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Outsource magazine: thought-leadership and outsourcing strategy | July 20, 2017

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Q&A: Chandran Nair

Q&A: Chandran Nair
Outsource Q&As

Chandran Nair is a Malaysia-born environmentalist, the founder of the Global Institute For Tomorrow (GIFT), and an internationally recognised speaker on globalisation and related issues. His latest book, Consumptionomics: Asia’s Role in Reshaping Capitalism and Saving the Planet, was published earlier this year. We spoke to Chandran about some of the themes he covers in this work, and the conclusions he draws – some of which make for pretty grim reading indeed…

 


 

 

Outsource: Chandran, thanks for joining Outsource today. Can you tell us a little bit about your latest book and the thinking behind the title?

Chandran Nair: This book is a call to action to Asian leaders: that it’s time to rethink the direction of economic growth policies and to reject the western led-consumption led model, if we are to have any chance of achieving prosperity; which itself starts with the meeting of basic needs. The core argument laid out in the book is that the consumption-led growth model must be redefined for Asia, going beyond the lazy claim that a combination of technology, free markets and finance will help over come the issues of constraints and limits, if global resources are to be sustained and even made available for future generations.

The message of this book, and thereby explaining the origins of the title, is that different models of capitalism will need to be created if prosperity for all can truly be realised. At the core of this will be the need to re-price resources and to put resource management at the core of all policy making. This in turn calls for strong governments.

O: What do you see as being the long-term consequences of the financial crisis for Asia specifically?

CN: Sadly as we have all seen at least in the West very little has changed. As Western governments have threatened to get tough with their financial institutions they have countered with threats to move their operations to Asia, clearly to take advantage of what they see as weaker regulatory conditions. Asian governments need to be wary as this has a precedent in history whereby the relocation of many global companies to Asia was based on exploiting the lax enforcements of regulation, thereby masking the true cost of their operations, especially their environmental and social operational costs.

In the immediate aftermath, after the rhetoric on better regulations and criminal action against wayward bankers and hedge fund managers, the next step was to turn to the Asian consumer to ‘rebalance’ the global economy. Western consumers were urged to save and spend less and Asian consumers were being urged – even by their own governments no less – to save less and spend more. After standing in the shadows of western economic hegemony for several centuries, this was a sweet pill for Asian leaders to swallow. Their time had come to shine, their state-managed (especially China) capitalism – varying in degrees across Asia – had come to bear fruit and the majority in Asia certainly believe it’s their right to take on the mantle of consumption-led growth.

This is what the book warns against. To have four to five billion Asians over the next two to three decades consuming like Americans, or even Europeans, is simply a very bad idea as the consequences will be catastrophic. It urges Asian governments to not have such blinkered views. But three years on little has in fact changed: Western economic models have not taken a radical shift to question their economic policies and have instead taken to talking about temporary austerity measures with the promise that the good times will be back. Asian governments simply cannot afford to loose this opportunity to question this model, reject it and engage in a bold political discourse with their populace to then create more equitable societies.

O: Asia is of course the home of a great deal of offshore activity, playing a fundamental role in global outsourcing – India, the Philippines and China are critical locations for many global organisations. Do you feel that this will now be the case indefinitely or do you see, for example, Africa and Latin America making inroads into Asian offshoring hegemony?

CN: If we leave aside my earlier remarks about the underlying premise of outsourcing strategies, which is in most cases to shift the true costs of goods and services (what is the true cost of an Apple iPad made by Chinese workers in a factory where there have been scores of suicides due to working and living conditions?): Asia’s leading role as the prime location for outsourcing is still I believe very strong. It’s not only still attractive in terms of regulatory, tax and labour costs (arguably they are exploited to reduce true costs) but also in its ability to produce a lot of highly skilled and diligent workers. This position could change however if Asia does choose an alternative route by recognising the flaws in the current model. China has already received a wake-up call with the financial crisis when Americans and others stopped consuming at their usual levels. Thus Asian governments are becoming aware that being the sweat shop and factory of the world is not a sound strategy for development.

As Asian governments and populations begin to question this model, Western companies may not find Asia as attractive as before as it becomes less economically advantageous for them. So yes, in this case then movement would potentially take place to Africa or Latin American countries, and they will need to decide based on recent lessons if this is the route to prosperity they want to embark on.

Although I do not go into much detail about these two continents in the book, my message is still the same; neither Africa nor Latin America can have it all either but they will become far more attractive to investors seeking to exploit these so called “competitive advantages” as their economic systems become more and more liberalised. However at present this situation is yet to mount any “serious threat” to Asia if one can call it that, unless skilled labour becomes in short supply. Though the likely scenario is that Asia will take up more of the higher skilled out sourced jobs. This certainly will have implications for employment in the West where one is already seeing the permanence of a certain level of unemployment, which has become a political issue and sadly giving rise to a growing fear of the rise of Asia.

O: The impact upon Asian economies of the expansion of global outsourcing has been profound and multifaceted. What do you see as being the most prominent consequences – economically, politically and socially – of the development of this model?

