Borders, Barriers, and Biedermeier - Technological Progress Spells the End of Globalization

Robots are taking our jobs. Almost everything you can learn in our current education system will be automated soon. Supply chains are in upheaval as production moves closer to the consumer and products are made by individual robots rather than rows of underpaid workers. Artificial intelligence and machine learning are threatening thousands of white-collar jobs. As manufacturing shifts away from the traditional Asian hubs, shipping lines now suffer from massive overcapacity that will probably stay for a long time. (Two of them just went bankrupt.) We are aware of all of these trends.

But there is another consequence of current developments, in particular the rapidly advancing automation of production, no one has mentioned so far, and that is rising protectionism.

Walls are going up around the world, and that is largely a consequence of political shifts. Immigration and inequality are hot topics in almost every country. But technology too is a driver of growing isolationism. What's more, technology is actually enabling isolationism.

Technology doesn't cause protectionism, but it makes it possible.
Factory automation and robots do not cause protectionism, but they make a protectionist world feasible. In the last century, we relied on contract manufacturing and outsourcing to make use of cheap labor and economies of scale. For example, European and Americans got their products from Taiwan, and Taiwanese companies invested heavily in China and Vietnam. All of it was driven by cost-down strategies and the exploitation of cheap labor.

As certain countries are pulling ahead with what is commonly referred to as "Industry 4.0", production costs will keep falling. Labor cost is no longer a major factor when robots and cybernetic systems make most of the food and products we need. Countries which do not embrace these technologies will have higher factor costs. Protecting jobs in France will be impossible if Germany bets on robotic factories quickly.

Since Porter's Competitive Advantage of Nations we've been told that certain countries are better at certain things than others. Production should move to these countries. However, with fully automated factories springing up around the world, it is not the countries which have the competitive advantage, but the companies which employ those robots. It is time to explore the competitive advantage of robots, not nations. There is no need to outsource textile production to Bangladesh if a smart factory in the United States can produce more, better, and cheaper. As our dependence on machines rises, our dependence on fellow humans decreases.

The results are more and more barriers springing up. As the "first world" reclaims its manufacturing prowess, other countries will be left behind. The French worker no longer needs protection from the cheap Chinese competitor, but from the robotic factory in his own country. Americans are afraid of Mexican laborers, but increasingly their jobs will be done by robots anyway, so Mexicans will have no incentive to tackle that illusive wall Trump wants to build. Economies of scale will matter less and less as robots and other innovations allow personalization and enable customized batch manufacturing.

As fewer goods cross the oceans, more shipping companies will go bankrupt. Countries will concentrate on their domestic capacities for robotics and outsource less and less. International trade will decline as everyone will focus on the interaction between human and machine. Self-learning robots are already a reality. They will only get better. A smart factory, once in place, can easily be replicated.

The age of machines to a certain extent spells the end of globalization. Just like Europeans retreated into their living rooms after the Napoleonic wars, called the Biedermeier era, companies will focus on their own backyard, the research institutions next door, their existing connections, the people they trust and with whom they share a common language and common values. Nobody liked outsourcing stuff anyway. The cultural and legal challenges were just too great. We will increasingly become as isolationist as e.g. the Japanese have always remained. Turns out they were right all along.

Politicians have a huge incentive to embrace and reinforce isolationist tendencies. Fear-mongering and China-bashing are vote winners. Companies who make stuff abroad are being vilified as traitors and exploiters. They too have an incentive to bring production home and turn it over to robots. Voters prefer robot-made at home to than man-made abroad. (At least for now.)

The transition will take decades of course. TSMC, the world's largest contract manufacturer for computer chips, will not be replaced by robots in Nevada or Schleswig-Holstein tomorrow. But for other products from food to plastics to furniture, robotic production systems, once trained, can be easily replicated. The cost of robots will come down far quicker than you think. Fanuc, the leading robot manufacturer, is making all of its robots with its own robots, and is learning tons in the process. So are the robots: machines are already beginning to learn from each other, and they are much better at it than humans.

The WTO has failed long ago. Trade agreements are largely becoming irrelevant; they are already hugely unpopular. Despite the damage done to the European project, Britain leaving the EU matters little if the UK embraces robotics. Trade agreements will have to be torn up and they will not necessarily be renegotiated.

The WTO has failed long ago. Trade agreements are largely becoming irrelevant; they are already hugely unpopular.
It will be a re-industrialization of which doesn't create manufacturing jobs per se, put will still create jobs, from robot repair man to data scientist. It will, however, be an industrialization during which the need to work with "outsiders" will be dramatically reduced. Whereas in the age of globalization, isolationism was suicide and open borders essential, we now have the technology to isolate ourselves from those pesky foreigners with whom we never wanted to trade anyway. In fact, we may need to. Products made by robots will be so cheap that countries without smart manufacturing will have to close their borders to imports. India is particularly at threat. It may never industrialize at all.

Less interaction between nations will mean less meddling in other countries' affairs. Which is what China and Russia and so many other want anyway. The fates of nations can again be dictated by corrupt local politicians rather than meddlesome bureaucrats from abroad.

Yet the new Biedermeier may not be a bad age. It will allow us to focus on values in our cultures as we learn how to integrate intelligent machines into our societal structures. It will reduce the damaging effects of globalization and perhaps even reduce inequality.

The one thing however to remember in this new age of Biedermeier, where we retreat into our comfort zones and learn how to live with robots rather than with immigrants, is that the Biedermeier ended in the revolutions which swept the European continent from 1848 and ultimately lead to the downfall of entire political systems, a massive redistribution of wealth, and two world wars. One hopes that the New Biedermeier will avoid this fate.