We as human species always try to avoid our weakness. Our job of avoiding our weakness gets easier when we can attribute our weakness to something that is not properly understood by other people. For instance, when the countries needed to grow and make the best of the resources that they had, they built the wall of protectionism and when it was time to exploit other countries, they made their cases to remove all the barriers. All of these are parts of a buzzword called globalization. When the developing countries started reaping the benefits of globalization and growing faster than the developed countries, globalization, which the developed countries preached until recently, became the curse word. Everything that the developed world is now failing to solve seems to be attributed to globalization only. Now they are making their cases to end it. With the Covid-19 attack on earth, their case may apparently seem getting stronger. But, as Edward Goldberg stated in his article, this notion, that globalization is ending, is at best premature.
Globalization is a part of human civilization
Globalization is a part of human civilization. It has started with the start of human beings on this planet. Richard Baldwin traces the journey of globalization back to 200,000 BCE and divides the time until now into four phases. From the beginning to 10,000 BCE is the first phase which sapiens used for “humanizing the globe”. From 10,000 BCE to 1820 is the second phase when sapiens were “localizing the global economy”- in this phase, the production and consumption were localized for the lack of transportation but we had agricultural revolution through which we were able to keep feeding our growing number of population. In the third phase, from 1820 to 1990, though this is only a fraction of the previous two phases, sapiens did quite marvelously and changed the world by “Globalizing local economies”. We are currently in the fourth phase when we started progressing a lot faster than before by “Globalizing the factories”. Along with the process of globalizing the factories, something unexpected for the developed countries started.
Globalization is a “political, cultural, and economic version of evolution”.
Globalization is a “political, cultural, and economic version of evolution”. Evidently, it was here with us thousands of years before Thomas Friedman popularized it as we know it now. According to Richard Baldwin, what globalization mainly has done over the years is to solve three major problems: high trade costs, high communication costs and high face to face costs. The trade costs can be divided into three other types: transfer of goods, transfer of people and transfer of knowledge. In the third face of the timeline, globalization solved the high costs of transfer of goods and transfer of people. The transfer of knowledge only happened in the fourth phase and this was the “something unexpected” for the developed countries. Until 1990, the labor in the factories of the developed countries had a monopoly over the knowledge developed in their country. But when globalization allowed the companies to localize their factories to places where cheap labor can be exploited, they not only outsourced their factories, but they also outsourced their knowledge. For the first time, the developing countries got the access to improved technology which accelerated their development process. For example, the production concept developed in Japan in the 1950s that has now been adopted around the world. A pair of jeans would cost more than $300 if made entirely in the United States, while Gap sells imported jeans for around $80 enabling the garments manufacturers in Bangladesh to know how to make quality jeans along with other apparels. Sometimes, even when the technology is kept as any precious hidden in a box, the practice of quality gets spread in the local industry. Just 4 percent of iPhone’s cost is attributed to China, where it is assembled. Its components are from Brazil, Taiwan, Singapore, Switzerland, and South Korea. However, the majority of its cost is from design, marketing, and engineering in California. Apple does its best in keeping its trade secrets locked. But it could not prevent the flourish of several other quality mobile brands. Rather the whole industry got inspired from Apple. Wikipedia lists 28 mobile brands for China, and this is greater than any other countries in the world.
Evidently, the impact of knowledge transfer resulted in a disruption in the developed economies and development cohesion in developing economies. Now the developed countries are looking for ways to put this globalization genie back into the box. They started with using the common tools of protectionism tariffs. Let us look at what happens when the US puts tariffs on its import and export: this would make the USA a high island for manufacturing. As a result, US imported parts get dearer and the final goods stay competitive inside the US. If predicted using economic logic, the manufacturing shifts to the USA for the products which the US consumers mainly consume and outside of the USA if the product is mainly consumed by non-US consumers. The retaliation of the foreign countries against the USA will exaggerate the trend. Since the USA is a consumer economy, at a net, ultimately the USA will lose. That is why Richard Baldwin termed the imposition of tariff as “the thinking of 20th century meets the 21st century problems”. However, the politicians might argue that the manufacturing jobs will be back to the economy. Here also the politicians are wrong. They are forgetting Klaus Schwab’s Globalization 4.0. US workers are no longer competing with only cheap labor of other countries, they are competing with the robots as well. If any job comes back to the USA, that will be low skill jobs because that is the only reason why these jobs were outsourced in the first place. These low skilled jobs are prone to automation. Therefore, there will be lots of jobs for robots and few jobs for the low skilled labor of the USA. This is true for all developed countries. The politicians in the USA might not understand this but the other developed countries like Japan, Germany, France etc. are understanding this. Therefore, they are not expected to follow the USA. So, globalization will continue anyways. In that case, does it mean the developed countries have nothing to do with the losing side of the economy? Of course not.
In sum:
We need to understand certain aspects of globalization. First, globalization is not something that the government has any control of; this is firm specific. Second, we cannot vote against globalization by voting against the agreements that shape and control it. And the last, developing countries are not the ones enforcing globalization on the developed countries. It is the companies in the developed countries that started the knowledge transfer. And in case of knowledge transfer, putting tariffs will not work. The most effective job the governments of developed countries can do is to rebuild the team which includes restoring the social cohesion with policies that protect individual workers, not individual jobs, and retraining the workers with education, mobility, and income support. At the end, we have to keep in mind that the net result of globalization is positive and low skilled workers of the developed countries are on the losing sides. When we have other ways to make it up for the losing side of Globalization, it will not be wise to forfeit the overall positive.