Harold James, The End of Globalization: Lessons from the Great Depression (Cambridge, MA: Harvard University Press, 2001), 288 pp., $39.95.

Roger M. Kubarych, Stress Testing the System: Simulating the Global Consequences of the Next Financial Crisis (New York: Council on Foreign Relations Press, 2001), 187 pp., $15.

Kevin O'Rourke and Jeffrey Williamson, Globalization and History (Cambridge, MA: MIT Press, 1999), 355 pp., $27.95.

The rewards for reducing uncertainty in an uncertain world are so
large that the demand for political and economic forecasts never
ends. Yet demand far outruns supply. We seem unable to predict the
really big system breaks like the fall of Soviet communism or the
Asian crisis, or at any rate to do so persuasively enough for society
to prepare for them. How might we do better?

The answer depends to some extent on understanding the context in
which forecasting takes place. The main process affecting
international affairs has for some time now been the increased
integration of global economic activity--"globalization" in the
common parlance. That being so, do earlier manifestations of economic
integration provide clues about the probable future of the current
phenomenon? The sometimes violent backlash against trade and
financial liberalization that we have witnessed since the final years
of the 1990s gives the question a pertinence that seemed absent
during the previous couple of heady decades when multinational
enterprises rode high and trade barriers so conveniently fell before
them. The upsurge of resistance makes it urgent to seek for
indications as to whether phases of globalization are fated to be
slowed, brought to a standstill, or even thrown into reverse.

Perspectives from history and concepts from economics thus seem
likely to be helpful, and where we should look to find both these
approaches brought into play is in economic history. Much of the
unwillingness to apply economic reasoning in general history and the
analysis of international affairs seems to stem from an aversion not
only to many of its conclusions but even to its assumptions--that is
to say, from an all-too-human reluctance to accept the fact that
every course of action, including inaction, comes with a cost
attached. Economic history is free from that weakness. Admittedly,
some of its formal techniques suffer diminishing returns when applied
to topics on the fringe, notably the interaction between economics
and politics. Disagreeable though this may be to the harsh reasoners
among economists, broader humanistic judgment comes into its own when
dealing with such themes. As Clive Crook says in an admirable survey
of globalization in The Economist, few economists nowadays learn
enough history. This tends to offset their undoubted strengths as
problem solvers, because it disarms them regarding just what is and
is not novel. Alvin Toffler put the point nicely: "We now have
students so ignorant of the past that they see nothing unusual about
the present."

A long view from economic history offers the counteracting benefit of
perspective, a point that seems trite until we consider how
misleading the lack of it may be. In one of the books discussed here,
O'Rourke and Williamson rightly criticize the journalistic tendency
to project the recent past into the indefinite future. They observe
that this habit has--since September 11 we should say had--engendered
the popular view that globalization is unstoppable. Recent protests
and violent happenings mean that such an opinion is in serious doubt;
indeed, as these authors demonstrate, it should always have been
disputed. Before journalism threw itself into confusion over the
current anti-globalization campaign, not to mention terrorism,
O'Rourke and Williamson had already concluded that globalization is
not unchallengeable. They were drawing on their study of the first
globalization boom of 1870-1913 and how it was brought to an end.
They saw that there would be a backlash this time, too.

Luckily, then, some modern writers are literate in economic history,
and they have much to teach us. The work of a general historian,
Harold James' The End of Globalization, stands out because the author
has really done his economics homework. James appeals to the economic
history of globalization in order to place the present and the future
in the longer context of international economic integration. He
delves as far back as the unease inspired by the Reformation and the
great age of discovery in the 16th century, but concentrates on the
breakdown of international order during the 1930s. An adventurous
volume by Roger Kubarych, Stress Testing the System, which simulates
a contemporary financial shock, counterpoints history's usefulness
almost as sharply by rehearsing earlier attempts at building
scenarios that failed because they did not explore past experience
deeply enough. A third, slightly older, but magisterial work is
O'Rourke and Williamson's Globalization and History, which, as noted,
turns the searchlight of econometrics on the 1870-1913 period.

