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JOHN MASON: Embracing the certainty of globalization

Friend of the Peak John Mason on the inevitability of globalization

BY: John M. Mason

This is a follow up to my earlier article on Economic growth and the new age of global enlightenment.

In this piece I emphasized how the spread of information has been one of the basic forces in the global history and how it is playing such a crucial role in the way globalization is developing, even in spite of calls for greater protectionism and trade wars.

I just finished reading the article “Globalization is not in Retreat: Digital Technology and the Future of Trade” written by Susan Lund, a partner at McKinsey & Company, and Laura Tyson, an economist at the University of California, Berkeley, and I wanted to recommend it to anyone interested in how the spread of information is impacting the world. The article appeared in the May/June 2018 issue of Foreign Affairs.

Ms. Lund and Ms. Tyson argue:

“Even as its detractors erect new impediments and walk away from free-trade agreements, globalization is in fact continuing its forward march—but along new paths. In its previous incarnation, it was trade-based and Western-led. Today, globalization is being driven by digital technology and is increasingly led by China and other emerging economics.“

”New digital technologies mean that more actors can participate in cross-border transactions than ever before, from small businesses to multinational corporations."

Ms. Lund and Ms. Tyson are trying to bring this development to business and political leaders because of the disruptions that the spreading information and information technology is going to bring.

“Although it will lead to countless new opportunities, the new era of globalization will also present considerable challenges to individuals, companies, and countries. For one thing, because openness will be so rewarded, developing countries now at the periphery of global risk falling further behind, especially if they lack the infrastructure and skills to benefit from digital trade.”

“With global trade tensions mounting, it is essential to recognize that countries will reap economic gains not from export surpluses but from both inflows and outflows.”

“In fact, as in the past, it is precisely the countries that open themselves up to foreign competition, foreign investment, and foreign talent that stand to benefit the most in the new era.”

And, they further warn:

“In the new era, digital capabilities will serve as rocket fuel for a country’s economy.”

In other words, if you think things have moved quickly in the age of computers and the Internet, just hang on to your hats.”

The economist William Baumol presented information in his book The Free-Market Innovation Machine (page 76) on how the interval between the introduction of an innovation and the introduction of a competitive entry has been reduced over time. As computers and the modern spread of information came to dominate the scene, the decline in this interval accelerated.

For example, in the period 1887-1906, it took 32.75 years for a competitive entry to an innovation space to respond to an innovation.

The interval dropped to 24.10 years in the1907-1926 period; to13.64 years in the 1927-1946 period; to 5.75 years in the 1947-1966 period; and to 3.40 years in the1967-1986 period.

Now, we are thirty-two years beyond his last period, so you can imagine how short the interval now is.

This speed of change is affecting a lot of areas and causing a lot of disruption and turmoil in the world. The displacements that have occurred require immediate attention and cannot just be solved by short-run solutions. Populism is not something that can be ignored.

However, those that do ignore the disruptions and discontents that arise due to these advancements, or drop out of the race, will only suffer more in the future as they fall further and further behind the rest of the world. Playing to these dissatisfactions will not pay off in the end.

Ms. Lund and Ms. Tyson conclude “Globalization is not in retreat.”

But, they argue, “it is time to accept the reality of the new era of globalization and work to maximize its benefits, minimize its costs, and distribute the gains inclusively. Only then can its true promise be realized.”

In other words, information spreads…it always has…and, it always will.

We can either go with the flow… or, we can attempt to postpone the inevitable. History has shown, however that the attempt to postpone hurts the people trying to be protected from the advancement of information, far more than it hurts others that accept and work with information’s spread.

It seems to me that the choice is obvious.

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