Hyper-globalisation has gripped the world since 1990, but we are only beginning to understand it. Hyper-globalisation differs from the old globalisation of 1820 to 1990, because it is happening at a much faster speed and has resulted in a much higher degree of global economic integration in the societies it has impacted.
Whereas the old globalisation was driven primarily by declining transportation costs, the new hyper-globalisation is driven by the information and communications technology revolution, according to Richard Baldwin’s 2016 path-breaking study entitled The Great Convergence.
Baldwin reasons that this revolution made it possible for headquarters to deploy global supply chains and retain effective control of offshore production operations. In essence, factories can now be shipped out, foreign workers effectively managed, and only limited knowledge needs to be transferred to foreign economies. Headquarters are more willing to transfer niche know-how to offshore operations rather than total know-how to foreign operations.
China became deeply integrated into the global economy on a scale totally unimagined in 1979. Its opening enabled hyper-globalisation to blossom and China to thrive with critical input from Hong Kong. Businessmen and professionals from free market Hong Kong became the ideal tutors to show China how to build the most friendly business environment in a socialist economy for attracting foreign investments.
The abundant supply of Chinese workers transformed coastal China into the world’s dominant offshore manufacturing base for companies in the rich industrialised economies. But not everyone did well out of this arrangement.
While the old globalisation benefited almost everyone in companies that sold goods abroad, this has not been the case under offshore production. Hyper-globalisation has manifested as not just Reagan’s “shining city upon a hill,” but also rust belt towns with long-closed shops, abandoned factories, and homes where families scrape by with part-time, low wage jobs.
In many rich nations, these woes have led to divisiveness and a backlash against globalisation. The global financial crisis of 2008 and the subsequent recession and slow recovery made matters worse. Trump and Brexit have been the results.
The only feasible strategy for staying in the global supply chain under hyper-globalisation is innovation. But Hong Kong must overcome barriers to this.
The foremost barrier is the shortage of knowledge-intensive workers. Public investment in higher education ceased to grow after the 1990s. The labour force itself has also stopped growing, especially the youth labour force.
The government has a critical role to play and it is imperative it push ahead in developing new manpower and population polices – a human capital policy.
Another barrier is the ossified and anticompetitive business regulations that have slowed down innovation. For example, before 1997 the government compensated Hong Kong Telecom and bought back its franchise to open up the telecommunications market. Nowadays we set up barriers to entry, stifle innovation, and make it hard for innovators to do business in Hong Kong.
Furthermore, in an era of information and communication technology, access to big data is the lifeblood and source of the rise of many new start-ups. The government and its statutory bodies sit on tonnes of data that are off limits to the public, but could be transformational for many industries.
If the government were to open up its data banks and consider fresh approaches to compensating some industry incumbents so they do not stand in the way of progress, then competitive markets could re-emerge in our highly promising service economy.
The social and economic woes that inflict Hong Kong (and other old economies) are the products of hyper-globalisation.
Unshackling the barriers to the creativity of our people and investing in their human capital will be the two most important policy strategies that the government under Chief Executive Carrie Lam Cheng Yuet-ngor can do to release the enormous potential of Hong Kong for the 21st century – the shape of which we had a big hand in creating over the past three decades.
Richard Wong is the Philip Wong Kennedy Wong Professor in Political Economy at the University of Hong Kong.