Competition, Agriculture and Migration

Even earlier cases of economic integration than that of 1870-1913 may
teach us something, despite the fact that they concerned only Europe.
Although such episodes were not "global" by definition, nor in the
strictest sense even international (because they partly predate the
rise of the nation-state), they are still capable of illuminating the
merits and discontents of integration. Oliver Volckart, for example,
traces the effects of competition among multiple political units as
early as the centuries between 1000 and 1800. He notes that because
Europe's political units were then so small and packed close
together, hard-pressed individuals could move fairly readily from one
to the next, either to escape oppression or to find a better life.
They took their money with them. The availability of "exit" as an
option induced rulers to compete for the mobile factors of labor and
capital by offering more attractive constitutions, laws and customs.
Princes offered commercial privileges at bargain prices to attract
particular groups to settle and pay them taxes in the future.

Competition was evident along these lines during the Middle Ages, but
between the 14th and 18th centuries rulers concentrated on protecting
the holders of privileges they had already sold. New entrants, or at
any rate free entrants, to business were discouraged. By the early
modern period, the maze of restrictive privileges was tending to
smother additional market growth. Joel Mokyr tells us that this also
impeded further technological advances of the types that had taken
place during the phase of high medieval openness. Then, in the 18th
century, the rulers of mainland Europe perceived what was happening
in Britain and once more reversed their policies. They grasped that
skilled immigrants and more foreign investment would establish new
enterprises and generate higher taxes, and began to re-open their
economies to fresh talent and capital. Pre- and early-modern economic
history therefore makes the association between openness and growth
as apparent as it is today, and warns that growth is always
vulnerable to cumulative erosion by special interests.

Markets were internationalized more fully during the late 19th
century than during any previous period and, perhaps surprisingly,
the process went further in some directions than during the late 20th
century. Recent globalization has focused on commodity trade and
flows of financial capital more prominently than it has involved
movements of people. During the 19th century, however, the bias was
rather different; relative to the size of population, international
migration was at a high point. Wage earners felt threatened in
high-income countries such as the United States and Australia, to
which migrants flocked. At the same time, land-owning and cereal
farming in Europe were undermined by cheap grain from the New World.
The protectionist reaction came quickly. O'Rourke and Williamson do
not attribute the onset of protection to the effects of the World
War, nor date it to the depression years of the 1930s. They point out
that as far as labor migration and agriculture were concerned, free
movement and free trade were being curbed well before 1900. Societies
find it agonizingly hard to adjust to openness. That is why,
historically speaking, it is fair to say that the long liberal era
after World War II has been more of an anomaly than the many periods
of relative closure.

Enthusiastic globalizers loudly, and reasonably, trumpet the gains from economic integration, particularly the gains of the post-Cold War period. They have had a bull run. Yet substantial advance has not been
secured in every respect, notably in these two areas of agriculture
and labor mobility. Triumphalists feel that agricultural protection
will have to fall eventually because the budgetary cost of warding
off imports and transferring revenue to farmers is so enormous. In
any case, they incline to the opinion that farming does not much
matter because it is a shrinking sector in developed economies.

But "eventually" is a long haul; actual existing history, so to
speak, takes place in the lag periods. It is therefore a mistake to
underestimate the perverse hold of farming on the psyche of countries
that are generally frightened of external competition, of which the
outstanding example is France. Only public acquiescence within the
developed countries could permit such vast transfers to continue. The
catch is this: the importance of agriculture to poorer countries is
such that if they continue to be excluded from Western food markets,
they can return the compliment by blocking negotiations to liberalize
trade in goods and services in ways that were not possible during the
free-for-all 19th century. An impasse therefore threatens within the
world trading system before we even start to take account of external
threats or protest campaigns.

Essay Types: Book Review