The third age of globalization – the age the world is in now – looks poised to run out. The question today is whether the world will enter the fourth age of globalization – the so-called Globalization 4.0 – or whether it will take a different direction.
Both scenarios have winners and losers, regardless of what some white-tower economists will say.
One the one side are forces pushing for a borderless world, where labor competes globally. The means of production would shift generally towards the lowest cost areas, and the highest cost areas would do their best to employ the engineers and thought leaders of the world.
On the other side of the debate are individuals pushing for a globalization policy that puts national economic interests first, including advocating for domestic employment over foreign employment. This is the current kerfuffle between the United Kingdom and the European Union or the United States and China.
The trend up until recent years has been for a world so intricately connected that labor competition was moving global.
That presumptuous view may not out to be accurate.
Before thinking about how Globalization 4.0 may look, a review of the prior three globalization periods seems useful.
The following is from the World Economic Forum. The pre-Globalization 1.0 period was the Age of Discovery, beginning in the 15th century and lasting until the 18th century. Exports at the time were less than five percent of global GDP, and the leading exports were raw materials and basic goods. European countries were the leaders in advancing globalization. The scientific revolution (15th to the 17th century) was the enabler for the revolution.
The 19th century then saw the first age of globalization, labeled Globalization 1.0. The United Kingdom was the leader in this world, with U.K.-headquartered businesses trading textiles and industrial goods. Exports as a percentage of world GDP went from six percent to as high as 14 percent. Globalization 1.0 ended in 1914.
After three decades in outer darkness, Globalization 2.0 materialized, covering the period 1945 to 1989. Over this period, exports as a percentage of global GDP went from 5 percent to as high as 15 percent. Among the enabling innovations were trucks and planes.
From the fall of the Berlin wall in 1989 to the busting of the global financial system in 2008 characterized Globalization 3.0. Driven by technological advancements in the U.S. and then spread across the globe, exports as a percentage of world GDP increased from 15 percent to more than 20 percent of all GDP.
The world now stands on the cusp of a potentially new economic era.
What Comes Next?
The question now on everyone’s mind is whether the world will actually see Globalization 4.0 or if the world will see nations look more inwardly for economic growth?
The answer to this politically-charged question is, of course, unknown. In theory, the cloud computing revolution combined with artificial intelligence and machine learning could bring the world closer than ever before. But, such a situation is an uncomfortable discussion for high-income countries’ workers – think Europe and the United States – trying to compete in these areas while making four or five times more money than professionals in China or India.
The entire debate about Globalization 4.0 has no simple answer, but lots of scary or fascinating scenarios. Right now, exports say that Globalization 4.0 may be less global than what some presume.