What Is New about the New Globalization?

The changed nature of globalization also means that nations are affected in many new ways. Three of them stand out.

The New Globalization affects national economies with a finer degree of resolution.

Twentieth-century globalization produced greater national specialization at the level of sectors. Lower trade costs thus tended to help or hurt whole sectors of the economy and the people working in them. Twenty-first century globalization, by contrast, is not just happening at the sector level; it is also happening at the level of production stages and occupations. Under the Old Globalization, nations could identify their “sunrise” and “sunset” sectors. Now we have sunrise and sunset stages and occupations in almost all sectors. As it turns out, one cannot accurately predict which stages and jobs will be affected next in a world where the contours of industrial competitiveness are defined by offshoring firms.

The New Globalization’s impact is also more individual in the sense that the winners and losers are no longer mostly grouped by sectors and skill groups. Globalization’s impact can vary across workers who possess the same skill sets and work in the same sectors. No matter what job you have and no matter what sector you work in, you cannot really be sure that your job won’t be the next to suffer or benefit from globalization.

The finer degree of resolution also has important policy implications. Many nations have policies aimed at helping declining sectors and disfavored skill groups, but globalization’s finer resolution means that such policies are insufficiently nuanced to distinguish among today’s winners and losers.

The New Globalization changed the role of distance.

Standard thinking characterizes globalization as being mostly about goods crossing borders. Doubling the distance between markets is thus naturally thought to roughly double the trade costs. Applying this logic today is a misthinking of twenty-first-century globalization for a very simple reason.

Cartographical distances affect the cost of moving goods, ideas, and people in very different ways. With the Internet, the cost of moving ideas is almost zero and varies little with distance. For people, however, there is a big difference between destinations that can be reached with a day trip and those further out. This may help explain why so few developing nations have been able to industrialize rapidly, despite having adopted all the right pro-business policies. To put it bluntly, they may simply be too far from Detroit, Stuttgart, and Nagoya compared to other developing nations.

The New Globalization should change how governments think about their policies.

Vast swaths of economic policy are based on the notion that competitiveness is a national feature. In rich nations, policies ranging from education and training (preparing workers for the jobs of tomorrow) to research and development tax breaks (developing the products and processes of the future) are aimed at bolstering national sources of competitiveness. In developing nations, policies ranging from tariff levels (protecting domestic production) to development strategies (moving up the value chain) are founded on the idea that the sources of national competitiveness are national. All these policy presumptions need to be rethought in the light of the New Globalization. For example, denationalized competitive advantage changed the options facing developing nations. Instead of building the whole supply chain domestically to become competitive internationally (the nineteenth-and twentieth-century way), developing nations now join international production arrangements to become competitive and then industrialize by getting more good jobs inside international value chains.

The flip side of this transfigured the competitiveness options facing rich nations. Globally competitive firms knit together national competitive advantages to make things in the most cost-effective locations. Firms and nations that eschew this new school of mix-and-match competitive advantage struggle to compete with those that have embraced it.

In short, the changed nature of globalization killed old-style development policies just as it killed naively nationalistic industrial policies in developed nations.

(from Bogdan Gregor and Magdalena Kali ska-Kula The Economic Security of Business Transactions / Management in business / Edited by Konrad Raczkowski and Friedrich Schneider, 2013)

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