Is Globalization Dead? - Marc Levinson

Marc Levinson is an American economist, historian, and author celebrated for his accessible writing on economic forces and globalization.

He’s authored seven acclaimed books, notably:

The Box: How the Shipping Container Made the World Smaller and the World Economy Bigger, a groundbreaking history of containerization that reshaped global trade. It was shortlisted for the Financial Times/Goldman Sachs Business Book of the Year and earned top honors in industry publication awards

Outside the Box: How Globalization Changed from Moving Stuff to Spreading Ideas, which argues that globalization is evolving—from physical goods toward the global exchange of ideas and services

Other notable works include An Extraordinary Time (on the economic disappointments of the 1970s) and The Great A&P and the Struggle for Small Business in America.

He is considered to be a leading expert in the economic history of globalization.

TIMESTAMPS:
00:00 Trailer
00:23 The Early Waves of Globalization
07:15 Innovations That Shaped Trade
14:16 The Role of Containerization
22:21 Malcolm McLean: The Entrepreneur Behind the Box
30:07 Impact of Containerization on Port Cities
33:07 Lessons from Past Disruptions
39:26 The Evolution of Ports and Automation
46:05 Globalization and the Rise of Value Chains
52:20 Deindustrialization and Its Impacts
58:07 The Future of Globalization and Policy Responses
01:05:19 Advice for Fresh Graduates

This is the 53rd episode of The Front Row Podcast.

Keith

Today I'm joined by Marc Levinson, an economist, a historian and the author of the seminal books The Box, Outside the Box, and An Extraordinary Time. Across all three books, what I found extremely useful is that we get to see the evolution of globalisation from its early days in the industrial revolution to the modern digital age where we get to see globalisation happen at such a massive clip. With that, Marc, I'd like to welcome you to the show.

Marc 0:00:55

Thank you, Keith. I'm delighted to be with you.

Keith 0:01:02

One of the first things that I've come to appreciate was how early globalisation actually took place. You argue that it was in the industrial age where there were certain technical and technological innovations that allowed for globalisation to actually happen, that differentiated from the age of the mercantiles.

Marc 0:01:21

The first wave of globalisation began in the 1830s, give or take a few years, and was really related to the boom in international trade. Until that point, trade really had not been all that important to most countries, and that changed fairly rapidly as big companies were founded. This was the rise of the large-scale corporation and trade was part of the package. These companies were very interested in importing and exporting.

It needs to be said that there was a certain pattern to this sort of trade, which is to say most of what was traded was commodities produced in one country going to another country, and some of that came back in the form of manufactured goods from an industrial country to a colony. It was really nothing like the flow of trade that we have today. But you do see this in the trade statistics - there was this vast increase in international trade in the second half of the 19th century.

Keith 0:02:33

You actually pointed out the three innovations that enabled that first wave of globalisation and they were the oceanic steamship, the telegraph cable, and dramatically different ideas about capitalism. Can you help me take through these three innovations? Why were they so crucial for globalisation to really kick off?

Marc 0:02:53

The steamship was important because it lowered the cost of transporting freight and had a greater likelihood of showing up on time. It was really easier to plan the arrival of goods than with a sailing ship when the arrival time was really dependent on the winds and the weather.

The telegraph allowed the flow of international information. It made it easier to have international finance, foreign direct investment. Those aspects of globalisation grew a lot in the late 19th century. But I think that really the change in thinking about trade was critical here.

Until the early 19th century, the dominant thinking about international trade was mercantilist, which basically meant exporting is good, importing is not good. We really want to export as much as we can, capture the proceeds in the form of silver and keep that in our vaults for future use.

What really changed was the thinking that came out of David Ricardo and others that there are benefits from importing as well as exporting. When you import, you have a cheaper source of products. You may get more choice in products. There are benefits from importing. The benefits from trade are two-way, not just from exporting. And that really changed the way that many countries thought about trade.

This kind of thinking led to tariff reductions in first the UK and then in other places in Europe because leaders decided that it really wasn't a good policy to keep imports out. It might be a better policy to encourage more trade.

Keith 0:05:00

A huge part of your work was also acknowledging that whilst the government was important, there was a need to look at the other factors during that period as well. For example, I think in your work with The Box, you actually place a lot of emphasis on the role of containerisation and the mass adoption of a systematic way of processing cargo as maybe equally or perhaps even more important at times than government intervention. Help me understand a little bit more about some of the smaller or implicit factors that were at play maybe in the first wave of globalisation that others are perhaps not thinking about.

Marc 0:05:39

People pay a lot of attention to what governments do - to tariffs and trade barriers and those things like that. They're easy to identify. Economists can usually measure their impact pretty directly and there's a lot less attention paid to business practices that may result in a change in trade flows. I think that's what we saw in the first globalisation. We've continued to see that as globalisation has developed over the past almost two centuries.

