in light of the new tax challenges posed by the digital economy. Taxes on capital, labour, and wealth are all included in the possible tax reform agenda. The era of intelligent machines has a lot of potential. Future economic growth could be stronger and more inclusive with the right policies in place. Inclusive is the correct mantra and should be fostered all around.
(Chakraborty is HoD, Digital Marketing, and Associate Professor at the School of Management, Presidency University, Bangalore)
