Column Three strikes for globalisation

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The ‘first globalisation’ of 1858-1914 collapsed in political disaster from 1914 till 1945. By some measures, it was only in 1983 that the world regained the globalisation of 1910. This underlines the importance of the political foundations for globalisation. Can the ‘second globalisation’ that we are now experiencing similarly come apart? In this article, I argue that this appears unlikely.

In India, we are used to thinking of globalisation as a recent phenomenon. In the last decade, capital controls and trade barriers were eased, and the infrastructure of transportation and communications improved. But India has known good integration into the world economy before. In the early 20th century, businessmen in Bombay moved money effortlessly across the boundary, travelled freely within the British Empire, built transnational firms, and freely participated in international trade. The British began closing off India to the world at the time of the second world war, and these restrictions got ossified as India became socialist.

Looking outside India, there was a golden age of globalisation pre-1914. Paul Krugman quotes Keynes about this period: “The inhabitant of London could order by telephone, sipping his morning tea in bed, the various products of the whole earth ... he could at the same moment and by the same means adventure his wealth in the natural resources and new enterprises of any quarter of the world.” As much as 9% of the British GDP left the country as capital outflows in 1911. From 1887 to 1913, the French sent 3.5% of GDP as capital outflows, which exceeds what they do today!

This world fell apart very badly, with two world wars and the Great Depression. In the contest between the nation state and globalisation, nationalism struck back with a vengeance. Enlightenment values were rolled back by the secular religions of the Nazis and the communists, who led the deglobalisation effort. Capital controls were invented by Hitler.

Intellectuals of the 20th century knew that political and military catastrophes are entirely possible. Can political or military catastrophes overwhelm the second globalisation, just as they destroyed the first? This is unlikely, for four reasons.