The Royal Society of New Zealand which made a grant to pursue this work, requires an annual report of work in progress. It was submitted in March 2005. This is an edited version.

Keywords: Globalisation & Trade;

Summary

The Marsden Fund of the Royal Society of New Zealand made a grant to fund three years research (at 60 percent of the time) to research and write a book on the topic of globalisation as it affects New Zealand. The grant began in November 2003. This report is written towards the end of March 2005.

In the end research has to be evaluated by its outputs. The Appendix to this report lists a large number of publications in various forms, and some presentations to various audiences. However the key output is the promised book.

In the period since the grant was made the researcher has read widely, including mastering the underlying theory, collected a considerable amount of material from reading and visiting nine states of the United States of America (under a Fulbright New Zealand Grant) and Samoa, written and presented a number of papers on globalisation, and structured and begun writing the book.

The details are set down below.

Shaping the Book

Much of the early part of the reported period was concerned with shaping the book. Six crucial decisions were made.

First, while the book will be informed by current developments in economic theory, particularly by that which underpins The Spatial Economy: Cities, Regions and International Trade by Mashia Fujita, Paul Krugman and Anthony J. Venables.(MIT Press 1999), it would be written for a wider audience than the specialists. The target audience ranges from the general economists to the public who, it seems to me, are very badly served by the popular writing on globalisation which is often poorly underpinned by rigorous analysis, and frequently dominated by moral indignation or complacency. The intention is the Marsden book will better inform readers who can then apply they political preferences for their policy judgements.

The theory is quite difficult. Much of the mathematics seems intractable (that is, there is no analytic solution), so results often rely on simulations, which may not give general conclusions. The underlying mathematics, abandons one of the key assumptions that has informed much economic analysis – that (plant and industry) economies of scale are not important. Their introduction changes the shape of the mathematical spaces, and undermines the intuitions that go with them, without offering – as yet – replacing intuitions. Much of this paragraph will be opaque to the target audience, and yet any presentation to them needs to be true to the underlying theory.

The developments are very exciting. While economics has some history (going back to J. H. von Thunen in the nineteenth century) of a spacial dimension in the economy, it is very limited, as illustrated by the rarity of maps in most economic texts, or that standard international theory is not greatly concerned whether the two countries have a common border or on opposite sides of the world. Distinct economies existed because countries had immovable resources, such as land (it was frequently assumed labour, capital and technology were also immovable).

Once the costs of distance – ‘trade costs’, which are more than just transport costs – are introduced, location becomes a vital element of economic behaviour. The interaction between such costs and economies of scales generates outcomes which seem to be quite different from the standard theory without costs of distance and only diminishing returns. This is frontier of economics stuff, which if economists can get the analytics and intuitions right, represents a major shift in the paradigm.

Thus the writing challenge is to convey to the general audience some of the notions – and the excitements – of these developments.

Second, the book will be deeply based in history and geography, which is where globalisation actually occur. Much of the popular debate is about the now of globalisation, with little recognition that the phenomenon is around two hundred years old. History and geography opens a welter of examples . For the reader it embeds the analysis in a practical reality, which if more demanding to the presenter, should enable the reader to connect better.

This realisation led to the third consideration. Originally the book was to focus on New Zealand in a globalising world. But that traps the framework into the standard economics space of two columns in a table or two axes on a graph, rather than there being some sort of geographical proximity, or lack of it.

Eventually I concluded that in order to break out of the framework, the book should be written for an international audience as well as a New Zealand one. This does not mean New Zealand will be neglected. Leaving aside there will be at least one chapter devoted to New Zealand (and possibly more), many chapters draw on New Zealand material to supplement the themes. For instance, the opening chapter contrasts the colonial experiences of Hawaii and Samoa, but the experiences of the New Zealand Maori are also used. One can think of the analysis remaining New Zealand centred but it is checked against the rest of the world.

Fourth, on learning that I am working on globalisation, potential readers commonly ask ‘are you for it or against it?’ I explain that I have the methodological stance that I would not answer this question until I had completed the analysis. That remains my overall position, although the analysis so far leads one toward the view that globalisation is one of the great forces of history, which is largely unstoppable but to some extent is governable. Asking whether it is a good thing or not is not particularly helpful. First, one must define it and analyse it, and then query what are the harnessing options. The book will aim to give the reader better understandings in order to enable make her or his to make my own decisions rather than imposing my political views and expecting the reader to agree. .