I think in general scholars really neglect the role of business decisions in international trade because the people who are making these decisions are not thinking about macroeconomics. They're not thinking about GDP growth. They're thinking about their own companies, their own businesses. How do they improve their profitability? How do they grow? It is the activities of a lot of people looking at these factors that can really concern them and their companies and their shareholders that stimulate economic change.

In many ways, it's really the role of entrepreneurs, especially the business people when they're thinking about how they can innovate, compete better and push their products to more people that kind of drive a lot of these innovations that we see today.

Keith 0:07:13

So then the question the entrepreneurs are asking is not how can my country innovate more, how can my country export more, how can we grow GDP. They're asking how can my firm make a better profit. It's a very personal question. It's a very micro question. But when a lot of people are asking that question, you get pretty significant impact. One of those people is Malcolm McLean. Malcolm McLean which you've highlighted his crucial role in bringing about the adoption - massive adoption of containerisation - and you make a very persuasive case that maybe the box or the adoption of the box was perhaps the most crucial 20th century invention that really accelerated the process of globalisation. Could you make that case again and just help us understand why was the box so crucial?

Marc 0:08:16

A little background for the people who are listening and watching here. The cost of international trade was pretty expensive. In the post-World War II period, it was not at all uncommon that shipping goods internationally could cost 20 or 25% or more of the value of the goods. This by itself really limited what was traded. A lot of things were just not worth trading because it cost too much to ship them across the oceans.

Trade was slow. It took a long time to get things to the port, to load them on the vessel, to get them unloaded and delivered at the other end of the voyage. And trade was often unpredictable. All of those factors really were limiting the growth of international trade in the 1950s.

Malcolm McLean, whom you mentioned, was in the trucking industry. He originally got interested in shipping and containers for a very sort of micro reason. He ran trucks up and down the east coast of the United States. There were a lot more cars being sold in the 1950s. His trucks were being delayed in transit. That was driving up his costs. And he got into this thing by thinking about, "Well, maybe if I were able to put my trucks onto ships and take them down the Atlantic coast, we'd avoid all that traffic and maybe save some money and make a better profit."

That doesn't sound like a very grand plan, but that's really where containerisation in the modern sense started. He took an idea that had been around for two centuries - the idea that you could more efficiently ship a lot of little things by putting them into a big box - and he found a way to make this financially viable. No one had actually made any profit off containers before this. It was really his attempt to solve a small problem that concerned his company that led to a whole series of events that really made globalisation possible as the container was adopted around the world.

Keith 0:10:36

As you've pointed out that there were many people in that industry themselves who didn't want to actually adopt containerisation. It seems very intuitive, right, that rather than having a breakout process where your goods are sprawled out everywhere, you really want to put them in containers and organise them efficiently. Then the question will be why was it not financially viable before he came along. What was the core insight that he had that perhaps his peers didn't?

Marc 0:11:05

There were several reasons it was not financially viable. One is that the businesses that tried to use containers previously didn't have much of a system. They could put goods into a container and put the container on top of a horse-drawn wagon or a railway car. But what they do with the container at the other end of the voyage? They could take the container and put it aside and hope somebody else would use it eventually. They could take it and tear it up and reuse the wood or the metal for other purposes. But that's not really a very efficient way to use containers - to make a single trip and then you have to put them aside.

A lot of the companies that got involved with containerisation in the early days - and I'm talking now about the 1920s, 1930s, in the United States and in Europe - were very preoccupied with keeping their customers. They wanted container designs that would only go on their freight cars or only go on their ships. They didn't want the possibility of a container that could go anywhere because their customers might choose to ship on a different railway. That really limited the growth of containerisation.

In some ways it wasn't very efficient, particularly in ships because the ships weren't designed for it. Ships are not square. Ships have round sides, and if you've put a big box along the side of a ship's hull, you've got a lot of wasted space. That's how these early containers were sent. If they were sent internationally, they were lowered into the hull of a ship and pushed to one corner or another, taking up a lot of space, which was a pretty inefficient way to go.

So for all of those reasons, containerisation had really never gotten very far. Part of McLean's insight was that the container had to be useful for shippers. There had to be some benefit. This was not something that he was inventing and the expectation that his company would reap all the benefits. There had to be something in this new system that he was developing that would benefit shippers. And so that's what McLean did.

The container itself was not his invention. It was not his creation. His insight was really that customers didn't care about the ship. They didn't care about the railway car. They didn't care about the truck. They wanted to get their stuff where it was going cheaply and reliably. And if a container could do that, there was a lot of business to be done.

Keith 0:14:16

If you think about what he's done, he's pretty much open sourced the entire system and perhaps was one of the first more successful examples of open sourcing an idea and innovation. But how did he capture value on his end?

