July 15th 2017


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COVER STORIES Liberal discontents take internal struggle to Shakespearean heights

NATIONAL AFFAIRS Cardinal Pell charged: the process is the punishment

EUTHANASIA What Boudewijn Chabot can teach Victoria

INTERNATIONAL AFFAIRS Taiwan's 'friends' make the Beijing cut

FREEDOM OF CONSCIENCE NT abortion law oppressive towards health professionals

HEALTH Gardasil(R) and the man upon the stair, Part I

AFRICAN AFFAIRS Special force deals with scourge of poaching

MUSIC Andrea Keller: transpositions of death and grief

CINEMA Cars 3: On ageing without rusting

BOOK REVIEW Biggest democracy makes big strides

BOOK REVIEW A refinement of the Industrial Revolution

LETTERS

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BOOK REVIEW
A refinement of the Industrial Revolution




News Weekly, July 15, 2017

THE GREAT CONVERGENCE: Information Technology and the New Globalisation

by Richard Baldwin

 

Harvard UP, Cambridge, MA
Hardcover: 344 pages
Price: AUD$64.99

Reviewed by Colin Teese

 

Richard Baldwin’s book is more than ordinarily difficult to review.

According to Baldwin, globalisation is nothing new. It began long before the Industrial Revolution – at least as far back as the Silk Roads. In fact, it is more or less synonymous with trade – and especially “free trade”. Interestingly, Baldwin characterises free trade as “legitimate smuggling”.

Among other things Baldwin appears to assume that globalisation can and does, of its own volition, advance in perfect harmony with the nation-state and modern democracy.

This view stands in notable contrast with the view of, say, Princeton University academic Dani Rodrik. In the context of modern globalisation, Rodrik has developed the idea of what he calls the “trilemma”. This proposition, which I have previously discussed in News Weekly, asserts that there is a fatal flaw in the present-day globalisation package.

Rodrik tells us that globalisation, as understood at present, entails “economic integration”, by which he means that economic activity is governed by the operation of market forces with almost no government involvement. He asserts that, within the nation-state system, economic integration cannot accommodate both national sovereignty and democracy – that is the trilemma. Any two are possible, but not all three. Economic integration comes at the sacrifice of either democracy or sovereignty.

According to Rodrik, the national tensions that arise from the current practice of globalisation flow specifically from this fact. Richard Baldwin makes no reference to this important conclusion of Rodrik; nor, indeed, does he deal with, or even mention, any of the manifold criticisms that have been advanced against globalisation over the years.

This is particularly surprising given that we have reached the point, almost coincident with the publishing of Baldwin’s book, where the benefits of globalisation are the subject of serious questioning across the Western world.

His views about economic theory owe much to the reshaping of the view of the 19th-century economist David Ricardo, who insisted that economic activity should be governed by the idea that all interests are best served by all nations concentrating on those activities they do best. Modern economics has called into serious question Ricardo’s basic proposition, to say the least.

That having been said, let us first understand what Baldwin is trying to tell us and why. He seems to equate trade with globalisation. And he gives a good account of how trade evolved. He explains, correctly, that before trade was possible most of humanity lived on the edge of starvation. In those times almost all human activity was expended in getting enough to eat.

In such circumstances people, of necessity, had to live alongside the source of food. Any kind advance to a more sophisticated form of economic and social life could only take place once food could be transported to people rather than the other way around.

By 1500 AD this was possible. This was the period when India, China, Asia and the Middle East dominated industrial output and population. Islamic civilisation and the Silk Road quite possibly produced the first great trading empires. So, at least for Baldwin, was born globalisation. This, he further assumes, flows automatically into what became known as the Industrial Revolution, which began in Britain in the 18th century. From this were to evolve more refined forms of globalisation up to the present.

Further refinements, he assures us, are still to come.

Between 1820 and 1990, the share of world wealth accruing to the wealthiest Western nations increased from 20 per cent to almost 70 per cent. Baldwin agrees with Samuel Huntington in naming this first industrialisation the Great Divergence, as a result of which Western Europe and the United States accumulated vast wealth at the expense of Asia and the Middle East.