Indeed, I am as intrigued as those who pose the question, as to what the conclusion say. I am continually equivocating over whether there is (or rather what king of) convergence in culture and policy as a result of globalisation. I shant be surprised in that equivocation remains in the conclusion.

The fifth decision was that the book will not consider the implications of globalisation for military activities or vice versa. It is written by an economist with a limited span of expertise. Having said that, there is a story to be written about how the military, as much of the economy, has been shaped by effective distance. It took the US almost three years to get their troops onto the European continent during the Second World War: it took them just over three months to invade the much trickier logistical proposition of Iraq sixty years later.

The sixth decision was to leave the process of economic growth as largely exogenous. The book would otherwise be large. In any case the theories I am using largely make the same assumption. Of course that cannot be quite right, since the diminishing cost of distance is a part of the growth process even in a non-spatial model, since it releases resources and creates new products. Oh dear. This is the assumption most likely to be abandoned as the work progresses.

Themes

The central themes of the research can be summarised as follows:

1. Globalisation is the economic integration of economies – regional and national economies – and the social and political consequences of that integration.

2. Globalisation began in the early nineteenth century, so the phenomenon is almost two centuries old. Since globalisation an historical phenomenon, so focusing on it in just the last few decades throws away a rich source of insights.

3. Globalisation is caused by the falling cost of distance – not just transport costs, but the costs of storage security and information. This gives a driver for the globalisation process. Costs of distance are a trade cost, like tariffs but larger. So one can use the economic theory of tariffs to model globalisation.

4. Globalisation is not solely an economic phenomenon. It has political and social consequences.

5. The policy issue is not being for or against globalisation, but how it can be channelled to give desirable outcomes.

The Structure of the Book

Aside from the Introduction (which the previous section drew upon) and the Conclusion, the book is in three parts: Part I presents the underlying economic theory; Part II looks and the political and social consequences of the economic transformation; Part III looks at different ways of accommodating with a globalised world. Details.

Progress

Of the 28 chapters, only six have been written or near written. Considerable material has been collected for many other chapters. This reflects the usual time it takes to set up a research project. It is currently anticipated that the project should be finished near schedule, although it will be much tighter than originally proposed because the funding is for three days a week rather than four. Some sacrifices have had to be made on lower priority parts of the project.

Ironically, a major disruption to writing is overseas travel, and yet it has been vital for informing the book. Last year Fullbright New Zealand enabled me to spend four months in the United States (at the Centre for Australian and New Zealand Studies, Georgetown University, Washington DC and at the Economics Department, Harvard University, Massachusetts as well as visiting some other states and institutions). I also visited Samoa. This year the government of the Federal Republic of Germany will enable me to spend two weeks in Germany, and I shall also be visit Canada partly from funding provided by a evaluation of drug abuse conference, and partly using Marsden funding.

The websites for the New Zealand Centre for Globalisation Studies has been set up, but the supervising structure has proved more difficult to establish than was expected.

Least progress has been made on writing up the theoretical models. I think that may be the cost of the funding limitations.

A major sacrifice has been the abandoning of the writing of Transforming New Zealand, another book mentioned in the application. It is two thirds complete. The completed chapters are on the website.

Other Work.

The Marden funding was for three days a week, not for full time research. The remaining time was to be available for consultancy and the like, and unpaid public good research. Some of the latter included additional time on the globalisation project. Ideally the consultancy work should support the Marsden Project intellectually as well as financially, although this has not always been possible, although so pervasive is globalisation that rarely is there no intellectual interaction.

What was unanticipated is that because I have been a researching for forty odd years on an extraordinary wide range of topics, I am still being consulted about them, in a way which is normal for an academic – often without recompense (e.g. academic refereeing, talking to journalists or officials, or presenting to voluntary organisations). While I have not charged this work to the Marsden Project, it has cut into the public good time available for it.

The following are among the major topics worked on outside the project over the last year, which have not been funded by the project. They are listed in order of their contribution to the Project.

