The theory of trickle-down economics, as propagated worldwide by economists of repute everywhere, has not worked the way it was supposed to have worked in theory. According to this theory, benefits given to the wealthy, and also the wealth created by them, trickle down to everyone else. The governments all over the world tend to provide such benefits in the form of tax cuts on businesses, high-income earners, capital gains, and dividends. Even subsidies of various kinds are also negotiated by governments to attract investments from outside to enhance the industrial activity and to boost industrialization and modernization in various priority sectors.
Globalization, when it started four decades earlier, largely relied on the trickle-down economics to justify barrier-free world trade. The key assumption underlining the trickle-down economics lies in the strong belief that says “benefits for the wealthy trickle down to everyone else automatically.” Under this theory, the real drivers of growth are assumed to be the rich people who primarily generate and multiply wealth like company owners, investors, HNIs with huge disposable savings. When the business environment is positive, banks tend to increase business lending. Business owners invest in their existing or new operations and hire workers. These workers also, in turn, spend their wages, driving demand and contribute to the economic growth.
As we observe, in advanced western countries, cracks have already appeared in the pillars of globalization and it is failing. They were expecting that tax cuts for the wealthy and for large corporations would incentivize individuals and large businesses, and result in ever larger profits and greater employment opportunities. Unfortunately, the profit side worked but the myth of job creation was busted. The process of Globalization, which was once hailed for delivering universal benefit, has now become an ugly word and faces a political backlash.
The Brexit vote was regarded as against free markets and free labor, against winner takes all capitalism that pits worker against worker; marginalized against marginalized. Similarly, in the rush for wealth creation, local population everywhere were really left behind. The wealth was, indeed created, but it never reached the have-nots. The main cause of the global collapse of globalization appears to be the jobless growth taking place everywhere resulting in rich getting richer and poor getting poorer.
The present era is that of ‘deal making’ – bilateral, multilateral, and even unilateral! That may actually be termed as “localization of the globalization.” Some may like to call it “reverse globalization.” However, still there is no clear-cut verdict on globalization as to whether it is dead despite it’s major failures. But what is certain is that if a brake is not applied to the present trend of one-sided wealth accumulation – fair or unfair – it will lead to people’s revolt. And I am sure no political dispensation anywhere in the world can afford not to address this critical issue and face extinction.
So far, ‘Make-In-India’ and ‘Ban China’ policies have turned out to be economically unviable. India’s future economic/industrial scenario will depend on what we do now to save India from the harsh realities of globalization.
G.D. JASUJA
Managing Editor