Is Today’s Globalisation Different From What Has Gone Before?



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Is Today’s Globalisation Different
From What Has Gone Before?

Martin Wolf1


Is the globalisation of today really different from anything that has gone before and, if so, in what way? Even well-informed contemporary observers assume that today’s globalisation is quite new. The purpose of the present paper is to assess how far – and in what way - this is true.

In an excellent discussion of globalisation and global governance, Vincent Cable, former chief economist of Shell and head of the international economics programme of London’s Royal Institute of International Affairs and now a Liberal Democrat member of parliament, argues (1999, 15) that:

“[W]ith all the necessary qualifications to the hyperbole about globalisation, something important is happening: two overlapping trends of considerable momentum.

“One is technological, the speeding up of communications. Many communications improvements have been taking place over the last half-century, but the contemporary speed of change, the enlargement of capacity for information (and capital) transmission and the proliferation of communications media have not been experienced before.

“The other is a change in the policy environment: a ‘liberalisation revolution”, a freeing up of markets and reduction in the role of government in terms of ownership and control over production of goods and services.”

As Figure 1 indicates, the process of integration was powerful in the 1990s, JUST as Mr Cable argues. Moreover, this has been a continuation of post-war trends. The share of trade in global output increased from about 7 per cent in 1950 to over 20 per cent by the mid-1990s. Between 1950 and 1998, the volume of world production rose by 530 per cent and of world output of manufactures by 820 per cent. Over the same period, the volume of world merchandise exports rose by 1,840 per cent and the volume of world exports of manufactures by 3,500 per cent.


The history of globalisation


It is easy to assume that what we experience today is unprecedented, as Mr Cable himself does. But globalisation itself is certainly not new. It has been a dominant theme of the history of the past five hundred years. It can be said to have begun with the voyages of European discovery of the 15th and 16th centuries. In the last decade of the 15th century, Christopher Columbus reached the Americas and the Portuguese entered the Indian Ocean. Since then peoples that had been previously been isolated have become increasingly closely interconnected. This has been true of relations among the civilisations of the Eurasian land-mass. It has been still truer of relations between Eurasia and the hitherto largely - or entirely - isolated continents of Africa, the Americas and Australasia. Humanity has become aware both of itself and of the globe, as a whole.2

This process of growing interconnection began when a number of peripheral European countries – Portugal, Spain, the Netherlands, Britain and France - exploited their superior military organisation and technology, partly developed in intra-European conflict, to achieve control over much of the world. From the beginning, they sought wealth through plunder and trade.

Out of their quest came great empires. In the long run, commerce proved more enduring and more fruitful: empires came and then went, as the costs of control rose and the rewards fell; but trade and investment remained. The ultimate result was the incorporation of much of the world into an economic system whose centre was, until the 20th century, Europe, then Europe and North America, and today, though dominated by the west, includes advanced east Asian countries, particularly Japan.3

The one-way arrow of technology


Globalisation then is a long-term historical process, not something that began yesterday. Behind it have been huge and progressive declines in the costs of transport and communications. Without the advances of the worlds of sails and of steam, of aircraft and the motor vehicle, of the telegraph, the telephone, the satellite and the Internet, global integration could never have happened. Before the modern age, the world’s most important global trading route was probably the Silk Road. By the standards of what followed, the communication and commerce this facilitated was a brook to the Amazon.

The fall in costs of transport and communications is a consequence, as well as a cause, of market-led integration. In the economic jargon, it is “endogenous”. Science and technology have developed in response to economic opportunities and have then, in turn, created new ones. This was true of the Portuguese advances in navigation of the 15th century, just as it was of the telecommunications revolution of the late 20th. These economic forces have, in turn, been strongly influenced by the ambitions of governments. China’s decision to turn away from inter-continental trade while Europe was turning towards it ensured a half-millennium of western technological as well as economic domination.4

While transport and communications technologies improved substantially from the 15th to the 18th centuries, developments in the 19th and 20th were far more rapid and dramatic. Just as the rate of growth of the world economy accelerated sharply in the 19th century, so did the rate of decline in costs of transport and communications. Indeed, it is difficult to think of the industrial revolution except in terms of transport and communications. The steam train, the steam ship and the intercontinental telegraph cable are as symbolic of progress in the 19th century as the motor car, telephones, radio, aircraft, television and the internet are of the 20th.

