*The Great Convergence*

The author is Richard Baldwin and the subtitle is Information Technology and the New Globalization.  The new globalization is the vertical geographic spread of the supply chain, as enabled by information technology.  Think iPhone, the components of which are made in a number of different countries.  (By the way, here is a very good Adam Minter piece on why an American-made iPhone would be very difficult to pull off.)  The important form of trade today is data flows, which enable the export of “how to” knowledge to an unprecedented degree.  Here is one excerpt:

Since so much globalization policy was crafted with the Old Globalization in mind, much of the policy response is misshaped or at least suboptimal.  To take a couple of obvious examples, economic institutions like labor unions tend to be organized by sectors and skill groups since that was the level at which the Old Globalization affected economies.  And national education strategies typically seek to train children for promising jobs in promising sectors since the Old Globalization cut a predictable path that defined sunrise and sunset sectors.  Likewise, governments around the world seek to dampen the pain of structural adjustment with policies linked to declines in particular sectors of particular geographic areas (often those that had specialized in sunset sectors).  Most of these policies are inappropriate for today’s globalization, which is more sudden in its impact, more individual in its effects, more uncontrollable for governments, and more unpredictable overall.

Ultimately, there can be no magic solutions to the changed nature of globalization.  The New Globalization makes life harder for governments.  But the intrinsic difficulty is multiplied by the fact that many governments and analysts are using the Old Globalization’s mental model to understand the New Globalization’s effects.

For Baldwin, the case against TPP, from a U.S. point of view, rests on the possibility that it would ease knowledge transfer abroad and thus erode American competitive advantages.  This focus on data flows, by the way, means that most traditional trade statistics are misleading if not outright wrong.  There is much in this book to ponder.

Comments

'The important form of trade today is data flows'

Why is it unsurprising that an econ prof. sitting in the world's largest importer would write such a sentence. Particularly when that nation's largest component of that import deficit is not data, but oil.

'U.S. gross crude oil imports increased by 528,000 barrels per day (b/d), or 7%, during the first half of 2016 compared to the first half of 2015. This increase reverses a multiyear trend of decreasing U.S. crude oil imports as a result of increasing U.S. production.

Imports from Nigeria, Iraq, and other members of the Organization of the Petroleum Exporting Countries (OPEC) rose by 504,000 b/d. Declining imports from Mexico, which fell 118,000 b/d, more than offset the increase in imports from Canada, limiting the net change in imports from non-OPEC countries to an increase of less than 24,000 b/d.' http://www.eia.gov/todayinenergy/detail.php?id=28452

Now certainly one can imagine an American oil boom, but the EIA doesn't - 'Although EIA's Short-Term Energy Outlook does not forecast gross crude oil imports, EIA expects annual imports of crude oil on a net basis to increase in both 2016 and 2017.'

People have been beating this oil import drum (har har) for decades. And yet the U.S. remains rich. Go figure.

But wages have stagnated since the Oil Shock in the 1970s. Falling living standards -- and Evangelicals -- have just elected Trump.

""""And yet the U.S. remains rich."""

As long as you ignore the 17 trillion dollars in debt.

Why don't we routinely report GDP numbers net of the debt incurred or debt service paid with further borrowing? That might prove enlightening.

We are even rich with that. (The highest debts out there are, unsurprisingly, owed by the wealthiest people and corporations-- and countries)

+1 North Korea has very limited global trade and makes most of the stuff it consumes domestically. Yet oddly no one wants to loan it $17T.

The TPP : Trump called it a "horrible deal". Sanders said it was a "disastrous trade agreement" , Clinton vowed to kill it during her campaign. after supporting it when she was Secretary of State.

Seems to me like consensus. . They're stealing our jobs, our secrets, they're turning our nation into haves and have nots. This has got to stop. Trade is bad; no more trade !

I read a text on the AFL-CIO site regarding Trump's use of Chinese steel and how he betrayed American workers... near this text, there was another one about calling one's Congressmen to defeat TPP . Voltaire said that regarding money everyone is of the same religion. I guess it is true regarging thi treaty in America.

Not everyone. Just a subset of voters that all candidates wanted to win over cared about this.

