Two eras of globalization- a comparison: Introduction:Technically speaking, the word ‘globalisation’ refers to the process through which the world community gets integrated into a common economic or social system. In other words, it is a process of integrating local and regional aspects into global ones.Globalisation does not refer to integration in one particular field only.
Instead, this term is used to imply sociocultural, economical, political as well as technological integration at the same time. However, frequently, the term globalisation is used to refer to national economies’ integration into a global economy by flows of foreign direct investments, trade, flows of capital goods, the process of migration and technology transfer.
When an economists use this term, then by this word he wants to imply removal of national barriers for facilitating the flows of goods and services, labour and capital from one country to another. (Bhagwati, 2004; Steger, 2003)The concept of globalisation is , however, not new.
When talking about globalisation, there is a common tendency to assume the the process of economic, social, and technologicaql integration that has started since 1960s.
But the origin of globalisation can be traced well back to the midle of nineteenth century. Globalisation in its true sense first began in 1870 and continued upto 1914. With the advent of the First World War the process of globalisation got stalled.
It again begain in 1960 with the process of a staedy economic integration which is continuing till date. This paper seeks to compare and contrast these two era of globalisation. Two waves of globalisation- similarities and differences:Although there has been debate over whether there exist any first wave or globalisation at all or it is a completely new phenomemnon, the people who are against of the opinion that globalisation is a new phenomenon are actually right. If one look at the history, then it would not be difficult to find that globalisation has its existence even a century ago.
During late eighteenth century, the whole world of the capitalists fell under severe economic depression. Under this kind profound depression banks were compelled to foreclose on a huge number of industrial firms. The ultimate result of this had been a merger of bank and industrial capital. Thus a new era of capitalism had found its beginning.
The new stage of capitalism came to be known as monopoly capitalism. Once the 18th century ended, and the capitalist world entered into 19th century, imperialist globalisation became an established fact. In the early 19th century, a new kind of trusts had been created between the capitalist countries and cartels were formed for carving up an international market and ensuring sufficient supply of energy and raw materials to each of the member nations of the cartels. (Williamson, L.
2002, p.1)Globalisation in its true sense first started in 1870 and continued without any halt up to 1914. This period is called the first age of globalization. In this period international trade flourished significantly having an annual growth rate of 4 percent.
In 1870 international trade accounted for 10 percent of global output, whereas it increased to 42 percent of global output by 1914. International capital flows also grew significantly at an annual rate of 4.8 percent. In 1870 international capital flows stood at a level of 7 percent of GDP whereas in 1914 it became 20 percent of GDP.
(Mishkin, 2008, p.2)This era of globalization was accompanied by extraordinary prosperity. In this period economic growth became high. World per capita GDP increased at an annual rate of 1.
3 percent compared to an annual growth rate of 0.53 percent during the period of 1820-1870. (Mishkin, 2008, p.2) But the ultimate question was- did this higher growth in economy translate into better life for poor? The poor might not have gained a better life if high economic growth in this age was accompanied by increasing degree of income inequality.
However, the point of satisfaction was that it did not happen for those nations who had participated in the process of globalization. The income gap between rich and poor in fact narrowed in those countries which actively participated in the process of global integration of markets. For example, Japan which cut off all its relations from the rest of the world in seventeenth century started to revive these relations since 1853 and fully engaged in the system of global economy since 1868. Through this integration with rest of the world Japan, a backward nation in 1870, started to grow at an annual rate of 1.
5 percent in comparison to an annual rate of 1 percent of a developed country, the United Kingdom. The growth experience of another underdeveloped country, Argentina, was even more spectacular. While in 1870 per capita income of Argentina was around 40 percent of per capita income of the United Kingdom, it became around 75 percent of that of the United Kingdom in 1914 by growing at an annual rate of 2.5 percent.
These examples show how poverty was reduced in the countries that actively participated in the process of globalization. (Mishkin, 2008, pp.2-3) The results were, however, not the same for all countries, particularly for those who didn’t take part in the process of globalization. These countries were unable to take advantage of this process.
