Just as an architect studies the ruins of an ancient city to design a modern one, understanding how the first globalization era ended can aid in preserving the second's global integration.
In 1920, John Maynard Keynes contemplated the Britain he had known before the onset of the World War I. He penned his observations, noting that a resident of London could effortlessly procure products from all corners of the world while enjoying their morning tea in bed. This way of life was considered routine, secure, and enduring by the Londoners of Keynes's time.
The
notion of unstoppable global expansion, akin to the present era of
globalization, was widespread not too long ago. Although the likelihood of a
new world war is low, the unsettling echoes of historical events in recent
times suggest that a more thorough exploration of the ascent and decline of
19th-century globalization may provide valuable insights. Keynes's insights
illuminate the profound changes instigated by the initial phase of
globalization and its apparent stability. Presently, the contemporary world
grapples with its own distinct challenges, encompassing shifting geopolitical
landscapes and the rapid ascent of innovative technologies. While the prospect
of a world war comparable to the early 20th century may appear remote,
historical analogies emphasize the unpredictable nature of the evolution of
global systems. An in-depth examination of the history of 19th-century
globalization can offer valuable insights into how societies adapt, thrive, and
confront adversity amid global transformations. These insights may serve as a
compass for navigating the intricate and interconnected global terrain of the
21st century, ensuring a future that is more resilient and sustainable.
It
should be observed here that the year 1999 marked the release of a pivotal work
in economic history, "Globalization and History" by Kevin O'Rourke
and Jeffrey Williamson, which arrived at a time when concerns were growing
about the consequences of deepening economic integration. During this period,
anti-trade activists vigorously protested at World Trade Organization meetings,
and a handful of economists began to draw attention to the occasionally
unsettling distributional impacts of globalization. Nevertheless, the era of
globalization surged ahead during the first decade following the book's
publication. However, in the years that followed, economic nationalism emerged
as a potent political force, and this book has come to be seen as eerily
prophetic in its predictions.
The
19th-century era of integration commenced earnestly around the mid-1800s,
following decades marked by instability and isolation. Liberalized trade
policies played a significant role in this transformation; for instance,
Britain repealed its Corn Laws, which imposed tariffs on imported grain, in
1846. However, the real catalyst for market integration came from advancements
in communication and transportation technologies, which enabled faster, more
affordable, and more reliable movement of people, goods, and information. The
advent of the telegraph, steamships, and railways brought the economies of
Europe and the Americas into close contact, triggering profound consequences.
In the New World, land was abundant and inexpensive, while wages were high. In contrast,
Europe had an abundance of labor, and landowners enjoyed substantial rents. As
these markets converged, prices began to equalize. In 1870, British wheat
prices stood 60% higher than those in America; by 1890, the gap had largely
closed. The connection of telegraph cables between distant financial markets
led to the swift disappearance of differences in the pricing of various
securities.
Simple
trade theory suggests that as disparities in the prices of traded goods
diminish, the costs of factors of production, such as land and labor, should
also converge. The 19th century's experience supported this theory. As waves of
American grain inundated European ports, land prices in Europe plummeted closer
to those in America. In the United States, the real price of land tripled
between 1870 and 1913, while in Britain, it decreased by nearly 60%. Real wages
also converged, although the authors noted that this owed more to migration
than trade. 19th-century migration patterns were unprecedented in scale.
Between 1870 and 1910, they reduced Sweden's labor force by 20% relative to
what it would have otherwise been and increased America's labor force by 24%.
These migration flows transformed labor markets, illustrated by the fact that
real wages for unskilled laborers in Ireland rose from roughly 60% of the
British level in the 1840s to 90% in 1914, largely due to Irish emigration.
However,
it's essential to question how much we can genuinely extrapolate from such a
different historical context. Today, migration plays a considerably less
central role than it did in the 19th century, with skilled workers constituting
a larger portion of rich-world workforces and enjoying protection through
modern regulations and social safety nets. Additionally, contemporary trade
extends beyond bulk commodity shipments to encompass the intricate exchange of
components along complex supply chains. The era of telegraphs has been replaced
by instantaneous digital communication, and face-to-face meetings with
colleagues on other continents are now commonplace. These differences highlight
the need to approach the lessons of 19th-century globalization with caution
when addressing the challenges and opportunities of the present day.
Several
enduring lessons emerge from the historical perspective, with implications that
remain pertinent today. First, the concept of income convergence across nations
warrants attention. Modern theories of convergence emphasize the role of
capital accumulation and technological advancement as driving forces behind the
economic growth of less affluent countries. These models posit that poor
nations transition to wealthier ones by increasing their investments and
adopting more sophisticated technologies. However, in the 19th century, the
integration of markets played a pivotal role in driving convergence—an
influence that continues to shape recent decades. The diminishing wage gap
between the United States and China, for instance, reflects not only Chinese
technological progress but also the participation of hundreds of millions of
Chinese workers in the global economy. This influx of low-skilled labor into
the global workforce has contributed to weakened blue-collar wage growth and
heightened inequality in affluent nations.
Second,
a notable parallel between the 19th century and contemporary times is the
recognition of the economic effects of trade and migration, and the pursuit of
political remedies by those adversely affected. In both eras, there was
acknowledgment that training and education could address the concerns of
dissatisfied workers. However, these periods also witnessed a shift towards
protectionist measures in response to economic challenges. In the 1870s,
European economies, except for Britain, began to raise tariff rates, signaling
a move toward greater protectionism. Concurrently, migration policies in the
Americas adopted increasingly restrictive measures. This historical reflection
underscores the complex interplay between economic policies, globalization,
education, and the political responses to the evolving needs and grievances of
workers in different epochs.
These
lessons highlights the importance of understanding historical precedents as we
navigate the complexities of contemporary global economic dynamics. While the
specific circumstances and solutions may differ from the 19th century, the
broader themes of convergence, the impact of globalization on labor markets,
and the policy responses to economic challenges remain relevant considerations
for policymakers and economists in the modern world.
Historical
Parallels
This
historical pattern of globalization, politics, and the consequences of
international trade is not a novel phenomenon. Contemporary academic research
has meticulously documented that American counties exposed to increased imports
from China tended to lean more Republican in presidential elections. This
political shift played a pivotal role in the election of Donald Trump in 2016,
who took a strong stance on trade issues, often engaging in trade wars during
his presidency.
However,
it is vital to recognize that the escalation of tariff barriers or restrictions
on migration did not singularly plunge the world into the profound insularity
that gripped nations after 1914. Rather, it was the devastating outbreak of
World War I that ushered in this era of retrenchment from globalization.
Without the cataclysmic impact of war, the retreat of global integration a
century ago might have remained modest and short-lived, suggesting that the
fate of globalization is intricately linked to the geopolitical climate.
The
implications for the contemporary world are significant. Just as a disregard
for the distributional effects of trade can provoke a backlash, a commitment to
equitably sharing the benefits generated by global openness could potentially
reinvigorate economic integration. However, this hinges on the world's
willingness to draw lessons from the past and navigate the complex challenges
of our time. To ensure a more prosperous and cooperative global future, it is
essential to recognize that history can serve as a guide in addressing the
intricate interplay between globalization, politics, and economic consequences.
Notes
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