OK, it seems fair at least to say that every voter (except maybe a handful of professors with protected jobs and corporate bigshots) who cares about TPP is against it. Trump and the AFL-CIO struggling together or side by side against corporate overlords who want to ship even more American jobs to China...

It's easier to be passionately against it than passionately for it. If you are anti-free-trade, you can oppose it with a simple, compelling story (as you note). While if you are pro-free-trade, you have to argue for not only the concept of free trade but also why this specific deal is a good idea. The latter becomes hopelessly complex, and few people are really equipped to have that discussion.

There are plenty of people who care and are in favor of free trade.

Free trade in general I am sure, but TPP particularly, I don't know. Maybe we have to apply it to see what is in it, but most people seem to be reticent -- at least when seeking office. Sanders don't like it, Trump found expedient to denounce it and Hillary was in favor of it before being against it. No one dared to defend the treaty before the American people.

It has nothing to do with trade [tariffs now < 5% anyway].

Copyright extension & creating extra judicial kangaroo courts populated by corporate lawyers to sue sovereigns over 'unrealised profits'.

Repeat: It has nothing to do with trade.

And you're not allowed to read it.

We must apply it to know what is in it.

"Trade is bad; no more trade !"

No one has said that. I've read that it is anywhere from 5 to14k pages long. Sounds like a lot of set asides for favorite players there.
What are the chances this is the first time Obama got the better end of a deal he's brokered?

Maybe we should know all the details before signing off on it.

Yes a consensus, but if you see Trump, Sanders and Hillary agreeing on something I suspect the optimal answer would be to take the opposite position, not join them.

There is an old story about Taiwan, that in the beginning different US companies would carefully design notebook computers, and train Taiwanese factories to build them. It only took about 10 years for Taiwan to know more about building notebooks than anyone, and so US companies just had them do the design.

I think Linksys and Vizio because big brands simply by finding Asian companies that already knew how to build things, who learned the same way.

So sure, outsourcing has accelerated knowledge transfer to developing economies.

Politicians and malefactor of great wealth, economic royalists, backstabbed America.It is a conspiration against the American worker.

Microsoft's lock on the hardware market was broken by a Taiwanese company. Asus brought out a small and inexpensive laptop that didn't run Windows, forcing Microsoft to delay the death of Xp so they could have their OS running this popular little machine. It was a remarkable turn of events, and Microsoft has never really recovered.

In my industry the US companies are desperately trying to copy the Asian products.

How much auto manufacturing would there be in the US but for protectionist policies?

Of conventional desktops and notebooks, MS OS has 91% share. Their first, most conventional hardware was the Surface tablet, not introduced until 2012.

Microsoft has never really recovered, apart from the all time high profits and stock price.

"The New Globalization makes life harder for governments." Of course, a government is its people; ergo, the New Globalization makes life harder for people. And far easier for owners of capital: the New Globalization upset the balance of power between employer and employee and capital and labor, shifting the advantage to the employer and owners of capital and exacerbating an already high level of inequality. While it's true that the New Globalization has shrunk inequality between developed and developing countries, it has increased inequality within both developed and developing countries (for example, inequality within China is higher than inequality within the U.S.). The author states that the share of global income going to rich nations has shrunk from over 70% to 20%. But that ignores the most important development in the New Globalization: global capital knows no country, owners of global capital belong to no one country. Global citizenship is the dominant characteristic of the New Globalization. The most recent example was the bankruptcy court ruling earlier this week that $2 billion of money received by U.S. residents who invested in the Madoff Ponzi Scheme and shifted the money to offshore accounts was unreachable by the court in its efforts to reimburse victims of the scheme. For wealthy owners of capital the New Globalization gives them the benefits of U.S. residency and access to U.S. courts while allowing them to avoid U.S. taxation and to elude U.S. courts when it's to their advantage.

I usually find your comments pretty insightful, but this one is tough to swallow. Government is most definitely not the people. Just ask a Clinton supporter whether the Trump administration represents them, or vice versa. Beyond party divides, the concerns of government are governing, while people are just living their lives. You might as well say business interests are the people's interest because businesses employ people.

