2006 Annual Report—Federal Reserve Bank of Dallas
The Best of All Worlds
Globalizing the Knowledge Economy
 In 2001, a surgeon in New York removed the gallbladder of a patient 3,870 miles away in the French city of Strasbourg, a medical miracle made possible by robotic surgical tools and high-speed communications. Doctors now perform thousands of remote surgeries a year, including heart bypasses, kidney transplants, hysterectomies and prostate procedures.
In an even more mind-boggling feat, a laptop computer in Boston last year guided instruments as they performed heart surgery—unaided by human hands—on a patient in Milan, Italy. A $1.3 million computerized system relied on intricate software that incorporated surgeons' techniques and data from 10,000 previous robotic operations.
The conquest of physical distance to deliver medical services testifies to the benefits of globalizing the Knowledge Economy. Our greatly expanded capacity to calculate, communicate and coordinate has toppled barriers that for centuries constrained so many economic activities. It has led to immensely increased productivity, thus lowering costs and raising living standards in ways unimaginable just a few years ago. We're only beginning to fathom the consequences.
As knowledge spreads in our globalizing economy, it unleashes powerful forces that redefine fundamental economic relationships. In one industry after another, lower transportation and communication costs have knit together far-flung companies and workers, expanding local markets into worldwide ones.
A more integrated global economy generates new competition, identified since the days of Adam Smith as a key to delivering more output at lower prices. Larger markets bolster incentives for innovation, the wellspring of economic progress. They open new possibilities for specialization, which channels factors of production to their most efficient uses.
Globalization boosts foreign investment by freeing scarce capital to seek its highest return anywhere in the world. Companies can find and manage a broader range of inputs, the raw materials for more efficient production methods. Where fixed costs are high and marginal costs low, globalization extends economies of scale to output levels beyond the scope of national markets. The connection of competitors and capital from all parts of the world reduces entry barriers in high-fixed-cost industries, eroding the monopoly power that keeps prices high.
Knowledge and technology spread more readily, loosening the restraints that shackle progress. Production becomes more efficient and consumption less rivalrous. Indeed, a knowledge-rich economy changes the very nature of consumption as a growing number of goods and services are distributed to new buyers without diminishing others' consumption.
Human beings have always put their brainpower to use, but today's explosion of knowledge is playing out in an era in which national borders are less of an impediment to the movement of goods, services, money, people and ideas. The combination of knowledge and globalization provides the U.S. with the best of all worlds—the benefits of not only our nation's intelligence but the entire planet's.
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