Marc 0:14:30

In the early days McLean was losing money. The world was not sitting around waiting for the shipping container to arrive. So he was using containers on domestic routes in the United States down the Atlantic and Gulf of Mexico coasts from New York, New Jersey to Houston, Texas and then to Puerto Rico. There was limited interest. He was initially not making money but he was very committed to the concept. He put his personal wealth at stake. His view about this was that you have to be all-in.

McLean was an entrepreneur. He'd previously started and built a very successful road haulage business, trucking business. He had to sell that to raise the money to pay for his container shipping business. He was all-in. He was totally committed to doing it and so he put his capital on the line and it took several years before it was a profitable business but he stuck with it. He kept at it through the crucial phase of the development of container shipping.

One problem which arose pretty quickly after the first modern container ship voyage in 1956, which was aboard McLean's ship Ideal X, was that other companies started to want to use containers too. Other ship lines built containers. So there were a lot of different types of containers in circulation.

McLean understood that if there were a lot of different types of containers, this business was not going to go very far. That was not friendly to the customers. Shippers would not embrace containers that way. So when the US government demanded that the ship lines and the railroads get together and figure out some standards for containers, McLean was a big believer in that and he eventually donated key patents so that all containers could be used on any ship or lifted in any port or carried on any railway car.

Keith 0:16:51

You were on the verge of writing a biography on McLean, but you realised that maybe this wouldn't be something that would gain a lot of mainstream interest. You also detailed that actually there were few times where he actually went bankrupt despite building up successful business earlier on and because he went all-in. What was McLean like as an entrepreneur in those days in the US? And how did he actually really encourage or push the frontier of innovation for containerisation that eventually allowed it to become such a widespread adoption where it's not just actually something that's in America but it's global? How did that process actually happen? So maybe two parts to that question. How was he like as a person going through these different iterations of entrepreneurship and how did he help push us towards that tipping point?

Marc 0:17:54

I personally never met Malcolm McLean. I talked to many people who had worked with him and who knew him in some cases quite well. What emerges from those discussions is that this was a man who was a serial entrepreneur. He loved competition. That's what got his juices flowing. He was determined to build this business and he committed himself to doing that.

One of the most fascinating comments I ever heard about Malcolm McLean was from a man who'd worked with him for many years. That comment was, "You couldn't go pheasant hunting with Malcolm without him wanting to bet on who gets the first, who gets the most, who gets the biggest." His competitive instinct was everywhere and that was very obvious in building his company which became Sealand Service. He was well suited and he was prepared to challenge obstacles.

There were big regulatory obstacles to the container in the United States. There were a lot of businesses that said what do we need this for? There were ship lines that said this technology is not useful to us. There were very knowledgeable executives in the port industry who said the container is just a passing fad. We don't need to worry about it. And McLean was committed to making it work. So he led the way.

He eventually sold his company to a US railroad. Got on the board of the railroad. Hated it. He didn't like working for a giant company. So he sold his stake, got off the board, bought another ship line, and went back into the container business.

The reason he went bankrupt was because he had decided that he wanted to buy ships to provide around the world service. Again, an innovative idea. He was going to have container ships sailing around the globe. And this did not get much resonance among shippers. There was not much demand for this. He had the wrong ships for this service and his company United States Lines went bankrupt in what was to that point the largest bankruptcy in US history.

McLean himself felt quite ashamed of this not because he had failed but because a lot of people lost their jobs and he felt responsible for these people. They put their trust in him and he felt like he had betrayed them by not making a success out of this investment.

And then after he went bankrupt, he went back into shipping yet another time, bought another ship line and tried to make it work.

Keith 0:21:00

Malcolm McLean kind of represents that certain sense of American entrepreneurial spirit that really I think in Asia you won't find that as much if someone was to fail with such high stakes. It's really difficult to kind of go back and try and put yourself in the arena again. He loved the game, he loved competing.

Marc 0:21:19

This is not someone who was avaricious. He was not competing because he wanted to be rich. He was not competing because he wanted his name in lights. He was competing because that's what he enjoyed. That gave him satisfaction and there was nothing that made him happier than the business doing well. It succeeded in its objectives. It made the employees prosperous and that's what gave him a sense of accomplishment.

Keith 0:21:51

Earlier you alluded to the fact that he donated those patents. Obviously there was government pressure for a greater sense of standardisation within the industry. But how do you actually help push the industry not just within America but if you think about it globally? How do you help push the shipping industry towards that tipping point of containerisation that allowed it to be adopted at such a massive clip?

Marc 0:22:19

Starting in the late 1950s, there were negotiations in the United States about container standards. This may seem kind of nonsensical. After all, a container is a pretty simple thing. But if you think about it, there are actually a lot of different aspects of a container. How thick should the walls be? Where should the internal supports be? Where should the doors be? How long should it be? How tall should it be? And so on.

