Globalization in Historical Perspective.

Globalization in Historical Perspective Edited by Michael D. Bordo, Alan M. Taylor, and Jeffrey G. Williamson. Chicago: University of Chicago Press, 2003. Pp. 588. $95.00

The 21st century will truly mark a new and challenging era for the global economy. The powerful forces of economic integration now extend their influence to all parts of the world, and in the long run this trend would seem to be irreversible even if this is not necessarily the case in the short run. To many antiglobalists, this trend, in a variety of ways, represents a serious challenge to the viability of the international economy. In particular, it seems to pose a threat to the welfare and prospects for economic progress in the developing countries. It is no surprise, therefore, that during the last quarter of the 20th century the issue of global economic integration, or in more popular language, "globalization," has become a major issue of public concern. Witness, for example, the recent public demonstrations against globalization by a heterogeneous "angry minority" of critics that includes academics, environmentalists, ultra nationalists, labor unions, various nongovernment organizations, human rights activists, anticapitalists, communists, and anarchists. Such is the interest in globalization-related issues that it has become virtually impossible to keep abreast with the burgeoning literature. For example, enter the word "globalization" into the Google search engine and you get 1.76 million hits! Therefore, to make any real impact on the current debate, any new book on globalization needs to have something new and special to offer. Globalization in Historical Perspective is just such a book and will appeal to a very wide audience.

This superb volume contains 11 chapters grouped into three parts, namely, "The Rise and Fall (and Rise) of Market Integration," "The Great Divergence, Geography, and Technology," and "Financial Institutions, Regimes, and Crises." The individual chapters were originally written and presented as papers for a National Bureau of Economic Research Conference held in California in May 2001. All 38 contributors are well-known scholars in their respective fields, and individual chapters include Ronald Findlay and Kevin O'Rourke on "Commodity Market Integration"; Barry Chiswick and Timothy Hatton on "International Migration"; Maurice Obstfeld and Alan Taylor on the "Globalization of Capital Markets"; Steve Dowrick and Bradford DeLong on "Convergence"; Peter Lindert and Jeffrey Williamson on "Global Inequality"; Gregory Clark and Robert Feenstra on "Technology and the Great Divergence"; Nick Crafts and Anthony Venables on "Globalization: A Geographical Perspective"; Peter Rousseau and Richard Sylla on "Globalisation, Growth, and Financial Systems"; Michael Bordo and Marc Flandrean on "Exchange Rate Regimes"; Larry Neal and Marc Weidenmier on "Financial Crises and Contagion"; and Barry Eichengreen and Harold James on "Monetary and Financial Reform." Each chapter is reviewed by expert commentators including Douglas Irwin, Riccardo Faini, Richard Pones, Charles Jones, Lant Pritchett, Joel Mokyr, Richard Baldwin, Charles Calomiris, Anna Schwartz, Mark Taylor, and Peter Kenen. Finally, the book closes with an interesting and wide-ranging interdisciplinary panel discussion that includes observations from Clive Crook, Niall Ferguson, Anne Krueger, and Ronald Rogowski.

Although economists differ on the timing and merits of capital account liberalization, they do tend to be trade optimists in that they view opportunities for trade expansion as providing mutual gains to the participants. This basic insight underlies economists' public policy support for globalization and an open international trading system as a potential engine for generating and spreading prosperity across all nations. To most economists a reversal of global integration would be a disaster (see Snowdon 2002; Fischer 2003). In the face of well-publicized hostility to increasing globalization from "antiglobalist" groups there is an urgent need for economists to contribute to the public debate on the costs and benefits of international integration. This book brilliantly fulfills this specific objective, but it also does much more. An explicit aim of the editors is to unify the individual contributions around the theme highlighted in the title of the book, namely, "History." Therefore, Globalization in Historical Perspective adds yet another important and much needed dimension to the current debate. In all the essays, history matters.

Although all of the contributors have something interesting and important to say, as well as provide lots of supporting data, I will highlight a few major findings to whet the appetite of the reader.

