New Rules of the Global Marketplace - Hindu Business Line Op-ed

By Adhvith Dhuddu
(Op-ed as appeared in the Hindu Business Line on January 13th, 2010)

A decade of boom and bust has culminated in a new set of global standards even as India's image has soared as a credible survivor of the financial crisis.

The first decade of the 21st century has been unprecedented in many ways with the tech bust in the early 2000s, the rise of the BRICs and other emerging economies, the commodity boom and of course, the global financial mess in the recent years. As we enter the last lap of this decade, there are many “new normals” that have been scripted in the Indian and global context.

There is a new normal in the global economic playing field: Regulatory shackles have resurfaced prominently in the western world and government is back amidst “free markets.”

Developed economies, led by the US, rewrote the rules of global finance during the crisis, which will have ramifications in the American, European and Asian continents. As countries, companies and individuals emerge out of this crisis, everyone can be sure that it's not going to be business as usual at least in the near future.

Power shifts pose problems for U.S.

Adhvith Dhuddu, CT Regular Columnist

Wednesday, January 23; 12:00 AM

The rise of BRIC countries (Brazil, Russia, India, and China) in the last decade has transformed the world in many ways. Significant changes in political, economic and social battlegrounds will result in a power struggle and the future will see a shift in the balance of power. Prosperity and economic muscle will dictate in large part the new power centers of the world.

The United States largely derives its superpower status from its resilient economy, powerful military and terrific political and legal structures. The U.S. will continue to remain a superpower but will lose a significant amount of its market share in the global power equation over the next few decades.

A slow migration of power to the East is a phenomenon that is already underway. Although many Asian countries are not necessarily beacons of economic and political freedom, the potential muscle they will obtain cannot be ignored. India and China, commonly referred to as "Chindia," are poised to be leaders in Asia, offering remarkable opportunities in many arenas.

China's story is an awe-inspiring one. For more than two decades it has experienced positive GDP growth at close to 5 or 6 percent compounded. It has become a country with the highest number of mobile phone users, highest number of engineering graduates, largest producers and consumers of steel and other metals, largest textile market and second largest energy market, and it still has a long way to go. One can only comprehend the advancement of China by visiting and exploring the country.

India is not far behind at all. It, too, boasts similar accomplishments and is on track for long-term financial stability and sustainable economic growth. With the advantage of a democratic process, free press and dominant English-speaking population, the future clearly looks sanguine.

Thomas Friedman eloquently described the rising economies of India and China in an interview a few years ago. "India and China," he said, "are two six-lane super highways. In China, the super highway looks excellent with perfectly paved roads, clean sidewalks and bright streetlights. Here there are one billion people traveling at a very fast pace. Often there is a speedbump called political reform and at such a high speed, some people get thrown out and left behind when they land back on the road with a thud. So what matters here is not the pace of reform but how well the economy and politicians can drag along over a billion people to avoid an internal uprising by the ones left behind."

"In India on the other hand, the superhighway is not very well done with many ditches and holes, broken streetlights, wrecked sidewalks, etc. Here one billion people are traveling at a normal pace but off in the distance, it smoothens out into a perfect six-lane superhighway with shining bright lights, no potholes, no bumps and a buoyant future. But the only question here is whether this image is a mirage or an oasis. So what matters here is India has the potential to become prosperous if they can overcome many economic and political barriers."

Two other important geopolitical regions in the coming decades are the Middle East and South America. Often our perception of the Middle East is clouded by the war in Iraq and tensions with Iran. This region is flush with cash and young people are more capitalist than ever before. Economic and financial hubs such as Dubai and Abu Dhabi are ever expanding, offering some remarkable opportunities. Other countries such as Bahrain, Egypt and Oman are quickly moving up the economic ladder, welcoming new businesses and investments. Many of these countries fared extremely well in a recently released report discussing the ease of doing business in different nations.

South American economic powerhouses such as Brazil and Mexico cannot be ignored. Brazil is a BRIC country and economists predict Brazil to be one of the top five countries (in terms of GDP) in a decade or two. Brazil has come a long way from a gloomy and murky economy to a vibrant, transparent and thriving one. It has reformed many policies by opening up its markets, established credible regulatory bodies to help sustain economic growth and become an energy-efficient nation. It fared extremely well in the ease of doing business report.

We can only hope that this rebalancing of power unfolds peacefully and does not trigger a cold war between U.S. and China.

Online link to this column:

http://www.collegiatetimes.com/stories/2008/01/23/power_shifts_pose_problems_for_u_s_

New economic trend: When a country buys a company

Adhvith Dhuddu, CT Regular Columnist

Wednesday, December 5; 12:00 AM

"Singapore buys Burger King," "Norway purchases Bank of America" or "Saudi Arabia buys stake in Microsoft," could be some of the headlines you might come across in the future. A country purchasing a company might sound absurd, but a number of foreign governments are setting up sovereign-wealth funds to do just that.

Think of a sovereign-wealth fund as a mutual fund set up by a country. The primary sources of capital are the foreign exchange reserves held by the country and trade surpluses that have accumulated over the years. These funds invest in debt, equity and assets for long term capital appreciation, a steady flow of interest rate payments or dividends.

These wealth funds have gained prominence in the recent years and have simultaneously created a stir in some parts of the world. About 20 nations have a fund like this and are valued at approximately $3 trillion in total. These staggering numbers are reflective of the potential influence they can exert on the global financial system. In less than a decade, by 2015, these wealth funds will have close to $10 trillion at their disposal, making them dominant and influential players in the financial markets.