1. Growth and Innovation Advisory Board

I am a member. The work program includes global connectedness, infrastructure, and growth culture which has been influenced by my globalisation work, and influences my work.

(Various direct contacts with officials have also already benefited from the globalisation research. I remain on a couple of officials’ committees – macroeconomic forecasting and statistics – which dont have a lot to do with globalisation.)

2. Measurement of GDP

The website reports a number of papers in this area. One is a major challenge to the conventional wisdom, showing that the conventional measure of PPP adjusted GDP is invalid. It is closer to PPP adjusted GDI, and the two are not equal. The research was presented at a conference at the University of Davis, and has been taken up by other academics (notably Rob Feenstra). It is likely to affect the next round of OECD estimates. (In passing this means much of the New Zealand research on comparative growth is invalid.)

3. New Zealand’s Economic Performance

I wrote three major papers last year (two with some external funding).:
‘The Development of the New Zealand Economy’ (February 2004)
‘Paradigms of New Zealand Economic Growth: A Memoir’ (August 2004)
‘The Economy’ for Te Ara (The On-line Encyclopaedia) (Launched February 2005)

This work is implicitly important for the Project out of which it developed, and which continues to enable me to explore some aspects of global connectedness, and the New Zealand economy.

4. Licit Drugs

I am both a national and international expert on the evaluation of the social costs of alcohol and tobacco use, and on their taxation and regulation. There has been some consultancy work over the year, and the usual amount of public good provision of free advice to officials, lobbyists, journalists and the general public.

Happily there has been two globalisation spinoffs. The chapter on policy convergence is using the EU difficulties over the regulation of alcohol to illustrate the problems of cross-border interfacing of public health policies and free trade. And attendance at an international seminar in Ottawa in June, will enable me also to do the field work for the Canada chapter on cultural convergence.

5. Miscellaneous Work

5.1 consultancy for a Pharmaceutical Company. It is an absolutely fascinating area, but does not particularly have a spatial dimension, although it is very instructive about how hi-technology growth occurs in a non-spatial economy (which is outside the scope of the book). Apparently my grasp of the industry is sufficient for one industry leader to suggest I write a book on it (most of the books are not much better than the popular books on globalisation). Alas I shall not have the time. Regrettably the material is confidential to the client, and not available on the website.

5.2. Advising SHORE (Massey University) on the economics of a gambling project. This was a (not large) commitment made before the Marsden Project was announced. There is a minor globalisation dimension with offshore electronic gambling. However the underlying problem (interfacing of policies) will be illustrated in the globalisation book by alcohol policy. Papers on the economics of gambling.

5.3 Medical Misadventure: This public good activity maintains an interest I have in ACC and also health policy. This has led to a paper on the evaluation of waiting times, and which will be submitted to a top-of-the-line British medical journal, after presentation to a Wellington seminar in April.

5.4 Family Policy. This has been a long term expertise and I continue to be consulted by officials, lobbyists, journalists and the general public, especially in 2004 when the government introduced a major fiscal package for families.

5.5 Nationbuilding. New work has explored nationalism and globalisation issues.

Omitted are details of publications, presentations and the like.

Go to top

Contents (But note that the contents have changed since this was put here.)

Keywords: Globalisation & Trade;

Preface: Globalisation Is Not Just Jargon.

Part I: Globalisation
Chapter 1: The Analytics of Globalisation
Chapter 2: The Significance of Location:Polynesia
Chapter 3: When Distance Changed: Refrigeration
Chapter 4: Regional Integration and Plant Economies of Scale: United States
Chapter 5: Cities and Industry Economies of Scale: New York
Chapter 6: The Indeterminancy of Location: Finland’s Nokia
Chapter 7: Intra-Industry Trade: The Motor Vehicle Industry
Chapter 8: When Services Become Tradeables: Bangalore
Chapter 9: Labour Mobility: Mexico and US
Chapter 10: Resources: Oil
Chapter 11: Technology Transfer: Japan
Chapter 12: The Rich Club: Argentina
Chapter 13: The Poor Club: Africa
Chapter 14: Why There is No Significant Middle Club: The Bifurcation Model
Chapter 15: The Pattern of World Development: China

