The New Global Division of Labor

Abstract

Where the industrial age led to a global division of labor in manufacturing, the information age expands that global division into services. Once theorized as nontradable, services now join goods in the global marketplace, allowing workers in developing countries to participate in lucrative Western markets despite immigration barriers and Western enterprises to reach a global audience, often free of tariffs and even absent a local distribution network. This marks a major shift in the organization of production, as technology shifts the calculus that determines the boundaries of the firm and in turn spurs firms to buy services cross-border. This first chapter of The Electronic Silk Road suggests that this shift will result in increasing cross-border contracting between unaffiliated parties as firms move internal processes to third-party vendors and will eventually lead to contractual disputes, requiring a legal infrastructure of dispute resolution. This chapter also describes the close and mutually beneficial connection between outsourcing and open source production methods.

Keywords: services, global marketplace, contracts, dispute resolution, open source, outsourcing, international trade, division of labor, transaction costs, make vs. buy