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Seeing Our Urbanizing Planet Like Satellites
Revolutionary changes in communication technology fundamentally changed globalization around 1990.Richard Baldwin, 2016. The Great Convergence: Information Technology and the New Globalization, The Belknap Press of Harvard University Press.
Source: https://www.hup.harvard.edu/catalog.php?isbn=9780674660489&v=1392752313000/_/jcr:system/jcr:versionStorage/b9/94/00/b99
Brexit, Trump, ongoing trade war between China and the U.S. …How should we understand globalization of our age?
In his new book, The Great Convergence: Information Technology and the New Globalization, Richard Baldwin, Professor of International Economics at the Graduate Institute, Geneva, proposes a broader view of globalization based on the changing relations between production and consumption.
In the very beginning, Professor Baldwin makes it clear that his book aims to change the way you think about globalization. The central assertion is that revolutionary changes in communication technology fundamentally changed globalization around 1990.
What exactly are these revolutionary changes? Baldwin uses two charts to illustrate his arguments.Globalization took a leap forward in the early 1800s, when steam power and global peace lowered the costs of moving goods. Globalization made a second leap in the late twentieth century when ICT radically lowered the cost of moving ideas. As Figure 1 shows, these two leaps— call them the Old and New Globalizations— had dramatically different effects on the world’s economic geography.
Modern globalization, which started around 1820, was associated with the rapid industrialization of today’s rich nations— represented in this chart by the Group of Seven nations, or G7 for short (United States, Germany, Japan, France, Britain, Canada, and Italy). From 1820 to about 1990, the G7’s share of global income soared from about a fifth to almost two-thirds. The upward spiral was checked from the mid-1980s and reversed around 1990. For the last couple of decades, the G7 share has been torqueing downward at a mighty pace. Today it is back to the level that it first attained at the very beginning of the nineteen century.Th is shocking share shift suggests that the nature of globalization changed radically around 1990.
Accompanying Figure 1’s “shocking share shift ” was a changeover in manufacturing. Today’s rich nations— which had seen their share of world manufacturing slip slowly since 1970— witnessed an accelerated decline from 1990 (Figure 2). The shift in global manufacturing shares was almost as stark as the “shocking share shift ” in Figure 1. From around 1990, the slide in the G7’s share accelerated and its share is now below 50 percent. Just six developing nations— which he calls the Industrializing Six, or I6 for short(China, Korea, India, Poland, Indonesia, and Thailand)— accounted for almost all of the G7’s decline. The manufacturing share of the rest of the world (RoW in them chart) was largely unaffected by these changes. Note that China is a real standout. Its share of world manufacturing (not shown separately) rose from about 3 percent to almost a fifth.
Outcomes of the first leap forward of globalization: from the early nineteenth century, falling trade costs fueled a cycle of trade, industrialization, and growth that produced one of history’s most dramatic reversals of fortune. The ancient civilizations in Asia and the Middle East— which had dominated the world economy for four millennia— were displaced in less than two centuries by today’s rich nations. Th is outcome, which historians call the “ Great Divergence,” explains how so much economic, political, cultural, and military power came to be concentrated in the hands of so few.
Outcomes of the second leap forward of globalization From 1990, the trend flipped; a century’s worth of rich nations’ rise has been reversed in just two decades. Their share is now back to where it was in 1914. Th is trend, which might be called the “ Great Convergence,” is surely the dominant economic fact of the last two or three decades. It is the origin of much of the anti-globalization sentiment in rich nations, and much of the new assertiveness of “emerging markets.”
A broader view of globalization
Baldwin proposes to see globalization based on the relations between production and consumption. For the majority of human history, production was forcibly bundled with consumption. Globalization can be thought of as a progressive reversal of this forcible bundling.
But the bundling was not enforced by shipping costs alone. Three costs of distance mattered: the cost of moving goods, the cost of moving ideas, and the cost of moving people. It is useful to think of the three costs as forming three constraints that limit the separation of production and consumption.
One of this book’s core assertions is that understanding the evolving nature of globalization requires a sharp distinction among these three “separation” costs. Since the early nineteenth century, the costs of moving goods, ideas, and people all fell, but not all at once. Shipping costs fell radically a century and a half before communication costs did. And face-to-face interactions remain very costly even today.
Thinking about why the sequence matters is facilitated by a new view of globalization—what I call the “three cascading constraints” perspective.
The pre- globalized world and globalization’s first acceleration
In the pre- globalization world, distance isolated people and production to such an extent that the world economy was little more than a patchwork of village- level economies. Things started to change when the cost of moving goods fell. Transport technologies improved in a process that fostered and was fostered by the Industrial Revolution. In his 2006 paper, “Globalization: The Great Unbundling(s),”he refers to this separation of production and consumption as globalization’s first unbundling.
First, markets expanded globally but industry clustered locally. As history would have it, industry clustered in the North. Th is Northern industrialization fostered Northern innovation, and since ideas were so costly to move, Northern innovations stayed in the North. The result was that modern, innovation- fueled growth took off sooner and faster in the North. In just a few decades, the resulting growth differences compounded into the colossal, North- South income asymmetries that define the planet’s economic landscape even today. In short, the Great Divergence was produced by the combination of low trade costs and high communication costs.
