Note

International & Development Economics: Hard to believe that this—truly excellent—book is now almost ten years old:

Richard Baldwin (2016): The Great Convergence: Information Technology & the New Globalization: ‘Human Capital Is Key This checklist… suggests that… people and skills are perhaps the most important when thinking about a  new paradigm for competitiveness policy). Most workers are not internationally mobile for personal reasons, so domestic investment in human capital tends to stay domestic…. Skilled service workers are often subject to agglomeration economies…. A skills-cluster is more than the sum of its parts, which in turn means that the cluster can pay over-the-odds wages. Human capital has the extra attraction… [that] skills that produce excellence are often transferable across sectors and stages…. [Plus] skill-intensive services are inputs into many different stages and products, so demand for such tasks is more stable… <archive.org/details/gre…>

The insights come SOOOO fast & furious:

• The “dual geographic unbundling” framework with the unbundling of non-luxury production from the place of consumption as a result of the coming of the fully-globalized economy around 1870 and the unbundling of manufacturing from the place of design and engineering around 1990.

• The resulting profound shift from the mass-production to the globalized value-chain mode of production.

• The extremely spotty “quilted” nature of the post-1990 Great Convergence as only a few regions with good-enough rule of law, excellent transport and communication links (including airports at which planes with lie-flat first-class seats land plus Ritz-Carlton hotels), and the key human capital resources are able to take full advantage of the Second Great Unbundling.

• Thus only the I6—China, Korea, India, Indonesia, Thailand, & Poland—are able to transform their economic rôle in the global economy, and only in addition Brazil, Australia, Mexico, Turkey have been able to significantly boost their share of global GDP.

• The (relative! relative only!!) marginalization of blue-collar workers in rich countries as their location is no longer a key source of value-creation.

• The limits of the Great Convergence as frequent high-touch face-to-face communication and the need for physical presence continue in importance.

These are all true gold.

Looking less good nearly a decade later is Baldwin’s argument that comparative advantage is now shaped by the ability of firms, rather than nations, to capture and control knowledge-intensive stages of production, and his claim that high-value activities like design, branding, and post-manufacturing services and to a lesser degree resource supply now necessarily dominate over traditional fabrication​. Knowledge leaks out via the processes of fabrication, even if not through the processes of assembly. Fabrication requires the supervision of engineers, if only to maintain and tune the foreign-produced machines. And learning-by-doing by engineers and skilled craftsmen has an economic quality of its own. Thus when Baldwin suggests rethinking industrial policy to focus on service industries and skill clusters as the new industrial base for modern economies, my response is that he needs to spend more time in the Pearl River Delta and in Greater Shanghai.

• Baldwin, Richard. 2016. The Great Convergence: Information Technology & the New Globalization. Cambridge, MA: Belknap Press of Harvard University Press. <archive.org/details/gre…>.