Initiative for U.S.-China Dialogue on Global Issues

In this seminar, Eric Thun discussed how highly specialized industrialization affects the global economy amidst threats of economic decoupling. Digital technologies have decreased the challenge of organizing activities across borders at the same time that geopolitics have increased the relevance of these borders. The result has been rapidly increasing geopolitical tension and pressures, particularly between China and the United States. Although the threat of decoupling is often raised, Thun will argue that a new form of industrial organization called “massive modularity” makes it extremely difficult for any given nation or firm to fully control or withdraw from digitally enabled frontier industries. The increasing role of modular interfaces in modern industry creates the potential for hyper-scaling as new functions are added to an industrial ecosystem. The resulting increase in complexity drives hyper-specialization—given that no single actor can do it all—and leads to growing market concentration, especially of individual components or segments of the system, given the steadily rising barriers to entry for the highly-specialized activities. In addition, because specialties tend to be geographically rooted in different regions and countries of the world, the ecosystem overall becomes geographically specialized. Thun illustrated this argument with empirical data from the mobile telecom industry.