The Great Convergence – Information Technology and the New Globalization


The Great Convergence – Information Technology and the New Globalization

DATE: 10/03/2017

TIME: 12:00 PM to 2:00 PM

Event Report

Event report by Matt Blundell, Master of International Relations, University of Melbourne

In his new book, The Great Convergence: Information Technology and the New Globalisation, Richard Baldwin, Professor of International Economics at the Graduate Institute, Geneva, discusses the role of information and communication technologies (ICTs) spreading knowledge globally, to shape a new understanding of globalisation. Prof. Baldwin explored the question “What if globalisation was about knowledge instead of trade?” and set out to explain the idea that G7 countries’ (Canada, France, Germany, Italy, Japan, and the United Kingdom, and the United States) have off-shored not only labour but also knowledge to developing countries, seeing the rise of China and six rapidly industrialising nations (South Korea, India, Indonesia, Thailand, Turkey, and Poland).

On the back of anti-globalisation movements in developed countries in recent years, G7 governments face economic uncertainties in maintaining job security and competitiveness in global markets, as the globalisation of knowledge through ICTs has split the headquarters from the factories by moving them overseas to spread global shares of Gross Domestic Product (GDP) and production. The temptation of off-shoring to reduce overall production costs has supplied knowledge, skills and equipment to developing economies – facilitating middle-class growth, employing millions and fostering rising shares in manufacturing and global GDP – while the G7 economies’ shares decline.

Prof. Baldwin informed the audience that 2017 marks the 200th anniversary of David Ricardo’s theory of ‘comparative advantage’. Prof. Baldwin explored the influence of comparative advantage between 1820 and 1990, dubbed ‘Old Globalisation’ or commonly known as ‘The Great Divergence’ and cited the theory needed a “fresh lick of paint” for 2017. Prof. Baldwin analysed how the rapid industrialisation of G7 economies saw their shares of global GDP and manufacturing rise from 22% in 1820 to 65% in 1990, seeing ‘The Great Divergence’ of G7 economies from the rest of the world. Prof. Baldwin attributed this in part to the protection of knowledge and labour markets domestically (as international competition entered markets at the product level as jobs, manufacturing, and knowledge remained embedded within G7 economies). However, features of the global economy began to change in the 1990’s – seeing ‘Ricardo in reverse’ – despite G7 economies continuing to uphold comparative advantage as essential to economic growth.

From 1990-onwards, the era of ‘New Globalisation’ impacted labour and manufacturing markets in G7 economies, as firms headquartered in G7 countries used reduced costs in ICTs to contract manufacturers in developing countries. G7 firms have heavily pursued off-shoring jobs, technology, and knowledge to developing nations as G7 labour markets unionised, seeing profits affected by high wage and manufacturing costs. Developing countries can offer cheap labour and a willingness to rapidly industrialise and manufacture G7 firms’ products at lower costs. This is largely supported by the case of China. In 1990, China held just 3% of global GDP and manufacturing shares, and by 2010, this climbed to 19% of the world’s share. Prof. Baldwin calls this ‘The Great Convergence’, whereby global GDP and manufacturing shares decentralise from G7 economies, highlighted by the inclusiveness of developing nations. Global shifts of labour markets and knowledge has been accelerated by declining prices in information and communication technologies, which now sees international competition enter at the jobs and manufacturing stages, as opposed to previously at the finished product stage.

Postulating the future of globalisation, Prof. Baldwin indicates that the costs of face-to-face meetings is a constantly high expense for businesses. The growing industry of ‘tele-presence’ includes technologies that replace the need for face-to-face meetings, which can be conducted via high-definition screen projections or through holograms to feel as though meetings occur in the same room. This has gone as far as doctors performing surgeries on patients 400 kilometres away through ‘tele-robotic’ communication. The outlook for New Globalisation suggests that competition in manufacturing will primarily impact the ‘individual’, as anger and anxieties over job insecurity and the unpredictability of labour markets become uncontrollable, threatening the average worker, particularly in the developed world. Prof. Baldwin believes that comparative advantage now needs to be assessed at the individualistic level rather than the national level. The impacts of remote intelligence like tele-presence or tele-robotics creates greater disruption among rich nations as developing nations can look forward to growing opportunities in exploring new technologies with their highly-industrialised equipment and profitable labour markets.

So what does the future look like? Prof. Baldwin reflects that the past is nothing compared to the future and offered three interrelated approaches to combatting job insecurity. 1. We must accept 21st Century realities: New Globalisation has de-nationalised comparative advantage and knowledge flows will not be accepted and supported by Old Globalisation trade norms; 2. Rebuild the team: Enforce government protection of individual workers through income support schemes, education and retraining of disenfranchised workers; 3. Package it politically: “Trade policy in the service of society” to balance open trade with policies that support the economically marginalised. While these solutions can benefit G7 economies, huge labour markets especially in China and India could see a control of manufacturing stay in these developing economies.

Lastly, what about Australia? Prof. Baldwin suggests that Australia is an exporting nation alongside Norway and Iceland that has benefitted from the ‘commodity super-cycle’. This means that rapidly industrialising countries are still poor but catching up, though Australia has not been poor through this cycle and should maintain a strong and stable economy throughout the enduring super commodity boom.

Event Materials

The EU Centre on Shared Complex Challenges is co-funded by the European Commission and The University of Melbourne.