Chapter Content
Okay, so, like, this whole chapter is about, you know, reglobalization, information technology, and like, hyperglobalization. It's not as simple as it sounds, trust me.
Basically, the world kinda took this neoliberal turn, right? Back in the '70s, and by 2000, it was, like, totally the default way things were done. But, like, here's the weird thing. This neoliberal thing, it didn't actually deliver on its promises. You know, like, more investment, faster growth, or better wages for the middle class. What it did do was create a massive income gap, like, a huge difference between the rich and the poor. So, like, why did it stick around?
Well, it took credit for winning the Cold War, and, you know, for, like, making sure people didn't get handouts they didn't "deserve." Plus, the people in power, they kept telling everyone how great neoliberal policies were, even if they weren't. So, yeah, that's how it played out, I guess.
There were four main things pushing this along. First, there was reglobalization after World War II. You see, like, before, between 1914 and 1950, globalization had actually gone backwards a bit. Reglobalization was like getting back on track.
Second, technology changed big time. The shipping container showed up in the '50s and totally changed how things were transported around the world. It was a game changer, really.
Third, even more technology! Information technology, you know, computers and the internet, that stuff took over. It was like magic.
And fourth, there were the neoliberal policies themselves, and how they worked with those other three things. All together, these four things turned reglobalization into hyperglobalization. So things, like, sped up a whole lot.
Now, the story isn't simple, obviously. So, like, there are two main parts to the story. One is about the effects of all this on the global south, you know, poorer countries. And the other is about what happened in the global north, like, the richer countries. And whether you think it was all good or bad kinda depends on your point of view.
Some countries in the global south, the ones that got their act together and weren't too corrupt, they actually benefited. They were able to use the global market to their advantage. For the first time in a long time, they started growing faster than the global north. So, like, it looked like the market might actually be helping people, you know?
In the global north, there were some good things too, like more world trade and the spread of information technology. But most of those gains went to the people at the top, making the rich even richer. If you had a union job, well, re- and hyperglobalization plus infotech meant that companies could just move their factories somewhere else. With information technology, they didn't even need to be there to manage things. A lot of places in the global north started to experience the same deindustrialization that the global south had been dealing with for ages.
But, you know, it wasn't all bad news in the global north either. The information technology boom in the '90s led to some amazing productivity growth, like the good old days after World War II. And even though the rich were grabbing most of the benefits, it still meant that things weren't all doom and gloom everywhere. It was kinda mixed, you know, here and there. This led to some big changes in how political and economic decisions were made.
Up until about 2007, the neoliberals at the top thought everything was going great. They figured productivity was back on track, and eventually, the income gap would even out, and everyone would be happy. Again, it looked like the market was working for everyone.
But, like, they were totally missing what was really happening underneath the surface. Then came the financial crisis and the Great Recession. Those things really showed that all that neoliberal hubris had actually caused a whole lot of problems.
Reglobalization after World War II was kind of repeating what happened after 1870. You had one dominant country, the US, and a transportation revolution pushing globalization forward really fast. But, like, back then, Britain just did its own thing. The US, on the other hand, wanted to build international organizations. This led to the UN, you know, the United Nations.
On the economic side, there were supposed to be three organizations: the World Bank, the International Monetary Fund, or IMF, and the International Trade Organization, or ITO. But only two and a half of them actually happened. The US figured that international trade would lead to peace and prosperity.
So, the World Bank was supposed to help rebuild after the war and develop countries that hadn't industrialized yet. The IMF was supposed to manage currencies and financial flows. And the ITO was supposed to negotiate trade deals.
But the US government decided that ratifying the ITO would be, like, too much. By then, the Cold War had started, and people weren't so keen on international cooperation anymore. So, instead of the ITO, there was the General Agreement on Tariffs and Trade, GATT. It didn't have as much power, and required political maneuvering to get trade reductions done.
There were eight rounds of tariff reductions negotiated between 1947 and 1994. But, like, each round took almost a decade to negotiate, and there was a lot of exhaustion in between.
