A tricky triple for the global world

Globalization in Historical Perspective
June 25, 2004

Such is the interest in globalisation that it has become virtually impossible to keep abreast of the burgeoning literature. To make any real impact on the debate, any new book on globalisation needs to offer something new and special. Globalization in Historical Perspective is just such a book, and it will appeal to a wide audience.

This superb volume contains 11 chapters, grouped into three parts: "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, and all 38 contributors are well-known scholars.

In the face of "anti-globalist" groups' well-publicised hostility to increasing globalisation, there is an urgent need for economists to contribute to the public debate on the costs and benefits of international integration. This book brilliantly fulfils this objective, but it also does much more. An explicit aim of the editors is to unify the individual contributions around the theme of "history", highlighted in the book's title. Therefore, Globalization in Historical Perspective adds yet another crucial dimension to the debate. In all the essays, history matters.

By analysing international integration in its historical context, this volume demonstrates that globalisation is not just a recent phenomenon. As the contribution by Ronald Findlay and Kevin O'Rourke demonstrates, the assumption made by many journalists, politicians and anti-globalists - that globalisation is a modern, late 20th-century development - is without foundation. The research of economists and economic historians has 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 it is today.

In a fascinating survey, Barry Chiswick and Tim Hatton show how today's international labour market is far less integrated than was the case in the late 19th century. While 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. Maurice Obstfeld and Alan Taylor trace the emergence of world capital markets and use the "policy trilemma" as their organising principle - that is, the idea that open economies must choose two from the three options of targeting the exchange rate, focusing monetary policy on domestic objectives, and having capital account liberalisation.

The chapters by Steve Dowrick and Bradford DeLong and by Nicholas Crafts and Anthony Venables both cast doubt on the inevitability of global convergence in income per capita, while Peter Lindert and Jeffrey Williamson conclude that the impact of globalisation on world inequality has been to mitigate the steep rise in gaps in income per capita. 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 globalisation and witnessed considerable economic progress. The "miracle" growth experience of the East Asian tigers illustrates what is possible. In contrast, the anti-developmental experience of North Korea demonstrates the catastrophic welfare consequences for that nation's population of isolation from the world economy combined with disastrous economic policies and institutions.

As well as the macroeconomic policy trilemma discussed by Obstfeld and Taylor, globalisation also presents the world with a "political trilemma".

This issue is picked up by Clive Crook of The Economist in the panel discussion. He notes 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". Faced with this trilemma, anti-globalists seek to limit the scope of international integration, while conservatives advocate constraints on democratic politics, the expansion of the welfare state, and labour 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.

As is probably the case for most economists, the main conclusion I draw from reading this book is that globalisation 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 increasing economic integration. The main issues for future discussion should focus on how we put in place institutions and policies that will help spread the benefits of globalisation to the vast majority of the world.

Globalization in Historical Perspective cannot, and does not, try to cover all the issues related to increasing economic integration. But for anyone interested in the globalisation debate, this volume is essential reading.

Brian Snowdon is principal lecturer in economics, Newcastle Business School, Northumbria University.

Globalization in Historical Perspective

Editor - Michael D. Bordo, Alan M. Taylor and Jeffrey G. Williamson
Publisher - University of Chicago Press
Pages - 588
Price - £66.50
ISBN - 0 226 06598 7

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