The Fortnite Economy

offer to me and my kids. You don't have to be an economist to ask that question, you just have to be human. Before our eyes, technology is transforming the way we work, shrinking national boundaries and creating the most

powerful corporate empires the world's ever seen. Now Bloomberg, we have over one hundred economic journalists out there taking stock of this new global economy, and usually our senior Trade and globalization reporter Sean Donnan is one of them, but recently he decided he might learn more at home playing online video games with his son. Frankly, I was skeptical,

but you know what, he was right. In a few minutes, I'm going to talk about video games, trade, and the world economy with Professor Richard Baldwin, probably the world's leading economic thinker on globalization, but first his Sean and his son so. On July the two thousand and eighteen, not too long ago, Fortnite officially went global when it released

in China. That means that the whole world now at least I think you're listening to a British YouTube star called Alistair Aiken or ali a as he's known to most of the more than fifteen million, largely teenage followers who watched videos of him playing computer games. He's a twenty five year old with a pension for trucker hats and T shirts, and one of the stars of a multimillion dollar cottage industry that pumps out thousands of videos

each week. And it may sound crazy, he is a good place to start if you want to understand globalization and the new directions the global economy is taking today. I'm not sure how long I'm gonna have access to the service. I may get banned any point. I have

no idea. This is all a crazy experiment. A few months ago, just after a small group of Chinese players first got access to the shoot him up video game Fortnite, Allier navigated around firewalls and language barriers from his home in suburban London and logged onto what looked like a desolate corner of the Fortnite universe in China. Look at that. Everything's got his own Chinese equivalent name for the mass. I'm going to try out a Chinese salty Salty. Fortnite.

If you haven't heard about it is the biggest gaming phenomenon in the world, with more than two hundred million registered players. It features a hundred heavily armed virtual players at a time doing battle on at apocalyptic island. What Allier was doing was actually something that a lot of Fortnite players, including my thirteen year old son, had started doing, logging on to overseas servers to go in search of

newer players who might make easy marks. The goal was to help them build a bit of teenage street cred. Think of it as digital arbitrum. Obviously, China have had games for ages, so it's not like they're going to be utterly terrible or trash at Fortnite, but the game has been out for once. They don't have the math knowledge and maybe they're not too good at building. That's what I'm interested in funding out, is that on it's okay all right, So you're getting it up. You're gotta

it already. Now I must have to log in. Like many fathers of a teenager, I've watched my son Aidan, over the past year get embroiled in the Fortnight phenomena, and a recent afternoon he tried to help me understand what it was all about. So, Aiden, what is it about this game Fortnite that you like so much? It's just it's a fun game, and it's a very social game where without hanging out with your friend, Fortnite is

also much more than a computer game. The U S and China may be locked in a trade war, but Fortnite itself is a product of Sino American cooperation. Epic Games, the North Carolina based studio behind the title, is owned by China's ten Cent, one of the world's largest social media companies, and that's the second way in which Fortnite is emblematic of globalization today. Its success is in part

about the role of Chinese capital. Fortnite is free to play and has been able to therefore build up those more than two hundred million registered users worldwide because of a three hundred and thirty million dollar investment that ten Cent made in two thousand twelve. You could be this. She could be the Calumny. Okay, I'll be the Calamity. That's no, there's Tom just like your best drinking I like this guy like that. Let's go to the Oh yeah wait, hang on, that's like a crazy halloween head.

Yeah it was a Halloween Okay, so you paid money for that. There's a third way that Fortnite is emblematic a globalization today, and that may be the one we think least about. Anna pem Chander is a law professor at Georgetown University and an expert on the world of digital trade and how governments are trying to regulate your technologies.

He's the author of The Electronic Silk Road, a book about how the Internet has reshaped the global economy, and he argues that if the Internet has become an everyday part of our lives, then so too has without us really thinking about it, digital globalization. So everything has become essentially part of the digital economy. Are you know when we communicate with people, when we go out in a date? Who ship? It might be when least when you set

up your wedding registry, it's all done online. Um so a traditional economies everywhere the and much of it is international with that art even knowing it. Just think about the conversations we now have about trade wars and globalization. Often we focus on physical goods such as steel beams, cars, or soybeans. The reality is that the integration of economies these days is increasingly a digital one that happens in invisible daily bursts that Donald Trump and all of his

tariffs have not even thought of touching. Yet. Fortnite is only sort of free. Part of the craze surrounding it has to do with its victory dances with names like Orange Justice that have permeated into mainstream culture. In the world of Fortnite, those are called emotes, and they cost money. In some cases, they have become so valuable that they have become the targets of legal battles. So what's your favorite Fortnite dance? My favorites Actually, um, it's a pretty

old one. It's called Fresh. It's the little like jingle from the old TV show The Fresh Prince of bel Air. That little Okay. It was just kind of one of those embarrassing emots that I would just watch over and over again. That dance you may know it as the Carlton dance from the TV show The Fresh Prince of

bel Air is one of Fortnit's most popular. It's so popular that Alfonso Ribero, the actor who played Carlton on the show, in December, sued the creators of Fortnite and in another video game, arguing they had used his invention without his permission. That dance is also a good way of thinking about digital trade and some of its pitfalls.

