THE GREAT CONVERGENCE Information technology and the New Globalization
THE GREAT CONVERGENCE Information technology and the New Globalization
© Richard Baldwin 2016 The Great Convergence, Harvard University Press
Terms of use: You may use these slides under the Creative Commons “Share Alike” provisions https://en.wikipedia.org/wiki/Creative_Commons_license Specifically, you must cite my book, “The Great Convergence: Information Technology and the New Globalisation”, Harvard University Press, 2016 when using them.
A NEW BOOK BY RICHARD BALDWIN H a r v a r d U n i v e r s i t y P r e s s , N o v e m b e r 2 0 1 6
P R O F E S S O R O F I N T E R N AT I O N A L E C O N O M I C S THE GRADUATE INSTITUTE I GENEVA
FACTS
Manufacturing & GDP shares shifted from G7 to a few developing countries (“Shocking Share Shifts”)
I6: China, Korea, India, Poland, Indonesia, Thailand © Richard Baldwin 2016 The Great Convergence, Harvard University Press
NEW GLOBALISATION
Result: The ‘shocking share shift’ in global manufacturing
US
China
Japan
Germany
Italy
UK France
Canada0%
5%
10%
15%
20%
25%
30%
19 70
19 75
19 80
19 85
19 90
19 95
20 00
20 05
20 10
Korea
India
Indonesia
Poland
Thailand
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
19 70
19 75
19 80
19 85
19 90
19 95
20 00
20 05
20 10
© Richard Baldwin 2016; The Great Convergence, Harvard University Press
• Globalisation was disruptive in G7 – Labour’s GDP-shares fell; Reward to knowledge rose.
• Globalisation was cohesive in emerging markets – Middle class flourished; 650 million rose out of poverty.
• Many developing nations de-industrialised “prematurely.”
• Nature of trade agreements changed – “Hyper-globalisation.”
FACTS
Globalisation’s asymmetric impacts & “hyper-globalisation”
© Richard Baldwin 2016
© Richard Baldwin 2016 The Great Convergence, Harvard University Press
BROADER PERSPECTIVE ON GLOBALISATION
Focus on 3 costs that form 3 constraints on globalisation
© Richard Baldwin 2016
© Richard Baldwin 2016 The Great Convergence, Harvard University Press
PRE-GLOBALISED WORLD
Production & consumption are “bundled” geographically; little trade
© Richard Baldwin 2016 The Great Convergence, Harvard University Press
PRE-GLOBALISED WORLD
Isolated production & high cost of communication meant slow growth
© Richard Baldwin 2016 The Great Convergence, Harvard University Press
PRE-GLOBALISED WORLD
Per GDP growth stagnated from year 1 to 1700
© Richard Baldwin 2016 The Great Convergence, Harvard University Press
PRE-GLOBALISED WORLD
Result: “The Great Stagnation”
© Richard Baldwin 2016 The Great Convergence, Harvard University Press
AROUND 1820
Steam Revolution & Pax Britannica lowered the cost of moving goods
© Richard Baldwin 2016
© Richard Baldwin 2016 The Great Convergence, Harvard University Press
‘OLD GLOBALISATION’ STARTS
Low trade costs made high volume trade feasible; Comparative advantage made it profitable
© Richard Baldwin 2016
© Richard Baldwin 2016 The Great Convergence, Harvard University Press
OLD GLOBALISATION
As markets expanded globally, production clustered locally (to reduce communication costs, not trade costs)
© Richard Baldwin 2016
DISPERSED PRODUCTION
© Richard Baldwin 2016 The Great Convergence, Harvard University Press
OLD GLOBALISATION
Micro-clustering fostered innovation & ignited bonfire of innovation & modern growth
© Richard Baldwin 2016
CLUSTERED INNOVATIONDISPERSED INNOVATION
© Richard Baldwin 2016 The Great Convergence, Harvard University Press
OLD GLOBALISATION
Industrialisation: Virtuous cycle for North; Vicious cycle for South
© Richard Baldwin 2016 The Great Convergence, Harvard University Press
OLD GLOBALISATION
High communication costs meant G7 innovations stayed in G7 nations; Knowhow imbalances appeared
© Richard Baldwin 2016
20TH CENTURY IMBALANCEPRE‐GLOBALISATION
Poor nationsRich nations
© Richard Baldwin 2016 The Great Convergence, Harvard University Press
OLD GLOBALISATION
Result: “The Great Divergence” (1820 to 1990)
© Richard Baldwin 2016
© Richard Baldwin 2016 The Great Convergence, Harvard University Press
AROUND 1990
Revolution in information & communications technology (ICT) lowered the cost of moving ideas
© Richard Baldwin 2016
© Richard Baldwin 2016 The Great Convergence, Harvard University Press
ICT REVOLUTION LAUNCHES THE ‘NEW GLOBALISATION’
Lower communication costs made offshoring feasible; Vast wage differences made it profitable
© Richard Baldwin 2016
© Richard Baldwin 2016 The Great Convergence, Harvard University Press
NEW GLOBALISATION
To ensure offshored production meshed seamlessly, G7 firms offshored knowhow with the jobs
© Richard Baldwin 2016
KNOWLEDGE STAYS AT HOME
© Richard Baldwin 2016 The Great Convergence, Harvard University Press
NEW GLOBALISATION
The new ‘hi-tech-low-wage’ mix shifted manufacturing & knowhow massively to a handful of developing nations
PRE‐1990
© Richard Baldwin 2016
KNOWLEDGE IMBALANCE
© Richard Baldwin 2016 The Great Convergence, Harvard University Press
NEW GLOBALISATION
Rapid industrialisation produced the “Commodity Super Cycle”
Industrialisation rapid income growth for ½ of humans commodity demand “Commodity Super Cycle”
© Richard Baldwin 2016 The Great Convergence, Harvard University Press
0% 25% 50% 75% 100%
Australia
India
Brazil
Russia
Indonesia
Mexico
Poland
Turkey
Korea
China
Manufactures Services Primary
Rapid industrialisers vs commodity exporters Sector origin of value-added in export growth
0% 25% 50% 75% 100%
Canada
UK
US
France
Germany
Italy
Japan
Manufactures Services Primary
© Richard Baldwin 2016, The Great Convergence, Harvard University Press
NEW GLOBALISATION
Result: ‘The Great Convergence’ (1990 to 2014)
© Richard Baldwin 2016
© Richard Baldwin 2016 The Great Convergence, Harvard University Press
KEY IMPLICATIONS
#4) Face2Face is constraint binding, so New Globalisation leaves many developing nations behind
NO PIPELINE FOR FARAWAY NATIONS
© Richard Baldwin 2016 The Great Convergence, Harvard University Press
END – Thanks for listening
© Richard Baldwin 2016
© Richard Baldwin 2016 The Great Convergence, Harvard University Press
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