Re-Globalization under the 4th Industrial Revolution
Photo Credit: Tech Wire Asia
By Henry Hing Lee Chan

Re-Globalization under the 4th Industrial Revolution

Jun. 07, 2017  |     |  0 comments

The first four months in office of US President Donald Trump and the convincing election victory of Emmanuel Macron as French president have given a moment of relief to economists worrying about the future of globalization.

In his first four months in office, President Trump did not follow his controversial campaign rhetoric on the most contentious economic issues, such as the imposition of a 45 percent duty on Chinese imports, and the withdrawal of the US from NAFTA. However, he kept his commitment on less disruptive measures such as the US withdrawal from the Trans-Pacific Partnership (TPP), initiating a renegotiation of NAFTA, and blocking the usual declaration of US support for free trade at multilateral forums such as APEC and the G20. President Trump’s declaration that he was not the President of the world, but only the President of the United States, is taken seriously.

The pronouncement of the new US Trade Representative, Robert Lighthizer, that the US will rely on bilateral over multilateral trade arrangements in future trade negotiations reinforces the view of many observers that the US is retreating from its post-war leadership of multilateral free trade arrangements, and that the country is reassessing its role in globalization.

The gloom over globalization since the US election was somewhat lessened with the election of Emmanuel Macron over Marine Le Pen as French president on May 7, 2017. The convincing margin of 20.7 million vs 10.6 million votes indicated that there is still strong support for globalization in Europe.

President Trump’s high-profile anti-globalization measures by themselves might not immediately roll back globalization, which as a process has been developing steadily since the end of World War II, and cannot be easily reversed. All countries have benefitted in the globalization process and the economic interdependence among countries is so deep today that any disengagement can easily plunge a country into a deep depression. What is worrisome is whether President Trump would systemically re-orient the US to become inward-looking in the longer run, and turn to de-globalization as a result.

Economic benefits brought by globalization will keep the world away from moving to de-globalization, but domestic political realities will force many countries to recalibrate their globalization policies. It is well known that the income distribution problems since the 1980s and the labor market distress following the 2008 global financial crisis are the two key reasons behind the ascension of anti-globalization politicians across the Atlantic Ocean.

It is noted that people in countries providing relatively good social safety networks are more in favor of globalization. The inaugural speech of President Trump reflects his belief that the issue of globalization is the uneven distribution of benefits. According to him, globalization, instead of bringing about mutual benefits, only “made other countries rich while the wealth, strength and confidence of our country have dissipated over the horizon.” Thus, he promised to bring back jobs, business, and capital from overseas.

The prevalence of insecure people in society has been blamed on trade liberalization because of globalization. The tug of war between globalization and de-globalization highlight the imperative of working out a compromise of re-globalization.

The Looming 4th Industrial Revolution

When Germany introduced the concept “Industrie 4.0” in 2011, few economists realized the significance of the 4th Industrial Revolution and its social and economic impact. The technological breakthrough in emerging technological fields such as artificial intelligence, robotics, the Internet of Things, autonomous vehicles, 3D printing, quantum computing, and nanotechnology in recent years have started to affect the economic life of society.

The 4th Industrial Revolution is fundamentally different from the previous three industrial revolutions. The earlier industrial revolutions were characterized mainly by advances in technology in specialized fields, while the fourth is characterized by connectivity through the web. The connection of scientific advancements in different disciplines will drastically improve the efficiency of businesses and organizations.

Figure 1.

The 4th Industrial Revolution will drastically improve society’s productivity. However, it is also increasingly clear that the advancement will threaten many jobs in their current forms. The famous 2013 study by Carl Frey and Michael Osborne, The Future of Employment: How Susceptible are Jobs to Computerization, pointed out that 47 percent of total US employment is at risk under the new technology.

The recent victory of Alpha Go over the best Go players demonstrates the advancement of artificial intelligence in recent years. AI has demonstrated its prowess and has beaten humans in all kinds of games that people have invented.

The test driving of autonomous cars in many countries is a stark reminder to society that the job category of drivers might face a serious down-sizing in the next one to two decades. The talk about the introduction of 5G in the 2020s which has a latency time of 1 millisecond means that many site-critical functions can soon be performed remotely. While the world has moved smoothly from the 2nd to the 3rd Industrial Revolution thanks to the labor force migration from the manufacturing to the service sector, the transition today might not be as smooth, as the service sector that employs much of the labor force is facing machine substitution and the technology transition time today is much shorter.

The substitution of human by machine labor is going to be technologically feasible in many job categories sometime in the future. The issues of income distribution, inequality, and labor market stress at the center of re-globalization will be complicated by the rapid technological development under the 4th Industrial Revolution.

The re-globalization effort is not just a political and social issue with the looming job market displacement because of the 4th Industrial Revolution. The accelerating 4th Industrial Revolution will change the methods of not only how to manufacture goods, but how services will perform and be delivered. The labor market stress in developed countries that underlie the current anti-globalization drive will intensify. There are many economic uncertainties challenging each country in the global economic system and the uncertain political landscape in many countries will affect the process of re-globalization. Policy-makers must understand the possible technological evolution and calibrate their economic and social policies to meet the challenges of job category obsolescence. There are daunting challenges ahead for policy-makers worldwide.

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