The Views On Globalization Proposed By Baldwin And Martin

1 Introduction: the new, good old Globalization

This paper written by professors R. E. Baldwin and P. Martin focuses on those key economic index that are industrialization, income divergence, capital flow, trade, investment and migration, and use them to analyze the two waves of Globalization showing similarities and differences. Nowadays we are dealing with the second wave of Globalization, and one can claim that we are pioneers of unique events, or can state that it is just a repetition of the former wave. Nevertheless, as the professors said, “the statement that there is nothing new is almost as wrong as the claim that this is unprecedented” (Baldwin-Martin 1999: 1).

2.1 A New…connected World

The Industrialization process was the final needed element thanks to which what we identify as the first wave of globalization started, roughly around 1820. It has been a gradual and fragmented process that gave faster and cheaper ways to transport and communicate, and these are the key points. Revolutionary inventions that reduced the distances; the use of steam-driven ships, for example, made oceanic travels far less long, the invention of the telegraph lowered the time for a news to spread from weeks to minutes, and the rapid expansion of railroad network opened up wide inland regions to the world market.

It was an enhancing fresh industrialized world in which materials and ideas flow faster than ever and the North, composed by European and northern American countries were at his center. High income expanded local markets which attracted new investments and so forth, boosting a virtuous cycle that allowed an enormous capital flow to the colonies and the United States in the form of long-term investments in primary product sector and railroads. Increasing development attracted labor force from the Old World and lead to a change in the ratio wage-land, decreasing European income inequality but increasing it in the New World. The raising income inequality lead to anti-immigration legislation in the U.S. and also fostered anti-trade sentiments in Continental Europe posing an end to the liberal period 1860-78 and leaving Great Britain the only European commercial power applying free trade policies.

However, while the North was being industrialized, the Third World experienced a process of de-industrialization, suffering northern competition, and this caused a wide income divergence between groups that were not initially very far apart.

“The first wave of globalization ended badly with two global conflagrations resulted in tens millions of deaths and incalculable material damage. The ultimate cause of this was the misguided belief that national prosperity necessarily entailed international competition for turf and/or exclusive access to markets” (Baldwin-Martin 1999: 30)

2.2 To protect or not to protect…

During the first wave of globalization the gold standard was the most used tool by national central banks to manage among floating their exchange rate, which would lead to instability, and joining a monetary union, losing sovereignty. In view of the fact that the unachievable goal consisted of fixed exchange rate, perfect capital mobility and independent monetary policy, it was considered as a reasonable compromise because it allowed to have the first two requests satisfied. It worked because of a limited political participation and the weakness of labor parties and unions, they were not able to oppose adjustments that resulted from wage contraction.

The First World War and the sunset of Keynesianism compromised the socio-political foundation that sustained the gold standard. After the WWI, protectionism slowly gained popularity around the world and nations started to frequently change their trade policies contracting short-time trade treaties and including anti-dumping and countervailing duty laws. Despite some attempts, no nation was able to reverse this trend, neither did Great Britain, which was both unwilling and unable to individually support the world trade system. The fragmentation in distinct world trading systems, as the Empire preferences system of Great Britain and its dominions and colonies, the Japanese Greater East Asia Co-Prosperity Sphere and the bilateral trade arrangements maintained by Germany, Italy and Soviet Union, was one of the causes of the outbreak of Second World War.

After the Second World War, United States and U.R.S.S. contended the hegemony over the World. Western European countries, with purpose of avoid future wars within Europe, formed the Common Market and the European Coal and Steel Community. “The expansion of the world trade was viewed as a way to fortify the ‘free world’” (Baldwin-Martin 1999: 28) and to keep the Third World away from the communist side by annexing it in the capitalist system. Even if the U.S. maintain a protectionist policy, the creation of the General Agreement on Tariffs and Trade represents an important turning point.

2.3 A New…frenetic World

Fueled by the Cold War competition, technological research flourished and new inventions in the communication field, like internet, allow to eliminate distance and communicate almost instantly. Furthermore, instant communication gave to the Third World countries easier access to North’s technology allowing them to start closing the income gap. This lead to a substantial de-industrialization of the North, specializing in services, and an industrialization of the southern developing countries. This industrialization process involving developing countries is highly funded by a huge amount of northern investments that find there favorable opportunities to delocalize in low wage regions.

Moreover, the sharp drop in the communication costs and the relative accessibility to worldwide information, contributed to an alteration of time perception, enhanced by the immediacy concept. This altered also the way to plan and invest, making time a vital resource as never before. Investments changed from long-term to short-term, involving small amounts of money but made in greater number than in the past.

The unprecedented transformation of time perception drove to a revolution in the whole social structure, from lifelong projects and certainties to flexibility and instability. Stimulated by the world trade expansion and viewing trading as a way to keep international stability, a powerful pro-trade lobby, namely exporters and multinationals, has risen in every advanced industrialized nation, securing a political power against protectionism.

2.4 A difficult relationship

Comparing the two waves of globalization, at first they seems to be similar because it is clear that some elements played a key role in both the waves of globalization, such as economic liberalism and technologic innovations in the transport and in the communication fields. However, carefully analyzing them, all the differences immediately pop up to our eyes.

The initial conditions, for example, differs quite a lot, the Colonial-era agrarian world with the European countries shacked by the Industrial Revolution, for the first wave; a twentieth century world economically divided in industrialized, rich North and de-industrialized, poor South, politically divided by the Cold War in communist East versus liberal West, for the second wave. Another important factor is the international economic system, the lack of any international institutions and formal rule on one hand, and a solid set of international institutions, for instance WTO/GATT, defended by all major nations, on the other.

The first wave is mainly focused on industrial manufacture products trading, due to the drop of transport costs and characterized by a long-term capital flows and a North-to-South investment in primary product sectors and railroads. This lead to a slow but unstoppable income and technology gap between industrializing and de-industrializing nations.

The second wave is distinguished by the ideas trading, favored by the dramatically drop of communication costs and marked by a massive short-term flows driven by a frenetic rate of information interchange and progresses in information technology and an intra-industry investments between similar nations with a focus on industrial production, services and delocalization. This lead to a rapid income convergence among northern de-industrializing nations and an exceptionally fast industrialization of the developing nations filling the gap.

3 Conclusion: not like two drops of waterIf the first wave lead to income and technology divergence and to national rivalry protectionism which ended with the two world wars, the second wave tries to give a solution and global stability thanks to international trade and a decreasing income gap among the nations. To conclude: “the two waves are superficial similar but fundamentally different” (Baldwin-Martin 1999: 29)

4 References

BALDWIN, Richard E., MARTIN, Philippe (1999): Two waves of Globalization: Superficial Similarities, Fundamental Differences. Working Paper 6904. Cambridge (MA): National Bureau of Economic Research, pp. 1-33
BAUMAN, Zygmunt (2006): Liquid Modernity. Cambridge: Polity Press, pp. 130-167