Is Globalization Here to Stay? (Maybe, Maybe Not)
Ronald Findlay is the Ragnar Nurkse Professor of Economics at Columbia University. Kevin H. O'Rourke is professor of economics at Trinity College, Dublin, and co-organiser of the CEPR's Economic History Initiative. They are the authors of Power and Plenty: Trade, War, and the World Economy in the Second Millennium (Princeton Economic History of the Western World).
To commentators such as Thomas Friedman, today’s globalization is a largely technological phenomenon. Once learned, new technologies are typically not forgotten, which is why globalization can seem an irresistible force, destined to bind us ever more tightly together for the foreseeable future. History, however, suggests that globalization is as much a political as a technological phenomenon, which can thus be easily reversed, and has been so in the past.
Economists are well used to considering one way in which globalization can be undermined politically. The standard theory of international trade tells us that while trade may raise incomes generally, it produces both winners and losers. If the losers are sufficiently politically powerful, they may convince governments to impose protection. More importantly, history tells us that this is not just a theoretical curiosum, since this is exactly what happened in late 19th century Europe. For the first time in history, steamships and railroads made it possible to transport bulky commodities across oceans and continents, linking together regions of the world with very different endowments of land, labor and capital. Faced with an invasion of cheap grain from Russia and the New World, governments in France, Germany and other Continental countries caved in to the protectionist demands of their agrarian constituencies, raising agricultural tariffs significantly.
However, history also tells us that politics matters for globalization in a far more fundamental way. The new steam technologies of the Industrial Revolution would never have had the effect they did, had they not operated within the context of a stable geopolitical system within which the Royal Navy guaranteed the freedom of the seas for all; within which wars between the major European powers were relatively rare; and within which those same European powers used their military superiority to impose more or less open trade on most of Africa and Asia. With the outbreak of World War I, that geopolitical system was destroyed, and 19th century globalization with it, despite the fact that technological progress continued unabated during the interwar period. And while in the rich countries of Western Europe and North America the post-1945 period saw a gradual reconstruction of open trading conditions, deglobalization characterised much of the rest of the world until the 1980s thanks to the spread of communism and decolonisation, which themselves had their roots in the century's two world wars, and the intervening economic debacle.
Economists have typically shied away from considering such matters, regarding wars as 'exogenous' shocks to the system, or as departures from normality. The importance of war and peace for the international economic system became so evident to us, however, that it is now reflected in the title of our recently published history of international trade over the very long run: Power and Plenty: Trade, War, and the World Economy in the Second Millennium (Princeton University Press). ‘Power and Plenty’ refers of course to the mutual dependence of trade and warfare during the Mercantilist era, when the links between commerce and violence were particularly explicit and clear. But great expansions of world trade were linked to conquest even earlier. The pax Britannica and pax Americana which provided the geopolitical stability underlying the globalisations of the 19th and late 20th centuries have their counterpart in the pax Mongolica of the 13th and 14th centuries, which produced an impressive integration of the Eurasian economy. The Muslim conquests which unified a vast region stretching from India to the Atlantic provide an earlier example, while the Iberian conquests of the 16th century would provide an even more spectacular later one.
In the light of history, it would be foolish to assume that present day trends will automatically persist into the future. What sorts of challenges might arise to threaten 21st century globalisation? One striking feature of today's international economy is that, as in the 19th century, regions with very different factor endowments are being drawn into closer contact with each other, as what used to be known as the Third World opens up to the rich countries of the North. Will the modern day equivalents of the farmers of 19th century Europe, namely unskilled workers in the OECD, eventually press for and obtain a rolling back of trade liberalization? The 2005 French referendum on the so-called European Constitution, when unskilled workers voted against what they saw as a pro-market, pro-globalization accord, may serve as a straw in the wind in this regard.
Even more fundamentally, the continuation of a broadly liberal international trading environment will require that the geopolitical system adapt to the rise of China, India and other ‘Third World’ giants. In a historical context, this represents of course the restoration of the status quo ante, the end of a “Great Asymmetry” in international economic and political affairs caused by the Industrial Revolution, which was itself in large part a product of the interactions between early modern Europe and the rest of the world. But that is not to say that such an adjustment will be easy. The international system has historically done a pretty poor job of accommodating newcomers to the Great Power club. German unification and industrialization during the late 19th century led to tensions with Britain and France over colonial and armament policy, while Japan's rise to regional prominence during the interwar period, and its search for secure sources of raw materials, ended in war against United States and its allies. Both precedents are worrying, in that similar questions are posed today, both in terms of the rights of emerging nations to rival the established powers’ military capabilities (notably with regard to nuclear weapons), and in terms of the strategic importance to countries like China of ready access to oil supplies.
