0. Globalization, 1815−1914: trade and development
EC120 The World Economy in Historical Perspective
Globalization, 1815−1914: trade and development
Topics:
World economy in the long 19th century
Industrialisation, mid-19th century to 1914
Transport & communications in 19th century
Long distance trade, 1815−1914
Commodity market integration and convergence
Britain’s move to Free Trade
Liberal interlude in commercial policy, c1860−c1880
Retreat from Free Trade: rise of Neo-Mercantilism
Free Trade Imperialism
Reading: get started with
Findlay & O’Rourke, Power and Plenty, pp. 378–407, 425–428
Key issues:
In what ways was the “economic structure” of the world economy transformed, 1815–1914? What were the driving factors in the transformation?
What were the main causes and effects of commodity market integration in the 19th century?
What explains the widespread move towards more liberal international trade in the mid-19th century?
To what extent, and why, was there a retreat from “Free Trade” after the 1870s? What were its effects?
Key concepts: the Transport Revolution; Corn Laws; neo-Mercantilism; Free Trade Imperialism; Reciprocity treaties; Most Favoured Nation agreements; the Alliance of Rye and Iron; Great Specialisation
EC120, week 16

1. The World Economy in the long 19th century
EC120 The World Economy in Historical Perspective
The World Economy in the long 19th century
Move towards international Free Trade, 1840s−60s
Retreat from late 1870s with rise of neo-mercantilism
Industrialisation: western Europe caught up, 1850s−60s
Industrialisation: a “second” Industrial Revolution?
Globalisation: the first(?) phase 1860s−1914
Stages in the long 19th century, 1815−1914:
Britain completed the first (“classical”) Industrial Revolution, c1850
International economy moved towards Free Trade, 1840s−60s
Symbolic abolition of Corn Laws, 1846
Industrialisation: western Europe caught up, 1850s−60s
Industrialisation continued apace: “second” Industrial Revolution
Technological progress in Europe & US from 1870s onwards
Japan industrialised swiftly after Meiji restoration in 1867/8
Globalisation: market integration & income convergence, 1860s−1914
Commodity market integration: dramatic decline in price divergences
Integration of Europe and it’s offshoots including US
Mass migration, mainly from Europe to the “new world”
Capital market integration: growth of foreign portfolio & direct investment
Monetary integration: the International Gold Standard, 1880s−1914
Convergence in the “Atlantic economy”, divergence with the “third world”
Rise of neo-mercantilism: retreat from Free Trade from late 1870s
“… the century that followed the final defeat of Napoleon saw the world’s economic structure transformed in so radical a manner that it would have been virtually unrecognizable to a late eighteenth century observer.” (Findlay & O’Rourke, p.426)
EC120, week 16

2. Industrialisation, mid-19th century to 1914
EC120 The World Economy in Historical Perspective
Industrialisation, mid-19th century to 1914
Technological advance in broad range of industries
Landes’s classification:
I. “New materials and new ways of preparing old materials”
II. “New sources of energy and power”
III. “Mechanisation and division of labour”
Technological advance in broad range of industries
Innovations of the first Industrial Revolution spread more widely
Geographical spread across western Europe, USA & Japan
Landes’s classification (The Unbound Prometheus, pp. 249−326):
I. “New materials and new ways of preparing old materials”
Mass production of steel, “a superior variety of iron”
Chemical industries, esp. alkalis (soda) and organic dyestuffs
II. “New sources of energy and power”
Steam: compound engine & development of steam turbine (Parsons, 1884). Of the steam turbine: “… greatest innovation in the use of steam power since Watt’s construction of an engine to produce rotary motion.” (Landes, The Unbound Prometheus, p. 279)
Internal combustion engine, fuelled with gasoline (oil derivative)
Electricity: expansion in distribution and range of applications
III. “Mechanisation and division of labour”
Machines with replaceable parts, machine tool industry
Expansion of mass production methods, production line organisation
The “ever-closer marriage of science and technology”
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3. Transport & Communications in the 19th cent.
EC120 The World Economy in Historical Perspective
Transport & Communications in the 19th cent.
Canals: linked oceans, inland waterways expanded
Ocean: improved ship design and refrigeration
Railroads: expanded across the world after 1840s
Telegraph: networks widespread from late 1840s
Canals:
Linking oceans: Suez canal (1869), Panama canal (1914)
Inland waterways: expand but their growth is eclipsed by railroads
Ocean:
Steam propulsion: screw propulsion from late 1830s; compound steam engine from 1860s. But larger and faster sailing vessels strive to compete
Iron replaced wooden hulls, 1840−70; then steel replaced iron, allowing larger, longer ships
Refrigeration: the steam-ship Frigorifique, 1876, carried frozen beef from Argentina to France, the first refrigerated ship to do so.
