Deepening Globalization

Clay Risen uses a straw-mannish argument — who seriously thinks rising shipping costs mean the end of globalization? People who aren’t very smart — to make a smart, important point.

Rising fuel costs spur globalization, by moving the world economy from a series of supply chains to a constellation of supply networks. If a Japanese bicycle maker gets an order from Shanghai, it might draw components from factories in Kuala Lumpur, Chiang Mai, and Taipei; if the order comes from Tel Aviv, it might go through Chennai and Mumbai, depending on fuel costs and other factors. But making that sort of decision takes truly globalized companies, companies with multiple regional offices and ready access to international capital flows—not to mention international office cultures and multilingual executives. And, precisely because of higher energy prices, we are likely to see more, not less, of them.

The parallel emergence of a worldwide consuming public and an ongoing flow of international investment capital means that globalization is no longer a creeping phenomenon, one that can be rolled back simply by higher energy costs. In today’s truly borderless world, supply and demand will find a way to meet. Rising oil prices might mean that Americans will buy fewer rattan chairs made in Indonesia. But thanks to the globalized market, they can buy Swedish sofas made in Virginia instead.

I think about this in the context of small-scale fabrication. The labor cost of a lot of durable goods is so trivial that it matters less and less whether assembly of said goods happens in a low-wage plant or in South Asia or by cheap robots in high-wage country. But who will control the database of things? Getting intellectual property right is really important, which is why it is a big deal that the United States gets it so wrong.