IN 1920 John Maynard Keynes A reflection of the Britain he knew before the outbreak of World War I. “A Londoner,” he wrote, “can order by telephone, sip her morning tea in bed, a variety of products from all over the world.” The Londoners of Keynes “considered this condition to be normal, definite, and permanent,” and not too long ago the globalization of the present age seemed to be an equally indomitable force. A new world war is unlikely, but the uncomfortable echoes of the past in recent history indicate that valuable lessons can be learned by closely observing the rise and fall of 19th century globalization.
A work on economic history published in 1999 provides a great starting point. Kevin O’Rourke and Jeffrey Williamson’s “Globalization and History” have come under increasing scrutiny over the impact of deepening economic integration. Then, anti-trade activists convened a meeting of the World Trade Organization, when some economists began to draw attention to the occasional problematic distributional effects of globalization. It roared in the first decade after the book was published. But in the years that followed, economic nationalism became a powerful political force, and the book seemed extremely wise.
The unification of the nineteenth century began in the mid-century, after decades of turmoil and instability. Liberal trade rules have helped; In 1846 Britain abolished tariffs on its corn-imported grain. But market integration was supercharged by improvements in communication and transportation technology that allowed faster, cheaper and more reliable people, goods and information movement. Telegraphs, steamships and railways bring the economies of Europe and America into close contact, with profound consequences. In the New World, land was plentiful and cheap and wages were high. The opposite was true in Europe, where workers were plentiful and landowners charged hefty rents. Prices rallied as these markets merged. In 1870 the price of British wheat was 60% higher than in America; By 1890, the gap was largely closed. When telegraph cables connected distant financial markets, the price differences between different securities almost immediately disappeared.
Simple trade theory predicts that as the difference in the price of commercial goods shrinks, the value of the factors of production, such as land and labor, should be consolidated in the same way. 19th century experience brings it out. As the wave of American grain spreads to European ports, land prices in Europe have plummeted to the other side of the pond. In America, the actual value of land tripled between 1870 and 1913, while in Britain, it dropped by almost 60%. Actual wages have also been consolidated, although the authors note that it is more for immigration than for trade. The immigrant flow of the nineteenth century was different in recent memory. Between 1870 and 1910 they reduced Sweden’s labor force by 20%, which would have been otherwise, and increased America’s by 24%. This flow has transformed the labor market. The actual wages earned by unskilled workers in Ireland increased from about 60% at the British level in the 1840s to 90% in 1914, thanks in large part to Irish immigration.
How much can be learned from such a different world? Today, immigration is much less important than in the 19th century. Skilled workers are responsible for much of the workforce in the rich-world, and are protected by modern regulations and social security-net. Trade consists not only of bulk commodity shipments, but also of multiple imported and exported components with complex supply chains. Forget the telegraph; In today’s meeting, people chat face to face with colleagues from other continents.
Yet several lessons seem relevant. Start with the topic of income convergence in different countries. Much of the modern theory of convergence focuses on the role of capital accumulation and technological advancement. Poor countries are richer in these models because they invest more and adopt more sophisticated technology. But market integration in the 19th century drove the convergence: a force that has been at work in recent decades. The narrow gap between American and Chinese wages is a story of China’s technological progress. Yet it is one where millions of Chinese workers begin to participate in the global economy, increasing the global low-skilled labor and contributing to the rise of weak blue-collar wages and high inequality in rich countries.
Second, 19th-century people generally understood the effects of trade and immigration on their economies, and those who suffered sought political solutions to their problems. Then, as of now, training and education were considered as the answer to the problem of unhappy workers. But steps to improve schooling were accompanied by a sweeping shift toward protectionism. From the 1870s onwards, European economies began to raise tariffs, with the significant exception of Britain. At the same time, immigration policy in the United States has become more restrictive.
Don’t waste the last one
So it is gone again. The work of David Autor and three co-authors at the Massachusetts Institute of Technology found that American counties that were more open to imports from China were more likely to vote Republicans in the presidential election, for example: a change that helped elect a trade in 2016 – warring presidents. .
And yet third and most importantly, it was not the high tariff barriers or restrictions on immigration that plunged the world into the deep and destructive instability that followed 1914; It was war. But for war, the recession of globalization a century ago may have been modest and short-lived. The same thing could happen today. If disregard for the distributive effects of trade can provoke a reaction, then a greater promise of sharing the grace created by openness may allow the renewal of economic integration – if the world is willing to learn from the past. 3
Read more from Free Exchange, our column on economics:
A new history of prohibition contains unsettling lessons for today (February 19)
Promises of former East-Block economy largely unfulfilled (February 12)
China could soon become a high-income country (February 5)
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This article is published under the headline “Lucky for the second time” in the Finance and Economics section of the print edition.