Railroads:
Sequence of booms from 1840s, expanded railways throughout the world
By 1860, U.S. railroads extended into mid-west (coast-to-coast by 1870)
Telegraph: networks expanded from late 1840s
Implications:
Dramatic falls in ocean & overland freight costs from mid-19th century
From 1870s, rail & ships open the mid-west prairies for European markets
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4. EC120 The World Economy in Historical Perspective
Long distance trade, 1815−1914
Growth of trade faster than GDP; brief cyclical interruptions
Growth dominated by Europe and the New World
Shift from high-value/weight to bulk commodities
Changing trade patterns affected composition of domestic output and distribution of income
What determined of the changing patterns of trade?
Trend growth of trade exceeded GDP, with brief cyclical interruptions
Geographical pattern: dominated by Europe and the New World
Trading infrastructure created in 17−18th century Europe
Economic imperialism: European nations (esp. UK, France, Russia) imposed free trade on their expanding empires (also, USA extended its borders)
Changes in product composition:
Shift from high-value/weight, non-competing goods (e.g. spices, tea, coffee) to bulk commodities (grain, metals, textiles)
Displaced national trading monopolies: rivalries between nations’ trading elites replaced by rivalries within nations.
Changing trade patterns affected allocation of domestic production and distribution of income (e.g. displacement of agricultural workers in UK)
Determinants of the changing patterns of trade:
Comparative advantage (Ricardo), determined by factor endowments (Heckscher-Ohlin) of land, labour and capital
Factor endowments determined by (a) trade restraints (politics), (b) migration, (c) investment, (d) technology (e.g. transport and mining technology)
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5. Commodity market integration & convergence
EC120 The World Economy in Historical Perspective
Commodity market integration & convergence
International commodity markets became more integrated,
Compare commodity prices at the origin (production) with those at the destination (consumption)
Commodity market integration and income distribution
Commodity prices -> trade patterns -> production patterns -> income distribution
International commodity markets became more integrated,
Evidence is based on price differentials between origin and destination:
Little or no integration until c1820, substantial integration thereafter
Transport cost-savings reinforced with trade liberalisation to c1880
Transport cost-savings outweigh increasing trade barriers from c1880
Commodity market integration was world-wide in its impact
Commodity market integration and income distribution
Commodity price changes affected trade patterns, hence returns to the factors of production, hence income distribution (to labour, capital, land)
Rough guide to 19th century trends in the Atlantic economies:
Europe exported labour-intensive manufactured goods in return for imports of land-intensive primary products (agricultural goods) from the New World (North & South America, and European settlements)
European labour benefited from increased wages, while landowners lost out, as land rents declined
O’Rourke & Williamson find (limited) evidence of income “convergence”
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6. Britain’s move to Free Trade
EC120 The World Economy in Historical Perspective
Britain’s move to Free Trade
In 1815, Britain remained highly protectionist
Agricultural protection reinforced: Corn Law of 1815
Corn Law repeal in 1846 signalled onset of Free Trade
Free Trade Imperialism: enforced foreign openness
In 1815, Britain remained highly protectionist
Many mercantilist restrictions (e.g. Navigation acts, trading monopolies) remained, though were becoming increasingly obsolete
High tariff rates remained on a wide range of imported goods
Agricultural protection, long established, was reinforced with the Corn Law of 1815, a law promoted by still-powerful great landowners
Intended to protect agriculture from imports after restoration of peace
Protection was later moderated (e.g. sliding scale duties from 1828)
Grain (bread) prices fluctuated, depending on the state of the harvest
Political protests gather pace with formation of Anti-Corn Law League, 1836, voicing interests and concerns of expanding urban, industrial class (many members of which vote following the Reform Act of 1832)
Reforms gather pace in 1840s, by which time many tariffs were irrelevant
Irish potato famine triggered Peel’s repeal of the Corn Law in (picture shows Sir Robert Peel, prime minister responsible).
Repeal of the Corn Law signalled the general adoption of Free Trade
Navigation Acts repealed, 1849, by when they were a tiresome nuisance
Sir Robert Peel
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7. Liberal interlude in trade policy, c1860−c1880
EC120 The World Economy in Historical Perspective
Liberal interlude in trade policy, c1860−c1880
In 1815 most European nations were highly protectionist
Gradually less protectionist policies were adopted
Cobden-Chevalier Treaty between Britain & France, 1860
Despite Free Trade Imperialism, much of the world remained protectionist
In 1815, most European nations were highly protectionist (a response to restoration of national borders?)
