Globalization 1.0 and 2.0

When I was a moody teenager living in a Lancashire mill town, the nearest bookshop was three bus rides away among the bright lights of Manchester. I’d ready pretty much everything of interest in the local library and school library (and thank heavens for those).

Luckily, the newsagent tucked away – on the bottom shelf in the far corner – some cheap paperback editions of classics. It seemed a more or less random selection but it did mean I devoured almost every novel ever written by Joseph Conrad. So I pounced on the paperback of Maya Jasanoff’s The Dawn Watch: Joseph Conrad in a Global World when I spotted it recently. It’s brilliant. Her basic argument is that Conrad is a novelist of globalisation – his novels: “meditate on how to behave in a globalizing world, where old rulebooks are becoming obsolete not nobody’s yet written new ones.” The term globalization dates from the 1980s but there was a late 19th and early 20th century version.

The Dawn Watch is so well written itself. One example: “History is like therapy for the present: it makes it talk about its parents.” The biographical tale zips along, interspersed with Jasanoff’s own travel adventures in Conrad’s footsteps – her trip to DRC and up the Congo, rereading Heart of Darkness bookends the biography. Jasanoff reflects on Chinua Achebe’s critique of Conrad’s novel as imperialist fiction, agreeing that it is a non-valid window on modern Africa. But she ends by concluding that while indeed the 21st century is not the 19th, the challenges of globalization are fundamentally the same as those Conrad identified: “The heirs of Conrad’s technologically displaced sailors are to be found in the industries disrupted by digitization. The analogues to his anarchists are to be found in Internet chat rooms or terrorist cells.”

I like this observation by Conrad himself, about fiction versus history: “Fiction is history, human history, or it is nothing. But it is also more than that; it stands on firmer ground, being based on the reality of forms and the observation of social phenomena, whereas history is based on documents … on second hand impressions.”

As it happened, I’d recently read Sven Lindqvist’s Exterminate All the Brutes, a quotation of course from Heart of Darkness. That’s an impassioned reflection on the legacy of European imperialism.

The other book I polished off this week was Peter Frankopan’s The New Silk Roads, the sequel to his best seller. Rather than a history, it’s a very readable account of the current context of the Belt and Road Initiative. Given that every day seems to bring some news about China’s initiative and projection of economic power, this is a timely book. I enjoyed its predecessor, The Silk Roads, more as I knew so little about the history of the region. But even if The New Silk Roads covers more familiar material, its Asian and China centric lens makes it well worth a read.

 

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The globots are coming

Richard Baldwin’s latest book, The Globotics Revolution, is a terrific primer on two trends promising to disrupt the world of middle class work in the rich economies. One is competition from ‘Remote Intelligence’ or in other words a tidal wave of talent in countries such as China and India increasingly well able to compete with better-paid professionals in the OECD. The other is comptition from AI, increasingly well able to compete with etc etc. Combine more globalisation and robotics and you get the ‘globotics’ of the title (a terrible word, but never mind). The book argues that the combination is something new and significant in scale, more than just a bit more of existing trends.

The bulk of the book considers each of the two elements in turn, providing excellent, accessible summaries of the economic research and the projections of the likely impact on work. Some of the forces identified may not manifest as fast as expected –  the spread of autonomous vehicles, for instance. The book is also more gung-ho about the continuation of Moore’s Law than many others who pay close attention to the computer industry.

I’m also a little sceptical about the extent to which remote workers will substitute for highly paid professionals, mainly because there is something separately valuable in the know how and experience gained from face to face contact in specific places. With hindsight, it was a mistake for so much manufacturing to be offshored because of loss of engineering know how (see for example this great article by Gregory Tassey); this will be truer in services. Mancur Olson’s point in Big Bills Left on the Sidewalk – that an immigrant to a rich country from a poor one becomes more productive overnight because of the social and physical capital around them in their new environment – applies.

Even so, the bottom line is that job disruption at the lesser and slower end of the range of possibilities will still have a profound impact on people’s livelihoods. We should be getting prepared. Baldwin argues that there is no mystery about the policies needed. He argues for Denmark-style flexicurity, with ease of being fired compensated by significant transitional funding and training – or even for slowing down the pace of change by making it harder to fire people (despite the evidence this contributes to high unemployment rates). With the need to prepare – and to implement far more effective policies than was the case in the earlier phases of deindustrialisation and automation – it’s surely impossible to disagree.

