WIDER Working Paper 2019/94
Globotics and development
When manufacturing is jobless and services are tradable
Richard Baldwin
1
and Rikard Forslid
2
November 2019
1
Richard Baldwin, Graduate Institute, Geneva, Switzerland;
2
Rikard Forslid, Stockholm University, Stockholm, Sweden;
corresponding author: rikard.forslid@ne.su.se
This study has been prepared within the UNU-WIDER project Transforming economies—for better jobs
Copyright © UNU-WIDER 2019
Information and requests: publications@wider.unu.edu
ISSN 1798-7237 ISBN 978-92-9256-730-9
https://doi.org/10.35188/UNU-WIDER/2019/730-9
Typescript prepared by Gary Smith.
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Abstract: Globalization and robotics (globotics) are transforming the world economy at an
explosive pace since they are driven by digital technology that is advancing in phenomenal
increments. This paper—which should be considered a ‘thought piece’—argues that the globotics
transformation is likely to disable the traditional manufacturing-led development ‘journey’ of the
type China is taking, while enabling the service-led development journey of the type India is
following. We start with a historical perspective on the current transformation before turning to a
consideration of the technology and a closer look at the economic logic that is making
manufacturing jobless and services traded. Finally, we discuss how one might conceptualize
service-led development.
Keywords: globalization, robotics, service-led development
JEL classification: F10, F14, O10, O14
1
1 Introduction
Globalization and robotics (globotics) are transforming the world economy at an explosive pace
since they are driven by digital technology that is advancing in phenomenal increments—
increments that get twice as large every couple of years or so. The impact of the change is likely to
be felt quite strongly in developed nations (Baldwin 2019; Brynjolfsson and McAfee 2014).
1
The
change is also quite likely to transform development in important ways.
This paper—which should be considered as a ‘thought piece’—argues that the globotics
transformation is likely to disable the traditional manufacturing-led development ‘journey’ of the
type China is taking, while enabling the service-led development journey of the type India is
following. While these conjectures are unprovable since they concern the future, we believe they
may merit consideration.
A growing body of evidence has begun to challenge the view that manufacturing is the prime route
for development (e.g. Hallward-Driemeier and Nayyar 2017; Loungani et al. 2017). First, many of
the pro-development characteristics traditionally associated with manufacturing—tradability, scale,
innovation, learning-by-doing—are increasingly features of services (Ghani and O’Connell 2014;
Primo Braga et al. 2019). Second, digital technology is changing globalization in a way that is
making services easier to trade by creating forms of communication that make remote workers
seem less remote (OECD 2019). Third, other aspects of digital technology (‘digitech’) are changing
the nature of manufacturing by taking the ‘manu’ out of manufacturing and replacing it with
robots, turning manufacturing into ‘robofacturing’, so to speak (Gilchrist 2016).
Taken together, these aspects of globotics are pulling the rug out on the traditional development
strategy that equates development with industrialization. While nations may still export
robofactured goods, these sectors will be more like oil wells, which create value and exports but
few jobs.
The premise of this paper is based on an extreme thought experiment. That is, we ask: what does
development look like when manufacturing becomes jobless, but most services are freely traded?
More precisely, we assume that digitech’s advance has no effect on the trade costs of goods, but a
big effect on the labour cost share for manufacturing goods. For services, we assume the opposite:
trade costs for services fall a lot, but the labour cost shares are unaffected. The basic point is
illustrated in Figure 1.
1
This paper draws on previous work the authors have published; it is intended as a policy piece aimed at a broader
audience rather than a free piece of original research.
2
Figure 1: Globotics and development
Source: authors’ elaboration.
We start with a historical perspective on the current transformation (Section 2) before turning to
a consideration of the technology (Section 3) and a closer look at the economic logic that is making
manufacturing jobless and services traded (Section 4). These background considerations are then
matched with case studies that contrast the experiences of India, the Philippines, and China
(Section 5), and a more thorough consideration of a form of services trade called telemigration
(Section 6). The paper ends with a section on how we might conceptualize service-led development
(Section 7) and a consideration of how mindsets might have to change when switching from
national development strategies premised on industrialization and those premised on service
exports (Section 8).
2 The globotics transformation in historical perspective
Many believe that the economy is on the cusp of a third grand transformation; there are various
names for it—the ‘rise of the robots’, the ‘second machine age’, and the Fourth Industrial
Revolution’–to name a few (see Brynjolfsson and McAfee 2014; Bughin et al. 2018; Ford 2015;
Schwab 2017). Another name for it is the globotics transformation—a portmanteau that stresses
how the changes are being driven by both globalization and automation. We start by putting the
globotics transformation into historical perspective to illustrate how grand transformations
naturally arise from technological breakthroughs (Table 1).
The first transformation shifted people from farms to factories and it was driven by mechanization.
The second transformation shifted people from factories to offices and it was driven by
computerization. The third has yet to happen so its impact on jobs is harder to encapsulate; it is
driven by machine learning and communication technologies (Table 1).
Service-led
development easier
Manufacturing-led
development harder
Globalization
“Globotics Upheaval”
“Development”
Automation
“Globotics”
Digitech
3
Table 1: The three grand economic transformations of modern times
Transformation
Employment shift
Technological
breakthrough
Related automation
starts
Related globalization
starts
The Great
Transformation
(industrialization)
From farm to factory
Mechanical power
(steam, etc.)
1720
1820
The Service
Transformation
(post-industrial
society)
From factory to office
Computerization
1973
1990
The Globotics
Transformation
(sheltered service
society)
From service jobs to
sheltered service
jobs
Machine learning
2016?
2016?
Note: the year 2016 was chosen since Fortune and Forbes magazines dubbed it the year of artificial intelligence
(AI) (despite the phrase having been coined in the 1950s).
Source: authors’ elaboration.
2.1 The Great Transformation
The first transformation—what Karl Polanyi called the ‘Great Transformation’—started in the
early 1700s. It moved people from the farm to the factory, and from the countryside to the city—
all while shifting the focus of value creation from land to capital.
This one really does deserve its capitalized ‘G’. As well as lengthening life expectancies, eliminating
plagues and pests, supporting a quantum jump in the human population, and sparking modern
economic progress, it produced two World Wars, the Great Depression, as well as the rise of
imperialism, fascism, communism, and New Deal capitalism.
According to O’Rourke and Williamson (2001), modern globalization started around 1820. The
automation aspect of the Great Transformation started a century before, when commercially
useful steam engines were first deployed.
Within rich nations, the transformation eventually lowered income and wealth inequality in a
dramatic fashion—the last phase of which is called the Great Compression (Goldin and Margo
1992). The nature of technology helps explain this.
Mechanization put massive power into the hands of manual workers and thus vastly boosted their
productivity. It also helped people who worked with their heads—think of ballpoint pens,
calculators, electric lights, and telephones—but the technology’s first-order effect was to create
better tools for manual work, not for mental work. Since manual-worker wages were lower than
average to start with, the pro-manual bias of the technology was equalizing.
However, that is not what happened internationally. While equalizing within industrialized
countries, the transformation was unequalizing across nations.
For developing nations, a key aspect of the Great Transformation was the ‘Great Divergence’, or
what Lant Pritchett (1999) calls ‘Divergence, Big Time’. Civilizations in Asia and Africa—which
had dominated world economic, political, cultural, military, religious, artistic, and social matters
for over 4,000 years—found themselves under the thumb of previously primitive countries in the