There were substantial and continuing reductions in costs of transport and communications throughout the 19th and early 20th centuries (Figure 2). Harley (1980) estimates that the cost of shipping a bushel of wheat from New York to Liverpool was halved between 1830 and 1880 and then halved again between 1880 and 1914. The first transatlantic cable was laid in 1866. By the turn of the century, the world was cabled, reducing communication times from months to minutes.

There were huge further improvements in technology and concomitant reductions in the costs of transport and communications in the 20th century (see Figure 3). The cost of a three-minute telephone call from New York to London fell from about $250 in 1930 to a few cents today in current prices (Cairncross 1997). The number of voice paths across the Atlantic has risen from 100,000 in 1986 to over 2m today. The number of Internet hosts has risen from 5,000 in 1986 to perhaps 100m now. The implication is that the potential for the international flow of information, in particular, and so for the integration of production, sales and finance across borders has grown consistently and rapidly – and by orders of magnitude - over the past two centuries.

Ups and downs of globalisation


If technology were the only force driving globalisation, we would have seen a continuous advance over the past two centuries. In fact, we have not. The story is intriguingly different. There was a large increase in economic globalisation in the 19th century, reaching its peak in the Edwardian age. Then, with the two world wars and the Great Depression, came a massive relapse. This was then followed by another rise in globalisation – or, more prosaically, international economic integration - over the past half century.

Trade


First, as is shown in Table 1, ratios of trade to GDP in money terms reached high levels for several of the then advanced economies by 1910, before collapsing in the malign environment of the great depression and the Second World War. For almost all of the advanced countries (the most significant exception being Japan) trade ratios are now somewhat higher than ever before. But they are not all that much higher. Among the big countries, the most important exception to the general rule that openness is not vastly greater today than a century ago is the United States, with a trade ratio of 11 per cent in 1910 and 24 per cent in 1995. That may explain the relatively greater controversy about globalisation in that country. A similar case is Italy, with a trade ratio of 28 per cent in 1910 and 49 per cent in 1995.

The evidence for trade in money terms (or current prices) is somewhat misleading, however, as is shown by the data in constant prices in Table 2. These data confirm the picture of a decline in trade intensity between 1913 and 1950. But it shows the world much more integrated at the end of the 20th century than it had been at the beginning. The explanation for this is the progressive decline in the relative prices of tradable goods, particularly manufactures, where much of the productivity growth of the century was concentrated. The picture of dynamism of world trade ever since the second world war, exceeding even that of the pre-first-world war period, is reinforced by Table 3.

The overall conclusion on trade then is that the world is more integrated today than ever before, after a collapse in the first half of the 20th century. This conclusion is reinforced when one takes into account the composition of world trade, with a very high level of intra-industry trade in manufactures, as production processes have been integrated across the globe.

Capital


Second, capital market integration was already highly advanced in the late 19th century, before collapsing in the inter-war period. As a share of gross domestic product the capital outflow from the UK – at an average of 4.6 per cent of GDP between 1870 and 1913 - has no contemporary parallels among the larger economies, even Japan (see Table 4). At its peak, British overseas investment ran at 9 per cent of GDP (Bordo, Eichengreen and Kim 1998, 4). The same was true for the capital importers. Argentina, for example, ran a current account deficit averaging 18.7 per cent of GDP between 1870 and 1889 and 6.2 per cent of GDP between 1890 and 1913 (Baldwin and Martin, 8). More revealing perhaps, the correlation between domestic investment and savings – a measure of self-sufficiency in savings was lower between 1880 and 1910 than in any subsequent period, up to 1990 (See Figure 4). A related point is made in Figure 5, which shows that the gross value of the foreign capital stock in today’s developing countries is lower today, as a share of the recipients’ GDP than it was in 1914. This reflects the slow recovery of such investment in developing countries after the collapse in the first half of the 20th century. This is partly explained by the deliberate refusal of most newly independent countries to accept inward investment in the early years of independence.