CN: As mentioned in my answer to Question 2 the economic impacts of global outsourcing continue to grow. Between 2003 and 2009 (according to IMF data, 2009) the average annual rate of growth for China was 10.38 per cent and for India this was 8.46 per cent with US lagging behind at just 2.47 per cent.

Asia has most certainly arrived on the political world stage. The challenge for Asian leaders and policy makers is to be able to translate their new-found economic power into political influence for the global good. They are now in a position to truly assert their influence on the most pressing needs of our time; to prevent the catastrophic impacts of climate change. If Asian leaders are able to chart this path then they need to be politically bold. Policy makers need to challenge conventional thinking and vested interests that suggest international cooperation is the only route to resolving global challenges. They need to challenge the commonly held belief that poverty and unemployment will be inevitable if they embark on a new course.

But for the West it will mean more jobs going to Asia. Inherent in the economic model of outsourcing is the objective of maximising profits by externalising true costs. Thus despite the rhetoric by MNC CEOs about creating jobs in their own economies, the truth of the matter is that they do not care where these jobs are created as long as these are at the most cost-effective locations. And in a way this is out of their control because their shareholders, who are global, do not care so long as quarterly targets are met. This is the conundrum.

O: Some of the most dynamic major Asian economies exhibit an incredible wealth divide. Do you see this changing as a result of increased total wealth?

CN: The countries are only now emerging from two to three centuries of colonial domination when not only were wealth disparities worse, they did not have any democratic rights. And populations have tripled in 60 years. The process of wealth creation and development has only been in place for about 30-40 years. Thus as many of these countries are coming from a very low base, post the usual colonial era trauma, it is sad but inevitable that the disparities will be wide.

I argue in the book that one of the reasons that this is so is because Asia in its post colonial euphoria did not take time to question the journey ahead and instead, as it was still intellectually subservient, it followed the only course on the menu: the Washington consensus on consumption-led economic development. If it does not reject this then not only will disparities get worse, the very basis for fair and equitable societies will be in danger and the resource implications will also be felt globally.

O: The “saving the planet” element of your book taps into a growing global
sustainability movement. Asia in particular faces a number of very serious challenges in environmental terms, from melting glaciers in the Himalaya through water toxicity to rising sea levels and much more: what do you think are the most serious of these; what will be the ramifications for the region over the next few decades if we don’t address these issues; and do you think we are even addressing them at all?

CN: Whilst threats to Asia arising from the pursuit of globalisation (which promotes the crude notion of “everything and anything for everybody”) will range from the excesses of the global financial services industry to the loss of culture and changing diets, for me the greatest impact lies in the issues surrounding the management of resources. Fossil fuels, forest products, fisheries, water and land, and the impact on humanity (including the potential for geo-political conflicts arising) are crucial to understand and take action on. In East Asia, Japan, South Korea and Taiwan – although their economies are developed – will not be able to escape the devastation that will follow if conflict over resources were to spill over into war. The rising demand from the west for cheap consumer products and the pressure for Asians to also consume more, together with the issue of food security all point towards a future where countries seek to secure their rights to access natural resources. Whilst this continues, natural habitats and local communities will continue to be systematically displaced all across the Asian region and globally.

Deforestation in Indonesia alone (to provide palm oil to feed the thirst for fast foods etc) has contributed to more than one quarter of all carbon dioxide emissions. Indonesia’s forest once covered 82 per cent of its country, in the last fifty years this has dropped to less than half. Pakistan was already one of the world’s most environmentally overstressed countries before the devastating floods swept through it in 2010. The future is no brighter. Even though India and China have faced gradual drops in the water available per capita it is Pakistan which faces the biggest threat of all. Agriculture is the largest sector in Pakistan and accounts for 96 per cent of all water withdrawals. This extraction is destroying the country’s water resources. Bangladesh will have more people affected by rising sea levels than anywhere else worldwide: approx 160 million people.

Many of these issues have their roots in local issues, some due to history and also in current mismanagement. But many of these are also rooted in the global economic model and the fact this is the most populated region of the world.

Sadly much of the sustainability narrative is a western one and thus not, in my view, intellectually honest. Too much of it is reliant on the western view that there are business solutions to these sustainability issues and that there can be no limits to growth or constraints because there are always business solutions.

There is a reluctance to accept that only governments can set sustainability agendas. At the core of the sustainability idea is the notion of less and companies do not “do less”.

O: What one change would you make to Asia if you could? 

CN: I think this question misses the point.  Asia cannot ‘change’ in that way as it’s not a homogenous entity – it’s a plethora of political and socio-economic systems, cultures and natural systems. What I would argue however is that what needs to change is the perception, held by many Asian leaders, that the growth path that Western economies have trodden for many decades – and which they have been told is superior – is the only one possible route. Asia needs to believe that it can take an alternative route recognising it has come late to the consumption party and it has far too many people to simply manufacture and consume its way to prosperity. And more importantly, believe it has the power to do so. As I argue in the book taking a different route which will deliver more equitable societies and protect resources will earn them the legitimacy they will need in a crowded and resource constrained 21st century. It will also be important for the rest of the world as Asia, especially China and India, will continue to shape the course of this century.

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