The last point should cause us to reflect that, Cobden and Montesquieu notwithstanding, interdependence and trade do not necessarily guarantee peace. The world economy of the late 19th century was extremely interdependent, to the point where Norman Angell famously felt able to pronounce, on the eve of World War I, that major conflict was now unthinkable. Interdependence implies vulnerability, and vulnerability can lead to fear, with unpredictable consequences, as Anglo-German rivalry in the run-up to the Great War, and Japanese reactions to the Great Depression and Smoot-Hawley, both indicate.
Impermanence appears to be the most enduring feature of the human condition, and if there is one lesson which we can safely learn from history, it is that history has not ended. Hopefully it will not repeat itself.
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Andrew D. Todd - 2/17/2008
One must not make too much of European trade barriers in the late nineteenth century. A case can be made that they tended to be leaky. They did not put the clock back. Their beneficiaries were still likely to be the most relatively impoverished people in the land-- who remained impoverished.
I think you would probably find that trade barriers to agricultural imports in the late nineteenth century did not include guano. Guano imports were on the order of at least pounds per capita by the 1870's. The effect of cheap guano was to supercharge existing European farms. Similarly, oceanic fishing (and whaling) does not technically constitute importing, no matter how far the fishermen range. Steam-powered fishing trawlers were being introduced, with the expected economies. Just before the First World War, kippers, that is, herring fillets, were notoriously a poor man's dinner. The inedible, or rather, unpalatable fraction of the fish harvest was apt to get used as fertilizer; or else, animal feed, and then fertilizer. In particular, hogs were notoriously fed on whatever garbage was available. Interestingly, the modern nitrate fertilizer process, invented by the German chemist Fritz Haber, was employed during the First World War to replace the fertilizer supplies which had been cut off by the British Navy, in the same way that the United States was forced to develop synthetic rubber in the Second World War after the Japanese had overrun Southeast Asia. It would also be worth looking into "Liebig Extract" (sometimes called "drippings"), and similar low-grade meat products, which might actually be economic byproducts of leather production. Likewise, there were early forms of agricultural mechanization. In late nineteenth century England, stationary steam engines with winches and cables were sometimes used to haul agricultural implements up and down the fields.
Also, one must deal with the idea of redirected internal trade. In the eighteenth century, the most developed portions of Northern Europe, England and the Netherlands, were importing foodstuffs and other raw materials such as forest products from the more backwards areas, such as the Baltic. Danzig, for example, was a famous grain-exporting port. The English "Corn Laws" in the early nineteenth century reduced imports to about ten percent of total consumption, but that ten percent was a safety valve in times of possible shortage or political disorder. But of course, the Corn Laws were eventually abolished, about the time that many continental nations were instituting their own equivalents. The East-Elbian region of Germany, adjoining the Baltic behind Danzig, Stettin, and Koenigsberg, was Germany's breadbasket, but it was also the German equivalent of the American Deep South. German grain exports worked pretty much like American cotton exports, that is, they were based around a system of de jure or de facto unfree labor, in a general climate of cultural backwardness. Once Germany was unified, the central government provided subsidies to this conspicuously impoverished region, but the results were generally unsuccessful. Since the East Elbian region's habitual market was England, there were obviously severe limits on the extent to which it could be aided by protectionism. Protectionism was only a consolation prize. By contrast, the characteristic agricultural export of South Germany was named vintage wines.
Finally, the backwards agrarian regions of the various countries tended to produce far more than their share of emigrants to America, thus permitting the consolidation and rationalization of farmlands. This was most clearly visible in Ireland, whose population fell from about nine million just before the potato famine to about three million, circa 1900. Perhaps a million people starved, but the rest emigrated. It has been pointed out that in the nineteenth century, emigration functioned as the economic equivalent of free trade. People went where the food was, instead of the food coming to them, and they sent back remittances as well. This also had the effect of bypassing American industrial tariffs.
Summing up, the effect of agricultural tariffs was not to put the clock back, but merely to channel and shape Globalism. European farmers tended to get first use of agricultural imports, or the imports were directed to low-income consumers whom the farmers did not consider prime customers. It is significant that grain was the point of conflict, because, given the technology of the time, grain was about the only commodity of mass consumption which could be shipped across an ocean, and still be a first-class commodity. The various kinds of canned meat products, canned vegetables, etc were obviously inferior, and fit only to make stew (*). Eventually, the mechanization of European agriculture more or less caught up with that of American agriculture. A type of "Saturday farmer" emerged, with both a tractor, and an industrial job on the weekdays. This can be seen in its highest form in Japan, oddly enough.