For example, a number of nations, like China and India, actually de-industrialized during this period. Per capita income of these nations also fell in this period. This first age of globalization came to a halt in 1914 with the advent of the First World War which disrupted international trade and capital flows. The world GDP fell abruptly during this period.
In 1929 great depression started to take place in UK which quickly spread to the rest of the world. The economic devastation was huge in this period. (Mishkin, 2008, pp.2-3)At the end of the World War II it was started to be realized that the mistakes of interwar period should not be repeated once again and hence Bretton Woods conference took place in order to develop a new system of international economies for promoting international trade and global prosperity.
Two international financial organizations were created, International Monetary Fund (IMF) and the World Bank, to look after international economic system. These institutions actually served the purpose of promoting second age of globalization which can well be called as the current age of globalization. Once the global economy became normal at the end of 1950s, the process of globalization started to take place at a rapid pace. Since 1973, the world trade grew at a pace of 11 percent on an annual basis, rising from around 22 percent of world GDP to around 42 percent.
As in the case of first age of globalization, international capital flows also increased by manifolds during this period along with the increase in international trade. International capital flows has become 21 percent of global GDP from mere 5 percent in 1973. (Mishkin, 2008, pp.3-4)Here again the question is -did the participants in the process of globalization obtained spectacular economic outcomes and decrease in the level of poverty as the case was with the first age of globalization? According to data, the answer to this question is yes.
The rate of growth in global economy recorded the highest pace during the current age of globalization which started in 1960. World per capita income has been growing at an annual rate of 2 percent. The critics of globalizations have, however, been of the opinion that the current phase of globalization have resulted in higher income inequality across the nations. However, a careful look on the data reveals that across the nations income inequality has increased only because active participants in the process of globalization have grown at a very rapid pace while the other have experienced absolute fall in their per capita income as was the case during the first age of globalization.
(Mishkin, 2008, pp.3-4)A relatively new phenomenon in the second age of globalization is that this period experiences a convergence of per capita income among the nations which have taken active part in globalization. Thus it can be said that the new age of globalization has experienced a decrease in poverty in the developing nations that have been able to globalize. (Mishkin, 2008, pp.
3-4)Another new aspect of current age of globalization is the advent of financial globalization in emerging markets. Economic globalization in developing nations existed in the first age also, but what is new is that financial globalization has no longer confined to rich nations. Earlier most of the capital flows used to take place among rich nations only. But the new age of globalization has started to see increasing capital flows from rich to poor countries, particularly to emerging economies like China, India, Brazil etc.
international capital flows in emerging economies has started to increase dramatically since 1990s. (Mishkin, 2008, pp.3-4) Conclusion:As the two ages of globalization have been discussed and compared with other, particularly focusing on key factors in the areas of economy including trade, capital flows, per capita income, industrializations etc., it has been found that these two ages have some superficial similarities, particularly in the areas of aggregate trade and capital flow ratios, and in the reduction of barriers to international transactions.
But there lies some fundamental difference which should be mentioned. In the first age of globalization reduction in the barriers to international transaction had increased international trade of good without bringing much increase in the trade of ideas, whereas in the current age the redaction in barriers have increased international trade in ideas. Apart form before the advent of the first age of globalization the world was divided among poor and agrarian whereas before the advent of the current age of globalization the world was completely divided between rich and poor nations. The current age of globalization has played a vital role in brining excellent growth to emerging markets.
(Mishkin, 2008, pp.3-4; Baldwin and Martin, 1999, p.1) References:1. Bhagwati, J.
2004. In Defense of Globalization. Oxford, New York: Oxford University Press.2.
Steger, M. 2003. Globalization: A Very Short Introduction. Oxford, New York: Oxford University Press.
3. Williamson, L. 2002. Globalisation: world-changing or word-changing? Retrived from http://www.
guardian.co.uk/world/2002/oct/31/globalisation.g8 on 6th August, 2010.
4. Mishkin, F. S. 2008.
The Next Great Globalization. Pearson Education India.5. Baldwin, R.
E. and Martin, P. 1999. Two waves of globalization: superficial similarities and fundamental differences.
Retrieved from http://www.nber.org/papers/w6904.pdf on 6th August, 2010.
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