Stephen Roach on the New Globalization

by: SA Editors

From Morgan Stanley economist Stephen Roach's weekly essay:

The new globalization could be far more disruptive than the strain of the early 20th century. That’s due importantly to the extraordinary speed of the transformation now at work. Courtesy of rapidly increasing e-based connectivity, together with ever-widening low-cost bandwidth, the global labor arbitrage is moving rapidly up the value chain.

Five years ago, when the debate was first joined on white-collar offshoring, the focus was on relatively low-value-added data processing and call centers. Today, the whole gamut of higher-value-added professional services workers is feeling the heat. Unlike the relatively slow-moving globalization in tradable goods, IT-enabled globalization has moved at hyper-speed to the upper echelons of the occupational hierarchy in the white-collar services economy.

The debate breaks down over what needs to be done. The rich countries have opted for protectionism while the poor countries continue to bet on export-led growth. Meanwhile, a confluence of powerful new competitive forces — the open architecture of IT-enabled connectivity, the push for efficiency solutions in the high-cost developed world, and the availability of an enormous reservoir of high-quality offshore knowledge workers — drives the new strain of globalization ahead at breakneck speed.

At the same time, the global labor arbitrage is forcing a realignment of relative wages in the world economy — with the developed world fearing a “race to the bottom