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There's no question that "globalization" has been a defining feature of the political economic landscape for the last seven decades. It has led to phenomenal increases in living standards for a huge portion of the world's population. It has revolutionized the way the global community interacts. It has also resulted in a fierce backlash from those who feel threatened by the changes it has wrought, and by those who have been left behind.

But what is globalization, anyway? Economic globalization, in a classic definition, is described by Stanley Fischer as: "the ongoing process of greater interdependence among nations [and] is reflected in the increasing amount of cross-border trade in goods and services, the increasing volume of financial flows, and the increasing flows of labour." For the most part, this definition holds true. However, it's the "for the most part" bit that Paul Romer takes issue with in a recent NBER paper. I can't find an un-gated version, so I'll lay out the basic argument here.

Let's start with the fundamental assumption in economics that more world trade = good, due to comparative advantage. We then add another basic argument: that the life expectancy of the vast majority of mankind depends upon ideas: techniques, therapies, and treatments developed in the health sciences. Capiche?

Now consider this scenario: you have pill X and pillY. A rich-world worker can produce 10X and 10Y pills per hour, using the latest formulas; a worker in a poor country can only produce 3x pills or 5Y pills per hour, and uses and older, generic formula that is less effective. In a typical textbook trade model, the rich-world has a comparative advantage and should export their (more effective) pills to the poor world. However:

"Trade in pills is an obvious sign of inefficiency. The efficient form of trade would have the workers in the poor country making pills that use the same formulas as the workers in the rich country. If the rules in these two countries give workers in the poor country access to the formulas for the pills at no charge, we would have large gains from globalization and no conventional trade in goods or services.

Just to make sure that I am not cited by the thought police, this does not show that trade restrictions are good. Nor does it show that intellectual property rights are bad (or good). It does show that we need a richer vocabulary, one that can allow for the possibility that such ideas as the formula for a pharmaceutical can also flow across a border. If flows of conventional goods and services are the only things we see and describe, we will miss the deeper forces and sometimes get the sign wrong. More conventional trade can be a sign of something wrong: inefficiently low cross-border flows of ideas."

Romer breaks down the concept of ideas into two pieces: technology and rules. Technologies are ideas about how to rearrange inanimate objects. Rules are ideas about how people should interact.

To illustrate: in the 1990s, the Chinese airline industry was one of the most dangerous in the world. While they were using similar airline technologies as other parts of the world, they did not have a common airline language/phrasebook, and this led to confusion. Starting the mid-1990s, Boeing (which had invested in the technology) began offering free training (changing the rules) for airline personel and airtraffic controllers; the number of crashes plummetted. The rules need to fit the technology.

By contrast, Romer points out that private firms have frequently failed to introduce modern water technologies, with clear health benefits, to countries where there weren't effective rules for regulating private monopolies. In this case, it may be too expensive or difficult for private firms to try to change the rules, and so the technology isn't spread.

What is the take-home message?

"How we think is influenced by what we teach, and what we teach about the gains from globalization may do more harm than good. It encourages two types of errors. It suggests that technologies cannot be copied and that rules are easy to copy. In each case, it would be more accurate to say that incentives matter. Rules matter because they change both the incentives for flows of technologies and the productivity of technologies that are available locally. "

So when it comes to economic development, we need to break free from the traditional understanding of economic globalization to consider the transfer of ideas and how they can be implemented effectively. I'm confident that people who work in this field have known this for years - perhaps it's time that academics caught up?