Gradually, less protectionist policies were adopted:
Denmark and Netherlands reduced tariffs and abolished prohibitions
Prussian tariff, 1818, “immeasurably the wisest and most scientific tariff then existing” (Clapham), designed to raise revenue with modest rates
Zollverein, 1834, introduced toll-free trade within three-quarters of Germany; followed by absorption of other states, and German unification
Britain, in 1820s, adopted several Reciprocity Treaties: bilateral agreements to reduce tariffs and abolish prohibitions
Cobden-Chevalier Treaty between Britain and France:
Reduced tariffs, abolished many prohibitions, established “Most-Favoured-Nation” (MFN) status between France and Britain
Subsequent bilateral agreements extended MFN in western Europe
Apart from Europe and its colonies, much of the rest of the world remained protectionist (e.g. U.S.A., despite internal tensions between northern and southern states, protected its northern manufacturing interests)
EC120, week 16

8. Retreat from Free Trade: rise of Neo-Mercantilism
EC120 The World Economy in Historical Perspective
Retreat from Free Trade: rise of Neo-Mercantilism
From c1880, most nations retreated from trade liberalisation
Variety of causes: preservation of existing living standards and/or promotion of new industries
Varying national responses: some countries upheld free trade, others became more-or-less protectionist
From c1880, most nations retreated from trade liberalisation
Tariffs were raised, though not to the same levels as before liberalisation
Other restrictions increased (e.g. justified on health & safety grounds)
What caused the retreat?
Influx of cheap grain from North America (and from eastern Europe/Russia)
Consequence of lower transport costs & bad harvests in Europe, 1870s
Newly industrialising nations sought to protect their `infant industries’
Industrialised nations were tempted to protect from low-cost producers
Tariff `wars’ reflected political tensions, e.g. between France and Italy.
Varying national responses :
France, Germany, Sweden move to protect agriculture
German “alliance of rye and iron” protects some industrial products too
Iberian nations: resume protection for agriculture and manufactures
Denmark, Netherlands retain free trade, and switch to non-grain agriculture
Britain adheres to free trade (agriculture allowed to decline further)
EC120, week 16

9. Free Trade Imperialism
EC120 The World Economy in Historical Perspective
Free Trade Imperialism
European overseas empires expanded during the 19C:
Mainly to impose trade “openness”
Greater autonomy for European offshoots
USA and Russia pursue continental expansion
A North-South divide?
Europe (`north’) versus the rest (mostly `south’)
European overseas empires expanded throughout the long 19C:
Mainly Britain & France; Germany, Italy, Netherlands, Belgium less so
Enabled by technological advantages, unique to Europe in this period
Mainly to impose “openness” (free trade), i.e. economic domination. Also promoted ideologies of free trade among colonial settlers (the quest for profit among colonial traders found expression in support for free trade – freedom to pursue gain)
European offshoots (Americas, Australasia) enjoy greater autonomy
USA and Russia pursue continental expansion (imperialism?)
USA also pursues economic domination in Pacific & Caribbean
A North-South divide?
A “Great Specialisation” of trade: primary products from Asia, Africa and European offshoots in return for manufactures from Europe
Exceptions: USA industrialises too; other nations try to industrialise as well (with limited success), behind tariff barriers
Were primary producers forced to de-industrialise?
Only in some cases (e.g. India), because abundance of primary resources meant that many countries would have exported these anyway (unlikely to have industrialised had they remained “closed”)
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10. EC120 The World Economy in Historical Perspective
Summing up
In 19C, international trade expanded faster than output
Globalisation: reflected in commodity price convergence
Convergence of incomes (returns to factors of production)
Partly from trade flows (goods and services)
Partly from factor flows (migration)
In the century to 1914, international trade expanded faster than world GDP probably because
Transport/communications revolution: technical advance
Reduced tariffs & other impediments (but with setbacks from late 1870s)
Financial innovations, esp. adoption of the Gold Standard, though this may have been as much an effect as a cause of liberalised trade
Globalisation, in the sense of price convergence, reflected reduced transport costs, liberal trade regime & reduced transaction costs. This (first?) phase of globalisation developed from mid-19C to reach its zenith in the years before 1914, despite the rise of neo-mercantilism (which had WWI not intervened may have become more pronounced in 20C).
Convergence of incomes (returns to factors of production)
Observed within the “Atlantic Economy” (Europe & European offshoots)
But divergence between Europe and much of Asia and Africa
Income convergence appears to have been more sensitive to flows of the factors themselves (mass migration of labour and capital) than goods & services – considered in detail next week.
EC120, week 16