The Real Costs of Globalisation

Globalisation reduces the cost of goods and services as their production migrates to the lowest cost parts of the world. The lower prices are a benefit for everyone and the low cost parts of the world, which are only now beginning to industrialise, gain tremendously in terms of economic growth and employment. So globalisation is a good thing, But there are some downsides. Jobs disappear in the advanced economies as production moves to the developing world. Up to now, the advanced economies have grown, bar a few booms and busts, more or less continuously, for the past 250 years in UK’s case. But the migration of jobs now seems likely in the advanced economies to be permanent and to be bringing the growth phase of their economic development to an end.

Permanent changes like this are difficult to forecast, and even appear difficult to recognise when they have happened. The initial response is to identify the change as a blip. Commentators today are identifying this quarter’s UK GDP data as indicating the end to the ‘double dip recession’. If miniscule GDP growth is recorded two quarters on the trot, commentators will surely be referring to ‘green shoots’. But it is equally likely that the slightly encouraging data this quarter is a blip and from now on, the lack of economic growth will be the steady state in advanced economies, which might more aptly be described as post-industrial.
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Our future and effective innovation

Will Hutton is courageously idiosyncratic about innovation, proposing a simple combination of general purpose technologies (GPTs) and good capitalism as the explanation for the rapid rise in living standards in the west over the last 250 years. For Hutton, the source of growth is ‘the combination of science’s capacity to transform how we live and a capitalism constantly pushed and prodded by democratic governments towards exploiting those opportunities.’ [See ‘Britain’s future lies in a culture of open and vigorous innovation’, Will Hutton, The Observer, 14 Oct 2012].

However, the massive empirical and theoretical literature on innovation presents quite a different story. Hutton suggests one exemplar GPT was the steam engine. First identified as a possibility in ancient times, drawn up in some detail in late 15th century by Leonardo da Vinci, it wasn’t till late 18th century that the first working engines were built by Thomas Newcomen for pumping water out of Cornish tin mines. Newcomen’s engine was taken several stages further by James Watt, with among other refinements, an external condenser and rotary drive which made it feasible to run the new cotton mill machinery invented by Arkwright, Crompton and the rest which had previously been driven by water power, the whole made more efficient by the greater precision of machining developed at Watt & Boulton’s Soho foundry and powered by coal made economic by the new transport infrastructure provided by canals. The steam engine wasn’t a GPT. It was an important component of a technological revolution, comprising a whole collection of fundamental innovations which, while not all strictly interdependent, tended to feed into and reinforce each other.
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