The composition of capital flows has also changed. Capital mobility is today much greater for short-term instruments than it was in the earlier period. This is well demonstrated by the turnover of the foreign exchange market, at several hundred trillion dollars a year. Nothing similar has happened before, which explains the huge rise in foreign assets as a share of world GDP over the past two decades (see Table 5). Moreover, the composition of long-term flows was also somewhat different in the earlier period from today’s (Bordo, Eichengreen and Kim 1998, 16-18): investment was more in tangible assets than in intangible ones; by far the greater part of the earlier flows took the form of bonds, while today stocks and bonds are of roughly equal importance; portfolio flows predominated over direct investment in the earlier period, while direct investment has greatly exceeded portfolio investment since the Second World War; and, finally, before 1914 direct investment was largely undertaken by free-standing companies, particularly in mining and transportation, while today multi-national companies predominate, with a very large proportion of their investment in services (Baldwin and Martin 1999, 19).

On balance, however, it is difficult to argue that overall capital mobility is much greater today than it was a century ago, even though there have been big changes in its composition.

People


Third, Hirst and Thompson (1999, 23) note that “the greatest era for recorded voluntary mass migration was the century after 1815. Around 60m people left Europe for the Americas, Oceania, and South and East Africa. An estimated 10m voluntarily migrated from Russia to Central Asia and Siberia. A million went from Southern Europe to North America. About 12m Chinese and 6m Japanese left their homelands and emigrated to east and South Asia. One and a half million left India for South East Asia and South and West Africa.”

Baldwin and Martin (1999, 19) note that during the 1890s, a high point for population movement, the inflows of people into the US were equal to 9 per cent of the initial population – equivalent to an immigration of 25m today (see Table 6). In Argentina, the comparable figure was 26 per cent; in Australia, it was 17 per cent. In the same decade, the UK’s outflow was 5 per cent of the initial population, Spain’s was 6 per cent and Sweden’s was 7 per cent. In the 1990s, however, the US was the only country in the world with a high immigration rate – equal to about 4 per cent of the initial population over the decade.


Assessment


Thus, for all the changes that have occurred over the course of a century, neither the markets for goods and services nor those for factors of production are significantly more integrated today than they were a century earlier: they seem to be somewhat more integrated for trade than they were, at least in the advanced countries (though not yet in most developing countries), no more integrated for capital, despite the important changes in the composition of capital flows, and far less integrated for labour.

Role of policy


If technology has consistently increased the potential for global exchange, but that is not, in fact, what has happened an explanation must be found in policy. Globalisation is, it appears, chosen more than it is destined. So what has happened to trade policy, policy towards capital mobility and controls on movements of people over the past century?

Trade


In trade policy, 19th century liberalisation diffused from the United Kingdom to the continent between 1846 and 1870. However, protectionism returned to continental Europe after 1878 and never left the United States (see Table 7). There has again been substantial liberalisation throughout the world over the past two decades. This followed a long period, after the Second World War, when the advanced countries liberalised their trade barriers, while the developing countries and members of the socialist bloc did not. By the early 1980s, however, acceptance of the superiority of liberal trade over protectionism had become global. By the late-1990s, no significant country had a government with a commitment to protection as a principle. Exceptions are pariah states, such as North Korea and Iraq. The liberalisation that occurred in China, India and the countries of the former Soviet Union, in the course of the 1990s, was a powerful indicator of this change in opinion. Today, high protection of merchandise trade is largely restricted to manufactures in developing countries and agricultural commodities in the advanced countries, though protection of services, particularly financial services also remains high in many developing countries

