The Great Convergence: Information Technology and the New Globalization (英語) ハードカバー – 2016/10/17
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Between 1820 and 1990, the share of world income going to today’s wealthy nations soared from twenty percent to almost seventy. Since then, that share has plummeted to where it was in 1900. As Richard Baldwin explains, this reversal of fortune reflects a new age of globalization that is drastically different from the old.
In the 1800s, globalization leaped forward when steam power and international peace lowered the costs of moving goods across borders. This triggered a self-fueling cycle of industrial agglomeration and growth that propelled today’s rich nations to dominance. That was the Great Divergence. The new globalization is driven by information technology, which has radically reduced the cost of moving ideas across borders. This has made it practical for multinational firms to move labor-intensive work to developing nations. But to keep the whole manufacturing process in sync, the firms also shipped their marketing, managerial, and technical know-how abroad along with the offshored jobs. The new possibility of combining high tech with low wages propelled the rapid industrialization of a handful of developing nations, the simultaneous deindustrialization of developed nations, and a commodity supercycle that is only now petering out. The result is today’s Great Convergence.
Because globalization is now driven by fast-paced technological change and the fragmentation of production, its impact is more sudden, more selective, more unpredictable, and more uncontrollable. As The Great Convergence shows, the new globalization presents rich and developing nations alike with unprecedented policy challenges in their efforts to maintain reliable growth and social cohesion.
“An essential book for understanding how modern trade works via global supply chains. An antidote to the protectionist nonsense being peddled by some politicians today.”―The Economist
“[An] excellent book…Baldwin’s work seems likely to become a standard, perhaps indispensable, guide to understanding how globalization has got us here and where it is likely to take us next. There can be few more vital subjects today that will benefit from this sort of clear and comprehensive exposition.”―Alan Beattie, Financial Times
“Will surprise and illumine.”―Paul Collier, Times Literary Supplement
“There is much in this book to ponder.”―Tyler Cowen, Marginal Revolution
“In this brilliant book, Baldwin has succeeded in saying something both new and true about globalization.”―Martin Wolf, Financial Times
“Many books deal with various features of globalization. Only Baldwin’s deals with the logic of globalization. Globalization happens when the movement of goods, knowledge, and people is technologically possible and cheap enough to encompass the entire world. The first globalization was built on the movement of goods, the one we live today on the movement of knowledge and information, the next one will be built on the movement of people. It is a must-read for those who want to learn about the past and to peer into the future.”―Branko Milanovic, City University of New York
“Sheds a bright light on the nature of trade in today’s era―the ‘second globalization’ since the industrial revolution.”―Martin Wolf, Financial Times
“The first part of this book offers a breathtaking overview of the four phases of globalization that Baldwin argues have taken place during the past 200,000 years.”―G. John Ikenberry, Foreign Affairs
“It’s a very powerful description of the newest phase of globalization.”―Larry Summers, Five Books
“Offers a valuable summary of how we got to where we are now. It’s a narrative that bears retelling.”―Jane Humphries, Times Literary Supplement
The book is split into 4 parts. The author begins by giving the history of transformation of human labor into consumption. The author gives an intuitive overview of how self-sufficiency and subsistence living turned into agriculture and specialization. The author discusses how transportation of goods was very costly so trade was minimal despite the growth of cities which facilitated local exchange of specialization. The author then notes how steam and coal led to the decline of transportation costs which was the first major unbundling of production from consumption as production + transportation still led to large efficiency gains and comparative advantage drove development. The most recent stage of globalization the author highlights has been where stages of production have been separated and how supply chains taking advantage of specific comparative advantage has become more pronounced. This last part is the focus of the book.
The author moves to discuss the ideas set out in the first part with more depth in particular he focuses on how early stage globalization led to an industrializing "north" against a less capital intensive "south". The author focuses on the conflict between agglomeration benefits and the cost inflation that it creates. The North refers to Europe and North America and the South pretty much everything else. Despite cheaper labor in the south the comparative advantage of a industrialized country final good with ownership of the whole supply change produced cheaper goods net of transportation costs than the South with cheaper labor inputs. As a consequence the industrializing north had the positive feedback of further investment which led to further development and improvement in cost structure as productivity growth was faster than wage growth. The second unbundling which is what we are currently witnessing is far more dynamic and a partial reversal of the first unbundling. As the cost of interaction over space has declined it has allowed for the increasing subcontracting out of parts of the production process. The author discusses how this has been enabled by improvements in trade global governance structures and agreements surrounding property rights and recourse through the courts. The result of the decline in transaction costs of using a supply chain versus relying locally on the whole production process has been revolutionary for global trade. The offshoring of production has enabled the use of cheap labor and elevated intellectual property to drive the most recent leg of globalization which has led to the offshoring of jobs.
The author goes through cases of how production know how has been exported to where labor cost advantage is extreme. The examples include Mexico and China. On the other side of this has been the growth of service exports from the "North". The author spends time on policy as well and highlights the difficulties in trying to onshore labor given the global competitive landscape. Many of the examples are framed as situations where the corporate had no choice but to improve cost structure or lose business. As the impact of offshoring of labor is hitting the lower skilled labor pool, the need for safety nets is of great importance as is the need to continue to focus on where comparative advantage exists to drive productivity growth. This area is the trickiest but the author gives some good ideas on what to think about.
The great convergence is a good overview of how globalization has enabled the separating of location and time of production and consumption. It gives a human history of this decoupling to give the full context of today versus the past and it is done intuitively. How we deal with the frictions associated with globalization is a fierce topic right now and unlikely to be resolved anytime soon. Despite the social unrest associated with it, the dynamics as to why globalization is occurring and how offshoring has been enabled by the technological world we live in imply the need to rethink policy in an educated fashion is paramount. The great convergence gives a sense of the dynamics and challenges and is very much worth the time.