“Globotics” is the name Richard Baldwin gave to the combination of globalization and robotics in service jobs.

In his essay “Globotics and Macroeconomics: Globalization and Automation of the Service Sector” (presented at the ECB Forum on Central Banking 2022, June 27-29, where video presentations and commentary are included), he argues that you cannot understand the likely future of globalization without it.

Baldwin has argued that the global economy is in the throes of a third “unbundling” of globalization, a phrase he uses to describe the driving force behind a shift in what is traded across global borders. In his account, the first “unbundling” “occurred when steam power and Pax Britannica radically reduced the cost of transporting goods”, and the process of reducing physical transport costs over the decades has led to the rise of globalization from the 19th century through the 1960s or 1970s (with interruptions for the World Wars, the Great Depression, and other events).

The second “unbundling” began around 1990. It was not about transport costs, but rather about information and communication technologies (ICT) and how they affected businesses in large income countries high as the G7 group (United States, Canada, Great Britain, France, Germany, Italy, Japan). In particular, it was not a question of how the economies of certain countries were able to produce goods at different prices, which is the standard theory of trade at a lower level, but rather how a combination of manufacturing firms high-tech companies in high-income countries could coordinate their production chain with lower-paid labor in other countries. Baudouin writes:

Globalization changed drastically around 1990 when it entered its expansion phase of offshoring, or what I have called ‘second unbundling’ to contrast it with first unbundling (Baldwin 2006). This was triggered by the ICT revolution which relaxed the second cost of separation – communication and coordination costs. ICTs have enabled G7 companies to break down highly complex industrial processes into production stages and then spatially unbundle some of them in low-wage countries. Think of it as the outsourcing boom phase of globalization where G7 manufacturing companies seized opportunities at hand to combine their advanced manufacturing know-how with low-wage foreign labor in factories. settled abroad. As the delocalized process was to continue to operate as if still clustered, we can think of this as factories crossing borders, not just commodities. Trade boomed again.

This third ‘unbundling’, currently underway, focuses on how new versions of interconnected information and communications technologies, which could simply be called the digital economy, are connecting service industries. Indeed, although the increase in international trade in goods has more or less leveled off since around 2008, international trade in services has continued to increase and represents an increasingly large share of international trade.

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What exactly are these “other business services”?

The OCS category consists of a few large items and many small items. Some are easily recognizable. Among the largest categories are financial services (9%) and payments for intellectual property rights. The Telecommunications, Computers and Information Services category accounts for 11% of the total; much of it is software-related IT services, but much of it is thrown into the category “Other IT services other than cloud computing” (typical of the lack of precision in trade statistics). The largest subcategory (23%) is “Other business services”. This includes a wide range of services. Some – such as architecture, finance, engineering, R&D, advertising and marketing, and professional consulting and management services – are easily associated with sectors and jobs. Others, such as operating leasing services and “other business services, not included elsewhere” are difficult to map into jobs and sectors of the national economy.

In my mind, it may be useful to think of the third “unbundling” in terms of working from home. If your job is one that can be done entirely by someone working from home, by a telecommuter, then it can be done by someone out of the country. As just one example of many, the primary, secondary and higher education systems have just spent a year bringing their services online. Baudouin writes:

Note that the trade-off here is direct wage competition between workers in the service sector, and wage differences are probably the biggest untapped trade-off left in the world today. Using Colombia as an example of an emerging middle-income market, a recent study compared US occupational classifications with those of Colombia to compare wage rates (Baldwin, Cardenaz, and Fernandez 2021). Focusing only on occupations that Dingel and Neiman (2020) categorized as telecommuting in the United States, the study found that wages in the United States were on average 1,500% higher in the United States than in Colombia. Obviously, low wages are not the only source of competitiveness in services, but with such large wage gaps, it is likely that the globalization of the services sector driven by digital technology will have an impact on prices in the advanced economies.

Some of the arbitrage is done through online freelancing platforms like Upwork, Freelancer, and Zhubajie (they’re like eBay but for services). Salary comparisons based on worker-level data extracted from these online self-employment platforms confirm the presence of huge salary gaps, although their size varies considerably depending on the data selection criteria. Data from a number of the largest freelance platforms reported in ILO (2021) indicates that the average hourly wage paid in a typical week for those working online is $4.9, with the majority of workers (66%) earning less than the average. While $4.90 an hour seems like a low wage in Europe, that equates to a full-time equivalent wage of around $10,000 a year – a wage that’s considered comfortably middle-class in most countries. country.

Baldwin argues that the low-hanging fruit in this area is “intermediary services”. For example, it may be difficult for a US company, for various regulatory reasons, to hire accountants directly from a company based in India, Brazil or Indonesia. But it is quite easy for US-based accounting firms to hire these accountants elsewhere and coordinate their work when providing accounting services to US-based firms. Moreover, for many emerging market economies, providing services can be quite simple.

[E]The export capacity of emerging markets is not as important a limiting factor for services as for goods since each nation has a labor force that already produces intermediate service tasks. All emerging market economies have accountants, forensic accountants, resume checkers, administrative assistants, online customer support staff, graphic designers, editors, personal assistants, travel agents, engineers in software, lawyers who can check contracts, financial analysts who can write reports, etc. There is no need to develop whole new sectors, build factories or develop farms or mines.

The term “globalization” is used to describe the level of globalization slowdown. When it comes to exchanges of goods, slobilization applies. But Baldwin’s analysis implies that the global economy may already be seeing the roots of a substantial increase in globalization that will occur via the service sector.