In the 1990s, with the explosion of cross-border finance? In the 1950s, with the Bretton Woods regime and its institutions (GATT and the IMF)? During the 19th century, under the classical gold standard? In the 17th century with chartered trading companies shipping everything from slaves to spices across the globe? Or around 1000, with its extensive transcontinental trade in pepper, horses, silk, and textiles?
All of the above, and none of the above. The closer one looks in history, the more difficult it becomes to identify a clear point of transition towards globalization. (Retreats from globalization--such as occurred during the Napoleonic Wars or the interwar period in the 20th century--are considerably easier to identify). On the other hand, even today the world economy remains a lot less globalized than we often take it to be--at least when measured by the economist's yardstick for market integration, the degree of price convergence across national markets. See my colleague Robert Lawrence's estimates, for example.
The conventional wisdom is that the first era of globalization began in the 19th century--with Britain's repeal of its Corn Laws in 1846 and the spread of the gold standard. The title of this post comes from an article by Kevin O'Rourke and Jeffrey Williamson who showed that there was limited price convergence globally prior to the 19th century despite the relatively rapid increase in intercontinental trade spurred by the discovery of the New World, the establishment of chartered trading companies, and the Atlantic slave trade (Europ. Rev. Econ. Hist., 2002). What made the difference in the 19th century was not just liberalization and greater competition, but what O'Rourke and Williamson call a transport revolution--the significant decline in oceanic freight costs. As a a result, the growth rate of trade volumes more than tripled, as is shown in a table from a later O'Rourke-Williamson article:
But a more recent paper complicates this picture significantly. In a 2009 article in the same journal (Europ. Rev. Econ. Hist.), Klas Rönnbäck shows that there may have been notable price convergence in many commodity markets prior to the 19th century. To my mind, though, the evidence he presents is not entirely convincing because Rönnbäck focuses too much on absolute price differences, instead of relative (or percentage) differences. The former are not a very good guide when the level of prices changes over time.
Here is the picture for sugar, for example:
At first sight, the picture seems to show significant convergence in prices in the second half of the 17th century, but this is an optical illusion due to the general decline in sugar prices during that period. It would have been easier to see this if the vertical axis was in logs. In any case, Rönnbäck has cast some doubt on a strict 19th century view of globalization.
Two lessons, then, for today. First, as special as it may have seemed, the last quarter century of globalization did not really represent a qualitative break with the past: it was what we have had for a very long time, experienced perhaps a bit more intensely.
And second, short of war, we are unlikely to see a drastic reversal in globalization. Economic globalization has been going on for far too long for even the crash of 2008 to derail.
So President Obama's task for the next few days will be that of the Zen Master. Let Merkel, Sarkozy and Hu posture for their domestic audiences, do some serious listening and avoid the temptation to instruct them how to fix their own domestic economies.