Capital


Capital markets were open in the 19th and early 20th centuries, partly because governments did not have the means to control capital flows, even if they had wished to do so. Controls over capital flows were then introduced (and, with ups and downs, intensified) between 1914 and 1945. Liberalisation of capital flows commenced in a restricted number of advanced countries during the 1950s and 1960s. However, the big wave of liberalisation began in the late 1970s, spreading across the high-income countries, much of the developing world and the former communist countries. Notwithstanding a very large number of financial crises over this period, this trend has remained intact.5 Developing countries that tried desperately to keep private foreign capital out of their economies two decades ago are now trying, as desperately, to draw it back in.

People


While trade and some capital flows are arguably more liberally treated and bigger in relation to global economic activity, the reverse is unquestionably true for movement of people. All the high-income countries operate controls on immigration that vary between tight and very tight. The mass mobility of people is largely in the form of refugees moving among (or even within) relatively poor countries. An exception is the movement (largely illegal) of Mexicans into the United States.

Nevertheless, there has been some important liberalisation of movement of people among high-income countries. The most important example is the liberalisation that has occurred within the European Union, where movement of people is one of the four freedoms guaranteed by the founding treaties.


Assessment


If we are to understand the apparently limited increase in the extent of globalisation – but rather the ups and downs of a century – we must look at policy. The reaction to the disasters of the first half of the 20th century was to close down international economic interdependence. Then in the second half, there was a steady opening of barriers to movement of goods, services and capital, though far less so of people. What has happened reflects this pattern of liberalisation.

Novelties of today’s globalisation


It would be wrong, however, to see the world as having gone through nothing more than a long cycle of first closing and then re-opening economies. Mr Cable is right in important respects. First and perhaps most important in the long run, technology does offer opportunities for integration never seen before. Second, other changes have also occurred that make today’s world of globalisation different from the late 19th century in certain important respects.

The decline and fall of world money


The first difference is negative for globalisation – namely the loss of the stability and predictability inherent in the move from the gold standard of the 1870-1914 era to the generalised floating of today. As Table 8 shows, international monetary history has been extraordinarily complex, as governments have struggled to cope with the international implications of the post-first world war move to managed money. The gold standard seems to have been exceptionally successful in encouraging long-term capital flows, particularly bond finance. Moreover, the vast scale of short-term finance is probably both a consequence of exchange-rate instability and an important contributory cause.

Rise of the multi-national company


The second difference is positive for globalisation: it is the dominant role of multi-national companies in organising today’s structure of production and exchange (see Table 9). The rise of the multi-national company in manufacturing and services reflects several important economic changes of the past century.

One is the rise of the corporation itself – an organisational form that was still relatively new in the 19th century. Another is the need of all countries for access to the technological know how and markets controlled by big corporations. Yet another is the ability of corporations to exploit modern communications and production technology to organise the chain of production within the firm, but across frontiers. A well-known by-product has been the universal increase in intra-industry trade. The incentive for organising such chains of production has also been increased by the growth in wage gaps among countries across the last century.


Rise of global institutions


A third novelty is also positive for globalisation: it is the rise of global institutions. Just as multi-national companies organise private exchange, so international institutions organise and discipline the international face of national policy. The World Trade Organisation, the International Monetary Fund, the World Bank, the European Union, the North American Free Trade Arrangement and so forth underpin habits of co-operation among states and consolidate commitments to liberalise. The 19th century was a world of unilateral policy. The late 20th was, by comparison, a world of multilateral policy.