There was a committee of people from the maritime industry and the railroad industry and the container manufacturing industry in the United States that spent several years trying to reach agreements on those things. And then other countries got interested. So after the domestic negotiations in the United States, there was another set of negotiations at the international organisation for standardisation. This mostly involved the US and Canada, Western Europe, Japan, a few other countries and they reached agreement on a lot of points.

One of the toughest sticking points though concerned something called the corner fitting. The corner fitting is the piece of steel that is at each corner of the container. There are eight corner fittings on every container. They're important because the corner fitting is used to lift the container with a crane. If each container had a different sort of corner fitting, then one crane couldn't service them all.

When there was not agreement on this, the negotiations were stuck. McLean said here take the Sealand patent, take the corner fitting that my company has patented and make it the standard and you can use it. That's exactly what happened. All of a sudden, every container around the world had the same corner fittings, which meant that it could be lifted by a crane in any port or in any railyard. This was really essential to making the container an international business.

Before there was standardisation, investment in container shipping had pretty much stalled because no one wanted to build a ship and then find out that it was not the ideal size for the new standards. But once there was an agreement on standardisation, lots and lots of money flowed into container shipping. The first transatlantic container ship voyages came about after this happened in 1966. So standardisation was really key in the development of global container shipping and Malcolm McLean's contribution of the corner fitting was key to the spread of containerisation.

Keith 0:25:38

That's so fascinating that it was this small pattern that might seem almost pedantic or boring that actually really kickstarted that revolution in the way we transport goods and one of the things that when I've been reading your books is that a lot of these innovations have a lot of knock-on and industry altering effects. So for example in Singapore when our first founding prime minister was asked about the most important technological innovation for him, he mentioned that was the air conditioner because that allowed Singaporeans who live in a very hot, humid and temperate climate to transit into knowledge work because imagine if you're in our part of the world it's almost impossible for people to be working at their desk if it was only going to be ventilated by fans for example. So he really saw the air conditioner as something that was paramount to Singapore's transition into a knowledge intensive industry.

In the same light I think the box kind of highlights how containerisation altered the transport industry and not just that - port cities, entire port cities became overturned or had to evolve over time. And Singapore being a port city as just a port city in Southeast Asia, we had to evolve over time. So I guess the question I had to ask was how did this adoption of containerisation fundamentally alter the way port cities had to operate?

Marc 0:27:17

Most ports in the pre-container days were located in the middle of big cities and that was necessary because cargo handling was pretty labour intensive. So the port typically had neighbourhoods close by. You had dock workers who lived nearby and when there were ships in port, you needed those guys to show up and help load or unload the vessels. So there was a whole culture built around the docks in most big port cities.

Well with the container these ports were generally not suitable. The old ports were designed with wharves that stuck out into the water so a ship could pull up alongside and basically park there for a week or two while it was loaded or unloaded. There were warehouses right close by the wharves so goods could be put in them before they were loaded on the ship or after they were unloaded. But containerisation didn't need all that. What it needed was space. There needed to be room to store all of the containers and so this required a large open area near the docks.

Well, port cities didn't have that and so there were really two options for the ports. One is that they could move out of the centre city, move to a location where more land was available, which is what happened in New York City, for example, where the port moved across the Hudson River to New Jersey and it happened in London, where the port moved out of London and up the coast. Or you could create a new port area where there wasn't one before. This required somehow getting a lot of land whether by landfill or some other means and dredging so these increasingly large container ships could come into the port, unload their containers there, take on containers that were waiting there.

Singapore made the choice to build a new port. Basically there was a lot of landfilling. There was a lot of thought given to where this port should be put and it proved successful. And then of course over the years it turned out that a much bigger container terminal was needed and it did the same thing again on a larger scale.

But many port cities lost their economic function with the container. And this is hard to remember but you had in major ports tens of thousands of people who had jobs that revolved around the docks. These were people who loaded and unloaded cargo. These were truck drivers who took cargo to and from the docks. These were warehouse workers. And in a place like Brooklyn, for example, part of New York City, the docks just closed during the 1970s. People whose whole lives had been built around the docks - they lived in dockside neighbourhoods, they worked in freight transportation - and their jobs simply vanished. It took a long time for cities like New York and London and San Francisco and many others to recover from the loss of their maritime industry because they were just not suited for container transportation.

Keith 0:31:10

With great technological innovation, the spectre of structural unemployment is something that's often under reported or underappreciated. Even today I think if we look at the advent of AI I think a lot of people are talking about the disruption that will cause to knowledge workers and I think a part of it is maybe because we're self-interested - we're obviously in that field - so a lot of us are concerned but actually a lot of the structural unemployment as you've pointed out actually did happen in previous generations when other technological innovations were introduced and they were kind of brushed away but they had very real impacts on the people.

Marc 0:31:54

They had a real impact on the people. People lost their jobs, people lost their incomes. Entire communities where families had lived for generations were wiped out. But something else happened too which I think does not get so much credit. And that is people felt devalued.