The petrodollar boom has boosted the fortunes of oil-rich nations and these countries (Saudi Arabia, Kuwait, United Arab Emirates and Russia) account for 70 percent of these funds. Cash flows to these nations are not slowing down anytime soon, and recipient governments are determined to put the excess cash to work. Heavy exporters of products and services (mostly southeast Asian countries) are the other major players.

Recently, the Abu Dhabi government bought a 4.9 percent stake in U.S. banking giant, Citigroup, for $7.5 billion. Reactions to this capital infusion were mixed, but two important and contradictory statements that capture the essence of the on-going debate are worth mentioning. The United States Treasury Secretary, Henry Paulson, expressed that foreign investments from sovereign wealth funds are welcome, and they represent the highest vote of confidence anyone can pay to the U.S. economy.

But, Sen. Evan Bayh (D- Ind.) raised a red flag by correctly pointing out that the lack of transparency in these funds undermines the theory of efficient markets and jeopardizes the proper functioning of the financial markets. Bayh's remarks raise a vital question about the true objectives of some of these funds. History is being created with the rise of these funds because such huge capital was previously invested only by private investors, banks and mutual funds for one purpose: to make money.

But now, the strategies of these government-controlled funds are being questioned, due to the increased risk of making investments for political rather than economic reasons. The temptation to exert political influence rises with an increase in capacity to buy strategic assets and natural resources of other countries. The close-ended and opaque approach adopted in handling these funds, without a doubt, raises significant and valid concerns.

Many economists have, however, been critical of some governments for allocating too much capital to these funds when poverty, unemployment and famine are rampant in their own backyard. They argue that governments are deviating from their primary functions: to improve the quality of life of their citizens.

The most vivid example is China, where poverty is widespread, and the gap between the wealthy and poor still exists. But the government sits on $1.5 trillion of foreign exchange reserves (highest in the world) and is exploring how it can expand its already existing $200 billion sovereign wealth fund.

Nobel Prize winning economist, Joseph Stiglitz, points out that the excess foreign exchange and trade reserves generated by Southeast Asian economies should definitely be put to use and not sit idle. But where the governments use these funds is pivotal to the success of the nation. Governments should invest in their people, infrastructure and education and not become a for-profit corporation.

Although these sovereign-wealth funds have not attracted widespread limelight, their rise will affect the global, political and economic arenas in the coming years.

Online link to this column:
http://www.collegiatetimes.com/stories/2007/12/05/new_economic_trend__when_a_country_buys_a_company

Money WhizDom: Living and prospering in a globalized world (CT Column 7)

by Adhvith Dhuddu, Collegiate Times Regular Columnist
Wednesday, October 10th, 2007

It's common knowledge that we live in a globalized, connected and flattened world compared to few a years ago.

Business can be sourced and sold in more places; people travel and interact more frequently, and the planet has become more balanced economically, socially and geopolitically.

Locally, the positive effects of globalization can be seen with the number of international students who want to pursue a degree at Virginia Tech, and other American universities has increased tremendously in the last decade. More of our professors and researchers are collaborating with scholars around the world (in India, China, Switzerland, France and Germany) rather than restricting themselves to just the United States. Exchange programs and international tie-ups for projects and other assignments are also constantly on the rise.

In addition to reflecting the victory of free markets and democracy, the fall of the Berlin Wall in 1989 also brought down trade and knowledge barriers. Although the U.S. leads in research and knowledge creation, other countries are catching up, and soon innovation in all fields will occur not only in U.S., but also in third world countries. Staying street smart in this flat world will keep you ahead of the curve in the Internet age.

The triumph of democracy, free trade and open borders can be seen everywhere (in innovation, education, research institutes, corporations, social movements) and more of this should be encouraged (this does not mean other forms of government and market systems are inferior).
We as students should take advantage of this fast transforming world to explore education, career and business opportunities abroad. This will widen our knowledge horizon, inflate our social comfort zone, and reduce our business costs. Not all of this could be done easily a few years ago.

Although globalization has been beneficial to a vast majority, its discontents have adversely affected some sections of the population. One major group that could have reaped the benefits of globalization, but have been plagued with corruption and injustice, are resource-rich countries.

The best examples include African countries (Nigeria, Congo, and Sierra Leone) and South American countries such as Venezuela and the Middle East. If the oil, diamond, coal and commodity money consistently generated in these countries were used intelligently, there would be less conflict and more peace in this world. More people want a piece of the pie ­— and the ones who control it don't want to let go — leading to corruption, injustice and low social and economic standards.

Also, the direct impact of globalization can be felt everyday with higher gas prices, smaller increases in wages, tougher competition from abroad, fewer subsidies for businesses, lower purchasing power of the dollar, etc. Many of these impacts are irreversible and to live more prudently in this flattened and transforming world, one has to recognize these changes and then act on them accordingly.

Tremendous credit has to be given to the recent wireless, digital, virtual and mobile revolutions which have propelled globalization and accelerated the flattening of the world.
A world devoid of these innovations would leave us handicapped in many ways. Faster communication lines under the sea and increasing number of satellites in space also helped speed up the transformation.

To stay informed and up to date on the new world mechanics I suggest everyone, irrespective of their major, read "The World is Flat," by Thomas Friedman and "Making Globalization Work," by Joseph Stiglitz. In addition to gaining knowledge of the flat world, you can plan and position yourself to explore opportunities around the world and not just stick to one country.

Online link to this article:
http://www.collegiatetimes.com/stories/2007/10/10/money_whizdom__living_and_prospering_in_a_globalized_world