Meanwhile, things were changing. Before, improvements in domestic production were happening faster than in long-distance transport. Then the opposite happened. The container revolution changed everything.
These cargo containers, you know, the big metal boxes, they made shipping things around the world much cheaper and easier. Before, international shipping could cost, like, 15% of the retail value of goods. Suddenly, it was only about 1%. It was a huge deal.
So, reglobalization really took off after World War II. The US made access to its markets a big part of fighting the Cold War. And then, like, things started feeding on themselves: rising productivity led to more demand for goods, which led to more production. By 1975, world trade was back to its 1914 level.
This was especially true in the global north. The fact that industry and knowledge were concentrated in the global north's industrial districts had consequences, because creating new ideas builds on existing ideas. So, the global north kept growing faster.
The global south, well, it had been deindustrialized earlier. So, how could it benefit from reglobalization? The only way was to stick to its role in the global economy, which meant selling raw materials and agricultural products, which were becoming less and less valuable. So, while the global south did get richer, it got richer more slowly, and the income gap kept getting bigger.
In the first generation after World War II, you could understand who benefited from reglobalization by talking about the "frown curve." At the beginning, the raw materials part, there wasn't much profit to be made. In the middle, the manufacturing part, that's where the global north's industrial districts made a killing. And at the end, the marketing and distribution part, again, not a ton of profit.
But the story of reglobalization and containerization is only part of the story. In the 1980s, there was another huge thing happening: information technology. The cost of transporting information, not just goods, plummeted. The internet and all the cables and satellites transformed the world starting in the 1990s.
It's hard to put into words how much new technologies have changed things. To really get into that, you'd need to be an engineer more than an economist, but, like, these things are incredibly important.
There's this idea of General Purpose Technologies, or GPTs. These are technologies that change, like, almost everything. Steam power, early machine tools, telecommunications, materials science, the assembly line, and electricity were all GPTs. And then came microelectronics, starting in the '50s and hitting critical mass in the '90s. Microelectronics allowed for the construction of materials that could perform much better and that were cheaper and lighter than older methods.
Think about the quartz in sand. You can turn it into silicon crystals. By doing stuff to it you can replace some of the silicon atoms with phosphorus atoms, which have not fourteen but fifteen electrons each, changing the properties of the crystal. And now, in places like Taiwan, machines are carving billions of these switches onto tiny silicon chips. These chips are the heart of things like computers.
The first transistor was built in 1947. In 1964, General Microelectronics was selling a 120-transistor integrated circuit. They were way smaller than vacuum tubes, and they used way less power.
Gordon Moore, who worked at Fairchild Semiconductor, predicted in 1965 that the number of transistors on a chip would keep growing exponentially. He said that by 1975, a small silicon chip would hold sixty-five thousand components. This would lead to things like home computers, automatic controls for cars, and portable communications. And he was right!
Microprocessors kept getting smaller and faster. This led to huge productivity growth after 1995, almost as good as the golden age after World War II. The wealth created was spread among users, you know, they got cool new technology, and the tech companies, of course. There were some losers, like people who worked as telephone switchboard operators. But, for the most part, technology changed the jobs people did rather than destroying the jobs themselves.
As information technology spread, the nature of work changed. Instead of using our backs and thighs to move heavy objects, our minds and mouths were getting a workout. Technology was complementing labor, making people more valuable and productive. But the new work sometimes seemed less like the work of a master craftsman and more like the work of a servant.
On the international scale, information technology plus reglobalization turned into hyperglobalization in the 1990s.
The economist Richard Baldwin called this the "second unbundling." With the internet, companies didn't need to be geographically concentrated anymore. You could communicate with your suppliers easily, send data files around the world, and even hop on a plane if you needed to meet face-to-face.
So, after 1990, manufacturing started to spread out away from the global north really quickly. Better communications made it possible to create globe-spanning value chains. The huge wage gaps between the global north and south made it all incredibly profitable. Much of global manufacturing became both high tech and low wage.
