What is Globalization in the New Digital Era?

Globalization was a word we used to hear all the time. Talking heads would debate endlessly about the pros and cons; politicians would shape campaigns around it; businesses would justify negotiations on its virtues; and yet no one could describe exactly what was happening in the world. Then, it fell out of vogue. 

However, the forces and patterns that characterized globalization persisted. And they transformed. They continued gaining momentum with each passing year, expanding, permeating, and affecting people worldwide. 

So, it begs the question: What is globalization today?

For decades, the transaction of physical goods, services, and finance defined our image of globalization. At its onset it was hailed as a saving grace and a portent of worldwide stability. Today, however, those traditional flows have lost their prominence, and the world market is more volatile than ever. 

Consider that enormous data streams cross borders and snake their way around the globe at ever-increasing speeds every day. This, unlike the transaction of physical goods, services, and finance, has entwined state economies in a delicate web, woven in binary and displayed on the Internet. 

It is estimated that roughly 50 percent of the world’s traded services are already digitalized. E-commerce alone supports around 12 percent of trade internationally. And according to eBay’s analysis of import/export behavior in 18 countries, approximately 88 to 100 percent of the small- to medium-size enterprises (SMEs) that use eBay are exporters. That’s huge!

So, yes, globalization is still a thing and it looks very different than it did just 10 years ago. 

Warning: This post has lots of number, but do not be afraid! They are simple comparisons between then and now. 

Globalization Before: A Brief History 

I want to touch on what globalization looked like in the 20th century. It’s hard to know where we are if we don’t know where we’ve come from.

The interpenetration of global economies marked the emergence of globalization. Increased trade of goods, services, and the establishment of cross-border finances in the 20th-century changed politics, economics, and business everywhere. It was massive.

When something is so big, it’s nearly impossible for it to function perfectly, so it took some dips—notably the recent financial crisis and the Great Recession—but it eventually bounced back. However, it’s been plateauing in recent years, and capital flows are stagnated at a fraction of what they were during the bubble years.

Between 1985 and 2007, the world’s trade in goods grew roughly twice as fast as the global GDP. This due largely to major multinationals expanding their supply chains and establishing new bases of production in emerging economies to tap into the enormous pools of low-cost labor. Global trade in goods rose from 13.8 percent of the world’s GDP in 1985 ($2 trillion) to 26.6 percent of the GDP ($16 trillion) on the eve of the Great Recession.

Since its post-crisis rebound, growth in goods trade has flattened. It has even receded when measured relative to the GDP. Much of the growth in goods trade since 2000—and much of its subsequent deceleration—is related to commodity prices. As emerging economies started exploiting their raw resources, production rates were accelerated and trade volumes increased, sending commodity prices through the roof. A point in case is that from 2000 to 2011, the price of many commodities doubled or even tripled.

Today, the price of commodities has precipitously declined, as has the rate of trade. For example, from June to December 2014, the price of Brent crude fell from $112 a barrel to $62, and the price of copper fell by half since its peak in 2011. This is a microcosm of an overarching trend in global trade of manufactured goods.

An easy way to track the pattern of decline is import/export shipping. Global container shipping volumes grew by 7.8 percent from 2000 to 2005; but from 2011 to 2014, growth was markedly slower, at only 2.8 percent. Across the board, momentum is slowing down at the three axes that typified 20th-century globalization: goods, services, and finances.

Careful analysis points to structural causes that could explain the virtual atrophy of globalization as we have come to know it. Global consumption is surpassing trade growth in particular areas, such as automobiles, pharmaceuticals, fertilizers, and plastic and rubber goods. This seems to indicate that means of production are shifting toward within-border models, and those very goods are being consumed, to a large extent, within said borders. 

For intermediate goods, it appears that value chains are shortening. There has been a steady decline in trade in product categories such as chemicals, paper, textile fabrics, and communication and electrical equipment. Between 2011 and 2014, the decline sharpened dramatically.

