Tags:
Journalism of Courage
While the voters contemplated their choice, the world’s leading investors were voting with their money and the prospects do not look good for the US. The Paris-based Organisation for Economic Cooperation and Development (OECD) has released figures showing that last year, for the first time, China supplanted the US as number one destination for foreign direct investment (FDI).
The number two position went to France. Though FDI numbers fluctuate, one thing is clear. In this century, the US will have to fight for its piece of the global investment pie. The OECD report included another revealing statistic: Investment flows into emerging economies soared between 2002 and 2003 with investors pumping more than six times as much into developing markets as they did in the previous year. OECD analysts concluded that the primary reason for this redirection in FDI was not because countries like China offered cheap labour. Rather, it was the promise of a large market in the future. At the same time, the image the US is presenting to global investors is increasingly tainted by its apparent disregard for both economic and diplomatic fundamentals.
There are a number of domestic economic problems that are more scary than a terrorist attack in the US. There is the record-breaking budget deficit that is likely to amount to US $5 trillion over the next decade and a burgeoning trade deficit. And the US $ 72 trillion in unfunded future retirement and health care obligations to the citizens. And a record low savings rate, which suggests that the country would need even more help with retirement funding. And the haemorrhaging of manufacturing jobs and the cost of fixing the dysfunctional health and energy systems.
Even more important is the growing tension between developed and emerging nations, as a billion new workers from the emerging world would compete for their place in the global economy. Emerging economies depend on change. Advanced markets are comforted by the status quo. This is the bipolar reality that has replaced the Cold War.
Is there a lesson for India to learn? Take Singapore, a relevant example, because it faces smaller-scale versions of the problems that beset the US economy. It has to compete with much cheaper labour and much larger markets available in its Asian neighbourhood. Every couple of years Singapore government officials proactively seek the advice of private business leaders and other experts and come up with a National Economic Strategy that reorients public policy — tax laws, worker training, industry regulation — to strengthen competitive industries and shore up weak aspects of the economy. The results of this approach are obvious. Singapore’s economy is growing at an annualised rate of 11 per cent (about three times that of the US and twice that of ours), a remarkable pace for an economy that is already so advanced. The US has no such formal strategy nor any systematic process for devising one and this is a mistake. Nor does India have one. Like the US, India has a National Security Agenda. But, there is little point in producing a national security strategy if India ignores the wellsprings of that security — the economic strength that must underlie the military strength. Consider, for example, the almost non-existent public health care system. If one takes the example of the US, at General Motors the cost of employee health care now exceeds the cost of steel. That is the kind of labour cost which drives foreign investors and domestic companies overseas.
The Indian government, on the whole, is yet to realise the crucial fact that health care is a central employment issue and lost employment is an economic security issue. This is a cold, hard reality. And every minute we ignore the problem or fail to view in strategic terms, we are losing ground. Health care should become a top priority in a thoughtful National Security Strategy, as should education and investment in infrastructure. Addressing these areas would mean creating jobs and that is a much more positive, proactive approach to protecting the workforce, than reactive, punitive trade strategies that produce tensions with our trading partners.
Meanwhile, India will have to do a lot more to promote our investment advantages abroad. We have agencies like the APEDA that promote exports, but none to promote foreign investment on Indian soil. We have agencies that help insure and support Indian companies investing overseas. At the same time we do not have any that do the same for companies investing here. Scores of our foreign competitors do have such programmes. For them, investment promotion is a top international economic priority. Why should India lose ground to them?
It is high time that New Delhi established a central authority to make certain that we use all available tools to create an attractive climate for foreign investors. And minimise political noise to the lowest decibel.