By analyzing international integration in its historical context, this volume demonstrates that globalization is not a recent phenomenon that began only in the last two decades. As the contribution by Findlay and O'Rourke demonstrates, the assumption made by many journalists, politicians, and antiglobalists--that globalization is a modern, late 20th-century development--is without any foundation. The research of economists and economic historians has now convincingly demonstrated that the world economy was reasonably well-integrated by 1914, even if the depth of commercial and financial integration was more limited than what we observe today. Findlay and O'Rourke, utilizing data on commodity price convergence, argue that there is little evidence of global integration of commodity markets prior to the early 19th century. However, following improvements in steamship technology the 19th century witnessed dramatic changes in world trade. The authors conclude (p. 42) that "by 1913, international commodity markets were vastly more integrated than they had been in 1750" (see also O'Rourke and Williamson 1999; Snowdon 2003).

In a fascinating survey, Chiswick and Hatton demonstrate how today's international labor market is far less integrated than was the case in the late 19th century. Although the era 1850-1913 was a period of "mass migration," we now live in an age of "constrained mass migration," and these constraints are largely political, rather than economic. With the flow of migrants from Africa, Asia, and Latin America steadily increasing as these areas escape from poverty, the OECD countries will continue to experience a significant increase in the supply of unskilled workers. At the same time, relative employment opportunities for unskilled workers are in decline. This will inevitably cause a widening of the wage gap between skilled and unskilled workers. With public opinion in European democracies already much more anti-immigrant than public policy, and the demographics of the rich countries implying the need for more immigrants, it seems likely that the migration issue will remain a major political and economic issue well into the 21st century.

Obstfeld and Taylor trace the emergence of world capital markets and use the familiar "policy trilemma" as their organizing principle. That is, open economies must choose two elements from targeting the exchange rate, focusing monetary policy on domestic objectives, and having capital account liberalization. A macroeconomic policy regime can only accommodate two of the above as the United Kingdom's brief membership of the Exchange Rate Mechanism (of the European Union) in 1990-1992 demonstrated. The authors also conclude that the developing countries need to draw much more on foreign capital resources. However, this will require that the poorer countries press forward with their reforms in order to reduce domestic policy distortions and risk.

The chapters by Dowrick and DeLong and Crafts and Venables both cast doubt on the inevitability of global convergence in income per capita, whereas Lindert and Williamson conclude that the impact of globalization on world inequality has been to mitigate the steep rise in income per capita gaps. This corresponds with the general view of economists that most developing countries that have effectively integrated themselves into the world trading system have benefited from globalization and witnessed considerable economic progress. The "miracle" growth experience of the East Asian Tigers illustrates what is possible. In contrast, the antidevelopmental experience of North Korea demonstrates the catastrophic welfare consequences of isolation from the world economy combined with disastrous economic policies and institutions. Maddison's (2001) recent data shows that there was no difference in gross domestic product per capita between North and South Korea in 1950, both having 770 dollars measured using purchasing power parity (PPP$). By 1998, income per capita in South Korea had risen to 12,152 (PPP$), whereas in North Korea it had stagnated at a mere 1183 (PPP$). What better natural experiment has there ever been of the devastating impact on economic progress of adopting and maintaining highly inefficient institutions and economic policies (see Acemoglu 2004)?

Despite the burgeoning literature and popular discussion of globalization, the world economy is still far from being a system of perfectly integrated markets for goods, labor, and capital. As Chiswick and Hatton demonstrate, in the case of labor migration the world is now much less integrated than it was in the late 19th century. This echoes Dani Rodrik's (2000, p. 178) recent comments when he noted that "... [C]ontrary to conventional wisdom and punditry, international economic integration remains remarkably limited." Rodrik (2003, p. 139) has also argued that liberalizing international migration flows would do more to increase the living standards of the world's poor than "all the Doha proposals put together."