When a player in Asia or Germany buy something from Fortnite, they are effectively buying a digital good, something potentially made by one of the designers that Epic Games North Carolina headquarters. There is both revenue and a good job tied to it. The thing is that sort of digital transaction doesn't always show up in the economic data, or often ends up

being lost in the mix. And given the explosive growth we've seen of digital trade, which includes everything from simple e commerce to gaming to using software in the cloud, that actually matters, especially in a world where we sometimes talk about globalization, at least the physical goods part of it slowing down due to protectionism that we've seen grow

in recent years. Here's Professor Chander again, so I think it's actually just growing, but it's very hard to see because it's all happening behind the scenes, um in these electronic wires, in these in these the underground cables or undersea cables, and we don't even realize that we're participating in global commerce all the time. Researchers at the McKenzie Global Institute did the math a few years ago and found that data flows around the world in two thousand

fourteen were worth about two point eight trillion dollars. They also added more to growth that year than the traditional trade in goods. But data is scarce and a lot of things going reported in the digital economy, and it's not just games or Netflix that we're talking about. How variant. The chief economist at Google points to operating systems made

in the US installed on smartphones assembled in Asia. They don't show up in the trade data, and if they did, they would take roughly a hundred and twenty billion dollars off what in two thousand seventeen was the U S is five hundred billion dollar trade deficit with the world. All of this means that as much as the parent in me flinches slightly every time I come home and find my son playing Fortnite. What I'm really watching is

a new generation engaging in the future of globalization. It's a future that is evolving much faster than many of us or the data can either imagine or catch. So can you show me how to do that? It's really ship. Basically, what are you gotta do is go to the lobby um and you cook into the menu somewhere in the world of Fortnite. I'm Sean Donna from blombergun PC. You just click it and then you scroll over to settings, which is like the little call. You hit on that,

and then it's smash making. You can flick through that east West. So that was Sean Donnan. We're going to catch up with him in a few minutes. But first I'm really pleased to say that we have Richard Baldwin to talk to us about that piece and what it means for the global economy. Richard is a sort of international economics at the Graduate Institute of International and Development

Studies in Geneva. He's been researching globalization a long time and I think it's fair to say you, Richard, have written at least two books, and that's just in my recent memory. That have changed the way I think about globalization and where the way a lot of people think about it. The Great Convergence, which was in twenty sixteen, and now your latest book is that the Globotics Upheaval.

When you listen to Sean's piece, obviously part of it is just a sort of interesting tale of this global phenomenon which is Fortnight, But some of the themes there did seem to me resonated from what you've talked about globalization and the way it's changing. Where do we fit Fortnight into the sort of the history of globalization if

you like. So, the way I like to put it is, every day we read about how artificial intelligence is making robots smarter and computer smarter, but we've forgotten that the exact same technologlogy digital technology is transforming globalization. Now. One of the places where it actually did this first and a different generation from you and I know about, is online games. So online people have been living in this digitally connected global world for a long time and playing

with each other, etcetera, etcetera. Um, but it's starting to come into the workplace. So just as people are telecommuting domestically, what's happening now is that telecommuting is happening more internationally, and that's bringing professional white collar office workers in rich countries into direct wage competition with very talented, low cost foreigners sitting abroad. There as as I call it in my book, they're telemigrating. They're not migrating, but they're telemigrating,

and so I guess that's for me. That's what you take away is that this is two things. I guess that this tells us this sort of new kind of trade. You know, One is that the globalization is happening. It's not in retreat. You know when you read the headlines about this, you know Donald Trump doesn't trade and now we're in trade wars and globalizations going into reverse. I mean, this is shows us that, no, it's continuing very rapidly, but it's in this realm that we don't necessarily capture

in the statistics. The other thing, which I think in a way is more important for economists, is it's changing the what is tradeable in the world economy, and the the amount of global economic activity which can be traded, which can cross borders is dramatically increasing. Does it master if we're not capturing that in the international statistics, well statistics who use to guide policy and know what's going on, and um, the fact that it's not captured in the

statistics I think is a problem. And you see systematic misdirection of attention in the rich countries just Donald Trump and Brexit for example, misunderstanding how important export of services are to modern economies and how many jobs depend upon them. So I think that is is an issue. But you know, deep down you can find out about these things, and if you're in the business world, you know, things like up work and white color robots like blue Prism and

