Globalization and History: The Evolution of a 19th‐century Atlantic Economy

Citation

Stack, M. (2001), "Globalization and History: The Evolution of a 19th‐century Atlantic Economy", International Journal of Manpower, Vol. 22 No. 1/2, pp. 173-182. https://doi.org/10.1108/ijm.2001.22.1_2.173.2

In the seemingly apolitical world of the contemporary USA, few events have driven as many protesters to the streets as did the recent World Trade Organization (WTO) meeting in Seattle in December 1999. This summit brought together representatives (some invited, some not) from a wide array of organizations and countries. For a few days, the normally arcane and tranquil world of international trade dominated the news. While it is not to be expected that the brief fillip of exposure these highly publicized events generated will lead to a sustained interest in the inner workings of the WTO, the International Monetary Fund (IMF), the Bank for International Settlements (BIS), or any of the other acronymed organizations that have sprung up during the post Second World War era, it is certainly true that there is a growing awareness that the world is changing, becoming more interconnected, and that this process is having real effects on workers, trade patterns, investment levels, and the environment.

Unfortunately, much of this growing interest in the global economy lacks historical perspective. For example, many popular articles focus on how the world economy is much more integrated today compared to the 1930s: as a percentage of GDP, US exports and imports have risen from 6 or 7 percent during the Second World War to nearly 25 percent today; for contemporary Germany, this figure is over 50 percent, and for countries such as Ireland and Belgium, imports and exports total well over 100 percent of GDP. All of this is of course true; the problem, however, is that it is neither new nor particularly revolutionary. To help put recent events in a proper historical perspective, two established economic historians, Kevin O’Rourke and Jeffery Williamson, have recently written a book with a very timely title: Globalization and History: The Evolution of a 19th‐Century Atlantic Economy. This book should be required reading for all who seek to put the current debates on globalization into a broader historical perspective.

This book has two primary goals: to examine the causes and consequences of the late nineteenth‐century movement towards an increasingly integrated world market, and to comment on the lessons that late nineteenth‐century globalism may hold for the contemporary world economy. It should be noted at the outset that this book focuses on a select group of countries: it essentially compares the experiences of the dominant European or Old World countries (Britain, Ireland, Denmark, Sweden, Norway, Germany, Italy, France, Portugal, and Spain) to the main New World nations (the USA, Canada, Brazil and Argentina) and Australia.

Let us begin with their first concern: the reasons for, and the effects of, nineteenth‐century globalization. They begin by highlighting the transforming effects of falling transportation costs. In their view, the tremendous decline in transportation costs, first lowered by the steamboat, and then lowered even more significantly by the railroads, was the first decisive factor in bringing together heretofore distant and unconnected markets. Only after these revolutions in transportation could we begin to talk about links between farmers and manufacturers in the old and new world: “the decline in international transport costs after mid‐century was enormous … When economists look at this period, they tend to ignore this fact and focus instead on tariffs and trade. This is a mistake. It turns out that tariffs in the Atlantic economy did not fall from the 1870s to World War 1; the globalization that took place in the late nineteenth century cannot be ascribed to more liberal trade policy. Instead, it was falling transport costs that provoked globalization” (p. 35). Thus, they conclude that the decline in transport costs contributed greatly to commodity market integration across the Atlantic economies.

This conclusion stands in contrast to some historians who have argued that the primary factor driving market integration during these years was trade policy. The culmination of England’s move to free trade with the “rePeeling” of the Corn Laws in 1846 did contribute to further market integration, but by the end of the nineteenth century, few Atlantic economies stood firmly in the free trade camp. That commodity prices continued to narrow across distant Atlantic economies during these years, the authors conclude, further illustrates the importance of falling transport costs.

Just as falling transport costs deepened commodity market integration, even in the face of rising tariffs, so too did mass migrations help bring about greater wage convergence in the Atlantic economies. As immigrants left the labor‐abundant countries of Europe for the labor‐scarce economies of the New World, wages adjusted accordingly. The high wages in the new world began to fall and the low wages in European countries began to rise: “Convergence was ubiquitous in the late‐nineteenth century Atlantic economy”, as wages and living standards in labor‐abundant Europe began to catch up with the wages in labor‐scarce New World economies” (p. 13).

The final topic they examine is financial capital markets. Here, too, the authors find strong evidence for market convergence. They contend that “world capital markets were almost certainly as well integrated in the 1890s as they are in the 1990s” (p. 4) and they offer detailed evidence documenting that capital markets were converging between 1870 and 1924. To account for the growing capital market integration from 1870 to 1924 and for the disintegration during the interwar years, they weave together a compelling story involving technology (e.g. the telegraph), financial institutions (e.g. the gold standard), and politics (e.g. relative international political and economic harmony). In the earlier period, these factors interacted to promote capital integration, while in the inter‐war period, this same interplay contributed to a weakening in the capital markets.

The authors’ second goal is to draw parallels between late nineteenth and late twentieth century globalization: “We want this book to speak to today’s debates about the growth of trade, the impact of immigration on local labor markets, the sources of inequality, why more capital does not flow to poor countries, whether trade liberalization can lessen immigration pressures in rich countries, why globalization backlash arose in the past, whether we can expect it again as we enter the next century” (p. 3). Seeking to capitalize on the current interest in globalization, they seek to show that many of the contemporary controversies surrounding global market integration can be better understood by examining more fully the experiences of the leading nineteenth‐century Atlantic economies. Perhaps the most important message they convey is that globalism is not irreversible: despite the widespread convergences in labor, commodity, and financial markets clearly in evidence by 1900, during the next 40 to 50 years, a new mixture of government policies stemmed and then reversed many of these accomplishments.

If the authors were more serious about their goal of speaking to today’s debates regarding the consequences of globalization, they could have examined some of the specific features of late twentieth‐century market integration. A particularly interesting area for them to consider is the development of regional economic integrations. For example, the authors could consider what effects regional trade alliances such as the North American Free Trade Agreement (NAFTA), the European Union (EU), and the Asia‐Pacific Economic Cooperation (APEC) may have on the world economy: will these localized market integrations ultimately be trade diverting or trade creating? Will they lead to broad factor price convergences of the type O’Rourke and Williamson documented for the nineteenth‐century Atlantic economies, or will these efforts at economic and political integration tend towards more concentrated convergence?

Although we can quibble over the extent to which the authors explicated the lessons to be learned from their detailed historical study, we can be more than satisfied with their thorough and stimulating interpretation of how global the Atlantic economy had become by 1900, and by how, within a few decades, the pace of convergence slowed, and then, in several instances, was reversed.

Among the questions this book leaves us with are whether the global economy will continue to integrate, and, if it does, what the likely consequences are for workers, for living standards in rich and poor countries, and for the environment.