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Tuesday, November 07, 2006

The New Globalization

I'm not sure this says as much new about globalization as the author claims, e.g. the Blinder work he refers to is discussed in "Offshoring: The Next Industrial Revolution?," but it's worth repeating in any case:

The new globalisation, by Anthony Giddens, Guardian: Globalisation is in the news again, following Gordon Brown's call yesterday to "rout the anti-globalisation forces of protectionism". ... Since ... globalisation has been debated so intensively and so continuously ... it is tempting to think that nothing original can any longer be said about it. But such a thought would be wrong. Anyone interested in how globalisation is changing our lives, and our economies, would do well to ponder the recent writing of a group of eminent economists at Princeton University. They are Professor Gene Grossman, Alan Blinder and their colleagues, together with a British author working in Geneva, Richard Baldwin, who has commented usefully on their work.

They have produced what they call a "new paradigm" of globalisation... One can see globalisation as involving several distinct phases of the disentangling of previous integrated economic activities. Starting in the late 19th century, sharp reductions in transportation costs meant that many goods no longer had to be made close to the place of their consumption. Since about the 1970s, because of a further leap in the ease of communication and transportation, stages in the actual manufacturing process can be separated from one-another and carried out at a distance. Transnational firms have developed a global division of labour...

But now a further phase of is occurring, Grossman et al say, coming from new processes of electronic offshoring, which are affecting services rather than manufacture. So far so conventional, because we are all aware of the growth of call centres in India... However, the authors say, electronic outsourcing is likely to go far deeper than call centres. Any service job can be outsourced that displays four characteristics - if it involves the heavy use of IT; its output is IT transmittable; it comprises tasks that can be codified; and if it needs little or no face-to-face interaction. Blinder believes that somewhere between 30 and 40 million service jobs in the US will be open to offshoring in the future. Since all manufacturing jobs can be offshored too, this would lead to a total of between 42 and 52 million. He doesn't mean that all those jobs will be offshored. However, the workers in those jobs will be exposed to competition from people overseas who will do the same jobs, to the same standards, for much lower wages.

Electronic offshoring is the basis of the new paradigm of globalisation. ... In the next phase of globalisation, global competition is occurring at the level of the individual job, or type of job, rather than at industry or trade level. The same type of job, in other words, can be outsourced across firms and industries of widely different types. It will hence be less useful in the future to see the winners and losers from globalisation in terms of the sector to which they belong or even their skill group. ... The winners and losers will be much more difficult to predict. ...[It] is [not] necessarily the case that the winners will be the highly educated or highly skilled, since the consequences will depend upon the actual task they are carrying out, not the overall competitiveness of the firm or industry in which they work - or their level of education.

The wages of many jobs are set by the fact that ... they are not affected by international competition. A cab-driver in London earns a lot more than a cab-driver in Manila not because he or she does a better job, but because ... cab-driving is non-tradeable. It will remain so, unless someone discovers a way of driving taxis remotely. The same does not apply at all for a host of workers in offices, hospitals or banks who previously believed they were safe from direct competition from workers overseas. ...

Take as an example the work of surgeons. More and more operations almost certainly will be carried out at a distance,... It may be possible for the surgeon to carry out many more operations in the working day than when he or she was confined to a single hospital. Should this happen, the best surgeons will be in much greater demand than the poorer ones, who will find their income dropping and perhaps their livelihood disappearing altogether. Globalisation will be helping one highly qualified worker, but harming the prospects of the other - even though they are both in a sector where overall Western countries have a competitive edge.

Offshoring so far has only affected a small proportion of jobs in the advanced economies, so all this is at a relatively speculative stage. But there are some clear policy implications. Wherever possible, skills training should not be too specialised. What will matter most will be flexibility and adaptability, both at the level of the firm and the overall workforce. It will probably not be the unskilled and semi-skilled who will have to make most adjustments, as has been true in the recent past. ... We need to revise our ideas on these issues, starting now. Mr Brown is right to argue against protectionism, but if we don't get our thinking right the trend might accelerate rather than diminish.

    Posted by on Tuesday, November 7, 2006 at 11:21 AM in Economics, International Trade, Technology, Unemployment | Permalink  TrackBack (0)  Comments (53)


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