things like that. Those are really growing very very fast, so you can kind of tell that it's happening even though there's not good statistics on what's happening. But do you think you know, we always used to say when I was learning economics, they say the definition of a good is something that when you're contrasting goods and services, it's something you can drop on your foot, you know, and thosset are the things that you couldn't drop on

your foot. Services you couldn't trade that we're not and we tended to think we're protected. How quickly is that changing? I mean ten years time. In fifteen years time, what proportion of services will be TRADEA or do you think? Right? So at an explosive pace, that's that's the answer. So we're doubling our ability to process information, gather information, store information, transmit information. And that's essentially what services are people exchanging

and manipulating information. And before, as you said, you know, services typically involved people being in the same place at the same time, so they were considered non tradable. But it was like as if there was a thousand percent tariff on doing bookkeeping while you're sitting in Kenya for a company that's in London. But this digital technology is is having that tariff every two years or if not faster,

So it's coming at an incredibly fast pace. And these online services, you can sort amount of freelancing revenue that's going is increasing per year, which means that it doubles every year. So right now it's starting from a reasonably small base, but if you double every few years, within five years or ten years, I think it will be a very important element. And I should say that the reason I'm so confident about that is because it already

is in certain types of services. So in web development, for example, they frequently get a friend of mine works and lows on and he organizes, say a programmer in Pakistan, user experience expert in Canada, and a web designer graphic designer in Uruguay, and they get on the screens his screens in Switzerland. They work together very intensively over two days to do a great website. And that's absolutely normal in that world. It's just that stuff is going to

go mainstream. Or another way to think about it is, think of all the people in your office who are telecommuting from home a day a week or half day a week. That is opening the door to international telecommuting. Because what we're doing is we're changing the way we work to make it easier to slot in workers remotely. And once we do that, our companies will figure out that they're going to be able to get at least some of those tasks done for one tenth of the price.

So I think that will be, uh, you know, an absolutely huge change. I call it the talent tsunami. So in one way, if you think about the nine nineties, was hundreds of millions of people joined the factory workforce globally, and that changed the way factory work was in our countries. The two thousand twenty is hundreds of millions of people joining the service workforce, and they're not all going to

find jobs right away. But just as the wave of supply of low cost talent affected the way manufacturing was done and where it was done, I think the same thing will happen in the service sector. And what does

that mean for people like Sean's son. You know, we obviously had there's a sort of positive story from from his piece that actually it's kind of unfair competition the other way when it comes to Fortnite, because you've got these American teenagers who are competing with maybe less skilled and certainly less practiced Fortnite players in Brazil and elsewhere.

But what is going to affect Sean Son's future. Well, so I'm glad you pointed that out, because globalization always means more opportunities for country's most competitive workers and firms because it opens up more customers, more markets for them, and they are competitive, and there are people like potentially Sean's son in Fortnite who is globally competitive and this

gives him more opportunities. But global say and is always more competition for your least competitive citizens and companies, and that's the way it always has been. Is just going to come to the service sector. I think the big difference is that people in the service sector, as you mentioned earlier, viewed their jobs as protected from direct foreign wage competition. But ultimately digital technology is making remote people less remote in many ways and therefore igniting this competition.

If I could just put it in one context, I think of globalization as arbitrage. So you have different prices of different places people by low this all high what it's driven by as price differences. You've taken us to the crux of it, which is how should governments be responding?

How should people be responding. I mean you started by saying, you know, we've been just distracted by this talk of of trade wars and a lot of this sort of old fashioned talk around globalization, which is to do with goods, when actually sort of beneath the surface, there's this structural change that we're just not getting. You know, if a government woke up tomorrow, read all your books, um, and then asked you, how should I be doing things differently? What do you say? Well, so, first of all, I

don't think it's fundamentally that different. I mean people will have to change jobs because of global competition and automation in the service sector, just as I've had to do for the last three centuries. So the first thing is the government should help people adjust. As I like to say, they should protect workers, not jobs. The key is the world's changing. The government should help people retrain, move, income

support if they need it, whatever. And then if it all goes too fast and it becomes socially disruptive, I think the governments have to stand ready to slow it down. And that that is where we may come from, especially in countries like the US where there is no real active labor market management, there's there's very little support for workers. They may may end up having to slow it down

with regulations and taxations and things like that. Well, and then we'll probably that's going to be the subject of many more podcasts, I'm sure, is how you actually can navigate these differences, and maybe you know some of where some governments are going to do better than others in helping people get through the transition. But for the meantime, Professor Richibaldwin, thank you very much. Thank you so sure. You know we managed to get a lot out of

your pieces. You could hear talking to Richard Bolden. Was there anything that surprised you or that has made you doing this piece, has made you want to go and do more? Yeah. I think one of the big things that we didn't get Richard talking about there, and one of the things I'm thinking more and more about is the distinction we make between goods and services. I'm not sure that distinction is as valid as it once was.

