The IMF Research Bulletin, a quarterly publication, selectively summarizes research and analytical work done by various departments at the IMF, and also provides a listing of research documents and other research-related activities, including conferences and seminars. The Bulletin is intended to serve as a summary guide to research done at the IMF on various topics, and to provide a better perspective on the analytical underpinnings of the IMF’s operational work.
Summary by Wayne Camard
The IMF Institute hosted a conference on August 12–14, 2002, featuring officials from some fifty IMF member countries, who had been invited to participate in a continuing dialogue on Globalization in Historical Perspective, which first began at an NBER conference in May 2001. Participants focused on the century before the First World War in an effort to discern lessons for the modern era about how trade and international factor movements affect inequality and reshape the global economic landscape. Researchers found similarities between the pre-WWI and modern periods, suggesting that a political backlash against globalization, akin to that of the early twentieth century, was a real possibility today. At the same time, they also presented evidence that globalization today is a more inclusive and humane process than it was a century ago.
Anne Krueger (IMF) opened the conference with these words: “If we fear that the violent political reaction to globalization seen recently in Seattle, Ottawa, Gothenberg, and Genoa might cause a political retreat from liberal policy, then it would pay to look carefully at the twenty years or so before World War I.” Indeed, as Ms. Krueger suggests, the increase in globalization—global integration—during the nineteenth century, which was driven by the new technologies of the steamship and the telegraph, may have carried the seeds of its own destruction through its effects on the distribution of income across and within countries.
Globalization Before World War I
Ronald Findlay (Columbia University) set the stage by saying that the voyages of discovery of Christopher Columbus and Vasco da Gama marked the true beginnings of globalization, noting the explorers’ desire to break the Venetian/Egyptian monopoly over trade with Asia. The three centuries that followed Columbus saw an increase over time in the range of goods that were traded, and trade grew by about 1 percent per year, well above the average of 0.3 percent GDP growth.
Jeffrey Williamson (Harvard University) disagreed with this characterization. To him, the sixteenth through eighteenth centuries were a period of antiglobalization mercantilist policies and growing income inequality. Rising population raised the scarcity value of land, and the incomes of wealthy landowners, relative to the farm wage. The rising trade share in GDP simply reflected the fact that trade in the period consisted almost entirely of luxury goods that the rich—alone—could increasingly afford.
True globalization, he said, began only during the nineteenth century, with the unleashing of the economic forces that foster factor price equalization, particularly wage convergence: trade, migration, and capital flows. Britain’s nineteenth-century free-trade leadership, especially the 1846 repeal of the Corn Laws, played an important part in the globalization of the period.
Labor flows in this period were especially large, particularly after 1870: by 1910, migration had increased the U.S. labor force by a quarter—far more in Canada, Australia, and Argentina—while reducing it in Europe, by nearly half in Italy and Ireland, and by one-eighth for Western Europe as a whole. Indeed, close to 70 percent of the convergence in wages that took place in the Atlantic world over this forty-year period is explained by labor migration, with capital mobility having little impact on relative wages.
While the impact of capital flows on income convergence was modest at best, that is not to say the flows were not large. Alan Taylor (University of California—Davis) traced the rise of the international capital markets, beginning with the large-scale financing of British military expenditure by the Dutch during the Napoleonic Wars.
Capital flows became particularly important for the United States, arguably the first successful emerging market. Indeed, as Richard Sylla (New York University) postulated, Alexander Hamilton’s financial reforms, including the settlement at par of Revolutionary War debt, were instrumental to U.S. economic development in the nineteenth century.
Michael Bordo (Rutgers University) presented a comparison of the classical gold standard and the post-Bretton Woods system of floating exchange rates. He emphasized that an economy’s financial maturity (and the credibility of its policies) is more important to stability than its exchange regime, then as now. To Bordo, financial crises are an unfortunate but inevitable part of “growing up” for emerging markets.
The massive migrations during the 1870-1914 period reduced the returns to landowners in the land-scarce, labor-abundant countries of Europe and worsened the income distribution in the countries of new settlement, because unskilled workers were competing with more established workers for jobs. In the Old World, the landowners successfully lobbied for increased tariff protection for agriculture during the last decades of the nineteenth century.
In the New World, labor was ultimately successful in closing the door to migrants by the second decade of the twentieth century.
Lessons for the Twenty-First Century
Are the same economic forces contributing to a backlash against globalization today? The growth of international trade today is more widespread, so the benefits of trade are more widely shared, and losers are better protected by national social policies. International immigration does remain an important issue, and Barry Chiswick (University of Illinois at Chicago) suggested that the result of current trends may be greater income convergence by skill level across the globe even as inequality rises within countries. This will result in increasing pressure to prevent illegal immigration. A final but very important difference is that most countries in recent years have learned to pursue stable macroeconomic policies, in sharp contrast to the very unstable environment that led to the shutting down of the capital markets in the interwar period. Professor Bordo, for one, was optimistic about the current wave of globalization, closing the proceedings with the view, “Other parts of the world are going to get rich.”
The papers presented, along with others on the subject, are available at the NBER website at http://www.nber.org/books/global.