Lecture material week 7

Question 1

Globalization, old and new (according to Baldwin)

Answer 1

‘Old’ Globalization (periods I and II)

• Starts in early 1800s; fueled by industrialization and falling trade costs (‘first unbundling’)
• Take-off of developed economies; global markets for national firms in Global North (markets [consumption] expands globally, production clusters locally [nationally]) = ‘Great Divergence’

‘New’ Globalization (period III)

• From 1990s; fueled by ICT revolution lowering cross-national communication costs (cost to move ideas; ‘second unbundling’)
• Facilitates coordination of complex activities at a distance; opportunities to ‘arbitrage’ North-South wage gap via offshoring (high tech, low wage – global value chains: fragmented production globally); associated technology and knowledge transfer drive catch-up of ROW
  = ‘Great Convergence’

Question 2

Using national measuring tools for a global economy?

Answer 2

• Balance of payments statistics are collected according to the imaginary of the ‘old’ globalization
  – National economies; national firms; national value chains
• This corresponds less and less to the realities of global
  production and consumption
  – Transnational value chains; ‘nationality-less’, highly mobile companies; digital trade
• As a result, the picture of economic activities grasped from official BOP statistics becomes more and more distorted

Eg:

• Intra-firm trade and misallocation of value added
  – Products not anymore produced in place ‘A’ and then shipped directly to place ‘B’
  – Where is a product coming ‘from’?

Question 3

Implications of “new” globalization

Answer 3

• Global value chains (GVCs) allow MNCs to combine
  high-tech with low wages which affects -> ECONOMICS: Greater efficiency, productivity gains and increases in global material well-being which affects -> POLITICS: Creates new winners and losers

Question 4

Future implications for political economy

Answer 4

• De-nationalization of comparative advantage
  – CA theory assumes country can specialize in what they are best will lead to emergence of ‘ national’ industries and ‘national firms’ leading to ‘national gains’
  – This need not be true anymore
  – Global firms create production webs that ‘pick’ top
  comparative advantage locations for various components
• Implications:
  – Competition of value chains vs. nations
  – Competition is intense; regional differences
  – “Winner-take-all economy”: great rewards for winners; but many are left out
• Further fueled by digitalization and oligopolization of Big Tech

Question 5

Who are the winners and losers of global trade currently

Answer 5

– Winners

• Manufacturing in SOME developing economies
• High-skilled service workers in advanced economies
• In other words: middle classes in China+, and business
  elites in the West

– Losers

• Countries left out from GVCs altogether (many poor developing economies)
• Manufacturing in advanced economies
• In other words: lower middle classes in the West, and the global poor

Question 6

Baldwin smile curve vs Milankovic elephant curve

Answer 6

Smile curve: throughout the journey from initial idea to finished product, the value of a product dips then gradually increases, which is ultimately reflected in the price of the finished product

Elephant curve: illustrates the unequal distribution of income growth for individuals belonging to different income groups

• the global top 1% experienced around a 60% increase in income, whereas the income of the global middle increased 70 to 80%.

Question 7

Geoeconomic rivalries and weaponized interdependence

Answer 7

• Two important consequences of “new” globalization:
  – Undermining of societal support for liberal order in the West
  – Global shifts in economic power and in particular China’s challenge to US dominance of global economy
• (Re-) geopoliticization of international economicpolicy
• Weaponization of interdependence

Question 8

Weaponized interdependence

Answer 8

• Economic networks as sources of geopolitical power
• “Highly asymmetric networks allow states with effective jurisdiction over the central economic nodes … to weaponize these structural advantages for coercive ends.”
• Panopticoneffect (information gathering)
• Chokepointeffect (denying access)
• USA as network superpower; used against:
  – Iran and North Korea
  – Swiss bank secrecy
  – Huawei

Question 9

Present and potential futures of the global economy

Answer 9

• “Critical juncture” moment
• Covid-19 pandemic and Ukraine invasion have not caused retreat of globalization, but they are accelerating trends towards re-geopoliticization of economy that precede those crises