Baldwin advances, with some justification, two principal factors to help account for this dramatic shift in output and population away from Asia and the Middle East to Western Europe – the end of the Silk Road and the plague of the Black Death.

The Silk Road sustained a lucrative foreign trade stretching from Asia almost to the edge of Spain. The Black Death – what today we would call a pandemic – wiped out around 30 per cent of the Eurasian population in the 14th century. Its impact shaped economic and social outcomes for the next two centuries.

The Black Death was especially significant because, curiously, it impacted adversely on the economic advantages enjoyed by the Islamic world based on its economically vibrant urban centres, while, at the same time, conferring economic benefit on Western Europe. Europe had been stagnating in an equilibrium dominated by rural nobles. Given the circumstances, plague deaths appear to have shifted Europe from what Baldwin calls a “bad equilibrium to a good one, while having the opposite impact on the Islamic world”.

The Industrial Revolution – what Baldwin calls the Great Divergence – shifted industrial production from the Islamic world and Asia to the North. What emerged was the dominance of what we now know as the G7 economies, which, while their power and influence may be diminishing, nevertheless remains significant to the present day.

Baldwin believes that somewhere around the 1990s there began what he calls (indeed, it is the title of the book) the “Great Convergence”. Simply put, this means that there has been a realignment of at least some industrial production from the North towards the South.

This Baldwin identifies with the fact that, until roughly that time, industrial production was concentrated in the G7 countries; since then much has been shifted back to Asia in search of cheap labour.

True, manufacturing production has split, with the routine processing jobs chasing cheap Asian labour and the skilled design and marketing kept at G7 locations. Not without reason Baldwin attributes this to major improvements in information and communication technology.

Almost as an aside Baldwin believes the next shift will be to robotic labour.

Much of what Baldwin has outlined is nothing more than a jaunt through an evolution of changes in what he calls “globalisation” which he equates with international trade. In ordinary conversation, globalisation accounts for more than that, as Dani Rodrik has made clear.

One might be forgiven for believing that Baldwin’s work is little more than a subtle attempt to depict globalisation as a benign inevitability of economic advancement driven by technology.

Of course that has been a factor, but more important and totally neglected in Baldwin’s analysis has been the power and determination on the part of nation-states to safeguard and advance particular economic outcomes.

This omission from Baldwin’s book tells its own story. Consider first the matter of ownership of industrial production, about which Baldwin is silent. His Great divergence did not merely shift manufacturing output from Asia to Europe and ultimately to the U.S., it also shifted ownership. Baldwin’s Great Convergence, in pushing aspects of manufacturing back to Asia in search of cheap labour, mostly shifted routine assembly tasks. By contrast with the Great Divergence, ownership of manufacturing remained largely in the hands of the G7 countries.

The notable exception is China, for which there are a number of reasons impossible to pursue in this review.

What is appropriate to discuss here is the context in which the G7-dominated manufacturing industry evolved after 1945 and why this explains how and why the G7 countries retain an iron grip on ownership and evolution of the sector.

The principal factors here are geopolitical. The emergence of the U.S. as the predominant economic and political power and the Cold War were crucial in shaping the path of globalisation. The U.S. and the West were in a struggle with the Soviet Union to protect modern capitalism, based on free markets and a democratic form of political organisation, from the onset of socialism.

Baldwin seems to believe that economics alone got us where we are today – based, he believes, on a re-interpretation of David Ricardo’s assertion of the virtues of “comparative advantage”.

Baldwin has compiled a wealth of useful information and comment about an aspect of world economic development as if it could stand alone. Sadly, the fact that he has chosen to ignore the most significant conditioning influence on economic life from the second half of the 20th century to the present detracts from what otherwise might have been a more important book.

Richard Baldwin is professor of international economics at the Graduate Institute of International and Development Studies Geneva and director of the Centre for Economic Policy Research (CEPR), London.

(Note: The CEPR is a bank-financed organisation with a reach covering all Europe and is not to be confused with the Washington organisation of the same name that has published extensively, and critically, on the subject of globalisation.)


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