RIETI Report June 2018

The World Economy Against the Backdrop of Increased Trade Tensions

As globalization has changed and will continue to change, all of the public discussion surrounding the rise of artificial intelligence, software robots, and machine learning have missed the fact that these revolutionary technologies will also change globalization but in a different way. These new digital technologies are driving automation and globalization at the same pace, and are affecting the same service sector jobs. The rapid advance of globalization and automation in services will be especially disruptive since the service sector workers are not ready for either. In the June issue of the RIETI Report, we present the summary of the BBL seminar "The World Economy Against the Backdrop of Increased Trade Tensions" featuring Richard Baldwin, professor at the Graduate Institute, Geneva and president of CEPR.

Professor Baldwin first talks about how the dynamic duo of transformation—automation and globalization—drove structural changes in the global economy in the past. He continues with his analysis on the present day transformation that we are currently experiencing, which is the digital technology revolution providing a new impulse and driving new types of automation and globalization. He adds that digitally-enabled services trade will be huge in the next few years, and talks about the factors involved with digital technology that will help advance "tele-migration." Finally, Baldwin shares his view of where this is all going, and ends with a Q&A session from the audience on a variety of interesting topics.

This month's featured article

The World Economy Against the Backdrop of Increased Trade Tensions

Richard BALDWINProfessor, Graduate Institute, Geneva / President, CEPR

Introduction

I think globalization has changed and will continue to change. This is important because much of the public discussion—including the rise is trade tensions—tends to assume that that globalization will proceed as it did before, but it will not. It has changed quite dramatically in the last 20 years, and it will change going forward. My basic message in the introductory part of my talk is that the all of the public discussion surrounding the rise of artificial intelligence (AI), software robots, and machine learning have missed the fact that these revolutionary technologies will also change globalization.

The new digital technologies are driving automation and globalization at the same pace, and they are affecting the same jobs, which are service sector jobs. In the past, both globalization and automation were mostly about manufactured, mining, and agriculture goods. Digitally-enabled trade in services will move globalization in a new direction, namely, into the service sector. Since the workers in these sectors have been largely shielded from both automation and globalization until recently, the rapid advance of globalization and automation in services will be especially disruptive since the service sector workers are not ready for either.

Dynamic duo of transformation

Automation and globalization have been the forceful drivers of dramatic structural change in the global economy. A technological impulse triggered the steam revolution in 1720. For almost a century, the transformation was due only to automation; modern globalization didn't really start until 1820. The introduction of mechanization made it easier for people who used their hands to do things in the fields and in the factories. The technical impulse back then—basically steam power and all of the mechanization it fostered—had very little implication for people who worked with their heads. The big productivity gains came in the primary and secondary sectors, not the tertiary (service) sector.

To read the full text
https://www.rieti.go.jp/en/events/bbl/18052801.html

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