Reflections on the history of globalisation

By Jacques de Larosière

Jacques de Larosière, former general manager of the IMF then governor of "La Banque de France" delivers us his reflections on the history of globalisation.

We all live in a globalising world and we sometimes forget that the world we had between 1850 and 1914 was also very intensely integrated, and that was true for capital movements, trade, immigration and information.

If you look at the stock of foreign capital related to the GDP of the developing countries in 1914 you see that the figure was some 30% whiles the figure today is only 20%. It’s also true for immigration (9 million immigrants to the United States during the decade 1900-1910 against 7 million today). And the trade integration, although it was less advanced in terms of exports to the GDP than it is today, was extremely significant and this was all the more important that there was one international currency at the time which was the gold standard.

This economy of the 19th century and the early 20 th century also created tensions and difficulties which are very comparable to the ones we know today. For instance, the european agriculture, which was facing imports at very low prices coming in particular from America, Australia, Canada...had to face very deep crises which have led to rural immigration and in some cases great poverty. One can also say that the importation of goods produced at very low cost in advanced countries has led to very strong oppositions to globalisation at the time. You had protectionist tendencies in the United Kingdom, but also in France in the agricultural sector. You also had periods of tension in the United States, for instance the abandonment of the gold standard from 1862 to 1879, and the anti-immigration sentiment was rather generally felt. It remains none the less that those sort of 65 years have been extremely beneficial to the general economic situation of the world. The world experienced at that time the highest growth rate that it ever did, and this allowed some countries like Canada, Australia and countries in latin america to catch up in terms of standards of living, the most prosperous countries of the so called west. Some of these’ countries very poor in the 1870’s had even out performed some european western countries in 1900. And although colonisation was the name of the day in Africa, it knew an important development at the time.

In spite of these successes the globalised world fell apart in a few weeks in a very brutal fashion in 1914. The fact is that economic nationalism prevailed after the war during the two decades before the second world war. One tried none the less to rebuiled after 1920 a international system, but in fact it didn’t work out. There was a set of tensions in terms of access to raw materials, there were competitive devaluations, beggar thy neighbour policies, and in spite of all the attempts with conferences and institutions, never was it possible to recreate a global system.

Well of course there are many causes but the fundamental cause of this incapability of restoring a global system was political :

The mesures of reparations that were asked from Germany were of course one of the facts that ended the economic collaboration between France and Germany.

The loss of the american leadership after 1920 had weakened the system.

If you look at the period 1850-1914, you see that the governing circles of the great nation were convinced that the international order was globally beneficial to the populations and that it was the duty of national economies to adjust to international constraints because of the international competition that prevailed.

In the 19th century where production was in a way a result of small enterprises and where the trade unions were nearly inexistant, therefore there was a great flexibility in the formation of prices and salaries.

And one can add that at the time, democracy as we experience it now, was less advanced than it is today, and that the systems of government were perhaps more elitist and less sensitive to public opinion.

But after the 1914 war, these basic conditions have changed :

Large firms were becoming more and more concentrated with monopolistic or oligopolistic powers in terms of price formation,
Trade unions developed and reinforced,
Agrarian parties formed,
Governments started to legislate much more than they did before in terms of social matters (welfare state), and also indulged into inflation and budgetary deficits.

All these factors contributed to make prices and salaries more rigid and therefore less adjustable to international constraints than they were before.

After the second world war, the Bretton Woods system tried to rebuild a certain order based on :

gradual liberalisation of international trade
the abandonment of competitive evaluations under the authority of the IMF. This system worked rather well in spite of the end of the fixed exchange rate in 1971.

Then the deregulation of the 80’s and the "thatcherian" reaction against the excesses of state interventionism have led to a new phase of globalisation, the one we know today.

The end of the planified soviet system of economies in 1989 accelerated the process and now China and India are intergrated in the world system.

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A brief history of globalisation

Alok Sheel

Globalisation involves the interplay of markets , technology and State, which are amongst the oldest and most distinctive human innovations.Exchange, the fundamental principle on which markets are organised, is known to exist in the most primitive human societies. Man is not the only living creature with the ability to store surpluses and live in complex societies controlled by chiefs — consider the industrious ants and bees — but he is unique in his ability to socially redistribute these surpluses through increasingly complex divisions of labour under the authority of the State.