Part II: Nations
Chapter 16: Nationalism: Germany
Chapter 17: Is Cultural Convergence Inevitable?: Canada–United States
Chapter 18: Diasporas: Australia
Chapter 19: Migration: The World’s Population
Chapter 20: The Meaning of Sovereignty: The Globalisation of Time
Chapter 21: Is Policy Convergence Inevitable?: Healthcare
Chapter 22: The Social Market Economy: France and Holland
Chapter 23: Foreign Investment: McDonalds?
Chapter 24: The WTO: Saudi Arabia or Russia?
Chapter 25: Kinds of Nations: New Zealand

Conclusion: Distance Looks Our Way

This research is funded by the Marsden Fund of the Royal Society of New Zealand)

by Jagdish Bhagwati (Oxford University Press, 308 pp. $72.95) ISBN 0-19-517024-3, reviewed in New Zealand International Review, January/February 2005, Vol XXX, No 1, p.31-32.

Keywords: Globalisation & Trade;

The economics student struggling though the mind-numbing theory of international trade will eventually hit upon learned papers by Columbia University economist Jagdish Bhagwati, whose contributions make him a candidate for an economics prize in honour of Alfred Nobel. They will soon learn that beyond his painstaking rigour he has a total commitment to free trade. So there was much glee among anti-globalisers when he rejected some aspects of globalisation. There may be less as a result of his latest book In Defence of Globalization.

Bhagwati’s popular fame follows his rejection of the case for unfettered short term capital flows. But he favours increasing economic integration based on free trade and movements of labour, capital and technology, albeit with numerous caveats. His support comes in part out of his trade theory, although there is little reference to it in the text. Rather he argues, with numerous illustrations, that the best chance that the developing world has for raising its material standard of living is an open economy. This is a book about North-South relations, so he does not quite engage with those anti-globalisers in developed countries, who are preoccupied with the impact of globalisation on them, although they often use the impact on developing economies to buttress their argument.

Bhagwati divides the anti-globalisers into two camps. One is the ‘hard core’ who have a deep-seated antipathy to globalisation. The implacably hostile get a short treatment. In a few pages he damns their trilogy of discontents ‘anti-capitalist, anti-globalisation (he means anti-imperialist), and anti-corporatist (against big business), adding an attack on the right, on communitarians, and on anti-Americans. It’s good knock-about stuff – he has a crack at post-modernism on the way too – but the purpose is to dismiss them in order to engage with the second group.

They are those within the mainstream discourse, who argue that economic globalisation is the cause of several social ills of today, such as poverty and environmental deterioration. Bhagwati says they invite a reasoned engagement. So chapter on chapter addresses their concerns: the impact of globalisation on poverty, child labour, women, democracy, culture, labour standards, the environment. One chapter provides a powerful critique against unrestricted financial flows, (but not foreign direct investment), a second defends corporations, another on migration ends with his recommendation of a World Migration Organisation. Each chapter is rich in practical examples.

Engagement is not ideological rhetoric. One has to listen to one’s audience, and deal with its understandings and perceptions. In doing that one may change one’s own mind, or a at least recognise that there are deficiencies in the current system and suggest improvements, as does Bhagwati in his last four chapters. One is entitled ‘coping with downsides’ so he admits they exist. That’s engagement.

But he does not budge from his belief that open trading strategies are good for developing countries. Given that there is no post-war example of an economy which has successfully developed as a closed economy (the oil producers aside), he is on strong grounds. When a country is steaming along at an annual 10 percent GDP growth, a lot of good things are happening. Sometimes not everyone benefits – hence the peasants’ revolt in the ‘Shining India’ election – but with luck and care there are few people actually worse off. However when the economy reaches rich OECD status, and growth slows down to 3 percent, trade makes some people worse off. That gives an opposition to globalisation which Bhagwati hardly addresses..

Like most economists, Bhagwati is so comfortable with the way the market operates he does not recognise the widespread discomfort of non-economists (which is not the same as antagonism to capitalism). It is touched upon, when he impatiently asks whether the alternative in a particular case would be better. Perhaps, too, he should have found more space to disentangle people’s concerns with social change which they attribute to globalisation but would happen anyway. The book also needs a chapter on international institutions such as the IMF and WTO, because anti-globalisers – of both types – worry about them. (There is an excellent glossary of acronyms.)