Globalization’s second acceleration (the second unbundling)
Globalization accelerated again from around 1990, when the ICT revolution radically lowered the cost of moving ideas. Th is launched globalization’s next phase— call it the “second unbundling” since it involves the international separation of factories. Specifically, radically better communications made it possible to coordinate complex activities at distance.
The second unbundling— sometimes called the “global value chain revolution”— redrew the international boundaries of knowledge. The contours of industrial competitiveness are now increasingly defined by the outlines of international production networks rather than the boundaries of nations.
ICT-enabled off shoring created a new style of industrial competitiveness— one that combined G7 know- how with developing-nation labor. Because this high- tech, low- wage combination turned out to be a world beater, the easier movement of ideas sparked massive North- to- South flows of know- how. It is exactly these new knowledge flows that make the New Globalization so different from the Old Globalization.
Globalization’s future: globalization’s third unbundling
Two technological developments might provoke such a plunge. Really good substitutes for people crossing borders to share “brain services” is the first. Such technologies, known as “telepresence,” are not science fiction. They exist today but they are expensive. The second would be the development of really good substitutes for people traveling to provide manual services. This is called “telerobotics” and it involves people in one place operating robots that perform tasks in another place.
Taken together, these developments may dramatically change the nature of globalization in coming decades. Both allow workers from one nation to perform service tasks inside another nation without actually being there. Such “virtual immigration,” or international telecommuting, would radically expand the range of jobs that are directly subject to international competition. Many menial and professional tasks in rich nations could be performed (remotely) by workers and professionals sitting in poor nations. It would also allow rich- nation professionals to apply their talents on a much wider basis.
Thus globalization’s third unbundling is likely to involve workers in one nation providing services in another nation— including services that today require physical presence. Or to use the unbundling theme, globalization’s third unbundling is likely to allow labor services to be physically unbundled from laborers.
What is new about the new globalization?
The New Globalization affects national economies with a finer degree of resolution. Twentieth-century globalization produced greater national specialization at the level of sectors. Lower trade costs thus tended to help or hurt whole sectors of the economy and the people working in them. Twenty- first century globalization, by contrast, is not just happening at the sector level; it is also happening at the level of production stages and occupations. As a result, globalization’s impact is more unpredictable.
Under the Old Globalization, nations could identify their “sunrise” and “sunset” sectors. No longer. Now we have sunrise and sunset stages and occupations in almost all sectors. As it turns out, one cannot accurately predict which stages and jobs will be affected next in a world where the contours of industrial competitiveness are defined by off shoring firms. The New Globalization’s impact is also more individual in the sense that the winners and losers are no longer mostly grouped by sectors and skill groups. Globalization’s impact can vary across workers who possess the same skill sets and work in the same sectors. Many nations have policies aimed at helping declining sectors and disfavored skill groups, but globalization’s finer resolution means that such policies are insufficiently nuanced to distinguish among today’s winners and losers.
The New Globalization’s impact is more sudden and more uncontrollable. The passage of time on the Old Globalization “clock” was marked in years, since that is how long it took for tariff cuts and transportation improvements to take effect. The New Globalization, by contrast, is more sudden due to the fact that it is driven by the doubling of transmission, storage, and computing capacity every year or two. As we have seen repeatedly in the last couple of decades, exponential ICT improvements can turn implausible things into commonplace things in a matter of months. The technical nature of ICT also means that national governments have less control over the New Globalization. The laws of physics make it easier to control the flow of goods than it is to control the flow of ideas. And politics reinforces the physics.
The New Globalization denationalized comparative advantage. G7 firms are leveraging their firm-specific know-how by combining it with labor in low-wage nations. With firms mixing and matching different nations’ sources of competitiveness, nations are no longer the only natural unit of analysis. Increasingly, the boundaries of competitiveness are controlled by firms who run international production networks.
To put it differently, the first unbundling was all about allowing nations to better exploit their comparative advantages. The second unbundling is much more about allowing firms to boost their competitiveness by recombining national sources of comparative advantage.
The New Globalization partly ruptured the compact between G7 workers and G7 firms. When technology was national, international wage gaps adjusted to international technology differences. For example, German wages rose when German technology advanced. The second unbundling partly disables this wage-technology equilibration process.
The New Globalization changed the role of distance. Standard thinking characterizes globalization as being mostly about goods crossing borders. Doubling the distance between markets is thus naturally thought to roughly double the trade costs. Applying this logic today is a misthinking of twenty-first-century globalization for a very simple reason. Cartographical distances affect the cost of moving goods, ideas, and people in very different ways. With the Internet, the cost of moving ideas is almost zero and varies little with distance. For people, however, there is a big difference between destinations that can be reached with a day trip and those further out.CityReads ∣Notes On Cities"CityReads", a subscription account on WeChat,
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