I also don't think one should gloss over the reduction in inequality. The share of the world population in abject poverty has been going down dramatically, and it's due primarily to trade and economic growth. That's one of the best things to happen in the history of civilization. Why should we care that a few people benefit more (too much), if it's a side effect of billions of people's lives getting better. The alternative to supporting growth is to say essentially that we don't care if more people starve, as long as they starve equitably.

+1

Check out Matt Ridley, trade and specialization are literally why we aren't cavemen anymore.

Even if trade and specialization are literally why we aren’t cavemen anymore, that doesn't mean that more and more trade, controlled by secret trade agreements among mega-corporations, legislated and enforced by the nations states that the agreements screw over, is a good thing.

Maybe ice cream is a good thing. But eating unlimited amounts of it, after agreeing that the ingredients can be kept secret even if they are poison, is not a wonderful idea.

Matt Ridley, in his book on economics, sure does a ton of cherry picking the few examples that confirm his beliefs, and ignoring examples that would disconfirm his Right Wing economic beliefs. And he picks examples of progressive economics that came out badly, while ignoring those that went well. An incredibly biased writer.

Here is some info from the wikipedia page on him.

He's a former bank chairman of a bank that Britain ended up bailing out. Also,

"Ridley is a forthright proponent of fracking.[52] However he has been found to have breached the Parliamentary Code of Conduct by the House of Lords Commissioner for Standards for failing to disclose in debates on the subject personal interests worth at least £50,000 in Weir Group,[53] which has been described as, 'the world's largest provider of special equipment used in the process' of fracking."

I probably should listen to more unbiased people like The Free Market Is Not God.

Sorry, man, but I find Ridley more compelling than you. Even if he is (capital letters) Right Wing.

I agree that government is not the people. But in the case of globalization, government is there, along side the people, bending over, also getting screwed, just like the people are. The multinational corporations rule. Globalization may have some benefits. It also has drawbacks.

Just because you are against a particular "trade agreement" that is really about things like patents, does not mean you are against trade and economic growth altogether.

If the new globalization has increased inequality within both developed and developing countries, that's a problem. If people are no longer starving, but maybe they can't afford heat in the winter, that's a problem. The rust belt people who elected Trump live in areas where many are worse off, due to globalization. They are not comforted by people doing better in other countries, while they themselves are suffering. Why should they be?

Sure, people tend to focus on themselves and their neighbors. It is what it is. The Democrats should have laid on some more populism, and because they didn't (and a few other factors, of course), now we have Trump.

In my opinion, though, it's pretty immoral to say that people in other countries should starve so that people in the US can have the cushy jobs that they "deserve." When you boil down all of the trade nationalism, that's what you mostly have left. It's political poison to admit that, of course, so you'll generally hear it pretty rarely.

Glad to hear that you are willing to give up enough of your income so that you can't afford heat in the winter, although not enough that you would starve, just so that people in other countries can improve their standard of living.

I do agree that support for trade in particular is distinct from a particular agreement. I have reservations about TPP's intellectual property terms, although I honestly don't know much about them. I wonder if anyone truly understands a huge trade agreement like that. You basically either trust the process, or you don't.

Well, you can always trust mega-corporations-- to make money for themselves, and to screw everybody else in the process.

"The most recent example was the bankruptcy court ruling earlier this week that $2 billion of money received by U.S. residents who invested in the Madoff Ponzi Scheme and shifted the money to offshore accounts was unreachable by the court in its efforts to reimburse victims of the scheme. For wealthy owners of capital the New Globalization gives them the benefits of U.S. residency and access to U.S. courts while allowing them to avoid U.S. taxation and to elude U.S. courts when it’s to their advantage."

Let's unpack this a bit:

1. This sounds like victim v. victim. Someone who took money out of Madoff's fund before it went bust technically has to give it back. But ultimately you are talking about making one person more of a victim in order to make others less.

2. In a world that is less global, what exactly would happen? If you had taken money out and stashed it in a Swiss bank account, well US courts would be powerless to touch it.

3. Madoff's fund wasn't the neighborhood credit union. You could only get into it by invitation and with a lot of money to invest. No you didn't have to be super-rich to put your money in there but it wasn't a 401K.

I'm not seeing this as a story about globalization.

So now the global business management jobs are at threat so something must be done?