Ultimately Bhagwati wants globalisation, because he believes in the economic integration and the trade and specialisation which comes from an open economy, and which he believes will benefit those in poor countries. But he wants a more humane version than we have today. And he wants NGOs to support the evolution of globalisation, rather than resisting it.

This is an engaging book. But for the price, I would recommend that groups buy a set and talk through chapter by chapter, taking up the implicit challenge on every page, pondering whether Bhagwati has got it right – have they got it right? Those of us who have struggled through international trade theory will be surprised to find a charming cultivated man widely read in Eastern and Western literature, one who cannot resist an opinion on matters of moment, and even of total irrelevance. How on earth do sexual revelations at the OJ Simpson trial relate to globalisation? But it contributes to a lively text which will engage the open-minded.

Brian Easton wrote this in Washington while on a Fulbright New Zealand grant.

Globalization in Historical Perspective, a National Bureau of Economic Research Conference Report, edited by M.D. Bordo, A.M. Taylor and J.G. Williamson. (The University of Chicago Press, 2003)

New Zealand Economic Papers, Vol 38(2) December 2004, p.299-306.

Keywords: Globalisation & Trade;

The public, which has firm, uninformed, and confused views on globalisation, would be astonished as to what the scholars think about the topic, although perhaps less surprised as to what they do not (yet) know.

First, there is the question of definition. A short one is “(economic) globalisation is the closer integration of nations” (to which I would add “and regions” because internal integration is so similar to, but preceded, international integration).

There is an ambiguity in this scholars’ definition. ‘Globalisation’ may refer to the process of globalisation, or it may refer to the degree of globalisation. The distinction can be important, especially when different periods are compared, as we shall see.

The economic focus tends to be on trade, migration, capital flows and technology transfer, together with changes in the international order, and tends to exclude such related phenomenon as transmission of diseases, the consequences on the environment, culture and languages, and political arrangements. To add them may involve moving outside economists’ expertise. An even more serious omission may be the role of military force in the shaping of the world economy.

Second, economic scholarship does not see globalisation as a recent phenomenon. There is some disagreement as to whether it begins as early as the first European explorations in the fifteenth century, but the consensus sees globalisation beginning in the early nineteenth century (say 1820) when international trade begins to shift from absolute advantage (gold for spices) to comparative advantage, where countries import products they could make themselves. There is a widely held view that the nineteenth century globalisation was more vigorous than the late twentieth century globalisation, because migration was much stronger. The process of globalisation was stagnant – even reversed – in the first half of the twentieth century, even though the level was in some respects higher than in the nineteenth century. (Note that there is debate as to whether the stagnation began in 1914 or up to thirty years earlier.)

This pattern of globalisation is illustrated by that all international trade was 1.0 percent of World GDP rising to 9.0 percent in 1929, but falling to 5.5 percent in 1950. In 1998 it was 17.2 percent, and is – no doubt – higher today. However, while other indicators – say of capital and labour flows – have the same general pattern, the timing of the turnarounds differ.

Third, and this is less explicit in the literature, globalisation is treated as a consequence of the falling costs of distance. This need not surprise us: regionalisation occurs when the connections between regions improve; trade based on comparative advantage is going to be negligible when the costs of transporting the goods are high. Behind this is the economic scholars’ approach in which the effects of an exogenous change are modelled. Exogeneity in modelling can be an artifice – arguably some transport cost falls have been responses to globalisation. Even so, it is useful to be able to separate various influences, rather than have one great muddle of everything, as is common in many popular books.

These three themes are admirably elaborated in Globalization in Historical Perspective, which is based on eleven papers presented at an NBER conference in 2001. Most of the papers are gems, in which two distinguished economists survey the literature, followed by an equally distinguished discussant. Thus they offer every economist the opportunity to catch up with the economic scholarship of an important and rapidly developing area of interest..

To be provocative, I start with the seventh chapter “Globalisation in History: A Geographical Perceptive” by Nicholas Craft and Anthony Venables (both London School of Economics). That the book puts it so late reflects the tendency of economists to ignore the spatial. Economies are treated as columns in a tabulation rather than places on a map. Yet globalisation is essentially about the changes to the spatial allocation of economic activity (and its related growth).

