thenextwave

How globalisation ends

Posted in economics, emerging issues, global, international, trade by thenextwavefutures on 12 March, 2008

A short paper by a couple of economists (one American, one Irish) takes a long view of the preconditions for periods of globalisation – and the circumstances in which it goes into reverse. It suggests, perhaps depressingly, that war (and military power) is often a precondition, and sometimes a consequence.

Ronald Findlay and Kevin O’Rourke summarise in a short article Power and Plenty, a book they published last year. Their underlying argument is that globalisation is a political phenomenon, not a technological one. The significance of this is that once learned, technology is not unlearned – but political changes can be reversed, and often are.

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. … 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.

Geopolitics mattered as much as national politics. The transport technologies of the 19th century would not have had the impact they had were it not for the role of the Royal Navy, effectively policing the world’s oceans. But this fell apart after World War I; the recent wave of globalisation, they argue, required the US to take on this role. The authors also point to earlier examples, such as the ‘Pax Mongolica’ of the 13th and 14th centuries.

The present cycle of globalisation has similarities with that of the 19th. Regions with ‘different factor endowments’ (land, labour, capital) are being drawn into ever closer contact. The equivalent of those 19th century French farmers are the unskilled workers of the OECD.

There is a more fundamental issue here, though. I’ve blogged before that the re-emergence of China and India represents a return to a 500-year old global trade patterns. In geopolitical terms, this brings risks:

The international system has historically done a pretty poor job of accommodating newcomers to the Great Power club. German unification and industrialisation 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 and other natural resources.

Their final observation is that interdependence and trade do not guarantee peace. “Interdependence implies vulnerability, and vulnerability can lead to fear, with unpredictable consequences”. The economist and politician Norman Angell suggested in The Great Illusion that war was unthinkable because there was no economic or political advantage to be gained from it – in 1910.

Other relevant posts:
Globalisation and the power of the executive

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  1. […] globalisation ends – or not I posted a couple of weeks ago on a paper by a couple of economists which argued in brief, that globalisation – taking a […]


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