In my industry the growth and innovation is not happening in the US. Long standing names in the industry who have been gutted by serial changes in management through acquisition are being picked up by Asian companies. They get a distribution network, but the manufacturing, management and know-how is not in the US.

The US companies just don't know how to do the stuff the Asians have been doing for a decade, from tidy and cheap manufacturing to mass market complexity. It is remarkable to see. I remember when Palm was looking to manufacture their products and couldn't find anyone in the US who knew how to do what they wanted to do.

Derek,

"So now the global business management jobs are at threat so something must be done?"

Apparently. Who would of thought high-tech managers would start. To feel like assembly line drones? We will reach a point where the USA becomes a nation of wealthy investors and everyone else. But don't worry, there will be new service sector jobs - dog walkers, house sitters, adult diaper changers, auto detailers, and leaf blower pilots. We - the everybody else (the EE) - are all going to live in favelas renamed "commuities with relaxed building codes". The EE will be bought off with free internet and cheap opioids - including simple instructions for a deliberately lethal overdose. There won't be too many free services because the wealthy aee good at avoiding taxes. The EE will not revolt violently because the EE will be old and violen revolutions are the work of young hotheads.

This all documented in Tyler's book
"Average is Over".

I mostly agree with Tyler except the revolution thingy.

My counter example to his argument is Trump.

This is going to get ugly.

Trump's stand against globalization will hit a very hard wall of the high costs of the US economy. There is a reason why stuff is made elsewhere; from labor legislation to environmental legislation, local government, educational policy where a floor production engineer needs 10x the wage to pay off his debt. High corporate taxation, the incredible complexity and fluidity of the regulatory state, even the hostile to business attitude of government. Much of it is out of his control; can he repeal and replace the Wagner act which entrenched in law the dysfunctional and profoundly damaging labor dynamics?

The question is whether the relative increase in status (and compensation) of bankers, doctors, educators, police, career military, pharmaceutical companies can be maintained without deficits.

The high student loans are due to the education industrial complex building shiny campuses, tripling the administrative staff etc.

The cure is a total ban of direct foreign investment, which would force trade deficits down, and as a side effect reduce the pool of buyers of T-bills, which would also reduce budget deficits. This would accomplish everything Trump promised, and I know for a fact that neither Trump nor Congress has the balls to do this.

A ban of direct foreign investment. Wouldn't that hurt some big Powers That Be, who routinely bribe-- I mean donate to, of course-- Congress, and who thus have Congress by the testicles.

Trump will be surprised at how much is out of his control. Ignoramuses have no idea how much they don't know. He seemed to think he was running for king of the globe, not the U.S. president.

Simple arithmetic would show that losing access to cheap foreign imports or raising their costs through tariffs will make everyone poorer.

Yet in the mid 19th century the British started to push free trade ideas, yet by the beginning of the 20th century they were being eclipsed by the US and Germany which practiced protectionism. This was even though the British had direct access to the worlds largest empire filled with raw materials and hundreds of millions of customers

And in the middle of the 20th century the US started to push free trade, yet the Japanese, Taiwanese, Chinese, etc all practiced protectionism and greatly increased their economies and wealth while the US is deep in debt and entire industries are mere shadows of what they were..

So maybe the math is not so simple?

"yet in the mid 19th century the British started to push free trade ideas, yet by the beginning of the 20th century they were being eclipsed by the US and Germany which practiced protectionism. " - this is plain wrong. The highlight of the free trade movement was in the 19C when the UK was the preeminent economy in the world. The US and Germany didn't prosper because of protectionism after WW1 but despite it. Mercantilism is a way to make politicians powerful and rich established industrialists richer at the expense of poor people. Remember why the free trade principles were developed in the UK, it was all about the corn laws, laws which were designed to make the rich landowners who produced corn richer by preventing poor people from buying cheap corn from overseas. Anti-free trade people are complicit in conspiracy to make poor people poorer.

Yes. Do the 'simple' arithmetic. Show us.

Or rather why does it take a book to get to something incredibly simple. If you have a large advantage in making things because you had more information/data/education/know-how and you trade with some asian countries and now they got the know-how too your relative trading position will decline.
One might still argue for free trade -and I do- for the good of humanity. One could also argue due to more rapid development everybody could end up better off due to more innovation. But it is not necessarily the case that this latter effect will off-set the loss of comparative advantage that a country might initially have; though one hopes so.
More precisely, the Pareto Efficient outcome is not necessarily achieved by two trading agents when their relative advantages can change due to knowledge transfer.