Baldwin said that the logic of global production after 1990 was driven by the "smile curve." High value at the beginning, in raw materials and design. Little value in the middle, in manufacturing and assembly. And high value at the end, in marketing, branding, and distribution. And, again, it was a quilt. Some places did great, other places got left behind.
The second unbundling transferred manufacturing to the global south, but not everywhere. High-tech manufacturing went to places like Korea, Taiwan, parts of China, India, Indonesia, Thailand, Malaysia, Vietnam, Poland, and Mexico. It was a quilt. Not everyone got the opportunity to join the global value chain. Firms had to invite local producers. Trust still required face-to-face interaction. Maybe it was the transoceanic jet flight and the international hotels that were the key link.
These contests produced huge gains for the world. In 1870, most of the world lived on very little money. That number went down a lot by 2010, thanks to hyperglobalization.
But a lot of people still lived on very little. If you didn't have the right infrastructure, you were still far away from the global trading system. Attaching to the global trade network is a great opportunity, but it requires that everything be working right.
Still, by 2010, the world's technological capability was way higher than it used to be. The population had grown, but productivity had also increased a lot. But this all came with creative destruction, and many people felt like the market had taken away from them.
Hyperglobalization meant the departure of a lot of manufacturing production from the global north. This didn't mean total production fell, but it did mean that the share of jobs in manufacturing declined.
In the decades after 1970, the less-skilled manufacturing jobs decreased in the global north. The demand for less-skilled workers also decreased. This led to higher unemployment in Europe and falling real wages in the US.
Some people blamed hyperglobalization for all this, especially imports from developing economies. But that couldn't have been the whole story. For example, in the US, imports increased from 6% of GDP to 12% from 1970 to 1990. But the relative wage of the countries selling those imports also rose.
Individual regions' employment levels were hurt by competition from elsewhere, but that had always been the case. It was the creative destruction of the market economy at work. Some people saw this instability as a violation of their rights. But for every loser, there was a winner.
In the US, in 1943, 38% of the nonfarm labor force was in manufacturing. After the war, that number went down. And then it kept declining.
From 1990 to 2010, the relative wage of the country from which the average nonoil import came to the US fell sharply. This was mostly because of China. But the pace of decline in US manufacturing employment didn't accelerate. The share of jobs that were good for blue-collar men held steady. Assembly-line jobs moved to China, but there were distribution jobs moving those goods. And the money earned by Chinese manufacturers was invested in the US, which funded housing construction. So, hyperglobalization's main effect was to shift blue-collar jobs from assembly-line production to truck-driving and distribution, plus construction. Yet hyperglobalization became the main scapegoat for blue-collar economic distress in the richest countries.
Why is that?
The economist Dani Rodrik said that as trade barriers decline, the benefits of increased trade also decline. The volume of trade becomes very large relative to the net gains. And as jobs move faster, even if they're being replaced, there are more people caught up in the churn. It's easy to see why they might blame globalization. Also, some demographic groups have been especially affected. The shift from manufacturing to construction and services had a big effect on gender: the jobs closing down were mostly male jobs, and the jobs opening up were not. And the jobs that were closing down were the ones that had historically been good paths to upward mobility for those with less education, paths that had been closed to minorities. It's no wonder that globalization seemed like a plausible explanation for their misfortune.
Also, China's economic rise happened when the US and other countries were struggling to reach full employment. Successful economic readjustments happen when booms pull labor and capital into high-productivity industries, not when bankruptcies force them out of low-productivity industries. The "China shock" hit a shaky economy, which made it much more destructive.
So, if hyperglobalization hasn't impoverished the workers of major industrial economies, what has it done?
Back before World War I, what you could transfer across national boundaries was pretty much limited to commodities and securities. It was hard to do international transactions that required more cross-border linkages.
But in hyperglobalization, the breadth of cross-national links has vastly increased. Now you can effectively exercise corporate control across national borders. Now you can transfer forms of organization to achieve home-country productivity in foreign production operations. Now you can integrate design and specification in one country with production in another. In this environment, transnational or multinational corporations are going to be a good candidate for someone to blame.
And with the coming of the Great Recession after 2007, there was going to be a great deal of demand for somebody to blame.