Shaping Globalization

• Author: Martin Wolf
• Position: Associate Editor and Chief Economics Commentator at the Financial Times.

Globalization is the big story of our era. It is shaping not just economies, but societies, polities, and international relations.

Many assume it is also, for good or ill, an unstoppable force. History, however, suggests this is not so. We can neither assume globalization will persist, nor that it will be desirable in all respects. But one thing we must assume: it is ours collectively to shape.

If globalization is done wisely, this century could prove an unparalleled era of peace, partnership, and prosperity. If it is done badly, it might collapse as completely as pre–World War I globalization between 1914 and 1945.

Globalization is the integration of economic activity across borders. Other forms of integration—above all, the spread of people and ideas—accompany it. Three interacting forces—technology, institutions, and policy—shape it.

Over the broad sweep of history, technological and intellectual innovation is the driving force behind globalization. It has lowered the cost of transportation and communication, increasing opportunities for profitable economic exchange over greater distances. In the long run, such opportunities will be exploited.

Even before the industrial revolution, mankind’s ability to navigate the seas in sailing vessels facilitated the birth of global empires, transoceanic movement of people, and an expansion in worldwide commerce. But technological change accelerated after the industrial revolution, creating new opportunities.

Driving the globalization of the late 19th and early 20th centuries were the steam locomotive, the steamship, and the telegraph. Driving the globalization of the present era are the container ship, the jet aircraft, the Internet, and the mobile phone.

The integration of communications and computing is the technological revolution of our era. By 2014, the world had 96 mobile-phone subscriptions and 40 Internet users for every hundred inhabitants. Twenty years earlier neither was significant. Information is increasingly digital and the world increasingly interconnected. This is a revolutionary transformation.

Institutions also matter. Historically, empires facilitated long-distance commerce. That was true before modern times and, still more, with the European maritime empires from the 16th to the 20th centuries. Today, the institutions that facilitate long-distance commerce are treaties and multilateral organizations: the World Trade Organisation (WTO), the International Monetary Fund, and regional clubs, such as the European Union.

Semipublic and purely private institutions also matter. Think of the chartered trading company, notably the British East India Company, and then, since the 19th century, the limited liability joint-stock company. Also important are organized markets, notably financial markets, which developed from simple beginnings into the 24-hour, around-the-globe networks of today.

While technology’s arrow has moved in one direction—toward opportunities for economic integration—institutions have not. Empires have come and gone. When the European empires disappeared after World War II, most of the newly independent countries turned away from international commerce, judging it exploitative.

This brings to mind the third driver—policy. The movement of newly independent developing countries toward self-sufficiency was a policy reversal. The most important reversal of all was the worldwide collapse in globalization that followed the two world wars and the Great Depression. The monetary order then disintegrated, and trade became increasingly restricted.

After World War II...