The chapter tells a spectacular story. In 1750, over half of the world’s industrial output was located in China and India. By 1850, over half was produced in North America and Western Europe, a situation which broadly pertains to this day. A similar, although not quite as spectacular, story applies for GDP, although the Maddison database only goes back to 1820. In contrast, the population story shows much more stable patterns.

The chapter then sets out a model based on falling transport costs and location theory to describe the phenomenon. (See Fujita, Krugman and Venables (2000) for greater elaboration of the underlying models.) It argues increasing returns are a major source in the divergent patterns of trade, concluding that as the costs of distance fall, agglomeration effects are crucial. ‘[I]n the twenty-first century these are likely to revolve much more around complexities of information and pools of skilled labour than the costs of transporting manufactured goods’. Discussant Richard Baldwin (Graduate Institute of International Studies, Geneva) ) remarks that the biggest missed opportunity in this paper concerns a ‘grand unifying theory of globalization and geography’. But we are well on the way.

The opening chapter of the book is “Commodity Market Integration: 1500-2000” by Ronald Findlay (Columbia University) and Kevin O’Rourke (Trinity College, Dublin), which sets out in detail the changing patterns of world trade, often using price information when quantity information is not available. Trade grew only slowly during the 300 years to 1800 and the price gaps between markets were large and poorly correlated, indicating that not only was the cost of transport high, but there were high margins for uncertainty. Discussant Douglas Irwin (Dartmouth College) describes the review as ‘near-exhaustive’ but chides it for confining attention to intercontinental trade. He is quite right of course, but the extension to more localised trade would easily have trebled the paper length. Similarly it would have been useful – albeit requiring a further doubling of the paper – to have had more on non-commodity merchandise (and also services).

The following chapter, “International Migration and the Integration of Labour Markets” by Barry Chiswick (University of Illinois at Chicago) and Tim Hatton, (now Australian National University), deals with one of the most troubling areas in globalisation. Today migration is proportionally small compared to the mass flows in the 300 years before 1914, so we do not have to worry so much about a factor of production changes national social welfare functions when it changes jurisdictions. Moreover, while some choose to migrate, others are forced: slavery, convicts and refugees from political repression and war. Moreover in contrast to those on goods and capital, there have been, and are, significant policy-induced barriers to migration.

The survey’s main message is that, even so, migration is quite responsive to economic incentives. Intriguingly today’s main migration flows are from poor countries to rich ones rather than those from Europe to America and other frontier societies which dominated the nineteenth century. Unlike for goods and capital, the nineteenth century globalisation of labour markets, albeit then confined largely to Europeans, has not been repeated in the late part of the twentieth century, when flows were regulated by national policies, discriminating heavily against the unskilled, so the (poor) origin nations losing skilled labour suffer. Discussant Riccardo Faini (University of Brescia, Italy) concludes ‘there is still a long way to go to the globalization of labour markets.’

Chapter 3 “Globalisation and Capital Markets” by Maurice Obstfeld (University of California-Berkeley) and Alan Taylor (University of California-Davis) makes up the third leg of the standard goods-labour-capital analysis. It does not work as well as the earlier chapters because added to the survey element is some new research. Moreover it mixes together financial flows with direct foreign investment, and while they can be closely related, it is useful to separate them. (The final four chapters focus on financial flows.)

There was a high level of international capital mobility in the nineteenth century, much less in the first half of the twentieth and then a return to high capital mobility thereafter, the so-called ‘U-shaped pattern’, although the chapter suggests that capital may have flowed more easily to poor countries in the first boom than the more recent one. The authors propose that this was a consequence of the ‘macroeconomic policy trilemma for open economies’ where it is not possible to maintain the three policy goals of full freedom of cross-border capital movements, a fixed exchange rate, and an independent monetary policy oriented towards domestic objectives. At different times there were different national policy responses, although there is no discussion on how these responses were related to trade policy and migration policy, even though they experienced a similar U (albeit in the case of migration with a weak post-1950 upside). Moreover, discussant Richard Portes (London Business School) argues there is a wide variety of alternatives to the authors’ fundamental hypothesis’, so the chapter needs to be treated more as work-in-progress rather than a survey.

