The Economist February 26th 2022 Finance & economics 73Second-timelucky
I
n 1920 john maynard keynesreflected on the Britain he knew
before the outbreak of the first world war. “The inhabitant of
London”, he wrote, “could order by telephone, sipping his morn-
ing tea in bed, the various products of the whole earth.” Keynes’s
Londoner “regarded this state of affairs as normal, certain and per-
manent”, and not long ago the globalisation of the present age
seemed a similarly inexorable force. A new world war remains un-
likely, but the uncomfortable echoes of the past in recent history
suggest that a closer look at the rise and retreat of 19th-century glo-
balisation might yield valuable lessons.
A work of economic history published in 1999 provides a great
starting point. “Globalisation and History”, by Kevin O’Rourke and
Jeffrey Williamson, hit shelves at a time of growing unease about
the effects of deepening economic integration. Then, anti-trade
activists swarmed meetings of the World Trade Organisation,
while a few economists began to draw attention to the occasional-
ly troubling distributional effects of globalisation. It roared on
nonetheless over the first decade after the book’s publication. But
in the years since, economic nationalism has become a potent po-
litical force, and the book has come to seem eerily prescient.
Nineteenth-century integration began in earnest around mid-
century, after decades of instability and insularity. Liberalised
trade rules helped; Britain repealed its Corn Laws—tariffs on im-
ported grain—in 1846. But the integration of markets was super-
charged by improvements in communication and transport tech-
nologies which allowed for faster, cheaper and more reliable
movement of people, goods and information. The telegraph,
steamships and railways brought the economies of Europe and the
Americas into close contact, with profound consequences. In the
new world, land was abundant and cheap, and wages were high.
The reverse was true in Europe, where workers were plentiful and
landowners collected fat rents. As these markets integrated, prices
converged. In 1870 British wheat prices were 60% above those in
America; by 1890 the gap had mostly closed. When telegraph ca-
bles connected distant financial markets, differences in the pric-
ing of various securities vanished almost immediately.
Simple trade theory predicts that as differences in the prices of
traded goods shrink, the cost of factors of production like land andlabourshouldlikewise converge. Experience in the 19th century
bore this out. As waves of American grain spilled into European
ports, land prices in Europe tumbled toward those across the
pond. In America, the real price of land tripled between 1870 and
1913, while in Britain, it dropped by nearly 60%. Real wages con-
verged as well, although the authors note this owed more to mi-
gration than trade. Nineteenth-century migrant flows were unlike
anything in recent memory. Between 1870 and 1910 they reduced
Sweden’s labour force by 20% relative to what it otherwise would
have been, and increased America’s by 24%. These flows trans-
formed labour markets. Real wages earned by unskilled labourers
in Ireland rose from roughly 60% of the British level in the 1840s to
90% in 1914, thanks entirely to Irish emigration.
How much can really be learned from such a different world?
Today, migration matters much less than it did in the 19th century.
Skilled workers account for a far larger share of rich-world work-
forces, and are protected by modern regulations and social safety-
nets. Trade consists not only of bulk commodity shipments, but of
components imported and exported multiple times along com-
plex supply chains. Forget telegraphs; in meetings today people
chat face-to-face with colleagues on other continents.
Yet a number of lessons appear relevant. Start with the issue of
convergence in incomes across countries. Much of modern theo-
rising about convergence focuses on the role of capital accumula-
tion and technological progress. Poor countries grow rich, in
these models, because they invest more and adopt more sophisti-
cated technologies. But in the 19th century the integration of mar-
kets drove convergence: a force which has also been at work in re-
cent decades. The narrowing gap between American and Chinese
wages is in part a story of Chinese technological progress. Yet it is
also one in which hundreds of millions of Chinese workers began
participating in a global economy, making low-skilled labour
more abundant globally and contributing to weaker blue-collar
wage growth and higher inequality in rich countries.
Second, people in the 19th century generally understood the ef-
fects that trade and migration had on their economies, and those
on the losing end sought political solutions to their troubles.
Then, as now, training and education were touted as answers to
the problems of unhappy workers. But moves to improve school-
ing were accompanied by a broad shift towards protectionism.
From the 1870s European economies, with the notable exception
of Britain, began raising tariff rates. Over the same period, migra-
tion policy in the Americas became ever more restrictive.Don’t spoil the ending
So it has gone this time, too. Work by David Autor of the Massachu-
setts Institute of Technology and three co-authors found that
American counties which were more exposed to imports from
China became more likely to vote Republican in presidential elec-
tions, for example: a shift which in 2016 helped to elect a trade-
warring president.
And yet third and most important, it was not higher tariff barri-
ers or restrictions on migration which plunged the world into the
deep and destructive insularity that took hold after 1914; it was
war. But for war, the retreat of globalisation a century ago may
have remained modest and short-lived. The same may be true to-
day. If inattention to the distributional effects of trade can prompt
a backlash, then a greater commitment to sharing the bountygen-
erated by openness might permit a renewal of economicintegra-
tion—if the world remains willing to learn from the past.Free exchange
Studying how the first era of globalisation ended could help preserve the second