0.3 Globalization  (Page 3/9)

But as the world moved into the 1970s, 1980s, and 1990s, the closed economy assumption became increasingly untenable for the U.S., Europe, Japan and other industrial nations. It was never tenable for small emerging nations (except the small number of deliberately closed economies such as North Korea and Burma) as we shall see in Chapter_____.

In the 1980s and 1990s economists began to understand that exports, imports, and capital flows were increasingly important determinants of economic growth worldwide. That is, globalization was “rediscovered” about a quarter of a century ago.

Parenthetically, we note that the surge in international trade and capital-flows in the period 1890-1914 was, relatively speaking, even more significant than in the late 20 ^th century relative to the size of the economies then. The impetus to earlier globalization in the 19 ^th and early 20 ^th century was perhaps due to three more factors:

1. Sharp declines in communication costs and the rise of newer technologies in communication (telegraphy, telephone). (Figures 3-1, 3-3)
2. Steadily falling transport costs (railroad, clipper ships) declining trade barriers, rapidly growing foreign investment in the U.S. and poorer nations. (See Figure 3-2).
3. Mssive migrations after 1848. Example: in Ireland population fell by 45% from 1860-1914 as Irish left for the U.S. In the same period, millions of Italians emigrated to France, Germany and Switzerland, as well as the U.S., while millions of Chinese and South Asians migrated to Southeast Asia and the Caribbean.

Consider the role of falling costs of transportation and communication in the latter stages of the first wave of globalization (1880-1914) and the years just prior to the second wave.

The invention of the telegraph not only spelled the end of the “pony express” in the U.S. a few years after the civil war, but the telegraph vastly enhanced both national and international communications.

Examples:

In 1453 it took 40 days for the Pope to learn that Constantinople (Istanbul) had fallen to the Turks. By 1869, like the internet today, the telegraph was changing everything. Before, war and conflicts were reported with a lag of a week or so (within Europe) to two months (between Europe and India). And now we have almost instantaneous fully ubiquitous communication (Facebook, Twitter etc.).

Figure 3-1 depicts the very sharp decline in the costs of sending telegraph messages overseas. Here, these costs are measured by the number of hours of work required for the average person to send a telegram overseas. These costs fell from about 100 hours in 1900 to less than 3 by 1960, a year in which telegraph and telex messages were still widely used.

In the second wave of globalization, declines in costs of sending international freight combined with very marked drops in the costs of international telephone calls and the marked rise of e-mail traffic to create an environment conducive to the rapid growth in international trade and capital flows.

Figure 3-2 attests to the very substantial cheapening of transport costs internationally from 1974 to 2004.

Costs of air freight fell from 13% of value shipped in 1974 to 9% in 2004. Costs of ocean freight fell from 10% of value shipped to about 6%.