In the pre-container days, the dock workers were responsible not only for physically putting the cargo on the vessel, but for deciding how the vessel should be loaded. They had expertise. They knew how to load the vessel to keep it balanced, to keep the cargo from shifting during the voyage, to make sure that fragile cargo wasn't damaged and so on. They had gained over their years of dock work a lot of expertise about the best way to load a ship.

Well, with containers, that expertise was worth nothing. The skills that they had developed over many years of service and experience were suddenly worthless. I think that this was really debilitating to many people who had spent their working years on the docks.

Keith 0:33:12

It's almost as if the tested expertise that they've accumulated over the years literally dropped off a cliff and this is actually a real problem and if the past is prologue, if we could go back in time what would the right policy response be - and I wanted to caveat the reason why I'm asking this is because we're seeing that same level of disruption here so if there's a lesson to be learned from the past what would that lesson be?

Marc 0:33:38

I don't think you can avoid the disruption. I think there is a lesson in how to deal with this kind of situation. When the container came into being in the United States, there was a lot of talk about automation. It was a big concern nationally. There were presidential commissions examining the consequences of automation and the dock workers unions got very involved in this discussion.

There are two separate unions that represent dock workers in the United States - one on the Atlantic and Gulf Coasts, the other on the Pacific coast and they took very different approaches to dealing with the container. The union on the Atlantic and Gulf Coasts negotiated an agreement that protected the jobs of all of the regular dock workers, which is to say they got what was called a guaranteed annual income. There was a tax put on each container coming into certain ports. The money from that tax was used to pay money in lieu of wages to dock workers who could not find work.

The dock workers still had to show up at the union's hiring hall. Still had to make themselves available for work and sometimes they found it. But since there was in general much less need for dock workers, most days they didn't have anything to do. The system kind of locked them into place. Financially, I think it was good for the dock workers. Spiritually, I'm not so sure it was good for the dock workers because it sort of froze them in place. They could not simply say, "I'm done with the docks." They still had to show up at the union hiring hall in order to collect their guaranteed annual income.

On the Pacific coast, the union took a very different approach. It arranged a one-time payment to dock workers who were losing their jobs. Many of them received their pensions at a younger than normal age. But they were told very firmly, you are no longer employed in the dock work industry. You're no longer working on the docks. There's no hope of you coming back here. So those people were given the message loud and clear. We're going to help you. We're going to give you some money to make a transition, but you've got to find something else to do with your life and your career.

My own prejudice is that that second approach was actually much fairer to the dock workers. They were not frozen in place. They were not told to show up every day for a job that probably was not ever going to appear. On the east coast there were people who collected the guaranteed income for 30 or even 40 years after they'd worked on the docks. I think that's just a loss of human potential. I think those people could have done very interesting and imaginative things had they gone on to other work, but instead they were just given an incentive to say they were still dock workers and show up every day looking for jobs that were not there.

Keith 0:37:09

I think what you're arguing for is essentially that governments just have to be real or trade unions or whatever powers that be who are in charge of these workers, they have to kind of face the reality with the workers and show them that there has to be a way to transit out of the industry that has disrupted and these jobs are never coming back.

Marc 0:37:33

I think it's very unfair to workers to keep telling them that oh your job is going to come back. We're going to fix that back here when often times you know that's not the case. You know that's really not going to occur and I think it's better to be honest with people.

Keith 0:37:50

What did the new winners look like and more interestingly like how did the economic life around these new ports changed?

Marc 0:37:59

First of all the new ports had an enormous scale and that scale grew as container ships became larger year by year. So today if you go into a major container port it covers hundreds of hectares. It's a large piece of property and that was really not at all the way ports were structured in the days of break bulk shipping before containers came on the scene.

The ports really have a key role now in logistical systems. Before they did not really - the port was a wharf. The cargo came in on the wharf and it went into some warehouse somewhere and that was kind of the end of the port's role. But today the ports have a central role in getting the cargo off the ship and onto a barge or a rail wagon or a truck to take it onward and vice versa. They have a key role in getting the cargo through an efficient customs system so it can be processed quickly. And so the ports have changed a great deal and I think would be quite unrecognisable to somebody who worked there in the pre-container days.

And one thing that is striking when you go to a major port today is how few people you see at a container terminal. They're not totally automated. There are some workers around. There's certain things that still need to be done by people, but back in the pre-container days, you would have hundreds, sometimes several hundreds of workers swarming around just a single wharf. And now you've got a very small number because some work can be done remotely and other types of work don't need to be done.

Keith 0:40:05

If you look at the top five ports of the world today for example, what do they share in common that allows them to be at the top of their game so to speak?

