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By Root 1663 0

Even quite simple products, such as the symbolic shirt or processed foods, will use components sourced from different places. Larger and more complicated items—a laptop, a truck—will have been “made in” many places. Indeed, more than a third of measured trade in goods consists of components, not finished products. A high degree of specialization has developed during the past quarter century. For example, rather than being a center for auto manufacture, like the Detroit of the past, Hungary has become a specialist producer of auto engines, making one in every twenty-five engines in the world, while Poland specializes in transmissions, and so on.

It is not just manufacturing that has globalized. Professional services are global too. Bankers, lawyers, consultants, and the like are likely to be widely traveled with projects or colleagues or postings overseas. Many more routine services, such as call centers and medical imaging offices, have also begun to ship tasks to developing countries with cheaper labor, although this outsourcing is much smaller in scale than the impression given by the media. In both cases, manufacturing and services, globalization and the adoption of new technologies have gone hand in hand. Part of the technology-driven restructuring of the economy, not only bringing about new goods and services but turning value increasingly intangible and increasing specialization, involves changing the geography of economic activity. Supply chains are longer—they involve a larger number of more specialized links—and they cross national borders.

The development of these global networks of business rests on trust, and to a far greater extent than business restructuring in any particular country. They are a delicate and finely spun web of activity covering continents. There are likely to be relatively few social contacts between partners in a global business network, perhaps little familiarity with the country, its cultural norms, its legal framework. In the case of the emerging economies such as China, the history of trading relationships is relatively short, as their engagement with global trade and investment dates back no further than the 1980s. Yet although the social roots of trust are shallow as they’re so new, with the just-in-time production chains and complicated supply chains and logistics we have now, the dependence on trust is high indeed.

Yet the arrangements and institutions for managing the far greater trade and investment across borders have lagged far behind the reality. After the onset of the financial crash in fall 2008, world trade declined sharply and has taken some time to recover. It would be a huge challenge, and highly damaging to living standards around the world, if the globalization of production described above were to be unpicked so that we returned to a world where a label saying “Made in Country X” made some sense. But it could happen, just as the globalization of the late nineteenth and early twentieth centuries unraveled.

Even if it doesn’t, and I think it unlikely, the question of the governance of the global economy will remain. It is not just nihilistic anarchists on the streets of major cities protesting international meetings of the G8 or G20 who challenge the credibility and legitimacy of institutions such as the IMF and WTO. Many politicians and governments do so as well, including some of the leaders of large emerging economies, which are underrepresented in international discussions. Much of the criticism of the existing international institutions is ill-informed and even potentially counterproductive. However, it is impossible to mount a full-blooded vigorous defense of them when they have adapted so little to an enormously changed world economy.

Their inadequacy was painfully revealed by the lack of international cooperation during the financial crisis. An inherently global problem, given the global reach and interlinkages of the financial system, has been dealt with entirely at a national level. None of the international institutions has played a role in the handling