Magazine article The International Economy

The Politics of Globalization: Lessons from History

Magazine article The International Economy

The Politics of Globalization: Lessons from History

Article excerpt

The world has been experiencing a golden economic age in recent years. This may seem less obvious today than a year ago to the citizens of rich countries, worried about rising oil prices and the consequences of their financial institutions' reckless behavior. But those citizens constitute only a minority of the world's population, and the real action is elsewhere. The rapid convergence towards the world's technological frontier which China has been experiencing since the 1980s, which spread to India in the 1990s, and which is improving the lives of countless millions of people elsewhere in the developing world, surely represents the greatest improvement in worldwide economic welfare ever. It is a phenomenon intimately linked with the worldwide spread of technology, and the existence of a relatively open international trading system: in other words, with that much over-analyzed and over-hyped phenomenon, globalization.

To many observers of the world economy, globalization is a largely technological phenomenon, the product of new transportation and communication technologies, such as containers or the Internet. 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 nineteenth-century Europe.

Prior to that time, intercontinental trade was extremely expensive, and so it was only economical to transport very expensive commodities, with a high value to weight ratio, across the oceans of the world. More than a century after Vasco da Gama, no less than 80 percent of Portuguese imports from Asia consisted of pepper and other spices. As late as the middle of the eighteenth century, the majority of English and Dutch imports from Asia and the Americas consisted of spices, tea, coffee, sugar, tobacco, and other commodities which either could not be produced in Europe at all, or could only be produced there with considerable difficulty. And the major import from Latin America during the early modern period was of course silver.

These commodities could bear the cost of transoceanic transport because of their high price in Europe, and thus ultimately because of their scarcity there. In most cases there were no domestic producers who were displaced by these "non-competing" imports. From the 1840s onwards, however, the gradual introduction of and continual improvement in steamship technology meant that ocean freight rates plummeted. Just as important (since overland transport has traditionally been more expensive than maritime transport) railways penetrated the interiors of such vast economies as the United States, Russia, and India, permitting the rapid and efficient transportation of agricultural commodities from peasants to ports.

For the first time in history, it was now economical to transport bulky goods such as wheat, which was produced worldwide, across oceans and continents, linking together regions of the world with very different endowments of land, labor, and capital. Almost immediately (that is to say by the late 1870s), faced with an invasion of cheap grain from Russia and the New World, governments in France, Germany, and other Western European countries caved in to the protectionist demands of their agrarian constituencies, raising agricultural tariffs significantly. …

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