As well as the macroeconomic policy trilemma discussed by Obstfeld and Taylor, globalization also presents the world with a political trilemma. This key issue is picked up by Clive Crook of The Economist in the panel discussion. There he notes that Rodrik (2000) has argued that the desirable objectives of democratic politics, self-determination via the nation-state, and increasing international economic integration may well prove to be "mutually incompatible." Lawrence Summers (1999) has raised this same issue. Faced with this political trilemma, antiglobalists seek to limit the scope of international integration, whereas conservatives advocate constraints on democratic politics, the expansion of the welfare state, and labor and product market regulations. Meanwhile, global federalists have an idealistic vision of a world where the power and influence of the nation-state withers away.

What overall impression of globalization does this book give the reader? One very important historical lesson, arising from the period 1914-1945, reminds us that the re-emergence of global capitalism since 1950, and especially during the last two decades, should not be viewed as an unstoppable or irreversible process. During the 1914-1945 period the global economy disintegrated, and by the end of World War II the international economic system was in a complete shambles. Twentieth century history has shown that globalization is reversible and with catastrophic political and economic consequences. Harold James (2001) has argued that today there are significant parallels with the earlier period given the inherent vulnerability to crisis of an increasingly integrated global economy. Furthermore, we should not forget that it has taken over 50 years to reconstruct a more liberal international system!

In the current debate on globalization, we frequently observe the spectacle of two opposing groups. The first claims that globalization is the root cause of most or all of the world's problems, whereas the second views globalization as a major factor in the solution to those same problems. In reality there is no easy single route to success, and therefore no "holy globalization grail" to be found in the "elusive quest" for economic growth and development. Globalization is neither the cause of world poverty and inequality (the poorest people in the world remain those least affected by international integration), nor will globalization on its own offer a solution to the problem of global development. However, all too often antiglobalists resort to stirring up exaggerated globalization fears that threaten to unleash protectionist forces. Any objective assessment of the consequences of globalization must consider the balance of costs and benefits in their historical context. There is nothing original about such a statement. However, it is one that needs to be repeated.

As is likely the case for the vast majority of economists, the main conclusion that I draw from reading this book is that global economic integration is potentially a force for improving the lives of billions of people in the long run, and therefore we need to better understand the causes and consequences of globalization. The main question for discussion should not be "How do we stop globalization?" but rather discussion needs to focus on the question "How do we put in place institutions and policies that will lead to the benefits of globalization spreading to the vast majority of the world's population?"

Globalization in Historical Perspective cannot, and does not, attempt to cover all the issues related to increasing economic integration. But for anyone interested in the globalization debate, this volume is essential reading and I expect, and hope, that it will soon adorn the reading lists of many a university course.

References

Acemoglu, Daron. 2004. Why not a political Coase theorem? Journal of Comparative Economics. In press.

Fischer, Stanley. 2003. Globalisation and its challenges. American Economic Review 93:1-30.

James, Harold. 2001. The end of globalisation: Lessons from the Great Depression. Cambridge, MA: Harvard University Press.

Maddison, Angus. 2001. The worm economy: A millennial perspective. Palis: OECD.

O'Rourke, Kevin H., and Jeffrey G. Williamson. 1999. Globalisation and history: Evolution of the nineteenth century Atlantic economy. Cambridge, MA: MIT Press.

Rodrik, Dani. 2000. How far will international integration go? Journal of Economic Perspectives 14:177-86.

Rodrik, Dani. 2003. Free trade optimism: Lessons from the battle of Seattle. Foreign Affairs 82:135-40.

Snowdon, Brian. 2002. Conversations on growth stability and trade: An historical perspective. Cheltenham, UK: Edward Elgar.

Snowdon, Brian. 2003. Back to the future: Jeffrey Williamson on globalisation in history. Worm Economics 4:95-138.

Summers, Lawrence H. 1999. Reflections on managing global integration. Journal of Economic Perspectives 13:3 18.

Brian Snowdon

Northumbria University