Marc 0:40:19

The biggest ports have really important transshipment roles. You can see that in Singapore, right? Very little of what comes into Singapore by sea is consumed in Singapore. Singapore is a place where the cargo is changing conveyances maybe from one ship to another or a ship to a barge for transport around the area or in some cases into a truck to be taken up the peninsula into Malaysia. So the port has a key role in this transfer system that really did not exist previously and the biggest ports tend to be transfer ports.

They obviously tend to have very large facilities. They tend to have good transportation access in and out. This is a big deal for ports because if you have trucks that need to line up for hours outside the gate in order to collect the cargo that's just arrived or in order to drop off a container, you're going to have very unhappy shippers using that port. They're going to want their cargo to go somewhere else. So how easily trucks and trains get in and out, that's really a big issue for ports.

And many of the more successful ports have pretty advanced technology. It's quite common now in the leading ports for the containers to go on and off trucks over a fence so that the truck actually never comes into the container terminal. This is a pretty dramatic change. It is in many ports a truck comes through the gate and drives through container stacks until it finds the right place. Well, that's really not a terrific thing. First, there's a problem with the trucks potentially blocking other traffic. It's potentially dangerous as there are people who may be walking around in the terminal. And there's security issues with whoever is driving the truck and where the truck might go.

So in the most modern ports, the truck can back up to a fence that separates the secure area of the port from the outside area. And then an automated crane can reach over the fence, pick up the container that the truck is bringing into the port and stack it, or can pick up a container from the stacks and reach it over the fence and place it on the back of the truck. This kind of modern technology is quite important and it really only makes sense at a pretty large container terminal. So the bigger terminals have an advantage in this kind of automation.

Keith 0:43:38

In the story of building up such scale, we start to appreciate the true scale of globalisation. How goods in the past when they were shipped I think versus like 200 years ago in the 1800s trade volume has exponentially increased and to a certain extent this is why we need the scale in the first place. So I wanted to get your sense of like how the trade volumes and the flow of goods has really exponentially increased after the adoption of containerisation 1956. From 1956 to now. How much has the world truly globalised?

Marc 0:44:20

There was really a change that came about in the late 1980s because you had three things coming together. One is by now - by the late 1980s - container shipping was going to all continents. It was to most countries that had seaports. It was pretty widespread and the cost savings were pretty obvious to everybody.

Second, you'd had a sharp decline in the cost of telecommunications during the 1980s. It was possible if you were a multinational enterprise to call your subsidiary or your supplier and talk about strategy, talk about needs, talk about changes. And there was computerisation. So a computer at headquarters could now communicate with a computer at a supplier in a different country.

So now companies, manufacturers, retailers learned to take advantage of these technological changes and construct international supply chains. This is really what you see in the trade data starting in the late 1980s. What's most notable about this is that there was extremely rapid growth in international trade. For about 18 or 20 years, international trade grew twice as fast as GDP. What was driving this growth in international trade was trade in intermediate goods. This is something you never had before.

Up until the late 50s most international trade was in commodities not in manufactured goods. And from the 50s to the 80s most international trade was manufactured goods but finished manufactured goods - something had been made in this country, it was identifiably German or identifiably Canadian and it was shipped somewhere else. But starting in the late 80s with this growth of trade in intermediate goods, most of the stuff in containers was not ready for sale to final customers. It was going from one factory to another. It had been partially processed here and it was going somewhere else to be put into another component. This was a sort of trade that just had never existed before. There had never been any significant trade in intermediate goods. This is value chains. This is globalisation as we came to understand it.

Keith 0:47:03

And this is where we start to see perhaps the beginning of the depoliticisation of international trade or at the very least there was a lot more emphasis on building a connected world, more interconnected world across the continents.

Marc 0:47:16

Companies understood this change and they understood how to take advantage of it. They no longer needed to have all of their production for a certain product in one place. Goods could move easily from one factory to another or from the factory to the end user. They could construct value chains. They could say, "We want this component made here, and we want that component made there, and we're going to ship them over here, where they're going to be put into the final product by another company in another country, and the final product will be shipped off to customers in yet another country." None of that was economically viable before the container. But once the container came into widespread use, companies realised this was actually a very efficient way to do business.

Keith 0:48:05

One of the trends that happened during that period was also that with the construction of the global value chain, there was a huge push towards offshore manufacturing and that definitely contributed to de-industrialisation in America because capital was seeking the most efficient returns or the highest returns and highest gains. As a result I think there was a widespread movement in getting their manufacturing offshore off from America to the cheaper parts of Asia. Singapore being one of the early beneficiaries of it. And I'm speaking with Patrick McGee, the author of Made in China - the book on Apple being made in China. And he pointed out that, you know, Apple themselves, even though they were late to the game, concentrated a ton of their manufacturing into China as part of their efforts to not only save cost, but also at the same time to really scale up production to get the kind of production that they could not otherwise do in the US. I wanted to ask you a little bit more on the trend of de-industrialisation in the US that was happening during that period as well with this construction of global value chain.

