BOOK REVIEW
Intro: Globalisation has developed in waves. First it was free movement of goods, then ideas. The free exchange of people will be the hard part and likely to be problematic.
FORMER US President Bill Clinton once referred to globalisation as “the economic equivalent of a force of nature, like wind or water”. The concept, which has had a major impact on world trade and markets, pushes countries to specialise and swap. Such a force of inertia makes countries richer, but one in which the world becomes smaller. In this book “The Great Convergence”, by Richard Baldwin, the author, a Geneva-based economist, adds an important caveat. Like wind and water, he argues, globalisation is powerful, but can be inconstant or even destructive. True. How often have we heard and witnessed the erosion of local markets to the price-dominance of globalisation? Unless beloved nations catch up with reality, politicians will be pushed to make grave mistakes.
In an economist’s ideal world, things, ideas and people would flow freely across borders. Reality is less pragmatic, stickier, and often far less mobile in terms of movement. Historically, constraints on trade once bundled consumption and production together, limiting its growth.
Mr Baldwin’s grand theory of globalisation is of a series of unbundlings, driven by sequential collapses in the cost of moving things and ideas across cyberspace. From the domestication of the camel around 1,000 BC to the first commercial steam engine in 1712, the first great wave of globalisation unbundled production and consumption. From 1820, prices in Britain were set by international demand, and consumers were offered an increasing range in diversity of goods and services. Café goers, for example, could sip Chinese tea sweetened with Jamaican sugar.
Although moving goods became cheap, it wasn’t until the end of the 20th century that expensive prices for moving ideas became more affordable for most. Mr Baldwin invites readers born in the mid-1960s to remember the price of making an international call at $5 a minute, or the $50 price of sending a single document by an overnight courier. Industries clustered by default. The centres of economic activity emerged in those countries we now know as the G7. In this form of globalisation, national groupings of ideas and workers battled for market share, and became richer in the process. Mr Baldwin uses the analogy of two sports teams swapping players to improve their performance.
Since the 1990s, however, globalisation has changed radically. The internet has lifted the cost of moving ideas, and fuelled a second unbundling. Because co-ordinating international production is now much cheaper, faster and safer, supply chains are afforded the enormous benefit of ignoring borders to go sprawling across the world. Thus, a Canadian aeroplane-maker can direct a team of Mexican engineers. Apple can combine American design with Chinese assembly lines. With many products made everywhere, trade has become, in effect, denationalised.
The pace and speed of change and the now modern ease with which rich-world companies can outsource work have eliminated the old boundaries around knowledge. But in doing so has created a new, more unsettling trade landscape. Once, textile-mill workers in South Carolina had exclusive access to American technology. Although some may suggest that they have lost out to competition from Mexican workers, more accurately they face an altogether more formidable competitor: Mexican workers have been made more productive by American know-how.
Continuing the sports analogy, Mr Baldwin implies that today’s trade is like the coach of a top team being allowed to offer his services to those less successful. The coach gets rich from the double market for his services, while the better team gets a sudden surprise from the newly skilled competition. Mr Baldwin makes the inference that discontent with globalisation stems in part from an “ill-defined sense that it is no longer a sport for national teams”. The sporting parallels offered by the author are well placed and provides the reader with an insightful grasp of the magnitude of issues that globalisation encompasses.
Raising tariffs to placate or appease voters in protecting its national goods and services is a mechanism and tool best suited to the 19th or 20th century, not one that should be utilised in tackling 21st century globalisation. Given the new world of global logistical supply chains, a tariff is like erecting a wall in the middle of a factory. Mr Baldwin’s 21st-century policies involve setting common rules and standards to make companies feel secure that their supply chains will work. These are the goals of trade deals like the Trans-Pacific Partnership (TPP), or Britain’s membership of the European Union’s custom union – both of which are under threat. He says little on how to win over disgruntled voters, save a few lines on support for workers rather than jobs, and a vague plea that gains should be shared between winners and losers.
Critical also of the author is that he appears too sanguine about the politics of globalisation. A bright and rosy vision of the future imagines globalisation totally unshackled from its third constraint, as labour will invariably become replaced with robots and people being more routinely allowed to offer their services remotely.
– The Great Convergence: Information Technology and the New Globalisation, by Richard Baldwin, is published by Belknap at $29.95 and £22.95.
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