The saga of globalisation is that of an unbound Prometheus, with surges in productivity and growth unparalleled in history as markets, technology and states are progressively freed from local demand and supply constraints. Although the term ‘globalisation’ has gained currency only recently, the forces driving this trend can be traced back to the end of the Middle Ages in Europe.

Pre-modern societies, however, were above all else defined by localism and decentralisation. Most people remained at their place of birth right through their lives. Migration was a one-way street to resettle in virgin territory in response to conquest, calamity or local demographic pressure. Religious experience was mostly limited to the local parish, with wider pilgrimages limited to a select few. Empires meant mostly march of armies over land, and were never transcontinental, with the notable exception of North Africa adjoining the Mediterranean. State power was a coalition of local power elites owing allegiance to a monarch who never had access to centralised administrative machinery.

With near universal poverty a structural constraint on demand, markets were neighbourhood-trading places, with long distance trade mostly limited to luxury goods for the small power elite. New ideas, information and technology spread slowly since transportation and communication were based on animal traction. Four distinct phases of globalisation can be discerned in modern history. The first phase began in the sixteenth century with the passing of pre-modern localism, improvements in maritime technology leading to the great age of maritime exploration, discovery and mercantilism, the European Renaissance, centralising tendencies associated with absolute monarchy and the emergence of modern nation states following the Peace of Westphalia of 1648, and the spread of the ideals of the American and French Revolutions from the eighteenth century.

The second phase from the late eighteenth century was marked by the spread of the Industrial Revolution and vast improvements in human technology, inanimate traction, productivity and demand, which led to mass production and conveyance of merchandise goods and people, cross-border integration through bulk long-distance trade, colonial plunder, investment flows and empire during a phase of European imperial expansion which saw the flag follow trade across the globe. The Industrial Revolution opened up a rapidly widening income gap between Europe and America on the one hand, and the rest of the world on the other.

The globalising trend was halted by the two great wars of the twentieth century, and an ‘autarchic’ anti-imperial ‘nationalist’ interlude, which actually saw a decline in international trade and capital flows as a percentage of global GDP. Even as trade and flags disengaged, the per capita income between developed countries and the erstwhile colonies continued to diverge.

During the third phase, merchandise trade resumed its triumphant march as the engine of hyper growth in East Asia from the 1970s. International trade/GDP ratios recovered to their late 19th century level by the last decade of the 20th century. But whereas the globalisation thrust in the second phase in the nineteenth century involved, in the main, the export of mass-produced merchandise to the colonies, this time round the export dynamism came from the erstwhile colonies. This globalisation thrust was led by trans national corporations (TNCs) that endeavoured to disseminate international trade and modern technology to every flag on earth.

Globalisation arguably entered a frenetic fourth phase from the end of the twentieth century, in which developed and developing countries are becoming more equal partners in the flow of cross border trade and investment, as per capita income between the developed world and the developing world rapidly converge, galvanised by the awakening of the ancient sleeping giants, China and India.

Merchandise trade is being swamped by ‘invisible’ trade in services led by rapid technological advances in information technology, and volatile capital flows, that have become new engines of growth redefining human interface and old nation-state based economic, social, cultural and political paradigms. Contradictions between TNCs and sovereigns are growing in several areas such as trade, investment, labour, agriculture and infrastructure policies. Nation states, in the form they emerged in the early modern period, are losing their raison d’être as they are increasingly constrained in the conduct of foreign policy in a unipolar world where conventional war is yielding to stateless conflict and terror; resolving the intertwined energy-food-security crisis; freeing resources for the intertwined ageing-health-welfare crisis; further extending the welfare benefits of trade; and use of time-tested macro-economic fiscal and monetary tools to manage external shocks.

The globalising impulse can be seen as ever-widening circles trending towards greater homogeneity, from locality, to nation states to regional identities like pan European, pan-Asian, Pan-Arab and pan-American, the long-term logical corollary of which is a unified market, a unified culture, a unified language, a unified liberal-democratic state, or what V S Naipaul famously termed a universal civilisation. Rapid strides in information technology are spawning new virtual relationships, cosmopolitan identities and communities that compete and conflict with those forged within the confines of the nation state. The interesting issue, however, is whether this process of ‘cultural entropy’ would, over the long run, abate the clash of civilisations underscored by a long line of eminent historians from Herodotus to Arnold Toynbee to Samuel Huntington.

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