Summary:
Richard Baldwin describes the evolution of globalization in terms of stages in an unbundling process. The first and second industrial revolutions let to a spatial unbundling of factories and consumers. The social consequence were dire. Governments reacted by partially unbundling income and consumption. In the late part of the 20th century, as a result of ever-lower transport and labour costs, the factories themselves became unbundled as supply chains were internationalized. This caused relatively few problems as the manufacturing sector was greatly reduced by then. Around the start of the 21st century, the resolution of globalization increased further, as offices came to be unbundled next. Various service components are now being outsourced and offshored. This radically widens the circle of affected workers. The three key characteristics of this new wave of globalization are the unpredictability of its consequences; the suddenness with which it can affect jobs; and its greater resolution, acting on the level of individuals, rather than firms, sectors or skill groups. As was the case with the first unbundling phase, this latest wave of globalization will require a revamp of education policies, welfare states, and labour organisations. (Published: 04/09/08)
Notes:
- today's globalization is different
- been saying this for decades, but this time, it’s really different
- late 19th Century and first three-quarters of the 20th
- meant the spatial unbundling of factories and consumers
- costs of moving goods, people, and ideas fell rapidly
- steamships and railroads allowed things to be profitably made far from where they were consumed
- first (steam) and second (chemical/electric) industrial revolutions fostered and were fostered by the first unbundling
- these revolutions also transformed the skill mix a nation needed for succes
- universal, free, and compulsory primary education was one governmental reaction, but far from the only
- social consequences of the first unbundling were dire
- winners won more than the losers lost
- winner-loser pattern stressed societies to the breaking point
- governments reacted by partially unbundling income and consumption
- the ‘social market economy’ in Europe
- the ‘New Deal’ in the US
- late 20th century
- costs of moving goods, people, and ideas fell rapidly
- cheap and reliable telecommunications made it profitable to organise complex manufacturing tasks that previously required physical proximity
- factories were unbundled
- supply chains were internationalised
- today’s factories don’t make things
- they make bits and pieces that are assembled somewhere and sold somewhere else
- globalisation began operating at a higher resolution
- instead of harming or helping the fortunes a firm as a whole, it could reach right into the factory and help or harm a particular production stage, a particular department, or even a particular job
- due to the government’s earlier unbundling of incomes and consumption, the resulting winner-loser pattern caused few problems
- compared to those experienced in the 1920s and 1930s
- but: problems were small since the affected sector, manufacturing, was small
- two-thirds of Europe’s value added was profoundly non-traded
- two-thirds of Europe’s labour-force faced little international competition
- moreover the affected workers shared common traits
- low-skill, low-education
- government policies could readily be designed to redress their plight
- new century: new wave of globalization
- economic unbundling rolled on
- costs for ideas fall rapidly
- the cheap-and-reliable sharing of audiovisual material and documents in editable form combined with cheap-and-reliable continuous communication
- email and Skype instead of fax and phone
- since audiovisual and textual materials are critical to much of Europe’s service sector – as intermediate or final goods – the new wave of economic unbundling expands on a new axis
- in the New Century, Europe’s offices are unbundled
- various service components are outsourced and increasingly off-shored
- this radically widens the circle of affected workers
- three key elements of this high resolution globalization
- unpredictability
- winners and losers much harder to predict
- by their very nature, lower trade costs for goods tend to affect all traded goods in roughly similar ways
- this is why one could tell which sectors would win from further trade cost cuts.
- when the main barrier is the cost of exchanging information across distance (trading ideas), it is difficult to identify winning and losing tasks
- knowing the direct cost of telecommunications is not enough
- it interacts in complex and poorly understood ways with the nature of the task and the task’s interconnectedness with other tasks
- suddenness
- job which three years ago was considered absolutely safe may today be offshored to India
- reason for this suddenness lies in the nature of complex interactions within factories and offices
- telecommunication costs have fallen rapidly but the impact has been quite different for different tasks
- may be due to the organisation of tasks within offices and factories
- this organisation has changed more slowly
- but: at some point (tipping point) cheap communication costs line up with new management technology and a new task can be offshored to a lower cost location
- individuals, not firms, sectors or skills groups
- forces of globalisation now achieve a far finer resolution
- international competition will increasingly play itself at the level of tasks within firms
- new paradigm competition is on a much more individual basis
- compare with first unbundling
- firm-against-firm competition was globalisation’s finest level of resolution
- firms as black-box bundles of tasks
- in sectors where backward and forward linkages among firms were important, a nation’s sector could be viewed as a bundle of firms whose joint actions determined the sector’s competitiveness
- the competition was sector-against-sector
- individual firms who were not competitive on a stand-alone basis might still prosper due to the agglomeration economies flowing from their location
- implications for policy
- first unbundling saw primary education brought into the public sector and radically transformed
- governments realised that farm and factory require different skill sets
- but: as farmers moved to factories, new vagaries faced them – redundancies, inflation, and more
- part of the reaction was to establish welfare states
- equally important was the establishment of labour organisations
- likewise, the new unbundling will require a revamp of education policies, welfare states, and labour organisations
- education
- Children must learn how to learn while they are learning reading, writing, and arithmetic
- new wave is associated with much greater uncertainty, so flexibility is the key to allowing Europe to seize the opportunities of globalisation while minimising the adjustment costs
- stronger families
- dysfunctional families retard the formation of the abilities needed for successful performance in modern society
- Europe needs stable families, especially those with young children
- Better structured trade unions
- today’s trade union structure arose in the first half of last century
- not always the most appropriate for the new wave
- shocks are no longer mainly associated with skill groups or particular sectors
- globalisation operates at a much great resolution
- trade unions either need to become more narrowly focused
- or more broadly focused
