Jacques de Larosière, former general manager of the IMF then governor of "La Banque de France" delivers us his reflections on the history of globalisation.
We all live in a globalising world and we sometimes forget that the world we had between 1850 and 1914 was also very intensely integrated, and that was true for capital movements, trade, immigration and information.
If you look at the stock of foreign capital related to the GDP of the developing countries in 1914 you see that the figure was some 30% whiles the figure today is only 20%. It's also true for immigration (9 million immigrants to the United States during the decade 1900-1910 against 7 million today). And the trade integration, although it was less advanced in terms of exports to the GDP than it is today, was extremely significant and this was all the more important that there was one international currency at the time which was the gold standard.
This economy of the 19th century and the early 20 th century also created tensions and difficulties which are very comparable to the ones we know today. For instance, the european agriculture, which was facing imports at very low prices coming in particular from America, Australia, Canada...had to face very deep crises which have led to rural immigration and in some cases great poverty. One can also say that the importation of goods produced at very low cost in advanced countries has led to very strong oppositions to globalisation at the time. You had protectionist tendencies in the United Kingdom, but also in France in the agricultural sector. You also had periods of tension in the United States, for instance the abandonment of the gold standard from 1862 to 1879, and the anti-immigration sentiment was rather generally felt. It remains none the less that those sort of 65 years have been extremely beneficial to the general economic situation of the world. The world experienced at that time the highest growth rate that it ever did, and this allowed some countries like Canada, Australia and countries in latin america to catch up in terms of standards of living, the most prosperous countries of the so called west. Some of these' countries very poor in the 1870's had even out performed some european western countries in 1900. And although colonisation was the name of the day in Africa, it knew an important development at the time.
In spite of these successes the globalised world fell apart in a few weeks in a very brutal fashion in 1914.
The fact is that economic nationalism prevailed after the war during the two decades before the second world war. One tried none the less to rebuiled after 1920 a international system, but in fact it didn't work out. There was a set of tensions in terms of access to raw materials, there were competitive devaluations, beggar thy neighbour policies, and in spite of all the attempts with conferences and institutions, never was it possible to recreate a global system.
Well of course there are many causes but the fundamental cause of this incapability of restoring a global system was political :
- The mesures of reparations that were asked from Germany were of course one of the facts that ended the economic collaboration between France and Germany.
- The loss of the american leadership after 1920 had weakened the system.
If you look at the period 1850-1914, you see that the governing circles of the great nation were convinced that the international order was globally beneficial to the populations and that it was the duty of national economies to adjust to international constraints because of the international competition that prevailed.
In the 19th century where production was in a way a result of small enterprises and where the trade unions were nearly inexistant, therefore there was a great flexibility in the formation of prices and salaries.
And one can add that at the time, democracy as we experience it now, was less advanced than it is today, and that the systems of government were perhaps more elitist and less sensitive to public opinion.
But after the 1914 war, these basic conditions have changed :
- Large firms were becoming more and more concentrated with monopolistic or oligopolistic powers in terms of price formation,
- Trade unions developed and reinforced,
- Agrarian parties formed,
- Governments started to legislate much more than they did before in terms of social matters (welfare state), and also indulged into inflation and budgetary deficits.
All these factors contributed to make prices and salaries more rigid and therefore less adjustable to international constraints than they were before.
After the second world war, the Bretton Woods system tried to rebuild a certain order based on :
- gradual liberalisation of international trade
- the abandonment of competitive evaluations under the authority of the IMF. This system worked rather well in spite of the end of the fixed exchange rate in 1971.
Then the deregulation of the 80's and the "thatcherian" reaction against the excesses of state interventionism have led to a new phase of globalisation, the one we know today.
The end of the planified soviet system of economies in 1989 accelerated the process and now China and India are intergrated in the world system.