The Financial Express


Industrial revolutions & social reforms

| Updated: February 01, 2019 21:31:41

Modern technology - including telepresence and machine translation - is driving a new era of globalisation  	—Reuters Modern technology - including telepresence and machine translation - is driving a new era of globalisation —Reuters

"Arbitrage drives globalisation," Richard Baldwin asserts. The Professor of Political Economy at the Graduate Institute, Geneva, is not far removed from Davos, where this year "Globalisation 4.0" served as the World Economic Forum summit theme. His argument bears extra resonance in other arenas since the nature of changes, as demanded by the Globalisation 4.0 agent of change (artificial intelligence, or AI), may create more social havoc than any previous industrial revolutions: it might be directly displacing white-collar workers, a group hitherto benefiting with every industrial revolution, and typically insulated from market shocks.

To be sure, every industrial revolution (IR) has been preceded by some kind of an agricultural revolution, while also simultaneously spawning seeds to cause even more future farm dislocations. The first agricultural revolution was in England in the 16th century "enclosure" movement, which took away small land-tracts so as to facilitate shepherding for the wool industry to grow. In turn, the first IR made available a variety of mechanical changes that allowed farm tools to replace human hands. Not surprisingly, the late 19th century second IR magnified these minor changes through the inevitable invention of the tractor, one of the key villains behind the 1930 depression in advanced countries. With the shift towards the computer from about World War II and artificial intelligence since the turn of the 21st century, we have seen, for many other causal factors, not only the complete collapse of the farm population in industrialised countries (unless supported by generous governmental bailouts, as French farmers under the European Union's Common Agricultural Policy), but blue-collar workers with the third IR and white-collar workers with the fourth beginning to face replacement threats, wage collapses, and a permanent cloud of job instability takeover.

Whereas the first IR in England faced identical low-waged RMG (ready-made garment) problems Bangladesh faces today, upon their backs were established, over a half a century or so, one type of labour reform after another, something Bangladesh may also follow (and much needed for a full and true conversion into a developed country). Of course, the granddaddy of them all came in conjunction of the second IR, when social security provisions, first in Germany from the 1880s, then elsewhere in Europe and the United States by the 1930s, took hold. Blue-collar workers lived off the most comprehensive support package any worker anywhere could have for over a half a century. This may become their golden historical moment, since it is unlikely to reappear in the visible future. That system was threatened by the shift to neo-liberalism from the 1990s, and the onset of AI contraptions simultaneously literally threw worker interests from the frying pan into the proverbial fire.

Enter Baldwin's argumentation ("If this is Globalisation 4.0, what were the other three?" World Economic Forum, December 22, 2018). He found "arbitrage" associated with every industrial revolution. Measured in terms of relativity, with the first IR, he argues, the arbitrage was over merchandising trade (relative prices, for instance), then relative wages with the second, primarily in the manufacturing sector, followed by relative wages in the third for services sector (white-collar), to be followed concurrently in the fourth by wage arbitration collapse, given digital technologies. Government adjustment policies may become too costly to be adopted.

Each IR, he posits, except the first, was followed by an "unbundling" (of the dislocated group). Accordingly, the first was followed by transaction costs falling against the new forms of transportation and energy sources emerging, in turn breeding protection and mercantilism. Similarly after the second IR, downward-spiralling trade prices had to be augmented by the government, and a newly emergent group, multilateral organisations. It led to factories crossing national boundaries, attracted by low-wages, as Bangladesh is benefitting from for its ready-made garment (RMG) sector, and precisely the dynamic US President Donald J. Trump has been attacking (and the very sentiment breeding populism in both his country and across the Atlantic). The third "unbundling" is taking place before our very eyes, a process Alan Blinder calls "off-shoring," Gary Gereffi "global value chain," and Arvind Subranamanian "hyperglobalisation."

All three "unbundling" may be happening simultaneously given the very unequal spread of the developmental dynamic, not just between countries but also within them. Yet, this only exacerbates the plight: since white-collar workers just happen to be economically more financially heeled in spite of being threatened excessively by artificial intelligence contraptions, they are the very ones to be hurt the most, and the group to find "unbundling" bailing them out even less. Blue-collar workers begin their upward social climb the minute they land a secure job; but white-collar counterparts happen to be too far up the social pole to have to find every upward climb yielding as much more rewards.

Complicating that fate, governments have too little to spare to bail them out with, particularly when welfare programmes of the US New Deal-type have to retrench welfare. Many industrialised countries have governments deep in debt and their exports diminishing sufficiently as to boost increasing trade deficits. Production is one way out of the trap, but with factories fleeting abroad and imports costing less than comparable domestic production, both the government and society find themselves in an inwardly clicking spiral. Emergent or frontier economies have either enough resources to cross this "unbundling" bridge, or ample social safeguards to weather the storm. Yet their time may also be coming to an end. Without government support, many workers worldwide might be caught too deep in the innovation-production-consumption maelstrom to weather any continuous storm.

Our concurrent neoliberal order is also not helping. It pushes countries into that privatisation that accelerates innovation, and ultimately fattens the industrial malaise around us. Since no previous "unbundling" episode fell fully in any neoliberal embrace, the current circumstance may be epochal: the most developed societies historically falling prey to a revolution of resourcelessness.

It may be no wonder why Unmberto Bacchi, also writing under the Davos World Economic Forum umbrella, found happiness sinking worldwide ("The world has reached the lowest level of happiness in ten years," World Economic Forum, September 17, 2018). Based on a Gallup poll of 154,000 people in 146 countries, he may have found himself overtaken in his own research findings. He found 24 of the 35 countries most unhappy in 2017 to be in Sub-Sahara Africa, with South Asia and the rest of Africa slightly better off, China and Pakistan even more so, Russia and Latin countries higher still, until the happiest group only included Brazil, Canada, the United States, and West European countries.

How amazing that only two years since, those findings have been completely inverted, with African countries enjoying a China-facilitated smile-enhancing economic boom, South Asian countries supplying some of the highest growth-rates worldwide, China and Pakistan reeling, and, most of all, West Europeans and US citizens going through perhaps their most gloomy moments since the 1930s depression. The government was there for a bailout then. It is, by and large, unable and unwilling to dig in now. The worse may still be ahead of us since innovative circumstances have been explicitly circumscribed by the many technologies in too little time to digest. Resetting a marginalising upper crust puts an awkward twist upon social reforms, but it is the growing task of all countries, developed to begin with, others to follow.

Dr. Imtiaz A. Hussain is Professor & Head of the Department of Global Studies & Governance at Independent University, Bangladesh.

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