Though protectionist measures are unlikely to truly help in the long run it is an historical fact that Great Britain went from being by far the richest country in the world having almost twice the GDP per capita as the next country in the 19th century to 'just' a first world country.

Simple arithmetic and ignoring all of the negative factors associated with trading maybe. But if we stopped exporting our jobs to third world countries then our own "poor" could have jobs and afford to pay for products made in America. If you really believed in your own argument then you would also argue that our business/corporate taxes should be zero to make American products cheaper. There is a simple solution to all of this: Renegotiate all trade treaties to simply say trade is allowed without restrictions and imports from any country cannot exceed our exports to them. Place a tax on all imports (goods and services) of 25% of retail value. Reduce our federal taxes on businesses within the U.S. to zero.

What's the "negative factor" in a voluntary exchange between two parties, who both obviously feel that the deal is to their advantage?

Ask the former employees of Carrier. Or the former U.S. citizens who worked in IT at Disney. Or the millions who used to have decent jobs that were shipped overseas. Those are negative factors.

I am in favor of free trade. I am in favor of the right of citizens and a government to control their own destiny. If a company wants to move to China or Mexico and pay employees $2 an hour instead of paying an American worker $15 an hour they have that right. But they have no right to sell those products to us without paying for those negative factors. 25% isn't too high a tax to pay for the ability to use slave labor. The money could be used to pay the SS and taxes that they avoided when they left. Seems very fair to me.

Absolutely.

This is where the left and the right populists converge, being anti trade. TFMING should be all psyched Trump wants to derail it (really he doesn't but that's how he campaigned and won). You guys think just slapping tariffs on won't derail it, but it will. International trade would plummet. A few more jobs get created in the US maybe enough to offset the jobs lost as our exports plummet (probably not) and just about everything the poor and middle class buys skyrockets in price. And that looks like a good idea to you nationalists.

So somehow a 25% tax on foreign goods and services will kill trade but a 35% corporate tax does no harm!!

Somehow we have to stop the suicidal export of American jobs. The giant sucking sound that is killing us. We should export no 'resources' or raw materials and only export finished goods that provided jobs to our country. We should freely allow importation of goods and services from any country BUT it should equal the exportation of goods and services from the U.S. to that country. AND ALL goods and services that are imported should be "taxed" to make up for the damage they do to our economy. If that means that China or Mexico doesn't want to sell to us then we will have to make those products that we had imported right here in the good old US of A. If U.S. companies want to put their call centers in India I am happy for them and for the 25% tax on those services that will be funneled into the general fund. If as a result of this India refuses to send us any more Tikka Masala then so be it, I'll eat Southern Barbecue.

If a trade agreement like TPP is a large assembly of negotiated trade-offs between nations, it is likely to become out dated quickly because markets are very dynamic. This would suggest the need for regular renegotiation; however, that instability and unpredictability of laws would frustrate any type of manufacturing which has to cross more than one board. Some products cross the same board several times and have components from 40 different countries.

board = boarder. oops.

The problem with some aspects of "free trade" is that no one is free except mega-corporation owners. Everyone else is screwed and and keeps continuing to fall downhill-- both ordinary citizens and nations.

And yet living standards worldwide including in the US have done nothing but rise, basically forever, thanks in large part to specialization and trade. You know when there weren't megacorporations or significant international trade flows? 200 years ago. Gotta love those living standards.

Just because things have gotten better in the past 200 years overall, does not mean we aren't starting to go downhill now, in the past 50 years. You're cherry picking your time frame, to make your theory look better than it is.

And just because trade has overall been a good idea in the past 200 years, does not mean that every secret trade agreement that allows mega-corporations to screw over U.S. workers and even the U.S. government, is a good thing.

And no one is in favor of totally stopping all international trade. So you're beating a straw man there.

Name one thing that's gotten worse in the last 50 years. Besides pop music, it's hard to top Revolver.

Also, what exactly are 'secret trade agreements' and how do you know about them?

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