Marc 0:49:25

Well I'd point out that this was not just in the US. You had a lot of manufacturing activity which gradually shifted from Europe, from Japan, even from Korea in the 2010s. Because companies realised that they could structure their production in different ways and how they did that depended a lot on the industry.

Some industries for example - apparel manufacturing - require simply a lot of inexpensive labour that does not require a lot of skill in many cases. Other industries such as making smartphones rely heavily on economies of scale to keep costs down. And they need a large plant to make as many smartphones as possible. That may not be an advantage in certain other industries where what's more important is a supply of a certain commodity or the skills of a certain group of workers or whether they're producing in small batches rather than in large production runs.

So it varies a lot with the specific product, but the technological changes with the container and computerisation and cheap communications made it possible for manufacturers and retailers to create these chains and to adjust them. Suddenly it became practical to make this component in this country rather than in that country. They could shift production and put the goods aboard a container ship and they'd get where they needed to go. So this was just a totally different way of doing business. If you see how manufacturers organise their production today, it's quite different from the way that they organised it in say 1985.

Keith 0:51:30

When America underwent their de-industrialisation phase, there was a lot more push towards services and I think this is something you alluded to also in terms of this new wave of globalisation thinking outside the box - that's not just goods but also the idea of us having trade in not just services but trades in ideas that's happening right now. I guess the question I had behind that point was that if we see the de-industrialisation of the US itself because that figures very heavily into policy rhetoric coming out of the US right now - is that is the right thing to do to reverse that trend or is the right thing to do to just be okay with it and then see how you can actually uplift those who have been structurally unemployed.

Marc 0:52:21

I don't think the trend is reversible because I don't think that there's going to be great growth in the consumption of goods in the years ahead. Think about what you buy. More and more of our spending goes on services. More and more business spending goes on services too - software and research and things like that. So physical production matters less than it used to.

An electric vehicle - well yes you have to bend the metal in a factory somewhere but a huge part of the value of that electric vehicle is in the software and not in the hardware. And that's true of many many goods.

We're seeing pretty weak business investment in equipment around the world. Why is that? Well, one reason is that if your factory machine is 10 years old, maybe you don't need to scrap it. Maybe rather than buying a new machine, you can update the software and keep your machine working for another 10 years. So we're really seeing very big changes in consumption patterns both on the part of households and on the part of organisations such as businesses and that's affecting the course of international trade very much. I think the days when trade grew faster than the economy are long gone. We're going to see international trade grow but grow slowly.

A lot of the trade in services is not well measured and in some cases it can't be well measured because of really conceptual issues. It's hard to put a number on it. In some cases it's hard to know when it's occurring. You know trade in physical goods is fairly easy to count because it all has to pass through a customs office somewhere. That's not the case with trade in ideas. And so a lot of what is being exchanged internationally we can't even track and we can't put a value on.

Keith 0:54:38

There's a lot of talk in the media now about the death of globalisation meaning that it's over because of geopolitical fractures and rising rivalry between the US and China. So a lot of there's a lot of talk on this idea that globalisation is dead. I wanted to get your take on what you think the right narrative should be.

Marc 0:54:58

I think globalisation is taking a very different form now from what it took since the 1980s. The creation of what were then called supply chains was about stuff. It was about getting physical products from here to there and eventually making a physical product for sale. The terminology has changed from supply chain to value chain. And that really reflects the fact that so much of the value in these goods comes from the intellectual property. Whether it's the research that goes on to develop it or the design work or the marketing work, that's where a lot of the value is now. And that's not going to change.

Countries that try to cut themselves off from the flow of ideas are going to be big losers. This is not like goods transportation, goods importing where you can just, you know, raise a tariff and say we don't need any toys from that country. We're going to raise our tariff and make our own toys. If you're going to be effective in the competition for the best ideas, the best innovations, you need to be able to get the best researchers around the world and the best engineers and the best designers. And you can't put up barriers to them. If you keep new ideas and new thoughts from coming into your country, you're going to be the loser. And so in that sense, I think this new age of globalisation is really going to be quite different from what's gone on before.

Keith 0:56:45

So how would the winners look like? What are the recipes that a country needs in order for it to be a net winner in this new age of globalisation?

Marc 0:56:55

Education is a very big one. You need to have a base of skilled workers. There's a lot less demand for low-wage labour than there used to be. That just is not so important in a lot of the decision making about where things should happen.

You need an excellent telecommunication system to be able to handle a flow of information. People expect to be able to communicate with their partners, their fellow workers, their customers, their suppliers anywhere in the world instantly. A chance telecommunication system is definitely not going to work and you really need to encourage exchange. That's why I'm very concerned when I see barriers going up to travel, when I see barriers going up to study abroad and that sort of thing. There has to be a flow of ideas among businesses in different countries in order to promote the economic growth. And if countries are doing things that inhibit this, that's bad for them.

