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Covid is the final nail in the coffin of the western world: Former head of World Economic Forum

18 Jul 2020

“It is the end of globalization that was synonymous with America,” says Mr Claude Smadja, former Managing Director of World Economic Forum. According to him, the new phase of globalization would be more equal. “Covid crisis might be the final nail in the coffin of the western world,” he said, adding that China will emerge stronger after the covid crisis and the US will emerge weaker.

Mr Smadja presented his prognosis and prescription for the global economy to India’s management leaders in an online dialogue organized by All India Management Association (AIMA). Mr Sanjay Kirloskar, President, AIMA and Chairman and Managing Director, Kirloskar Brothers Ltd, moderated the discussion.

Mr Kirloskar pointed out that China was investing in global institutions to push its point of view in the world. He was disappointed that Indians tended to think only for the moment and not for the long term.

Talking about rapid deglobalization, Mr Kirloskar said that covid had provided fresh ammunition to the critics of globalization, as the virus had spread across the world through trade and travel. Moreover, the collapse of supply chains had created a mood for self sufficiency. “Covid crisis has exposed and deepened the fault lines in the international community,” he said.

Mr Smadja regretted that India was not doing a good job of attracting companies away from China during the ongoing reorganization of global supply chains. He said that Vietnam and Thailand were getting the maximum benefit whereas India was in the danger of getting caught between China and America. “India cannot be seen as a hedge against China. Delhi needs to do some strategic thinking,” he said.

On the border clash between India and China, Mr Smadja said that India could not afford to declare war on China, and at some stage it had to seek accommodation with China for its own sake. “National sentiments are important but…you need to turn the page,” he said. He gave the example of Germany finding ways to integrate with Europe despite persisting grudges and even building strong relations with Israel. Mr Smadja said that young entrepreneurs and innovators of India and China had told him that they wanted to work together; and, if 50 young business leaders from the two countries were put together for a few days, at least 25 new projects will result.

Mr Sudhir Jalan, Chairman, Neo Foods, wondered if India and China could partner economically because they were competing for the leadership of Asia. Mr Smadja remarked that the geography did not support such a competition. “India could be a partner in China’s economy and China could bring a lot to India’s infrastructure. Pity that there is a long-lasting antagonism,” he said.

Mr Rajive Kaul, Chairman, Nicco Group argued that India could not ignore the fact that China had claimed huge tracts of Indian territory and that it was surrounding India with investments in Pakistan, Sri Lanka and other immediate neighbours of India.

Talking about the post-covid world, Mr Smadja pointed out that the global economy would see its first recession in the post-world war era, and the sharp decline in national GDPs and sharp rise in national debts will destabilize global economy. “Despite massive injection of funds, the world is worried about deflation and not inflation, and that will have consequences,” he said. He added that there will be tensions because some countries would have deflation with high current account deficit while some others would have deflation but large current account surpluses.

Climate change activism would also prove to be a challenge to the global economic recovery, according to Mr Smadja. “The ecology movement wants to use covid crisis to drive change. That is making economic and corporate decision making difficult in Europe,” he said. He argued that in the short term, there was an urgency to revive the conventional auto, aerospace and aviation industries, as they were multipliers of economic activity.

Ms Rekha Sethi, Director General, AIMA appreciated Mr Smadja’s insights on China and appreciated his role in globalizing India.

The discussion was attended by more than 1400 management professionals via video conferencing and social media platforms.

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