Home / Opinion / Columns /  How western MNCs weakened globalization by taking sides

The closing of McDonald’s in Moscow is bad news for the global economy. Whatever the military outcomes of Vladimir Putin’s war on Ukraine, its geo-economic consequences are negative for just about every country on the planet. Even if major economies manage to absorb some of the immediate shocks created by disruptions and sanctions, the global response to the war will shift public policies around the world in a regressive direction. I hope McDonald’s exit from Russia does not mark the end of a period of global growth and prosperity—India’s included—that began with the arrival of the golden arches at Moscow’s Pushkin Square in January 1990. But I fear it does.

The partisan behaviour of multinational companies (MNCs) and tech platforms has undermined the argument that they are more-or-less geopolitically agnostic, and good corporate citizens of the countries they do business in. While MNCs of the 1990s and 2000s were prepared to face domestic criticism for their political neutrality in foreign countries, the current generation has ditched that balanced approach. Not only have they taken the side of their home countries, they have advertised their stance as a form of corporate virtue signalling. As exiting the Russian market with uncertain prospects of return is costly, their political signals have more credibility than if they had employed mere rhetoric.

You might applaud their principled stand and sacrifice if you, like a lot of people, believe that Putin and Russia ought to be punished for violating international norms and imposing suffering on Ukrainians. The problem is, policymakers around the world will now perceive foreign companies as extensions of foreign governments and treat them accordingly. Indeed, what is the difference between TikTok or Huawei, which we rightly see as instruments of the Chinese state, and YouTube and Cisco, which have acted in accordance with the US government’s foreign policy? If Western firms have acted as the coercive front end of American and European policies against one country, Russia, how can we presume they won’t do the same with others?

If good relations with the West are a precondition for good behaviour from Western companies, nation-states are bound to limit foreign investment in their economies. You don’t even have to be an ideologue of autarky to arrive at this position. A simple risk management approach will suggest greater caution towards foreign investment. This will, no doubt, compound the challenges of global economic recovery in the wake of the US-China trade war and the pandemic disaster. Starting with data localization and greater regulation of technology platforms, we can expect governments to privilege national champions in critical sectors like defence, banking, finance, telecommunications and media.

A worldwide backlash against globalization, open economies and free trade is on the cards. It is unclear if leaders of the world’s biggest economies have the conviction, capability or political leeway to make a G-20-like attempt to find a cooperative route to prosperity out of this. After all, they created this mess in the first place. We do not have Reagan, Thatcher, Kohl, Deng and Yeltsin in charge today. My Takshashila colleague and fellow Mint columnist Narayan Ramachandran tells me that we are in for a period of economic Balkanisation, restricting access to technology, energy and food and driving up costs. Global cooperation on tackling climate change, stewarding an energy transition and combating pandemics, will be much harder. I must admit that I am under pressure to retract my bold prediction, made in 2020 that covid will be the last pandemic. Not because we won’t have the technology for it, but because we humans are not as smart as I believed.

A world dominated by economic nationalism cannot escape political conflict. After all, there are only two ways to get what you cannot produce: trade or theft. Countries that cannot obtain what they want through trade will have incentives to use force. Critics of globalization never quite understood that the free movement of goods, capital, people and ideas across national borders actually maintained world peace without claiming to do so.

At times like this, it bears repeating that high economic growth is in India’s national interest. It is the only known way to shift our people from poverty to prosperity. The strongest engines of our economy require an open world and good relations with the West. As does our ability to defend ourselves against our foremost strategic threats. So how New Delhi plays its geopolitical cards has a bearing on our future prosperity and security. India must champion global economic reconnection. With foreign investors wary emerging markets, India must position itself as a stable, secure and promising economy. We should create a middle path between improverishing autarky and risky laissez-faire.

We already have policy frameworks for a middle path. Promoting competition and preventing market domination is good economics and good strategy. Broadening and deepening trade with energy and defence suppliers can mitigate political coercion. ‘Bubbles of trust’ with countries of common interests and values can help manage geopolitical risks. But it is going to be hard work.

Nitin Pai is co-founder and director of The Takshashila Institution, an independent centre for research and education in public policy

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