(*) Of course, our modern post-scarcity mindset is that the epicure eats an extraordinary variety of traditional poor people's cooking: Italian Pizza, Mexican Chili, Indian Curry, the assorted varieties of Chinese cooking, etc., etc.
To maintain the volume of international trade in the face of improved methods of production, international trade has to be constantly re-invented. In the 1950's salad greens were grown in certain favored valleys of California, and special express trains loaded at special stations in the middle of the lettuce fields, before heading off to the east coast. By now, of course, these favored valleys have mostly been built over with housing developments. Fresh salad tended to be more expensive then. I found, in an issue of Trains magazine, a collection of reproductions of old railroad dining car advertisements. It seems that about the middle of the twentieth century, the salad component of the fixed-price lunch on the premium transportation mode of the day was a glass of tomato juice-- presumably canned or bottled. Nowadays, that would be simply unsalable. No restaurant at the Howard Johnson's level can get by without a salad bar. Even allowing for a captive audience, the airlines serve salad, not tomato juice. The green goods are often flown in by jet from South America.
At a certain level of technological development, manufacturing becomes trivial, ie. Arthur C. Clarke's postulated "universal replicator." Short of that level, robots are becoming of ever-increasing importance. If a high tariff is placed on automobiles, Toyota will simply use more robots at factories in America, and other Asian automakers will follow its example. New automobile factories will be built in places like rural Texas, not in Detroit. The firms building the factories will be legally separate and distinct from the American "Big Three," and, as such, will have no obligations to the vast majority of existing American autoworkers. What is true for automobiles is even more true for electronics. Certain very advanced industries, notably chemical refineries and telephone company plant, are so automated that they can go on functioning normally during a strike. Most of the remaining workers do things quite remote from the production line, and the effect of withdrawing their labor might not appear for a year or two. In fact, it may very well be that most of the workers do things sufficiently remote from actual production that their economic value is conjectural rather than provable. Automobile and electronics manufacturing, and that of kindred manufacture, might well reach this point soon. By analogy with agriculture, one might reach a stage where the developed countries were self-sufficient in large classes of manufactures, but this manufacturing did not employ more than one percent of the labor force, and prices for manufactured goods were correspondingly low. What could possibly happen is that invention might fail, that new imported goods and services might not come along to replace the ones which are being automated out of existence.
1911 Britannica article:
Appleton's Annual Cyclopedia, 1900,
Properly cited and all, but makes the mistake that a quarter is a quarter-hundredweight when a quarter of grain is actually a quarter-chaldron, or eight bushels. For wheat, this would be about five hundred pounds.
omar ibrahim baker - 2/13/2008
My first reaction to the question in the title is to ask which, or which aspect, of GLOBALIZATION are we considering?
Political Globalization has been the most suspect aspect since the concept was floated.
Its perception by the whole world, and particularly the "Third World”, presently better identified as the non US-N America/ W Europe/Australia, was of a transparent veneer to an abiding American desire to dominate and administer the whole world.
The attitude and policies of the Bush Administration with its aggressive means of total disregard of national sovereignty , of the UN and of international legality as in Iraq, Afghanistan, Somalia, Sudan etc . has only ingrained and radicalized that perception .
The US/Bush early and hasty pull back from the "Democratization" issue which, from its very beginning, was never seriously considered as sincere and lasting only confirmed that failure.
Its overall failure was, however, confirmed with the open US reversal and desertion of its alleged "non cooperation" with and "non support" of despotic and corrupt regimes.
Presently even the traditionally pro West elements have despaired of America and its “crusades”!
Cultural Globalization has witnessed the progressive widening, to the point of reciprocal declared open enmity, between two major human/cultural blocks: The Judeo/Western Christian block and the Arab/Moslem block.
Western Christian is used here in a sense to exclude Eastern, and East European, Churches.
“Third World”, particularly South American, Catholic churches were liable to be equally excluded, for the political reasons pointed above and for their own economic reasons, except for Pope Benedict s’ early anti Islam sortie into the highly complex web of Moslem/Christian relations.
If Benedict’s “message” is taken to heart by South American Catholics then they are more liable to align themselves with the Judeo/West Christian block; otherwise they will assume the natural place indicated by their political and economic interests and aspirations.
Third World and particularly South American Catholics seem here to be posed to witness a replay of the recent conservative/progressive split but in the newer context of Judeo-Christian/Moslem relations and potential confrontation .
Their response to the Pope’s said sortie will determine where they would align themselves.
India , China and Japan will keep treading their own way of benign neglect of the whole issue.
So back to the ever present North/South divide with a semi reluctant North for the, principally, US initiative and with highly diverse South largely against it or indifferent to it.
By and large, as conceived and preached by the USA, Globalization is a flop having been seen through by the South and offering nothing new and substantial to an apathetic North.
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