The Two Waves of Globalization: Industrial Revelution and De-Industrialization

The main idea of this article is that there were two major waves of globalization, both of which were “superficially similar, but fundamentally different.” The first wave occurred during 1870-1914 and the second from 1960 to present. The superficial similarities between the two include the aggregate trade-to-GDP ratio and capital flow-to-GDP ratios in addition to the importance of reductions in technical and policy barriers to international trade. The fundamental differences, on the other hand, are the impact reductions had on trade and the economic beliefs and initial conditions of the two periods.

The first wave of globalization was driven by the Industrial Revolution. It transformed the British economy by improving transportation, creating new industries and production methods, and communication became faster and more reliable. Before this first wave, the world was homogenous, equally poor. However, a wide income divergence eventually formed and groups that were initially not too far apart became distanced. Although capital mobility during this period was high, the high cost of transferring knowledge favored long-term capital investments. This period experienced both trade liberalization and modern protectionism. Beginning in 1815, British liberalism rose and the country embraced free trade, liberalizing wheat imports. These free trade policies eventually spread rapidly to other economies throughout 1846-1860 through a system of bilateral treaties; by 1860, multilateral free trade was established in Europe. However, protectionist measures returned in 1879, designed to promote development rather than achieve a trade surplus. Economies followed the gold standard, for it was adjustable and a unilaterally chosen exchange rate, wit...

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...th a few minor exceptions. Even so, differences between the two periods still exist and cannot go unmentioned. Trade in ideas were more important in the second wave, with a greater focus on short-term exchanges, manufacturing, services, and outsourcing. The initial conditions of both periods were very different and the international economic system as we know it today is entirely different from what it was before. For example, there are far greater demands placed on policymakers and nations are now more interdependent than ever before. Whereas during the first wave policymakers believed that national success depended on protectionist measures such as international competition and blocking access to certain markets, globalization today dismisses such notions. Thus, it is evident that present globalization builds upon the past, but is also forging its own unique path.