During the last wave of globalization, many manufacturing jobs moved from developed to less developed economies, driven by lower wages and production costs.
Improvements in information and communication technology accelerated the process, making it easier for multinational corporations to manage their offshore production lines and complex supply chains from headquarters that remained in advanced economies.
The number of manufacturing employees in the United States, for instance, declined during the 2000s, from 24 million in 2000 to below 18 million at the end of 2009. The relocation or outsourcing of manufacturing jobs allowed U.S.-based multinational corporations to reduce production and labour costs, and focus on higher-value added activities such as design, R&D and engineering. Meanwhile, consumers in the U.S. could buy goods produced overseas and then shipped to the U.S. at lower prices than if they had been manufactured domestically.
Services jobs have so far been largely insulated from globalization, unlike those in manufacturing. In the U.S., the number of services workers rose from 106 million in 2000 to 112 million in the end of 2009. The main reason that services jobs have not followed manufacturing ones to cheaper overseas locations is their different nature.
Many services jobs require face-to-face interaction with customers. The language barrier also makes overseas outsourcing or relocation difficult, if not impossible. If services jobs in the U.S. are to be offshored, one would expect they would be moved only to locations where people can speak and understand English to a reasonable standard. In contrast, Foxconn’s factory workers in Mainland China are not required to speak the same language as the eventual owners of iPhones back in the U.S.
But the stability of services jobs in developed economies may be under threat. There are views that the next wave of globalization, namely Globalization 4.0, may impact services jobs in a similar way as previous waves affected manufacturing. This expectation, if realized, deserves considerable attention as services account for over 70% of economic activity in advanced economies such as the U.S. and the European Union. Earlier this year, Globalization 4.0 was the key theme for the annual gathering of world leaders at the World Economic Forum 2019 in Davos.
Richard Baldwin, Professor of International Economics at the Graduate Institute in Geneva, believes that the new wave of globalization is in fact already starting, but few of us are prepared for it. In his book published earlier this year, The Globotics Upheaval: Globalization, Robotics and the Future of Work, Professor Baldwin suggested that key barriers that have until recently hindered the offshoring of services jobs are being unlocked by advances in technology.
One of these is instant machine translation. Only a few years ago, people joked about the idiosyncratic performance of Google Translate. But now, instant translation services embedded in the Google search engine and many other similar software offerings are doing a much better job. The use of machine translation has removed, if not entirely, the language barrier for outsourcing services. In the meantime, virtual face-to-face interactions are being facilitated by bigger-screen mobile phones, apps such as WhatsApp and FaceTime, as well as ever-faster data transmission rates.
As a result of these developments, hundreds of millions of services jobs in advanced economies could be offshored to low-cost workers in developing economies. This is happening at a time when automatic ordering machines in restaurants and self-checkout machines in supermarkets and healthcare chains are becoming more and more popular. Many are worried that other services jobs such as office administration and accounting could be displaced by AI-driven automation in the not too distant future.
The impact of globalization on jobs, notwithstanding its broader economic benefits, is nothing new. However, Baldwin’s views on services jobs in Globalization 4.0 are worthy of our attention as Hong Kong is one of the most services-oriented economies, and consistently ranked as the freest economy in the world. If Baldwin is correct in his predictions, the city would be vulnerable to the next wave of globalization. According to the latest figures, the services sector accounts for 92% of Hong Kong’s GDP and 89% of employment.
As always, the next wave of globalization will create both winners and losers across the globe as well as within each economy. Although better-paid and new types of services jobs could be created in the future, there is no guarantee that these would emerge quickly enough to fill the gap. Losers might feel the immediate pain long before they can eventually be re-skilled and get better jobs.
While there may be other pressing issues facing Hong Kong right now, including land supply and housing shortages, turning a blind eye to the potential impact of the next wave of globalization could be costly.
Therefore, it is time for the Government and the business community to look into the issue, and put in resources to help the workforce prepare for the next wave of globalization. After all, without better-paid jobs, people living in Hong Kong might still find it difficult to afford a home, even if there is sufficient land supply in the future.