The Great Convergence

"It’s the newest of the books and it’s a very powerful description of the newest phase of globalization. Two ideas about this newest phase of globalization that Baldwin emphasizes are hugely important. The first is that we used to think very much in terms of trade in goods—some country exports washing machines, some other country exports dryers. Increasingly, goods are produced with global supply chains. Part of a good is produced in one country, part of a good is produced in another country and assembly takes place in a third country. So trade is part of the production process, whether it takes place within a multi-national corporation or between companies. Trade is part of production through supply chains. The other idea that is emphasized is the role of trade and globalization in sharing knowledge. Baldwin uses a very powerful analogy. He says it’s one thing for a soccer team in one country to play against a soccer team in another country. It’s a very different thing if the coach in one country starts to coach teams in many countries and therefore promotes convergence. Baldwin argues that the second type of openness may be more problematic than the first. And, increasingly, trade is taking that form. The challenge is that there are likely to be more winners associated with global convergence, but there are also likely to be more losers and more potential volatility. In this latest stage of globalization, ideas can be traded and support production elsewhere, leading to less identification of entrepreneurship with location. The example I like to give is when George Eastman invented the instamatic camera, he got rich and Rochester, New York, where he founded his company, had a strong middle class for several generations. When Steve Jobs made equally powerful innovations, involving the iPhone and the iPad, the result was that he got very, very rich and there was an increase in the demand for labor globally, primarily in Asia, with no similarly broad increase in local wealth. I’ve said, for some years, that global integration won’t work if it means local disintegration. Unfortunately, that proved prescient. The essence of the solution has to be strengthening our systems of social insurance and preparation of people for a world that’s going to change more rapidly. There is going to be more disruption—disruption associated with progress but also with the replacement of some ways of producing with other ways."

"Richard Baldwin’s specialty is in seeing over the horizon. The book he wrote directly before this one was called Globotics , looking at the idea that a combination of automation and globalization would significantly upend the economics and politics of global commerce. And we’re seeing that right now. The Great Convergence traces phases of globalization. It is useful in understanding globalization, but it is especially interesting because of the way it looks at how communication technology is going to replace transport costs as the determinant of where work is done. One of the most interesting things he focuses on is this idea that ICT technology, and all sorts of technologies of the future, are going to expose white collar workers, who managed mostly to dodge the disruption of the previous eras, to ever greater competition. The Industrial Revolution hit artisans and craftsmen. Automation and globalization have been hitting factory workers and perhaps farmers. But if accountancy becomes something that can be traded across borders, as it increasingly is, if elements of legal services can be traded across borders, if art and marketing become tradable across borders as they increasingly are, we are going to have a huge segment of society in most Western countries, probably the dominant segment of society in terms of cultural and economic power, suddenly finding themselves on the front line in a way that they haven’t been before. And that is going to have political ramifications. People are not going to simply take a cheapening of their labour and increased competition from abroad lying down. They will look to use the levers of government in order to protect their prosperity. So what could well shape a lot of the trade politics, perhaps not of this decade, but of the next decade, is questions of whether, say, a processing centre in India does the payroll for my company overnight, the government should intervene to protect the jobs of accountants domestically. Richard is a fantastically accessible writer and the book is very readable. Let me give you a really interesting example that’s practical now. Let’s say you have a hospital where, for the sake of efficiency, you’ve got doctors who are taking notes freehand, so either with a pen or with a stylus onto a tablet. The most cost-efficient thing is that overnight or between shifts, all of those handwritten notes travel to a country with significantly lower costs of labour, but where English is a first language, or at least a very common language—India, the Philippines—where they are transcribed and linked to patient files in time for the next shift or the next rotation."