Is today's globalization different from globalization a hundred years ago?

Résumé du document

The phenomenon of globalization, defined by Michael D. Bordo as 'the increasingly close international integration of markets for goods, services and factors of production, labor and capital', seems to be considered by many of us as a relatively new phenomenon, peculiar to the era we currently live in. Yet, if one questions any economist about this issue, he/she will tell you a completely different story. Every economist agrees on the fact that the world has gone since 1973 through its second wave of globalization, the first one having occurred approximately from 1815 to 1914. Between these two periods, the world experienced two World Wars and a Great Depression. It is thus, entirely justified to try to compare these two eras and to raise the question, are we living exactly what people a hundred years ago lived? To what extent are these two epochs similar and/or different? It appears to me that, although a few similarities can be noticed, these two waves of globalization are fundamentally different in the end. To prove my point, I will first focus on the three well-known dimensions of globalization, that is to say trade, capital and labor; what were the characteristics of these dimensions for both eras of globalization? I will then move on to two other factors which play an important role in helping to understand why we are not currently going through the same globalization as people did a hundred years ago.

Extraits

[...] In fact, this trilemma is very practical to understand a final major difference between the two periods of globalization: the change in international economic system The Gold Standard During the first globalization, most countries were engaged in the Gold Standard, which meant that all currencies were backed by gold: money was issued under one condition, to have compensation in gold. Thus, the first element of the policy trilemma implemented then was pegged exchange rates. Besides, we know that one of the symptoms of globalization is increasing capital flows, which means that we obviously had open capital markets. [...]

[...] However, a first difference can be raised relating to this point. Whereas this increasing trade concerned only goods and services during the first era, we can notice, in the current globalization, a significant growth in what Richard E. Baldwin and Philippe Martin calls the “trade in ideas”[3]. Indeed, not only transportation costs but also communication costs keep going down, thanks to new means of communication like the Internet among others. The major similarity between the two eras of globalization lies thus in an openness for trade, even though a first difference can be found in the object of this trade Capital flows The second dimension of globalization is represented by capital flows. [...]

[...] This fact added to the economic structure at that time and strengthened the effects I pointed out in the previous part: as I already explained, those who suffered from globalization were mostly farmers, that is to say poor people, because of the imports of cheaper agricultural goods, which made prices fall. Yet, because there was no democracy, only rich people could vote; farmers were not electors and their demands didn't need to be taken into account by politicians. Globalization then was therefore facilitated by political environment; but here again, we cannot conclude that the absence of democracy was the condition for globalization to work. Indeed, by the beginning of the second era of globalization, democratic societies had become common. And yet, we currently seem to be well into globalization. [...]

[...] Then, the economic and political structure of countries participating in globalization completely changed during the inter- globalization period. Finally, the two globalizations took place in contexts of international economic system that have absolutely nothing in common. That is why we can conclude that today's globalization is totally different from globalization a hundred years ago. But can we, for all that, claim that the current globalization is stronger and that it won't collapse like the first one? Nothing is less certain. [...]

[...] Before 1914, capital flowed mainly from rich countries, especially Great Britain, to poor countries which could not invest with their own money and thus borrowed it from richer countries in order to develop. These flows were mainly made of bonds, both infrastructure and governmental bonds. On the contrary, the current wave of globalization seems to favor capital flows between rich countries and, surprisingly, from poor to rich countries. Thus, rich countries are nowadays behind 90% of the foreign direct investments and they receive more than 2/3 of these investments. [...]