Understanding globalization "lock in"

Ever heard of the economic term "lock in"? Know what its relevance is? I have to admit that despite my fairly wide reading up on globalization, I had never heard of it before. . .

Thomas Palley explains what it means, and why it's important to economic development and globalization, on his blog:

"“Lock-in” is a concept developed by economic historians to describe how economies get tied in to using inefficient technologies. It also applies to institutions as economies and societies can get locked into sub-optimal institutional arrangements. This has relevance for globalization where the arrangements governing trade and the global economy may be sub-optimal, posing problems of how to change them. The economics of lock-in helps understand the problem and suggests how to solve it.

Lock-in arises because a technology that is adopted first may gain a competitive advantage that encourages others to adopt it, even though other technologies are superior and would be chosen if all were at the same starting point. An example of lock-in is narrow gauge railroad that is less efficient than broad gauge on which railcars are more stable and can carry greater loads. Once a stretch of narrow gauge has been laid, there is an incentive for additions to be narrow gauge to fit the existing track. Moreover, the incentive increases as the size of the rail network grows.

Lock-in has enormous relevance for globalization, which has seen the creation of new institutions and patterns of economic activity. Trade agreements have created new rules, fostering new patterns of global production and setting the basis for future trade and investment negotiations. Another example of lock-in is removal of international capital controls that has changed financial flows and would be difficult and costly to restore.

Globalization lock-in matters because today’s global economy has been designed with little attention to labor and social issues. This is because the system was largely stitched together in the last quarter of the 20th century, a period of labor weakness and laissez-faire revival. Consequently, arrangements were forged without attention to labor, social, or environmental concerns."

Read the whole article to hear what policies Palley suggests as the best way for dealing with this infrequently discussed problem.