Spatial transaction costs — the cost of undertaking business and economic activities over geographic space — have been declining since the beginning of the industrial revolution mainly through technological advances. The ocean-going sailing ship, railroads, the telegraph, the telephone, and fax machines all caused spatial transactions costs to fall. However, with the advent of the internet about 1990, these declines have become exponential.

MNE strategies have leveraged these technologies to create increasing wealth, so the average levels of wealth around the globe have risen. Yet, these MNE global strategies also feature a dark side.

KEY TAKEAWAYS:

In the 20th-century, birth geography determined income and welfare. In the 21st-century connected knowledge economy, human capital determines income and welfare. Low human capital workers in rich countries have seen catastrophic declines in income and welfare.

Global connectedness often generates local disconnectedness which is the basis for rising inequality that fuels populism.

Global connectedness is often strongly driven by ethnic ties.

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