Richard Baldwin had one goal in writing The Great Convergence: to change the way you think about globalization. His central argument is that revolutionary changes in communication technology fundamentally changed globalization around 1990, setting in motion a reversal of the “Great Divergence” that had propelled the rise of today’s rich nations from the early nineteenth century. In the excerpt below, Baldwin offers a broader view of the history of trade, industrialization, and growth that sets the stage for his full consideration of the logic of the new globalization.
When transportation involved wind power by sea and animal power by land, few items could be profitably shipped over anything but the shortest distance. This fact made production a hostage of consumption since people were tied to the land. Production, in other words, was forcibly bundled with consumption.
Globalization can be thought of as a progressive reversal of this forcible bundling. But the bundling was not enforced by shipping costs alone. Three costs of distance mattered: the cost of moving goods, the cost of moving ideas, and the cost of moving people. It is useful to think of the three costs as forming three constraints that limit the separation of production and consumption.
One of this book’s core assertions is that understanding the evolving nature of globalization requires a sharp distinction among these three “separation” costs. Since the early nineteenth century, the costs of moving goods, ideas, and people all fell, but not all at once. Shipping costs fell radically a century and a half before communication costs did. And face-to-face interactions remain very costly even today.
Thinking about why the sequence matters is facilitated by a new view of globalization—what I call the “three cascading constraints” perspective. The new view is best explained by lacing it onto the back of a quick gallop through history.
The Pre-Globalized World and Globalization’s First Acceleration
In the pre-globalization world, distance isolated people and production to such an extent that the world economy was little more than a patchwork of village-level economies. Things started to change when the cost of moving goods fell. Transport technologies improved in a process that fostered and was fostered by the Industrial Revolution.