In his book, The Great Convergence: Information Technology and the New Globalization, Richard Baldwin attempts to explain 200,000 years of human economic development, while trying to lay out a timeline for globalization, from when it first began, to globalization in its current form, as we know it.
In this paper, I will try to summarize the main claims that Baldwin makes in this book, focusing majorly on the first part of the book that discusses the different phases of globalization uptil now. The central idea that Baldwin argues for, explained in the simplest terms, is that the radical changes in ICT around 1990s have transformed the nature of globalization, reducing the costs of production and facilitating the flow of know-how from ‘North’ (which is Baldwin’s shorthand for referring to the “Atlantic economics and Japan” (Baldwin 78)) to ‘South’ (which refers to regions where the ancient civilizations emerged such as China, India and the Middle East) at a massive scale. Baldwin calls this the “New Globalisation” and claims that in this phase of globalization, there has been a great convergence of profit shares between the ‘North’ and the ‘South’, because of the shift of production processes from the former to the latter. And the consequential shift from a diverging globalization to a converging one after the emergence of ICT in 1990, is what Baldwin attempts to explain in his book. In the first part of his book, Baldwin divides globalization in human history into the following four phases:Pre-Globalization (most of human history up to 1820)the First Unbundling resulting in Old Globalization (1820–1990)the Second Unbundling resulting in New Globalization (1990-the present) and the Third (and final) Unbundling (which, according to Baldwin, is about to begin)Baldwin compares these four phases by comparing three main measures – the cost of moving goods, the cost of moving people and the cost of communication. In the Pre-Globalization phase, the cost was high for all of these measures, since it was expensive to move goods, people, as well as facilitate communication. As a result, production and consumption were both mainly local.
In the First Unbundling, which according to Baldwin, was caused by several factors leading upto the time of Black Death, a major change took place. The costs of moving goods began to fall. This was because radical improvements in transportation technologies, especially the origin of steam power, made the movement of goods cheap. And so, it became profitable to move around locally produced goods to many locations. The steam revolution brought about changes such as the steam power replacing all other forms of energy used until then, resulting in the industrial revolution. Raise in incomes lead to an even higher demand for transportation and a high demand for transportation and technological improvements lead to better transport options such as ships, railroads and road transport.
This was also the time when the telegraph, an important milestone in the history of communication, was introduced. The steam revolution, therefore, resulted in the Old Globalization. As it became more economical and easier to obtain and consume goods produced in distant lands, more and more people could now consume foreign goods. During the First Unbundling, a phenomenon popularly known as “the Great divergence”, was seen. Since a majority of the technological innovations mentioned above took place in Baldwin’s ‘North’, production began and remained largely concentrated in those areas. Before the Old Globalization, that is roughly before 1820, India and China produced about 50% of the world’s GDP and the ‘North’ produced 8%?.
From 1820 to 1990, the ‘North’ had nearly 70% of the world’s GDP. On the other hand, India and China had fallen down to 5%. The root cause for this was “the uneven distribution of productive know-how” since the innovations that began and develop and in the North, stayed in the North (Baldwin 78). This caused wages and consequently, the average standard of living, in the North to surpass the wages and the standard of living in the South. This was because industrialization largely occured in the North while the South remained deindustrialized. The global imbalance of know-how caused a great divergence in the two worlds, where the North dominated production activities and the South became an exporter of raw materials and a consumer of finished goods.After the first unbundling, leading to a great divergence and an era of old globalization, the next big trigger that transformed the face of globalization was an ICT revolution, which launched the Second Unbundling and consequently, a New Globalization. The Second Unbundling was the radical transformation of communication in the world, which lead to better coordination of long-distance production processes and facilitated the offshoring of complex production activities to the low-wage nations of the South.
Since communication made it easier to separate manufacturing processes internationally, companies began “moving labor-intensive stages of production from high-wage nations to low-wage nations” (Baldwin 109). So, while the first unbundling made the movement of goods easier, the second unbundling made the movement of ideas possible and at a reduced cost. This made it possible for developing countries to participate in global value chains and allowed them to compete at the production level, in the international market. Globalization was thus transformed because of this North-South offshoring.
This is because know-how also flowed from the North to the South along with the different stages of production. Therefore, the Second Unbundling reversed the global imbalance in know-how discussed in the previous paragraph so much so that in just 25 years from 1990 to 2015, China went from contributing 2% to the world’s GDP to more than 10%, while Europe, North America and Japan, fell to below 50%. Consequently, while the first unbundling created the “Great Divergence” between the North and the South, i.e. between the developed and industrialized countries and the developing and non-industrialized countries.
The second unbundling brought the “Great Convergence” between the two worlds.The Third Unbundling (and the last one), as predicted by Baldwin, will be a consequence of change in the second one of the three main measures used by Baldwin for comparison mentioned above. This is the cost of moving people or in other words, the cost of facilitating face-to-face meetings between people in the production sector or to make in-person work possible. In the vision that Baldwin has, this cost would be reduced because of the rise of technologies such as telepresence, telerobotics and “virtual immigration”.
Baldwin claims that telepresence and telerobotics will allow people to perform functions in the production processes across long distances, which would reduce the net production costs because that would eliminate the need for people to move, especially in areas such as surgery and machinery-specialized fields.