I think my son certainly, when he buys something on Fortnite that sort of we think about that as a service, but he certainly thinks about that as a tangible good. He certainly argues when he's spending money on Fortnite that it's a tangible good and that it will give him a tangible benefit. Um, there's that, But then there's some very real changes in manufacturing patterns that we to be

thinking about. Three D printing means that oftentimes a company, or increasingly a company is going to be emailing a kind of production file to a bank of three D printers in a far off land rather than shipping a widget via container. So how do we how do we account for that in the trade data? And then there's all the soft stuff that sort of sits on our iPhone, the operating systems, the apps and so on. We think of those as services, but you know, in many ways

they're good. And do you find I mean, of course, you're also having to report the sort of plane of vanilla trade statistics. Often the US data gets a lot of attention. You know, do you feel when you're writing these stories, is that you have to sort of stop yourself from saying, but these aren't really the biggest numbers. You pay attention to be done. The numbers absolutely, So there's a you know, there's there's it feels sometimes like there's a big lie in the data. And it's not

just about capturing. Now you're sounding like Donald Trump, I know, I know, I know they're gonna be careful here. You're telling me a trade data is fake news. Well, you know, there's an element of truth to that line, and that is it's certainly misleading. And it's not just about capturing or not capturing uh services trade around the world. It's also you know, where we measure the value that's added in supply chains. You know that the iPhone is the

great example of that. We h the wholesale cost iPhone leaves China, and that's what shows up as an export to the United States, when we all know that most of the value goes to Apple, which is a US based company. Do you think there's any prospect of the sort of public debate actually getting into some of these areas because you know, part from aending else the data is very bad. Um. It also makes for very complicated

policy making. I mean, I guess there's there's a good reason why we're not getting clear pronouncements on this because it is, let's say, because we don't have the data and because I'm not really sure we have the answers. Well, this has always been the problem with with debates about trade, or political debates about trade, is the kind of the

negatives are easy to identify. Uh, they're very tangible, and that comes in in a closed factory, and the benefits are are more diffuse, and that gets into you know, the realities now are are are more diffuse, and as we say in the piece there, they're hidden oftentimes are in these kind of pipes underground and they're hidden away into data. And that means we're just not having a debate we should be uh, and it's a pretty wonkish debate. It's it's not one that makes for good TV, but

a very good podcast it turns out. So finally, I mean, I'm just I'm struck. I mean, you spend your time, you're talking to these talking to businesses. In that piece, you were talking to people who are very familiar with all of the nuance and the subtleties of global trade. And yet we still have a very fierce debate in the newspapers and on TV and on Twitter, um about Donald Trump's trade policy, about tariffs, on this and that.

I mean, is it just sort of two sides of their brain that these businesses, business leaders are using, you know, the one hand they kind of come out have these views and act like the tariffs are the most important thing, and then the other half of their brain they kind of know that this is not really where the action is. Yeah. Well, look, I mean there's no doubt that there's a very real impact that we've seen from the tariffs on on the

economy and on businesses. We've seen higher prices for steel here in the United States, We've seen farmers famously get hit very hard, UH as part of the retaliatory measures that China and Mexico and others have taken against US tariffs, so you know there's there's something very real and very tangible there. But as I said beforehand, that kind of more diffuse debate is about the realities or the digital realities of globalization is harder to have. That doesn't mean

that businesses don't know that this is going on. In some ways, they're kind of happy to fly under the radar a little bit because their concern is that once a government gets ahold of some of these things, that they may in fact start to regulate, and no business x regulation. Right. Well, Shawn donand our senior trade reporter, I look forward to hearing about other members of your

family in future reports. But in the meantime, you've got plenty plenty on your hands thinking and writing about trade. I know one of our one of our much younger colleagues, said to me the other day that there was never a dull moment in global trade, and I had to assure her that there had been plenty of dull moments, but they're definitely not happening now. Thanks to you, Shual, Thanks for having me, Thanks for listening to Stephanomics with me.

Stephanie Flanders. Please join us next week for another episode about the forces shaping the global economy. In the meantime, you can find us on the Bloomberg terminal, Bloomberg dot com, or our Bloomberg app, as well as anywhere else where you get your podcasts. Please take the time to rate and review the show so it can reach more listeners, and for more news and analysis from Bloomberg Economics, follow as Economics on Twitter. You can also find me on

at my Stephanomics. The story in this episode was reported and written by Sean Donnan. It was produced by Magnus Hendrickson and edited by Scott Lamman, who is also the executive producer of Stephanomics. Should's original article on the topic appeared on Bloomberg Business Week and was edited by Christina Lyndblad. Special thanks to Richard Baldwin and Aiden Donnan. Francesca Levy is the head of Bloomberg Podcasts.