Globalisation: the great unbundling(s)

By Richard Baldwin (GIIS, Geneva, Switzerland, read papers)

The nature of globalisation is changing and outsourcing is at the root of these changes:

"...Due to radical reductions in international communication and coordination costs, EU firms can offshore many tasks that were previously considered non-traded. This means that international competition – which used to be primarily between firms and sectors in different nations – now occurs between individual workers performing similar tasks in different nations. The really new feature is that deeper new-paradigm globalisation will seem quite unpredictable from the perspective of firms and sectors. Since individual tasks can be offshored, globalisation may help some workers in a given firm while harming others."

The jobs that globalisation may affect, the people who may need to adjust their work and career, may not always be what we expect:

"...old-globalisation’s correlation between skill groups and winners and losers breaks down. Certain highly skilled tasks may turn out to be offshorable, while other highly skilled tasks are not. Increased offshoring will therefore not systematically help or hurt skilled workers in the EU. In particular, many “Information Society” jobs are prone to offshoring so EU policies aimed at moving workers into Information Society jobs may be wasted since those jobs are only ‘good jobs’ because they do not yet face direct international competition."

Since no one is absolutely certain how markets will change exactly, remaining flexible is imperative:

"...increased unpredictability should make EU leaders more cautious about moving workers or skills in a particular direction. Flexibility is, as always, the key to allowing Europe to seize the opportunities of globalisation while minimizing the adjustment costs."

Paper from the conference Challenges of globalisation for Europe and Finland, 20 September 2006. Found through the great international trade blog of Jonathan Dingel "Trade Diversion" and UC Berkeley economics professor Brad De Long's Economics blog.