Rise of the welfare state


The final big difference is perhaps neutral for globalisation: it is the changing role of the state between today and a century ago. The rising regulatory and welfare role of the state is probably somewhat hostile to globalisation, since it implies an increasingly exclusive concern with the welfare of citizens that has accompanied democracy. Public spending has, on average, quadrupled as a share of GDP in advanced countries, from 12 per cent in 1913 to 46 per cent in the 1990s. At the same time, there has been a relative decline in the importance of the “warfare state”, which probably increases the ability of states, at least democratic ones, to co-operate with one another. But just as the old liberal order was brought down by the clash between international integration and nationalism, so does the same threat exist today, if to a different and more limited extent.

Conclusions


  1. Cost of transport and communications fell fast in the 19th century and continued to fall further in the 20th century. The potential for rewarding international exchange has grown correspondingly, as protagonists of globalisation argue.

  2. Yet, there has been no linear relationship between these technological developments and global economic integration. On the contrary, despite continued falls in costs of transport and communications in the first half of the 20th century, integration went into reverse, in all respects: trade, the movement of people and the movement of capital all became less free. A new era of globalisation began with the liberalisation of the postwar era and accelerated, while becoming increasingly global, in the 1980s and 1990s. But this did not include the movement of people, to anything like the extent of the late 19th century.

  3. The level of economic integration today is both different from that of a century ago and further advanced in important respects, notably in trade and in the scale of gross capital movements. However, it is difficult to accept that it is totally different in nature.

  4. There have been some fundamental changes, mostly favourable to sustained integration, since the late 19th century. These changes are political, organisational and technological

  5. Policy and the institutions that underpin it have been the principal determinant of the extent and pace of integration. Globalisation is not pre-destined, but chosen. Correspondingly, states, far from being at the mercy of omnipotent forces of globalisation, are free to choose whether or not to open their economies to the rest of the world.

  6. Last but not least, all the periods of rapid economic growth have been accompanied by increased integration (Table 10). Whether the next two or three decades are successful for the population of the globe will depend both on how far integration proceeds and on how well it is managed.

REFERENCES


Bairoch, Paul. 1989. “European Trade Policy, 1815-1914,” in P.Mathias and S. Pollard (eds). Cambridge Economic History of Europe, Volume VII. Cambridge, Cambridge University Press.

Baldwin, Richard and Philippe Martin. January 1999. “Two Waves of Globalisation: Superficial Similarities, Fundamental Differences.” National Bureau of Economic Research Working Paper 6904.

Bordo, Michael D, Barry Eichengreen and Jongwoo Kim. September 1998. “Was there Really an Earlier Period of Inernational Financial Integration Comparable to Today’s?” National Bureau of Economic Research Working Paper 6738.

Bordo, Michael D, Barry Eichengreen and Douglas Irwin. 1999. “Is Globalization Today Really Different than Globalization a Hundred Years Ago?” National Bureau of Economic Research Working Paper 7195.

Cable, Vincent. 1999. Globalisation and Global Governance. Royal Institute of International Affairs, London.

Cairncross, Frances. 1997. The Death of Distance. Orion, London.

Crafts, Nicholas. Globalisation and Growth in the Twentieth Century. 2000. IMF Working Paper WP/00/44. Washington D.C., International Monetary Fund.

Diamond, Jared. 1997. Guns, Germs and Steel: the Fate of Human Societies. W.W. Norton & Company, New York and London.

Green, A and M. Urquhart. 1976. “Factor and commodity flows in the international economy of 1817-1914.” Journal of World Economic History, 36, pp. 217-252.

Harley. C. 1980. “Transportation, the world wheat trade and the Kuznets cycle, 1850-1913,” Explorations in Economic History, 17, pp. 218-250.

Hirst, Paul and Grahame Thompson. 1999. Globalization in Question: the International Economy and the Possibilities of Governance, 2nd edition. Polity Press, Cambridge.

McNeill, William H. 1982. The Pursuit of Power: Technology, Armed Force, and Society since A.D. 1000. The University of Chicago Press, Chicago.

Maddison, Angus. 2001. The World Economy: a Millennial Perspective. OECD Development Centre, Paris.

