So there it was – the self-proclaimed leader of the ‘liberal’ world declaring war on another country because the latter was getting in the way of its illegal trade in narcotics. The truth is that the free movement of goods, people, and money that developed under British hegemony between 1870 and 1913 – the first episode of globalization – was made possible, in large part, by military might, rather than market forces. Apart from Britain itself, the practitioners of free trade during this period were mostly weaker countries that had been forced into, rather than had voluntarily adopted, it as a result of colonial rule or ‘unequal treaties’ (like the Nanking Treaty), which, among other things, deprived them of the right to set tariffs and imposed externally determined low, flat-rate tariffs (3–5%) on them.[8]
Despite their key role in promoting ‘free’ trade in the late 19th and early 20th centuries, colonialism and unequal treaties hardly get any mention in the hordes of pro-globalisation books.[9] Even when they are explicitly discussed, their role is seen as positive on the whole. For example, in his acclaimed book, Empire, the British historian Niall Ferguson honestly notes many of the misdeeds of the British empire, including the Opium War, but contends that the British empire was a good thing overall – it was arguably the cheapest way to guarantee free trade, which benefits everyone.[10] However, the countries under colonial rule and unequal treaties did very poorly. Between 1870 and 1913, per capita income in Asia (excluding Japan) grew at 0.4% per year, while that in Africa grew at 0.6% per year.[11] The corresponding figures were 1.3% for Western Europe and 1.8% per year for the USA.[12] It is particularly interesting to note that the Latin American countries, which by that time had regained tariff autonomy and were boasting some of the highest tariffs in the world, grew as fast as the US did during this period.[13]
While they were imposing free trade on weaker nations through colonialism and unequal treaties, rich countries maintained rather high tariffs, especially industrial tariffs, for themselves, as we will see in greater detail in the next chapter.To begin with, Britain, the supposed home of free trade, was one of the most protectionist countries until it converted to free trade in the mid-19th century. There was a brief period during the 1860s and the 1870s when something approaching free trade did exist in Europe, especially with zero tariffs in Britain. However, this proved short-lived. From the 1880s, most European countries raised protective barriers again, partly to protect their farmers from cheap food imported from the New World and partly to promote their newly emerging heavy industries, such as steel, chemicals and machinery.[14] Finally, even Britain, as I have noted, the chief architect of the first wave of globalization, abandoned free trade and re-introduced tariffs in 1932. The official history describes this event as Britain ‘succumbing to the temptation’ of protectionism. But it typically fails to mention that this was due to the decline in British economic supremacy, which in turn was the result of the success of protectionism on the part of competitor countries, especially the USA, in developing their own new industries.
Thus, the history of the first globalization in the late 19th and early 20th centuries has been rewritten today in order to fit the current neo-liberal orthodoxy. The history of protectionism in today’s rich countries is vastly underplayed, while the imperialist origin of the high degree of global integration on the part of today’s developing countries is hardly ever mentioned. The final curtain coming down on the episode – that is, Britain’s abandonment of free trade – is also presented in a biased way. It is rarely mentioned that what really made Britain abandon free trade was precisely the successful use of protectionism by its competitors.
In the official history of globalization, the early post-Second-World-War period is portrayed as a period of incomplete globalization.While there was a significant increase in integration among the rich countries, accelerating their growth, it is said, most developing countries refused to fully participate in the global economy until the 1980s, thus holding themselves back from economic progress.
This story misrepresents the process of globalization among the rich countries during this period. These countries did significantly lower their tariff barriers between the 1950s and the 1970s. But during this period, they also used many other nationalistic policies to promote their own economic development – subsidies (especially for research and development, or R&D), state-owned enterprises, government direction of banking credits, capital controls and so on. When they started implementing neo-liberal programmes, their growth decelerated. In the 1960s and the 1970s, per capita income in the rich countries grew by 3.2% a year, but its growth rate fell substantially to 2.1% in the next two decades.[15]
But more misleading is the portrayal of the experiences of developing countries. The postwar period is described by the official historians of globalization as an era of economic disasters in these countries. This was because, they argue, these countries believed in ‘wrong’ economic theories that made them think they could defy market logic. As a result, they suppressed activities which they were good at (agriculture, mineral extraction and labour-intensive manufacturing) and promoted ‘white elephant’ projects that made them feel proud but were economic nonsense – the most notorious example of this is Indonesia producing heavily subsidized jet aeroplanes.
