The Roots of Globalisation

Before this question is answered, there needs to be an adequate definition about the main term, globalisation. Globalisation is best defined as, ‘the process through which an increasingly free flow of ideas, people, goods, services and capital leads to the integration of economies and societies’. International trade and other forms of globalisation can indeed be traced back as far as the sixteenth century. However, it was most notable as a force in economics, politics and society in general from the late nineteenth century to the start of the twentieth century that is between 1870 and 1900. The most notable areas in which this phenomenon was most visible were trade, monetary policy, migration and empire building. Although this is a global effect that most countries took part, there is not the space to give an analysis of all of them, for that reason there will be a concentration on the six leading economies at this time, Britain, France, Germany, Japan, Russia and the United States of America (USA).

Technological innovations were able to reduce costs, by increasing speed or increasing capacity as well as increase connectivity. For example, as the iron hulled steam ships, which started to arrive in the mid 1840s also enabled the expansion of not only European trade, but also transatlantic trade. The electric telegraph also allowed the integration of money markets of the world to become integrated too. Telecommunications were also being used at this time and there was a transatlantic cable laid between the east coast of America and the west coast of Ireland to allow better communication between traders in this time and ‘was another development of immense significance for the growth of world trade’. Also, because markets were able to perform freely without government intervention as it was this that integrated the economies of the North Atlantic. There were two theorists previous to this era of mass global trade who argued that there should be specialisation of production. The theorists were Adam Smith, who advocated absolute advantage and David Ricardo who advocated comparative advantage. These theories denoted that if countries were to specialise in production of one product, then there would be an increase in efficiency due to economies of scale and so produce more, reducing prices and increasing in real incomes. Implicit in all of this was a requirement of trade. This policy was employed in this period leading up to the twentieth century and produced much greater trade with the emerging and industrialising economies of Germany and the USA. Propaganda was also, from the ocean liner ticketing agencies, who published information on the new life that was available in the new world, allowing the dream of a fresh start to be integrated in to the consciousness of those awaiting it. As with trade, this integration was enabled by the growth of the steam ship and trade itself generated an allowance to carry people back to the ship’s port of origin, as merchants did not want to have empty ships. Also, increased competition drove down prices meaning that intercontinental travel was no longer the preserve of the rich. However, the rise in migration was down to a variety of things including many push factors, mainly due to adverse economic conditions as in some parts of Europe, most notably Ireland during the potato famine of 1845-7 as well as the reduction of grain prices in Britain, technological change in southern Europe and low wages in general. They largely, though not exclusively chose America, as ‘The abolition of slavery in the period before 1870 resulted in a serious shortage of labour’. In the new economies there were also opportunities for entrepreneurial zeal, for example, Carnegie who founded US Steel left Scotland for America. Also, there was not a truly globalised labour market, as the Japanese government did not allow this to happen. Emigration was to be punished on pain of death. This meant that the world’s population, rather than being globally connected was merely being distributed amongst the newly industrialising economies of this time. This migratory flow also disproved the Hecksher-Ohlin theory of diminishing trade as a result of the movement of people.

The building of infrastructure, such as railways and canals enabled further connectivity for goods and their intended markets. Firstly in Britain and India, the costs were reduced by the adoption of railways as the main mode of transport for bulk goods, though this was mainly domestic proposes, from port to market, however, it still allowed for greater trade. On the European continent however, the railways proved to be much more beneficial as not only were they able to transport goods domestically, the railways were also able to cross-frontiers and due to reduced costs the trade flourished. There were other notable infrastructure improvements as well that enabled international trade to increase such as the building of such projects such as the Suez Canal. This was a vital shortcut for ships as it meant two things, firstly it meant that ships could refuel here, so less fuel meant more cargo and secondly and more importantly it meant that the journey time between Liverpool and Bombay could be halved.

Gerschenkron argued that there could be substitutes to the factors of production when an economy is industrialising. Also it is true that capital can be used to ‘stimulate or substitute international trade’. This was the case for Germany in the latter half of the nineteenth century. However, there were also international flows of capital for investment into other economies like Canada and the USA as the railways and other key infrastructural developments such as ports and canals were on the rise, mainly from British entrepreneurs, banks and other institutions in the form of purchasing Government bonds or stocks and shares. Also, the Gold Standard was adopted, firstly by Britain and following behind, the USA and Germany, led to globalisation of the monetary system. This was mainly due to the fact that most of Germany’s trade with non-Europeans being done through British institutions and so there was no advantage of the silver standard. As well, during 1867 the monetary conference in Paris argued that there should be a universal gold standard. This would allow trade, along with the reasons already mentioned, to be done much more easily as exchange rates would become fixed allowing not only investors, but also traders to more easily predict what the price might be of returns on investments or commodities as it would increase: This is because on the Gold Standard worked on these principles:
A unit of account needed to be tied to a weight of gold.
There would also need to be a circulation of gold in the form of coins.
Thirdly, subordinate coins would need to be used and these needed to be silver.
As well, there needed to be no restrictions on the smelting of coins into bullion.
Finally, no impediment to the export of gold coins or bullion thus leading to an easier price comparison between the outputs of nations.

However, it should also be noted that this was just as much a domestic policy of some nations, not only leading industrial countries, but also the countries of South and Central America. The gold standard, currency devaluation and other forms of monetary policy were used to offset balance of payments crises, but still meant that monetary policy had to be integrated in order for the standard to work.

The idea of imperialism and empire also contributed to the idea of domestic economies becoming integrated with other economies and so the occurrence of globalisation. This is something that took root during the period of 1870-1900. This was mainly down to government policy, as it was desired by the leading industrial nations of Britain, Germany, France, the USA and Japan to have an empire that it could show off its strength and military prowess. Also, there were economic motivations for empire building. This was firstly due to a desire discover new markets and so give more impetus to the economic growth that was lacking in this time, but also to in the search for raw materials, for example copper from central Africa. However, like monetary policy, the imperialism of the late nineteenth century had a domestic policy element to it. Also colonialism was just as much to do with a response to the threat of attack on merchant vessels and other threats in the stability of trade. The French were not the only state at this time to adopt such policies in order to protect a faltering economy; it was true of the Germans too. Also, there was the idea of keeping nations united domestically after there had been several revolutions leading up to the 1870s, mainly on continental Europe, but as Cecil Rhodes argued ‘if one wanted to avoid civil war, one must become imperialist’. However, this created trading blocks with imperial powers dominating, rather than all nations trading with each other on an equal footing, as there was a rise in the British Empire in this period in order to overcome French trade tariffs.

As can be seen, there were several factors that led to the first era of globalisation between 1870 and 1900. Technology and new inventions of the period proceeding 1870 played a profound part in this process. These telecommunications enabled not only traders but people as well, to communicate across vast distances to integrate trading links and this meant that information was more widely available. Infrastructure was also key in creating a world economy as this enabled transport costs and journey times to be massively reduced. This was also something that benefited the mass migration of people. Also money markets became more integrated into a world system of finance, although pragmatically at first, some countries hailed the rise of the gold standard. Empire as well, meant that more trade was happening as resources and new markets were sought by the colonial power, though this created a more of a top down integration. However, it could be argued that there was no globalisation as from the sources, it is apparent that Russia and Japan are not major players in this process and so this is more of the cementing of a dominant role for the Atlantic economies of Britain, Germany and the USA. Also that, for the most part the globalisation is mainly integration of an empire’s economy and although there was migration from various countries, including India and China, it was mainly the Irish or Italians leaving because of particular problems in their native economy. Although on balance there was globalisation, but it should be tempered, as this was a process that began before 1870 still had a way to go before there was a truer sense of globalisation.