Taylor, A. 1996. “International Capital Mobility in History: the Savings-Investment Relationship.” Working Paper 5743. National Bureau of Economic Research Working Paper 5743.



United Nations. 2000. World Investment Report. UN, New York and Geneva.












TABLE 1

TOTAL TRADE TO GDP
(current prices, per cent)





1870

1910

1950

1995

UK

41

44

30

57

France

33

35

23

43

Germany

37

38

27

46

Italy

21

28

21

49

Denmark

52

69

53

64

US

14

11

9

24

Canada

30

30

37

71

Japan

10

30

19

17

Source: Baldwin and Martin (1999)



TABLE 2

TOTAL TRADE TO GDP
(constant prices, per cent)


Region

1870

1913

1950

1973

1998

Western Europe

8.8

14.1

8.7

18.7

35.8

Western Offshoots

3.3

4.7

3.8

6.3

12.7

Eastern Europe and former USSR

1.6

2.5

2.1

6.2

13.2

Latin America

9.7

9.0

6.0

4.7

9.7

Asia

1.7

3.4

4.2

9.6

12.6

Africa

5.8

20

15.1

18.4

14.8

World

4.6

7.9

5.5

10.5

17.2

Source: Maddison (2001)



TABLE 3

GROWTH IN VOLUME OF MERCHANDISE EXPORTS,
WORLD AND MAJOR REGIONS, 1870-1998
(annual average compound growth rates, per cent)


Region

1870-1913

1913-50

1950-73

1973-98

Western Europe

3.24

-0.14

8.38

4.79

Western Offshoots

4.71

2.27

6.26

5.92

Eastern Europe and former USSR

3.37

1.43

9.81

2.52

Latin America

3.29

2.29

4.28

6.03

Asia

2.79

1.64

9.97

5.95

Africa

4.37

1.90

5.34

1.87

World

3.4

0.90

7.88

5.07

Source: Maddison (2001)

TABLE 4

CAPITAL FLOWS SINCE 1870
(average absolute value of current account as per cent of GDP)





UK

USA

Argentina

Australia

Canada

France

Germany

Italy

Japan

1870-1889

4.6

0.7

18.7

8.2

7.0

2.4

1.7

1.2

0.6

1890-1913

4.6

1.0

6.2

4.1

7.0

1.3

1.5

1.8

2.4

1919-1926

2.7

1.7

4.9

4.2

2.5

2.8

2.4

4.2

2.1

1927-1931

1.9

0.7

3.7

5.9

2.7

1.4

2.0

1.5

0.6

1932-1939

1.1`

0.4

1.6

1.7

2.6

1.0

0.6

0.7

1.0

1947-1959

1.2

0.6

2.3

3.4

2.3

1.5

2.0

1.4

1.3

1960-1973

0.8

0.5

1.0

2.3

1.2

0.6

1.0

2.1

1.0

1974-1989

1.5

1.4

1.9

3.6

1.7

0.8

2.1

1.3

1.8

1989-1996

2.6

1.2

2.0

4.5

4.0

0.7

2.7

1.6

2.1

Source: Taylor (1996)



TABLE 5

FOREIGN ASSETS OVER WORLD GDP (per cent)

1870

6.9

1900

18.6

1914

17.5

1930

8.4

1945

4.9

1960

6.4

1980

17.7

1995

56.8

Source: Crafts (2000)

TABLE 6

DECADAL MIGRATION
(per cent of initial population, 1880-1910)


Per cent of initial populations

1880s

1890s

1900s

Senders










UK

-3.05

-5.2

-2.04

Italy

-1.65

-3.37

-4.87

Spain

-1.51

-6.01

-5.18

Sweden

-2.90

-7.20

-3.51

Portugal

-3.52

-4.16

-5.94

Receivers










US

5.69

8.94

4.02

Canada

2.27

4.89

3.71

Australia

11.28

16.59

0.77

Argentina

4.50

25.60

9.50

Brazil

1.98

3.82

8.44

N.Zealand

53.52

4.08

4.15

Source: Green & Urquhart (1976)



TABLE 7

AVERAGE TARIFFS ON IMPORTED MANUFACTURED GOODS (per cent)





1875

1913

1931

1950

Pre-Uruguay Round

Post-Uruguay Round

France

12-15

20

30

18

--

--

Germany

4-6

17

21

26

--

--

Italy

8-10

18

46

25

--

--

UK

0

0

n.a.

