A semi-integrated world
Sep 11th 1999
From The Economist print edition


More together, but still defined by our separateness

“ON THE economic plane,” said The Economist, “the world has been organised into a single, all-embracing unit of activity.” Ah yes, globalisation is a hot topic. Except that we said this in 1930. “Always ahead of its time,” the kindest readers say. “Always wrong in its judgments,” comes the muttering from less charitable quarters. But perhaps the truth lies elsewhere: globalisation—the shrinking of distance and the increase in interplay and interdependence—has been a theme of the whole century, and longer. It is also far from complete.

On any dimension of integration you care to choose, globalisation has been going on for a long time. Deep cultural interchange, and in particular today’s bÍte noire, American cultural imperialism? Charlie Chaplin, a British migrant, was a worldwide star in Hollywood movies in the 1920s. At that time, three-quarters of the films shown throughout the world were made in America. Baseball arrived in Japan in the 1890s (along with “Spencer the balloon man”, who caused a sensation).

Electronic interdependence? That, wrote Marshall McLuhan, a Canadian academic, in 1962, “recreates the world in the image of a global village”. Working abroad? In the early 1900s, tens of thousands of Italians took seasonal farm jobs in Argentina each year. Trade, overseas investment and even e-commerce? John Maynard Keynes, writing in 1919 about Europe before the first world war, said that:

The inhabitant of London could order by telephone, sipping his morning tea in bed, 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 adventure his wealth in the natural resources and new enterprises of any quarter of the world...The projects and politics of militarism and imperialism, of racial and cultural rivalries appeared to exercise almost no influence at all on the ordinary course of social and economic life, the internationalisation of which was nearly complete in practice.

Keynes was, of course, writing only about the opportunities for an elite. But, even so, many of the most dramatic causes of global shrinkage were already in place. The electric telegraph had the biggest effect. By 1914, it took less than a minute to transmit a cable message from London to New York, and financial-market prices for the same liquid security or commodity on both sides of the Atlantic had become identical. Telephones made communication even easier, and steamships moved people and things around the globe.

So what has changed? The first thing to observe is that the degree of integration has ebbed and flowed during the century, according to the changing tides of politics. High trade barriers in the 1920s and 30s; immigration controls; bans on foreign investment in various countries; bans on cultural interchange: all these considerably reduced integration until the 1950s, when barriers between Western Europe, North America and Japan began to be lowered. But politics still kept much of the world separate, thanks to ideology and beliefs about self-sufficiency. It is the demise of those political barriers that has brought on this decade’s acceleration of global integration. The widespread decision, during the 1990s, to open markets, allow foreign investment, boost trade, and liberalise film and television sales, has been a political one. And like any such voluntary political choice, it is reversible.

Admittedly, raw figures for trade as a proportion of GDP for the world’s two biggest economies, America and Japan, look much the same in 1999 as they did in 1914. But a study for the Brookings Institution in Washington, DC, by Michael Bordo, Barry Eichengreen and Doug Irwin, three American economists, shows that this is misleading. The trade in manufactures covered by such headline trade figures now adds up to a much larger proportion of the reduced amount of GDP that manufacturing accounts for. Added to it must be trade in services (accountancy, banking and so on), which is many times larger now than a century ago (see chart 12).

 

The onrush of cheap communications, powerful computers and the Internet all explain why many people feel that, nowadays, change is happening ever more rapidly as technological progress accelerates. Moore’s law, that the power of microchips doubles every 18 months, has been tested and found correct. This is what gives people the sense of a world shifting beneath their feet.

Yet the implication that rapid change is a new phenomenon is again misleading. If you measure the time it takes for a technology to become widely diffused, today’s experience does not seem unusual. Take the car. The basic patent for an internal-combustion engine capable of powering a car was filed in 1877. By the late 1920s—50 years later—over half of all American households owned a car.

The comparable dates for the computer are harder to tie down, but the first big computer, based on vacuum valves, was built in 1946. The transistor—the first semiconductor device—was invented at Bell Laboratories in 1948. The first patent for an integrated circuit was filed in 1959. Now, in 1999—50 years after the first one was built—around half of American households own a computer. The pace of introduction has been similar to that of the car. You have to cheat, choosing only the date for the personal computer, say (mid-1970s), or the Internet (ditto) to make it seem much more rapid.

