Richard Baldwin 05 December 2018

We typically think about globalisation as a process driven by the gradual lowering of natural and man-made trade costs. This is a serious mistake. Modern globalisation is two processes, not one. I like to call them ‘old’ and ‘new’ globalisations (even though the old globalisation is still very much part of the present), or globalisation’s ‘first unbundling’ and ‘second unbundling’.

As we saw in my previous blog post, globalisation leaped forward in the late 19th century when steam power slashed the costs of moving goods internationally. Globalisation made a second leap in the late 20th century when ICT radically lowered the cost of moving ideasinternationally as well.

The two leaps had dramatically different effects (Figure 1).

Figure 1 Globalisation: One paradigm or two?

• The first leap (1820–1990). This might be called Old Globalisation, Phase 3, or the first unbundling. It created economic agglomeration in large industrialised nations. The G7 nations saw their share of world GDP soar from a fifth in 1820 to two-thirds in 1988. The share of world trade that the G7 commanded also rose steadily.
• The second leap (1990–present). We can call this New Globalisation, Phase 4, or the second unbundling. It sharply reversed the two-century-long trend in global shares. In just two decades the G7’s shares of world GDP and trade have plummeted to 50% and 32% respectively.

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