Skip to main content

pisaniferry99_GettyImages_pplclimbupdownmountain Getty Images

Farewell, Flat World

The single most important economic development of the last 50 years has been the catch-up in income of a large cohort of poor countries. But that world is gone: in an increasingly digitalized global economy, value creation and appropriation concentrate in the innovation centers and where intangible investments are made.

PARIS – Fifty years ago, the conventional wisdom was that rich countries dominated poor countries, and it was widely assumed that the former would continue getting richer and the latter poorer, at least in relative terms. Economists like Gunnar Myrdal in Sweden, Andre Gunder Frank in the United States, and François Perroux in France warned of rising inequality among countries, the development of underdevelopment, and economic domination. Trade and foreign investment were regarded with suspicion.

History proved the conventional wisdom wrong. The single most important economic development of the last 50 years has been the catch-up in income of a significant group of poor countries. As Richard Baldwin of the Geneva Graduate Institute explains in his illuminating book The Great Convergence, the main engines of catch-up growth have been international trade and the dramatic fall in the cost of moving ideas – what he calls the “second unbundling” (of technology and production). It was Thomas L. Friedman of the New York Times who best summarized the essence of this new phase. The playing field, he claimed in 2005, is being leveled: The World is Flat.

This rather egalitarian picture of international economic relations did not apply only to knowledge, trade, and investment flows. Twenty years ago, most academics regarded floating exchange rates as another flattener: each country, big or small, could go its own monetary way, provided its domestic policy institutions were sound. The characteristic asymmetry of fixed exchange-rate systems was gone. Even capital flows were considered – if briefly – to be potential equalizers. The International Monetary Fund in 1997 envisaged making their liberalization a goal for all.

We hope you're enjoying Project Syndicate.

To continue reading, subscribe now.

Subscribe

Get unlimited access to PS premium content, including in-depth commentaries, book reviews, exclusive interviews, On Point, the Big Picture, the PS Archive, and our annual year-ahead magazine.

https://prosyn.org/Ba54gUM;
  1. GettyImages-1185850541 Scott Peterson/Getty Images

    Power to the People?

    Aryeh Neier

    From Beirut to Hong Kong to Santiago, governments are eager to bring an end to mass demonstrations. But, in the absence of greater institutional responsiveness to popular grievances and demands, people are unlikely to stay home.

    1
  2. rogoff187_Matt Anderson Photography Getty Images_datanumberlines Matt Anderson Photography/Getty Images

    The High Stakes of the Coming Digital Currency War

    Kenneth Rogoff

    Just as technology has disrupted media, politics, and business, it is on the verge of disrupting America’s ability to leverage faith in its currency to pursue its broader national interests. The real challenge for the United States isn't Facebook's proposed Libra; it's government-backed digital currencies like the one planned by China.

    0

Cookies and Privacy

We use cookies to improve your experience on our website. To find out more, read our updated Cookie policy, Privacy policy and Terms & Conditions