Comparing its diffusion among private users is, you might say, unfair to the computer, for that machine’s main use is in businesses. On that measure, the best historical analogy is with electrification, and the spread of the electric dynamo into factories. According to Paul David, a historian at Stanford University in California, the first electricity-generating stations had been installed in New York and London in 1881, but it took well into the 1920s before the dynamo became widely used and started to raise productivity. The adoption of the computer in business has also been slow, and failed to have any measurable impact on productivity until very recently.

Electrification wrought its big changes in the 1920s. So did the car, at least in the United States. Of the two, electrification had the broadest impact on productivity across all kinds of activity, but the car did most to generate demand for a whole series of new products and services: components, cars, repairs, garaging, fuel supply, roads, motels and so on. And when these two revolutions came together in the giddily changing 1920s, it was in the run-up to the 1929 crash.

So what of IT and the Internet? They, too, are generating rapid change, in homes, in businesses, in organisations of all kinds. Using the Internet on your laptop computer, you can, sipping your morning tea in bed, order the products of the whole earth and reasonably expect their early delivery. But the reason the Internet is causing such rapid change is not really technological. It is because of what economists call a “network effect”: the fact that some products become far more useful once a lot of other people are also using them. Even Bill Gates, ace technology-watcher, failed to realise in 1994-95 that the Internet was about to explode.

The Internet is creating new needs and altering the way companies, in particular, keep in touch with their customers and suppliers. But it looks unlikely to generate a wide range of new products and services; more likely, it will mainly grab them away from traditional channels. Might it mean that governments can no longer control what their citizens see or read? Certainly it reduces their control. But Serbia’s successful use of propaganda during the Kosovo war suggests that the effect is limited. Might it, like cars and electrification, end up with a Wall Street crash? Well, there’s a question.

Ich bin ein Amerikaner

Might it, combined with all that increased trade, and integrated capital markets, and television, and all the travelling that people are now doing, mean that everyone becomes homogenised, drinking Coca-Cola, wearing chinos, going on and on about democracy and shareholder value? President Kennedy famously declared, in 1963, that he was a Berliner. Must everyone nowadays, in this globalised, market-led age, declare that they are Americans?

The reality is more complicated than that. Western culture and capitalism has been washing over the world for a long time, but that is not the same as saying that the world is becoming Americanised. After all, America, too, is being buffeted by cultural and economic interchange. For the past 15 years, America has been a net importer of capital, not an exporter. So matching the Pizza Huts popping up in cities the world over have been BMWs made in South Carolina, insurance firms owned by Dutch multinationals, or Hollywood studios taken over by Japanese and Australians.

Nor, at present, are capitalist “systems” converging on the American one. A world in which the American government collects taxes equal to 34% of GDP and the Swedish one 63% clearly retains a considerable variety in capitalist arrangements. Only the extreme end of the spectrum, the command economy, has become less densely populated. America itself, the supposed home of the equity markets, is switching rapidly towards financing its companies by debt, whereas French, German and Japanese companies, once famous for their reliance on bank debt, are hurtling in the opposite direction.

Films and television programmes are the only cultural areas in which Americans dominate. In music, books, sport, food, drink, fashion and many other fields, local suppliers dominate local markets, and foreigners have made inroads into America itself. In the words of the 1999 United Nations Human Development Report: “The debate on whether there is cultural homogenisation remains open. There are no surveys showing that people are becoming alike.”

The more telling pressure imposed by globalisation is for the increasing adoption not of American products or ways, but of three American characteristics: freedom, equality and adaptability. If you open your country up, and choose to bind yourself closer to others, this increases your citizens’ freedom of choice and of movement. Increased access to information inevitably exposes your remaining economic, social or political inequalities to scrutiny. Once people know what they are being deprived of, they start to care more about it. That brings change, and openness brings change more rapidly across your borders, in wave after wave.

The need for freedom, equality and adaptability are the lessons the rest of the world has to learn from the United States, which has developed these characteristics triumphantly (though sometimes turbulently) during the century. There is, though, a further characteristic which America, too, would do well to learn from this bloody century: humility.