23

--

--

EU

--

--

--

--

5.7

3.6

US

40-50

44

48

14

4.6

3.0

Source: Bordo, Eichengreen and Irwin (1999)

TABLE 8

HISTORY OF MONETARY AND EXCHANGE-RATE REGIMES


REGIME

PERIOD

I. International Gold Standard

1879-1914

II. Interwar instability

1918-1939

  • Floating

  • 1918-1925

  • Return to gold

  • 1925-1931

  • Return to Floating

  • 1931-1939

III. Semi-fixed rate dollar standard

1945-1971

  • Establishing convertibility

  • 1945-1958

  • Bretton Woods system proper

  • 1958-1971

IV. Floating rate dollar standard

1971-1984

  • Failure to agree

  • 1971-1974

  • Return to floating

  • 1974-1984

V. EMS and greater D-Mark zone

1979-1993

VI. Plaza-Louvre intervention accords

1985-1993

VII. Towards Renewed Floating and Emu

1993-

  • Broad multilateral surveillance

  • 1993-1997

  • 1997-

  • Monetary union in the EU

  • 1999-

Source: Hirst and Thompson (1999, 33)



TABLE 9

RISE AND RISE OF MULTI-NATIONAL COMPANIES
(Selected Indicators of FDI and International Production – billions of dollars and percentages)





1982

1990

1999

FDI inward stock

594

1,761

4,772

Sales of foreign affiliates

2,462

5,503

13,564

Gross product of foreign affiliates

565

1,419

3,045

Exports of foreign affiliates

637

1,165

3,167

GDP at factor cost

10,611

21,473

30,061

Exports of goods and non-factor services

2,041

4,173

6,892

Source: UN (2000)


TABLE 10

PERFORMANCE IN THE THREE MOST SUCCESSFUL PHASES IN THE CAPITALIST EPOCH
(annual average compound growth rate of GDP per head)





1950-73
Golden Age

1973-98
Neo-Liberal Order

1870-1913
Liberal Order

Western Europe

4.08

1.78

1.32

Western Offshoots

2.44

1.94

1.81

Japan

8.05

2.34

1.48

Resurgent Asia

2.61

4.18

0.38

Advanced capitalist and resurgent Asia

2.93

1.91

1.36

Faltering Economies

2.94

-0.21

1.16

World

2.93

1.33

1.30

Source: Maddison (2001)




1 Associate Editor and Chief Economics Commentator, Financial Times, London

2 Jared Diamond (1997) provides a brilliant explanation of why ecological advantages gave the inhabitants of the Eurasian land mass a decisive advantage over inhabitants of other continents in the development of sophisticated economies and states. Maddison (2001, 23) discusses the technological advances that gave the European powers mastery of the sea.

3 William H McNeill (1982) argues that the last millennium as a whole and the second part of the millennium, in particular, was the period when market processes remade the world, in alliance with the increasingly powerful states that growing wealth and improving technology brought forth.

4 William H. McNeill (1982, 42-48) discusses the growth of the Chinese navy and its subsequent abandonment in the 15th century. From 1371 to 1567, sailing to foreign lands was forbidden by the imperial court.

5 Financial crises were also common in the pre-1914 period. But the recent ones seem to have been more destructive, probably because of the impact of collapsing exchange rates (Bordo, Eichengreen and Irwin 1999, 53).






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