Technologically induced anti-globalisation

Chris here talks about the current deceleration of globalisation.

Figures from the OECD show that globalisation is already slowing down. It estimates that import penetration in developed economies – the share of imports in total final spending – rose from 13.4 to 21.4 per cent between 1993 and 2007 – a rise of 0.5 percentage points each year. But in the five years since then, it has risen a mere half percentage point, to 21.9 per cent.

The shorting of food supply chains has been one response to the horse meat scandal. But that is one part of a wider trend against globalised supply chains. Credit constraints are slowing globalisation because international trade needs financing, currency volatility is slowing globalisation because it makes trade more unpredictable and the home bias has increased as during downturns people become more insular.

One other thing that Chris doesn’t directly mention driving shortening global supply chains and anti-globalisation is technological change. That sounds counter intuitive but it’s not. Normally we think that technological changes like steamboats, transatlantic telegraphs and the internet as driving globalisation forward, but other similar trends work in the opposite direction. What we are seeing is data-creation-biased technological and behavioural change. That’s a phrase I just invented, which explains why it is so clumsy.

Let me explain. As time and technology progresses each of produces more data. That data is valuable. At the moment we give that data away for free, authorising this app and that app to record our likes, our past times and so on. Our data is being monetised, it’s just not use getting the money. But where there’s money, there’s fraud. You can see some pretty unsubtle examples here. Someone can can capture the benefits if they surreptitiously get your data.

The objects and programmes which record this data thus become not only passive meters but engines of value creation themselves. You’re already seeing this happen. Have you hear of Huawei? Probably not. If some Chinese people plan to get up to no good it’s convenient that westerners can’t differentiate between one name and another. Anyway. There was a minor scandal last year when it was reported that some of their appliances were beaming information back to China in a classic “can’t trust the sneaky yellow people” brouhaha.

Whether the accusation are true or not is kind of irrelevant, the panic was real and the threat is real. If not Huawei, then someone else will soon be trying to steal your valuable data. If a firm wants the things it manufactures to be secure in the future it will need to monitor its supply chain and at the moment this means keeping it short. Anti-globalisation biased technological change in action.

Let’s take one concrete example. Smart Meters will (probably) be in every home in Britain by the end of 2020, they will record our energy use in real-time. Most mundanely Time of Use tariffs will allow people to buy energy when it’s cheap. But as appliances connect to this smart system, a cascade of data will be generated about our every habit, washing, TV watching, what is plugged in where and so on. Energy suppliers will become IT firms that happen to sell us electricity.

For a lot of firms, the final assembly of smart meters isn’t happening in China or Japan or anywhere else, it’s happening here. That’s because it is cheaper to monitor manufacture here than there. Data driven technological change is shrinking supply chains. If you want to control something you need to monitor it. When information is valuable security becomes important. Thus as we digitise everything from conversation to washing machines we should expect supply chains to shorten and globalisation to decelerate or even reverse.