The Great Convergence by Richard Baldwin makes some interesting points about “globalization.” I actually find the long term history the most interesting aspect. It is very easy for people today to forget the recently rich “West” has not always been so dominant.
That shows how quickly things changed. The industrialization of Europe and the USA was an incredibly powerful global economic force. The rapid economic gains of Japan, Korea, Singapore, China and India in the last 50 years should be understood in the context of the last 200 years not just the last 100 years.
A central point Richard advocates for in the book is realizing that the current conditions are different from the conditions in which traditional economic theory (including comparative advantage) hold. The reasoning and argument for this claim are a bit too complex to make sensibly in this post but the book does that fairly well (not convincingly in my opinion, but enough to make the argument that we can’t assume traditional economic theory for international trade is completely valid given the current conditions).
I don’t expect this blog post to convince people. I don’t even think his book will. But he makes a case that is worth listen to. And I believe he is onto something. I have for years been seeing the strains of “comparative advantage” in our current world economy. That doesn’t mean I am not mainly a fan of freer trade. I am. I don’t think complex trade deals such as TPP are the right move. And I do think more care needs to be taken to consider current economic conditions and factor that into our trade policies.
Richard Baldwin uses 3 costs and the economic consequences of those changing over time to show globalizations history, where we are today and where we are going.
It isn’t very easy to follow but the book provides lots of explanation for the dramatic consequences of these costs changing over time.
One of his themes is that mobility of labor is still fairly costly. It isn’t easy to move people from one place to another. Though he does discuss how alternatives that are similar to this (for example telepresence and remote controlled robots to allow a highly technical person to operate remotely) without actually do moving the person are going to have huge economic consequences.
The “high spillovers” are the positive externalities that spin off of a highly knowledgable workforce.
In my opinion, it is likely politics is going to be the biggest factor going forward. This is going to provide huge benefits to countries that have relatively well managed governments (being led everywhere by politicians) such as Singapore, Norway and New Zealand big advantages. The practices in the USA of blowhards subverting government and rational policy is going to be very costly. The enormous wealth the USA has is a huge benefit that allows it to prosper even while managing itself poorly. At some level of bad policy and practice it will overcome the huge wealth advantage the USA has. At what point that happens, it is hard to predict.
I agree that protectionism is a very bad idea. I wonder if he is as confident our politicians (that we foolishly elected) will avoid plunging us into such bad policies today as when he wrote this in 2016?
The complexity of the economic consequences of international trade require knowledge, skill, patience and practical thinking to create economic gains going forward. I am worried about the foolish leaders we are electing in many of the rich countries recently. They do not appear to understand complexity or value the importance of expertise, uncertainty and implementation of economic policy. The complexity today requires more understanding, study, learning and care than was required last century but instead we are electing people with less wisdom than ever (and we were not electing incredibly wise people very often in the past).
Related: Economic Measurement Issues Arising from Globalization – How to Balance the Benefits of Foreign Workers and the Potential Damage to Citizen’s Job Prospects (2013) – The USA Doesn’t Understand that the 1950s and 1960s are Not a Reasonable Basis for Setting Expectations – The Future is Engineering (2006) – Historical Stock Returns – We Need to be More Capitalist and Less Cronyist