Will Globalization Survive?
Martin Wolf, Financial Times
Peterson Institute, Washington, DC
April 5, 2005
Martin Wolf presents the Institute's third Whitman Lecture. Mr. Wolf is associate editor and chief economics commentator for the Financial Times, and author of the new best-selling book Why Globalization Works.
Wolf was a senior economist at the World Bank during 1974–81 and then became director of studies at the Trade Policy Research Centre in London. He joined the Financial Times in 1987 as chief economics correspondent and became chief economics commentator in 1996. He has won numerous journalism prizes including the 2003 Business Journalist of the Year Decade of Excellence Award. His prolific columns for the Financial Times, covering virtually the entire range of economic policy issues, are "must reads" throughout the world.
The Institute's Whitman Lecture series was created in 2001 by Robert and Marina von Neumann Whitman. Dr. Marina Whitman is now Professor of Business Administration and Public Policy at the University of Michigan. She formerly served as Vice President and Group Executive for Public Affairs at General Motors, as a member of the Council of Economic Advisers and as Distinguished Public Service Professor of Economics at the University of Pittsburgh. She has been a member of the Institute's Board of Directors for many years. Previous Whitman Lectures have been presented by Mario Monti and Noboru Hatakeyama.
Ours is not the first age of globalization. The decades before the First World War were remarkably similar to our own era. Under the aegis of the United Kingdom and stimulated by a host of technological advances, the world enjoyed an era of liberal trade, remarkably free movement of people, and almost entirely free movement of capital. The world also enjoyed an unprecedented rise in prosperity. According to the economic historian, Angus Maddison, real GDP per head rose at a rate of 1.3 percent a year in the world as a whole between 1870 and 1913. This is not far short of the improvement of the past three decades. As table 1 shows, only Asia and Africa, both victims of colonialism, failed to share in the rising prosperity.
Then came the war. Norman Angell, in his notorious book, The Great Illusion, published in 1910, argued persuasively that war was a ruinous folly. He hoped to persuade people that nothing could come from a European war but mutual ruin. His hopes failed. Many have since condemned him for his innocence. But if one reads his book, one will find not that he thought war impossible, but that he thought it insane. He hoped people would prove rational. People, as is their wont, disappointed him.
That war began the ruin of the first globalization. The economic disarray of the interwar years, the failure of the United States to assume the responsibilities of power, the weariness and weakness of the United Kingdom and France, the bitterness of the Germans, and the Bolshevik triumph in Russia completed the job. The failure of the first liberal order—that of the 19th century—led to 30 years of catastrophe. "Never again" was the motto under which I wrote my book, Why Globalization Works.
Since then, we have recreated a better liberal international order—one that extends opportunities to the world as a whole. It is our duty to our descendants not to throw away this golden opportunity once again. Yet the fact that we should not do something does not mean that we will not do so. Globalization is fragile, for a simple reason: A global market economy depends on the support of states. States provide the security of property and person on which all complex exchange depends. But states are necessarily territorial. The loyalties they create, evoke, or reflect are steeped in humanity's characteristic tribalism.
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