All of these changes point to a revolution in the way countries produce, consume, and manufacture goods. More and more, trade is decreasing and means of production are being taken in-house. This presents a drastic change in global economics, and with the rise of more sophisticated technology, this trend probably won’t stop anytime soon.

Globalization Today: Global Economy

At the epicenter of the revolution in production and manufacturing worldwide is the 3D printer. Although it is unclear what has been or will be the effects of 3D printing on global trade, the assumption is that it will reduce trade volumes even more. With the 3D printer, products can be printed where consumed, and the product lists are virtually inexhaustible. Electronics and machine-parts are particularly easy to produce using 3D technology.

At GE aviation, 3D printers are used to produce fuel nozzles for its new Leap Engine. Traditional manufacturing techniques separate the fuel nozzle into 20 different components, with a supply chain that spans countries. The 3D printer obviates all of that. The fuel nozzle can be made at one location, in one piece, cutting out all the intermediary steps. 

On the other hand, global trade in services has grown slowly and continually throughout the years, rising from around $400 billion in 1985 to around $5 trillion in 2014 (from 3.4 percent to 6.3 percent of global GDP). This growth is aided by digital communications technology that precludes the need for travel. Countries such as Costa Rica, India, Morocco, the Philippines, and South Africa offer call center and technical support services globally, and have staked their claim on digital business in that way.

Trade such as this is termed “digitally deliverable services”. It has doubled over the past decade. It reached $2.4 trillion in 2014. This accounts for roughly 50 percent of total services exports. The services emanate about 80 percent from advanced economies and the remaining 20 percent from emerging economies—India and the Philippines ranking in the top ten net exporters of such services.

It is easy to see how the continued expansion of digital technologies, cross-border Internet connections, and global online marketplaces for freelance services could increase the incidence of digitally deliverable services.

Globalization Today: People on the Move

People are more mobile and more remote than ever. The flow of people across borders now, compared with past migration, is staggering. Tragically not everyone migrates for the same reasons. Around a quarter of a billion people, or 3.4 percent of the world’s population lived outside their birthplace in 2013. Compare that to 120 million, or 2.7 percent of the global population in 1980. The massive migration is largely attributable to the ease with which people can uproot and relocate nowadays. 

Some people can now use digital platforms to find work abroad without compromising their connections to families and friends. This dovetails with the change in modes of communication that has arisen alongside social media. New means of connecting, sharing, and deepening connections are becoming commonplace, and they are all housed in a digital context. New platforms also help people manage logistics remotely. You can be here while taking care of business there. 

The tragic reality is that not all people relocate for the same reasons, and some people do so to escape violence, prejudice, and warfare. The number of worldwide refugees jumped from 16.7 million in 2013 to 19.5 million in 2014. 

This trend worsened in 2015 due to conflicts in Syria. This number does not reflect the 38.2 million people who are internally displace by war and persecution, nor the 1.8 million people who are pending asylum cases. Sadly, these numbers have risen dramatically since 2013. 

In 2014, the number of international tourists hit 1.1 billion. This is explained by the rise in incomes in emerging economies. The urge to travel transcends socio-economic divides. China in particular has experienced a rise in tourism, both in and out of the country. In addition to economic access, digital platforms have allowed travelers to book, plan, and execute travel more efficiently and cost-effectively than ever. Further, sites such as AirBnb have changed the hotel industry and thereby the way people experience travel. GPS technology has reduced the fear of the unknown; travelers can now navigate unfamiliar territories with greater confidence and ease. 

Travel for educational purposes has also surged exponentially. In 2012 roughly 4.5 million students traveled outside of their home countries to study abroad. 

All of this migration may presage a generation of global citizens, people who feel a connection not just to their geographic location but to all countries. This is truly astounding and hopeful. 

Globalization Today: This Is Just the Beginning

These are just a few of the many changes that have occurred as a result of digitalization. They make up a significant portion of the wider reaching aspects of globalization. And it’s only just getting started. 

The important fact to remember is that digitalization isn’t just about data, and neither is globalization: it’s people, moving from place to place, sharing ideas, bridging gaps, and cultivating what could be a global citizenry.

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