The book ends on an oddly positive note, given the jobs-ocalypse it predicts: “I am optimistic about the long run.” In the very long term it forsees an economy where the things machines (and I guess offshore workers) cannot do: more local, more human and more prosperous (thanks, robots!) society. “Our work lives will be filled with far more caring, sharing, understanding, creating, empathizing, innovating and managing …. The sense of belonging to a community will rise and people will support each other.” This is wonderfully upbeat, a world where machines do all the drudge work and humans brew craft beer and care for each other. It’s hard to see how to get there from today’s fractious world where the absence of a sense of community is pretty manifest in many places and only the few can afford the craft beer. I hope he’s right, though.

Agree with the book’s rosy long-term vision or not, it’s a thorough introduction to the economic debates about globalization and automation, and the forces that are going to change our world in the next few decades, populist backlask or no.

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Straight talk from Dani Rodrik

The legion fans of Dani Rodrik will love his new book, Straight Talk on Trade. I’m one of them, and massively respect him for warning all the rest of us economists about the political economy consequences of globalisation long before these became obvious. As he writes in the last chapter of this new book, looking at recent voting trends in many countries,  “It is dawning on economists and policymakers that they severely underestimated the political fragility of the current form of globalization…. This backlash was predictable.” He has the sombre pleasure of having predicted this for a couple of decades now.

Regular readers will find many of the thoughts in Straight Talk familiar from previous books such as The Globalization Paradox and Economics Rules, and from papers such as Rodrik’s work on ‘premature deindustrialization‘. The new book updates the issues for the present context of the political success of anti-globalizers, nationalists, statists. It argues that there is little evidence of a major retreat from economic integration, and that the rhetoric and headline measures are a useful safety valve. “What looked to contemporaries like damaging protectionism was in fact a way of letting off steam to prevent an excessive build up of political pressure. … [W]e need to place the requirements of liberal democracy ahead of those of international trade and investing.”

I’m in two minds about this line of argument. It is undeniably true that the dogma of globalization gave cover to a lot of toxic practices, from financialization and speculation to multinational tax avoidance. However, I fear the protectionist, nationalist rhetoric will create its own reality – I found the argument in The Weaponization of Trade by Jack and Rebecca Harding persausive on this. Nor am I as sure about the ‘continued resilience of the nation state’ – and see its potential fracture as a dangerous moment.

On the questions of domestic economic policy and industrial policy, though, I’m 100% with Rodrik’s argument. He points out that the policies labelled ‘structural reform’ (econ jargon for politically very difficult measures) “were only loosely correlated with turning points in economic performance.” There are no silver bullets. Rather, growth take-offs “were associated with a targeted removal ofkey obstacles to growth rather than broad liberalization and economy-wide reforms.” Measures need to be targeted, and political capital and administrative resource needs to be focused on areas where there will be an early return. “In economies that suffer from multiple distortions, small changes can make a big difference.” The best policy advice is to experiment, and try local institutional innovations.

Reflecting on the lessons of past growth take-offs and failures leads into a section on the role of economics and economists – some of this familiar from Economics Rules. Economists must pay more attention to politics if they are giving policy advice, he argues, and in particular to the scope for political innovations – ideas that can durably relax political constraints and enable measures that make people better off without threatening political upheaval. Or in other words, enable the capture of efficiency gains while more or less protecting the economic rents of existing elites. Rodrik draws an interesting parallel with technological innovations, and the role of policy entrepreneurship, learning by doing, learning by experimentation, copying, serendipity and not forgetting the role of crises. “Taking ideas seriously renders the notion of interests slippy and ephemeral. Interests are not as fixed as other economists, such as Daron Acemoglu, suggest. People may need a new idea to appreciate their interests in a different, more accurate, light. “Raising the profile of ideas would also help alleviate the tension that exists today between political economy on the one hand, and normative economics and policyy analysis on the other.”

Looking at the current political context, some new ideas are surely needed, especially when it comes to global trade and investment. Rodrik has written elsehere about the need for New Rules for the Global Economy, and argues again here that the conventional policy suggestions will fail.

Straight Talk ends on a potentially optimistic note, however: “If one lesson of history is the danger of globalization running amok, another is the malleability of capitalism.  … It was not tinkering and minor modification of existing policies that produced these achievements [the New Deal, Bretton Woods], but rather radical institutional engineering.” If big, bold ideas can be implemented, the liberal democratic order may be reinvigorated. Looking at the present crop of politicians, this is only a slightly comforting thought, but I for one will take that sliver of comfort.

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The weaponization of trade

The latest Perspectives title is here. It’s The Weaponization of Trade by Rebecca Harding and Jack Harding (respectively a trade economist and a security researcher), and it couldn’t be more timely. The book looks at the shift from trade as an issue debated squarely in the economic domain to trade as a tool of politics and international relations.

