The Second Globalization

The World Flattens Again

After the disruptions of the 1970s, a second globalisation began in the 1980s — different from the first in what moved and how.

The first globalisation (1870-1914) moved bulk commodities and people — grain, cotton, migrants. The second moves components, tasks, and data — a smartphone's parts cross borders dozens of times before assembly; a radiograph is read in Bangalore for a hospital in Boston.

What drove it:

• Container shipping (from the 1960s, scaled in the 1980s): the standardised container cut handling costs by 90%+ and made it economical to ship components, not just finished goods.
• ICT — information and communication technology: the internet, fibre optics, and eventually the smartphone connected markets in real time, making coordination across time zones feasible.
• Trade liberalisation: GATT rounds (Tokyo, Uruguay) lowered tariffs; the WTO (1995) institutionalised rules; regional agreements (EU single market, NAFTA, ASEAN) deepened integration.
• China's opening (1978 reform, 2001 WTO entry): 800 million workers joined the global labour pool, the largest supply shock in economic history.
• Capital-account liberalisation: financial deregulation allowed capital to flow across borders more freely — for good (efficient allocation) and ill (contagion).

Global value chains (GVCs): production fragmented into stages spread across countries. Each stage is located wherever the cost-quality mix is best. A car's design in Germany, engine in Austria, electronics in Japan, assembly in Spain, software updates from India. Trade is no longer country-A-sells-finished-goods-to-country-B; it is country-A-and-B-and-C-each-adding-value-in-sequence.

$$\text{Trade in tasks} > \text{Trade in goods}$$

Winners and losers: consumers worldwide gained from lower prices and more variety. Workers in tradeable, low-skill manufacturing in rich countries lost jobs or wages to cheaper competitors. Workers in China and emerging Asia gained enormously — the greatest poverty reduction in history. The political backlash in rich countries (Brexit, Trump tariffs) is the unresolved distributional consequence.

Limits: pandemics (COVID-19), geopolitical rivalry (US-China), and security concerns have begun re-shoring and friend-shoring — moving supply chains closer to home or to allied countries. Whether this is a pause or a reversal is the open question.

First vs second globalisation

Tip: The container is the unsung hero: cutting handling costs by 90% made it profitable to ship parts, not just finished goods — and that is what let firms slice production into global value chains.