Part II, the next four chapters (including the already mentioned one on geography), is meant to be about outcomes, but Chapter 6 is about technology, and belongs better to Part I which uses the standard model of trade. Gregory Clark and Rob Feenstra (both University of California-Davis) ponder on the ‘Technology and the Great Divergence’. As in the case of the chapter on capital, this contains both reviews and existing work. It uncomfortably reflects the state of economist’s understanding of technology (and the production function). Robert Solow’s measurement of what is called today ‘Total Factor Productivity’ was a forward step, but his TFP – the coefficient of ignorance (Balogh and Streeten 1963) – is an unexplained residual which fifty of years of research has hardly progressed to an empirically causal process. It is a way of summarising data rather than providing causal stories. Economists are torn between the quantitatively measurable but tautological TFP, and more qualitative accounts such as the Schumpeterian one of William Baumol (2002).

Clarke and Feenstra meet the challenge with the following story. What explains the differences between the incomes of nations is neither capital scarcity, for they assume capital is largely mobile, nor technology, which they argue is easier to copy than create. Rather than differences in the access to technology, they argue there are substantial differences in the use of technology between rich and poor countries, providing some micro-evidence from railways and international trade patterns to support their assessment. But, as those who have done technology or productivity comparisons between two rich countries know well, it is a difficult hypothesis to verify. Moreover, what causes these differences? Discussant Joel Mokyr (Northwestern University) calls the answer the ‘mysterious’ ‘Factor C’ (after Clark) but is it managerial ability, human capital, or the institutional arrangements which Mokyr puts some emphasis on?

In the fourth chapter in the book, Steve Dowrick (Australian National University) and Bradford DeLong (University of California-Berkeley) bring together the five chapters on geography, trade, labour and capital flows, and technology in “Globalization and Convergence”. They propose a convergence club, ‘the set of economies where the forces of technology transfer, increased international trade and investment, and the spread of education were powerful enough to drive productivity levels and industrial structures to (or at least towards) the industrial core.’ (Note this definition does not mention managerial ability nor institutional arrangements.)

One of the club’s features is that membership is not eternal: the authors identify over a dozen members that in it there in the interwar period but are no longer. They conclude that ‘globalization of the economy does not necessarily imply global convergence’, and that ‘at the end of the twentieth century the growth benefits of opening up appear substantially lower than in the twentieth century’s third quarter … there is little reason to be confident that opening doors to the world economy will guarantee a place at the high table’. Discussant Charles Jones (University of California-Berkeley) extends the argument by observing in the late twentieth century there was much less income divergence between the open economies than between the closed economies: perhaps all open economies resemble one another, but each closed economy is closed in its own way.

In Chapter 5, Peter Lindert (University of California-Davis) and Jeffrey Williamson (Harvard University) ask “Does Globalization Make the More World Unequal”. Since at least the times of Karl Marx there has been a tendency to assume that capitalist growth makes the economy more unequal, and the poor poorer. Perhaps one hundred years ago, it became evident that this was not necessarily happening in the industrialised countries, so the increasing inequality hypothesis was reinterpreted as applying to between countries. Unfortunately the notion of inequality is not a simple one: formally there are situations where economists are unable to say unequivocally that one of two income distributions is more unequal than the other. Given that data is almost always incomplete and inaccurate, the opportunities for vigorous debate without reaching conclusion seem unlimited.

Yet the authors provide some relatively convincing answers. World income inequality has risen since 1820 (and probably since the sixteenth century), although there is some dispute as whether the trend has continued in recent years, probably arising from the ambiguities in the measures of inequality. But most of the increased world inequality took the form of a rise in income gaps between nations, not a rise of within-country inequality. They observe that large integrated economies – the US and Japan, and perhaps soon the European Union – have less internal inequality than the world as a whole, suggesting that integration per se (and by extension perhaps the integration which comes from globalisation) may not be a source of inequality. Note however these examples of integration involve no restrictions on labour mobility. Discussant Lant Prichett (Harvard University) admires the ‘masterful review’ and poses five puzzles which arise from the paper. One is whether we should worry about inequality. On a slightly narrower focus I would ask that suppose globalisation were to increase inequality but at the same time to increase the incomes of all people. Is such globalisation a good or bad thing? (A Rawlesian criteria would say ‘good’.) After reading this book, one concludes that notion that globalisation is a zero sum game is a deeply flawed assumption, although of course some people suffer.