The right to ‘asymmetric protection’ that the developing countries secured in 1964 at the GATT is portrayed as ‘the proverbial rope on which to hang one’s own economy!’, in a well-known article by Jeffrey Sachs and Andrew Warner.[16] Gustavo Franco, a former president of the Brazilian central bank (1997–99), made the same point more succinctly, if more crudely, when he said his policy objective was ‘to undo forty years of stupidity’ and that the only choice was ‘to be neo-liberal or neo-idiotic’.[17]
The problem with this interpretation is that the ‘bad old days’ in the developing countries weren’t so bad at all. During the 1960s and the 1970s, when they were pursuing the ‘wrong’ policies of protectionism and state intervention, per capita income in the developing countries grew by 3.0% annually.[18] As my esteemed colleague Professor Ajit Singh once pointed out, this was the period of ‘Industrial Revolution in the Third World’.[19] This growth rate is a huge improvement over what they achieved under free trade during the ‘age of imperialism’ (see above) and compares favourably with the 1–1. 5% achieved by the rich countries during the Industrial Revolution in the 19th century. It also remains the best that they have ever recorded. Since the 1980s, after they implemented neo-liberal policies, they grew at only about half the speed seen in the 1960s and the 1970s (1.7%). Growth slowed down in the rich countries too, but the slowdown was less marked (from 3.2% to 2.1%), not least because they did not introduce neo-liberal policies to the same extent as the developing countries did. The average growth rate of developing countries in this period would be even lower if we exclude China and India. These two countries, which accounted for 12% of total developing country income in 1980 and 30% in 2000, have so far refused to put on Thomas Friedman’s Golden Straitjacket.[20]
8
Britain first used unequal treaties in Latin America, starting with Brazil in 1810, as the countries in the continent acquired political independence. Starting with the Nanking Treaty, China was forced to sign a series of unequal treaties over the next couple of decades. These eventually resulted in a complete loss of tariff autonomy, and, very symbolically, a Briton being the head of customs for 55 years – from 1863 to 1908. From 1824 onwards, Thailand (then Siam) signed various unequal treaties, which ended with the most comprehensive one in 1855. Persia signed unequal treaties in 1836 and 1857, and the Ottoman Empire in 1838 and 1861. Japan lost its tariff autonomy following a series of unequal treaties it signed after its opening in 1853, but that did not stop it from forcing an unequal treaty on Korea in 1876. The larger Latin American countries were able to regain tariff autonomy from the 1880s, before Japan did in 1911.Many others regained it only after the First World War, but Turkey had to wait for tariff autonomy until 1923 and China until 1929. See H-J. Chang (2002),
9
For example, in his controversial study,
10
See N. Ferguson (2003),
11
After they gained independence, growth accelerated markedly in developing Asian countries. In all 13 Asian countries (Bangladesh, Burma, China, India, Indonesia, Korea, Malaysia, Pakistan, the Philippines, Singapore, Sri Lanka, Taiwan and Thailand) for which data were available, annual
13
Average tariffs in Latin America were between 17% (Mexico, 1870–1899) and 47% (Colombia, 1900–1913). See Table 4 in M. Clemens & J.Williamson (2002), ‘Closed Jaguar, Open Dragon: Comparing Tariffs in Latin America and Asia before World War II’, NBER Working Paper, no. 9401 (National Bureau of Economic Research, Cambridge, Massachusetts). Between 1820 and 1870, when they were subject to unequal treaties,
14
For example, between 1875 and 1913, the average tariff rates on manufactured products rose from 3–5% to 20% in Sweden, from 4–6% to 13% in Germany, from 8–10% to 18% in Italy and from 10–12% to 20% in France. See H-J. Chang (2002), p. 17, Table 2.1.
16
Sachs and Warner (1995), p. 17. The full quote of the relevant passages: ‘Export pessimism combined with the idea of the big push to produce the highly influential view that open trade would condemn developing countries to long-term subservience in the international system as raw materials exporters and manufactured goods importers. Comparative advantage, it was argued by the Economic Commission of [
17
According to an interview in the magazine
19
A. Singh (1990), ‘The State of Industry in the Third World in the 1980s: Analytical and Policy Issues’, Working Paper, no. 137, April 1990, Kellogg Institute for International Studies, Notre Dame University.
20
The 1980 and 2000 figures are calculated respectively from the 1997 issue (Table 12) and the 2002 issue (Table 1) of World Bank’s