We Are the World: the Time Has Come to Get Serious About Globalisation.

Listener 16 October, 2003.

Keywords: Globalisation & Trade;

The fate of New Zealand will be largely a consequence of what happens overseas, together with our ability to seize the opportunities and manage the problems it creates. The truism has been a constant preoccupation of mine, and was the title theme of my macro-economic history In Stormy Seas. Recently, I have been trying to understand more about the long-term trends in the world economy, a phenomenon sometimes called “globalisation”.

It’s a Humpty-Dumpty word, with many different meanings, often undefined by the user. For some, it is the latest trade round, for others, various institutions such as the International Monetary Fund and the World Trade Organisation, or policies such as “free trade” or unrestricted international capital flows. The London Economist called globalisation “international capitalism”. Those at the other end of the political spectrum might agree, but with rather different policy conclusions. They might call it “imperialism”.

Joseph Stiglitz says it is “the integration of national economies”. Although an attractive description for today’s world, it does not cover the globalisation of the 19th century when, as some scholars suggest, the forces of globalisation were even more powerful. As Keynes famously said, in August 1914, “the inhabitant of London could order by telephone … the various products of the whole earth, in such quantity as he might see fit, and reasonably expect their early delivery upon his doorstep; 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, and share, without exertion or even trouble, in their prospective fruits and advantages … He could secure forthwith, if he wished it, cheap and comfortable means of transit to any country or climate …” Globalisation is not a recent trend.

That 19th-century globalisation shaped New Zealand. It would be a very different economy – and nation – had there been no refrigeration (and the accompanying improvements in shipping and communications) to ex–port pastoral products. Earlier globalisation had enabled Europeans to sail here and Britain to claim the country as a colony.

What drove this globalisation were reductions in the costs of distance, as it became increasingly cheaper and easier to move commodities, people and information. Economists have under-estimated this effect, largely because the profession does not think spatially. Falling distance costs in 19th-century Europe and America enabled production to reap (and create) economies of scale as markets widened. Market widening is accepted as one of the central processes of industrialisation, but the role of lower costs of distance is frequently overlooked.

That widening of community travel and communication was crucial in the rise of nationalism and mass nations. Ironically, Stiglitz’s late 20th-century integration of national economies is transforming the nature of the nations that 19th-century globalisation created. Germany, a creation of the globalisation then, is being subsumed today in the European Union. But German culture may last a thousand years.

For the dynamics of globalisation create great economic, social, political and geographical stresses. People suffer. They did in the 19th century from industrialisation and colonialisation. They are doing so today. Omelettes can’t be made without breaking eggs, and economic growth hurts. Those who survive, benefit. Would you want to change places with a great-great-grandparent?

That is not an excuse for leaving the forces unguided. Systems of national governance were created in the 19th century as markets widened, and the need grew to regulate them. Initially, the rules tended to advantage the rich and powerful, but slowly, the public’s interest became more prominent. The same is happening with the WTO’s attempt to impose a systematic rule of law on international intercourse. It has been dominated by the barons, but at Cancun the poorer nations worked (clumsily) together as a counterweight. (Sure, there was no agreed outcome – these sorts of negotiations only ever settle at one minute past midnight, usually after the clock has been stopped for a while.)

If you have found the ideas behind this column interesting, even unsettling, they are developed on my website. The Royal Society of New Zealand thought so, too, so much so that when, a few weeks ago, it announced its support for some 105 research projects costing a total of $43.8m over three years, it gave me an award to pursue research on globalisation. Other New Zealand scholars are also interested in the topic, and the grant provides for the setting up a New Zealand Centre for Globalisation Studies – a virtual one as befits the subject – to enable us to work together. Hopefully, there will be further public and private monies to extend the research programme, for as generous as the grant is, globalisation has a far larger role in the destiny of New Zealand.