The argument is that there economics and politics are always at play in trade policy, and they need to be in balance, with neither set of criteria dominating the other. Too much focus on economics, and the distributional – and hence political – consequences get overooked. Too much focus on politics and the chances are that there will be economic damage. We are in one of the latter phases – the Brexit “negotiations” and Donald Trump are both gifts that keep on giving in the context of this book. The rhetoric shows that politicians are conceiving of trade as a tool of state strategy (not necessarily effectively, either). These periods are never pretty in terms of their economic consqeuence. “Weaponized language has the capacity to do lasting damage,” they write. It is perfectly valid for trade to have regard to national interest, but the weaponized language of national interest is as dangerous as weapons can always be.

The joint disciplinary perspective really brings this argument to life. The economics draws on the Krugman tradition of analysing strategic trade. The security dimension, locating trade policy alongside other security issues, is illuminating. And Donald Trump makes this more timely reading every day.

By the way, the most recent preceding Perspectives were the outstanding Before Babylon, Beyond Bitcoin by Dave Birch and Britain’s Cities, Britain’s Future by Mike Emmerich. Upcoming titles cover digital organisations and driverless cars…

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Is it really curtains for globalisation?

Finbarr Livesey’s From Global to Local: The Making of Things and the End of Globalisation is a terrific read, although I’m not completely persuaded by the argument that the transformation of production by global supply chains will be reversed. In fact, the book gives a nuanced and highly informative account of why firms manufacture what they do where they do – making, too, the entirely valid point that the political context is highly uncertain and we could be seeing not only a retreat from hyper-globalisation but a full-blown canter toward nationalism and protectionism. The world has seen such unwindings before.

The first part of the book describes how the increasing specialisation of manufacturing, enabled by technology and declining transaction costs, led to the development of long cross-border supply chains. It then goes on to roll forward the evolution of both transport/transactions costs and automation, covering issues such as containerisation and shipping costs, the oil price, the move to regional trade deals, and agglomeration economies. These are some of my favourite subjects, and these chapters give a very nice synopsis of the economic issues.

However, one of my queries about the argument arises in the section on agglomeration. The suggestion here is that the economic forces of agglomeration apply to cities in developed economies but perhaps not so much in the emerging markets. “One of the open questions is whether the massive collection of companies making so many things in southern China has become a self-reinforcing cluster, a location with its own internal gravity binding manufacturers to it for a significant time into the future. …. [G]iven the rise of automation and the desire of leading firms to retain design and intellectual property control over their products, some of the clustering forces for places like Guangzhou and Shenzhen may not be as strong as thought at first glance.” My guess – no more than that – is that while automation will lead to some ‘reshoring’, as Livesey suggests, the Chinese manufacturing centres do in fact have some distinctive capabilities: the ability to manufacture to consistent standards on a large scale; unparalleled logistical expertise; and growing R&D/design capabilities in a number of products from clothes design to renewables.

Having said that, the book is very strong in describing the complexity of the production decisions facing manufacturers now, and there is loads of interesting detail. One chapter covers environmental issues, including the now widespread drive to reuse and recycle (IKEA is a nice example here). Another looks at trade policy and politics, and the importance of proximity (hello, Brexiteers!), leading some companies to switch their focus from exporting to markets to owning production assets in those markets: “Government regulations on foreign ownership will become the new trade barrier,” as otherwise companies may not be able to access certain markets at all. There is a chapter about automation and additive manufacturing, and the implications of smaller factories, with lower retooling costs, becoming economically viable. Labour costs will become steadily less decisive as a reason for locating production in an emerging economy (although I think that reason has been over-stated sometimes.)

All in all, Livesey predicts: “[I]t is likely we will see anything from a 20-30% fall in global merchandise trade (services are not affected the same way) over the coming decade.” This is quite a bold prediction, implying a big restructuring of production and diminution in importance of cross-border supply chains, given how much of merchandise trade now consists of components rather than finished products. I’m not sure about this, yet do agree with that the technological, political and economic conditions that shaped the world of global supply chains are changing substantially.

From Global to Local makes a great combination read with Richard Baldwin’s The Great Convergence published earlier this year. They offer two different sets of lenses on the organisation of the world of production. One could add Stephen King’s Grave New World, a pessimistic, big picture perspective on global political economy.

Reflecting on these three recent books, they need to be combined with looking at implications for employment and incomes. As David Autor pointed out in his IFS lecture last week, trade has contributed enormously to the biggest decline in poverty recorded in human history as China has grown – and the loss of jobs, income and status among some (not very numerous) groups of people in the west, a narrow but deep cost of technology & globalisation. We surely need to think much harder about the social and economic welfare implications of current trends, including whose welfare, given how badly prepared economists and politicans were for the implications of past developments. Globalisation and automation started to eat western livelihoods around 1980, and the failure to make sure those who lost out were properly compensated with appropriate policies goes quite a long way to explain today’s politics.

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