About the globalization before this one.

This image has nothing to do with the paper, i took it a year ago.

Globalization is often thought off within a linear perspective of history, and that makes us think that everything in the past was worse than what we have now. These might be a misleading perspective when looking at globalization, specially because there was another successful globalization process before the Great War. Having that perspective might help us looking forward, and that is the reason for me to talk about it in this essay.

The second half of the 19th century was a successful era for trade and commerce. An era in which trade was understood (especially for Britain) as an important source of welfare and development. Sadly, this part of history is rarely enlightened this days when we talk about globalization. It seems like if trade and commerce are a new thing of the 20th century that we must deal with now by ourselves, almost like if we were trying to find a path in the jungle. I think the only problem is that, as someone said, the man is the only animal able to trip twice over the same stone. We refuse again and again to learn anything from history, but in fact these globalization is rooted in the principles, structures and ideas that were generated in the time between 1870 and 1914. Great economists from the period after the two wars were inspired by these last globalization. Also, there were many organizations that were created in an attempt to rebuild and improve last globalization (Bretton Woods system, the World Bank, the International Monetary Fund and so on) . In order to get an idea of what I’m referring to, here is a quote from the great economist John Keynes about the globalization before 1914:

“The inhabitant of London could order by telephone, sipping his morning tea in bed, the various products of the whole earth, in such quantity as he might see fit, and reasonably expect their early delivery upon his doorstep; he could at the same moment and by the same means adventure his wealth in the natural resources and new enterprises of any quarter of the world, and share, without exertion or even trouble, in their prospective fruits and advantages”.

After the war, all those systems and connections disappeared, and the catch upon were not supposed to happen until many years later.

Between 1914 and the early post WW II years most of the world’s economies turned inward. Therefore, much of the increase in world trade after the wars represented only a recovery to previous levels. Until 1970 world trade in terms of GDP did not caught up with the highest levels in the previous globalization. Either way, this new globalization showed up really different characteristics. We are going to go through some of them in this paper.

First, we will see those new characteristics of trade exposed in the Krugman 1995 paper:

1. The rise of intra-trade. Refers to trade between countries with products of the same sector. A high proportion of the trade among industrial countries now consist of the trade that it is been made between the different production process within the same company. Shipping cotton from Britain colonies to make it and sell it in Britain does not create the same trade net as dividing the production of cars or mobile phones in parts between three or four countries.
2. Slicing up the value-added chain. The goods that are been shipped now are much more complex than they were before and the continuous decrease in shipment costs make it increasingly easy to slice up the production chain and constantly change it to the cheapest and most efficient place.
3. The appearance of super-trading economies. These are really low population and low GDP countries with extremely high ratios of ratios of trade to GDP. These is possible because of the slicing up of the value chain and the increasing importance in the value of software/internet/financial related services. The headquarters of the company is located in first world countries like Belgium or Hong Kong, but the production and the consumption of their products are dispersed around the globe. As an example, we can think of Apple, one of the most valuable companies in the world, which has its headquarters in Silicon Valley but the only thing that is been produced there is ideas and the software to make those ideas into reality. In terms of real physical goods, they don’t do any of it. In terms of building the phone, everything is done elsewhere: the case for the phone might be fabricated in China or Thailand, the chips in Japan, the screen might very likely be produced by Samsung in south Korea, and so on. In my opinion, the value that will be created by first world countries in the future if they want to continue being first world countries is not going to be located in the physical world but in the technology and software.
4. Low wage manufacturing exporters. The rapid growth of manufactured exports from low wage, newly industrialized economies. Countries like China have shown a speed in development and change the world had never seen before, with an unstoppable shift in the balance of the world. Large population gets concentrated in huge cities and an almost technocratic/dictatorship government who fits perfectly with the needs and speeds of the economy is shifting the view and the money to that part of the world.

I would like to add now two other characteristics that add up to those exposed above and complete my view of globalization:

5. Migration. The globalization that occurred before 1914 was based not only on the free movement of capital, but also on the free movement of people, and that is not happening now. Globalization was welcomed, whereas now it seems more like an inevitable thing of capitalism that we must deal with. There is no willingness to adaptation to a world that is constantly changing and that by the way, has always been changing. Migration rates were remarkable, people all over Europe where migrating to America. Argentina added 30% to its population, in immigrants alone, in the decade between 1900 and 1910.

6. World Wide Web. The internet has already revolutionized the world and its potential to do so in the coming years is still there, and I think if this is the only time we are going to be covering trade and globalization in terms of causes and consequences and not in theory and mathematics ground, at least we have acknowledged its existence. The changes that this new technology is causing might not be as obvious as previous technological revolutions, but if that is the case is because the way in which the internet is changing the world is much more powerful and deep than never before.

In conclusion, what impress and worries me the most of globalizations is that we have already been in the place of tariffs, nationalism and war before (and not that long ago) but for some reason the exact same patterns flourished again in this time. We are supposed to be better than older generations, but suddenly it seems we are the same but with more powerful technology.