Space precludes individually reviewing the last four chapters on financial institutions, regimes and crises except to say that the emphasis on this topic – while omitting others mentioned below – seems imbalanced, perhaps reflecting the economics profession rather than the inherent importance of each issue. Even so those interested will again find a set of useful specialist surveys. The contributions from the panel which ended the conference is thin in contrast to the rich diet before.

There are a number of important questions which economic historians can address, but which the book hardly touches on. First, is the tendency to take the nation-state for granted, whereas they appear to be creatures of globalisation and regionalisation. As Alberto Alesina and Enrico Spoloare (2003) have pointed out, the boundaries between nations are not fixed in the long run, while the activities of the nation-state have evolved (e.g. Lindert 2004). Nor should economists turn their back so firmly, as this book seems to, on the scholarly discourse about empires and colonies.

Second, given the break in globalisation in the first half of the twentieth century, there is a need to synthesise the separate discussions in the chapters into a comprehensive account. It probably revolves around the creation of integrated nation states in the late nineteenth century leading to particular policy responses. The bigger question becomes why they changed their mind in the 1950s?

And, third, there is surprisingly little in the book about supra-national institutions such as the IMF and the WTO (or Pax Britannica in the nineteenth century). There are parallels here with the creation of domestic economic regulatory institutions a hundred years ago, as nation-states bedded in.

The issues are inter-related. Even so, here are topics for the next conference, which will be a cracker if it is a good as the one this book reports.

What is the popular response to all this? Many of its concerns are not addressed, in part because they are not central concerns of economists, although perhaps some should be: environmental degradation, loss of nation-state sovereignty, policy convergence, resource depletion. Some concerns economists think so normal they tend not to mention. But they are acute to those involved. The exemplar is the loss of jobs as industries locate elsewhere.

Moreover, perhaps we are in a new phase of globalisation. We may have moved from the comparative advantage of inter-industry trade to the competitive advantage of intra-industry trade, although of course the old ways continue – there is still considerable absolute advantage trade. The ICT revolution has also reduced the cost of transporting information so that chunks of the service industry are even more relocatable as manufacturing. Curiously, much of the antagonism to today’s globalisation is about the multilateral regulation of international economic intercourse. Treating Pax America as if it is parallel to nineteenth century Pax Britannica ignores the growing multilateral institutions, not wholly subservient to the US. Finally, perhaps, as a 2004 paper by Paul Samuelson shows is theoretically possible, some of the winners of the last 200 years may be losers in the near future. One is struck for instance, how Jagdish Bhagwati In Defense of Globalization focuses on North-South relations, and ignores some of the particularly North concerns.

There is a need for economists to engage in the popular debate. Bhagwati’s book is a fine example. But economist’s contributions must be underpinned by the painstaking analytical and statistical work that Globalization in Historical Perspective brings so excellently together and makes so accessible to its profession.

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Bibliography
Alesina, A. & E. Spoloare (2003) The Size of Nations (MIT Press).
Baumol, W.J (2002) The Free-Market Innovation Machine: Analyzing the Growth Miracle of Capitalism (Princeton University Press)
Bhagwati, J. (2004) In Defense of Globalization, Cambridge University Press.
Balogh, T. & P.P. Streeten (1963) “The Coefficient of Ignorance”, Bulletin of the Oxford University Institute of Economic and Statistics, May 1963, p.99-107.
Fujita, M., P. Krugman & A.J. Venables (2000) The Spatial Economy: Cities, Regions and International Trade (MIT Press)
Lindert, P. (2004) Growing Public: Social Spending and Economic Growth since the Eighteenth Century (Cambridge University Press)
Samuleson, P. (2004) “Where Ricardo and Mill Rebut and Confirm Arguments of Mainstream Economists Supporting Globalization”Journal of Economic Perspectives Vol. 18, No. 3, Summer 2004

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