Keith 0:58:12

And from Singapore, the way I've been observing or just from my observation is that you know in the US there's been a huge inward turn. There is a sense of a gating up of sorts that they are not as open as they were in the past say and maybe it's golden age where it was perhaps 40% of the global GDP and now it's at 26%. There is a certain sense of dissatisfaction with the open flow of information, of trade, of goods and services. But this frustration seems to be very tangible in a sense that the losers of globalisation did not really benefit from that structural change. I guess the question what I had was two parts - is that sentiment justified? And two is that if it is justified then what should the appropriate policy response be?

Marc 0:59:08

You see in the United States and in a number of other countries particularly in Europe now increasing restrictions on foreign students. What is said by the US State Department is that studying in the United States is a privilege not an entitlement and we have a right to decide who's going to come into our country. Well, in my view having the smartest people in the world want to come and study in our country is a privilege for the United States. We should welcome them. We should be happy to have them. We should be eager to have them because our future economic growth depends on that. So if we're going to cut ourselves off from this flow of very smart people, we're making a very big mistake and that's not creating any jobs for anybody who got displaced when a factory was closed. There may be resentments out there, but this kind of policy is not improving the lot of someone who's lost his job at a steel mill. It's just saying, you know, we're independent and we don't need you. And I think in the age when ideas and intangibles matter so much, that's just a really bad direction to go in.

But there is still the problem of inequality. A huge part of this dissatisfaction of globalisation is that the benefits are spread very thinly but the losses are felt very acutely by a certain sector of its population. So I think that you need to be honest with people. You need to say the world is changing constantly, jobs disappear. Clinging to an old industry just because it's an old industry is a bad idea. You should look forward. And we need to encourage people to find new careers. We need to encourage people to train and retrain and retrain and support those kinds of things. And that really has not been done very well in the United States.

The situation of workers who lose their jobs in the United States is much worse than it is in many other countries. They don't get much by way of a benefit for unemployment. They may not get any benefit for retraining. They've probably lost their health insurance which in many cases is tied to a job. And so it's no wonder that people are very upset and very frustrated.

I think that we've also accepted in our country an increasingly skewed distribution of income. And that doesn't really have to do with globalisation. That has to do with our own domestic tax policies and labour policies. This is something that we could address in the United States if we chose to. And I think you've seen other countries around the world that have addressed it much better than has occurred in America.

Keith 1:02:24

As America looks to maybe evolve and go on to the next chapter of its evolution, what are some of the industries that America should try to retain a strategic advantage in? I know like for example, President Trump is trying to re-industrialise the US and perhaps there is some merit to the argument. Where are some areas where they should never let go? Where there should be you know maybe state support or in some regards they should try to ensure that there still remains a revitalised manufacturing sector.

Marc 1:02:59

That's really hard to know because you've got an industry that seems essential and then circumstances change, technology changes. So what is critical may not be the same thing. We're having that discussion in the United States now with a supposed policy to restore the maritime industry to its greatness. The US maritime industry has been in pretty sorry shape for a long time. And the notion here is that maybe the United States needs a bigger US-owned fleet to help out in times of war. It needs more shipyards to build ships for the Navy as a matter of national security.

Well, do you need as many ships as we used to think? Now that you have a lot of drones flying around that have the capability of sinking ships, now that you've got hypersonic missiles and all sorts of other things, maybe the national security role of ships is not the same as it was previously. I don't know but it strikes me that this is an example of how what is important for national security may change over time and we need to change our thinking about this.

It's simply not practical to be autarkic to make everything in our country. And if we were to try pretty quickly we'd fall behind because there are a lot of innovations that come from elsewhere. There are a lot of people in other countries who have smart ideas. And if we're stuck buying something that's made in America and not buying something that's made better elsewhere, that's a bad deal for us.

So I'm very hesitant to get into this notion of identifying things that we have to make. And let's face it, there are lots and lots of countries around the world that can't have an industry, can't have manufacturers in every industry, can't have service companies in every industry. They specialise. They do certain things and they trade with others to do certain other kinds of things. And I don't think that's necessarily a terrible idea.

Keith 1:05:23

One last question. If there was one piece of advice you give to graduating students entering the working world today, what would that be?

Marc 1:05:35

The world changes. The world changes very quickly and it's your job to keep up with that. So you can't think of yourself as settled into a job, settled into a career and doing what you're doing for a long time to come. But no matter how much the world changes, there's still a role for person-to-person relationships. I think the importance of those has not gone away, and it's going to be really critical in building your own career, whatever you choose to do.

Keith 1:06:09

With that, Marc, thank you so much for coming on. I really appreciate you staying this late. And we hope to catch you in Singapore one day.

Marc 1:06:15

I hope so. Great. Hey, thank you very much for having me.

Keith 1:06:21

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