The Three Rounds of Globalization


Ashutosh Sheshabalaya

The Globalist
October 19, 2006

The comatose state of the Doha Round of trade talks marks a more significant threat to the world order than previous anti-globalization demonstrations. Now, the underlying cause of discontent is a shift in the world's economic (and political) center of gravity — and the varying mix of enthusiasm and reluctance with which different parties are engaging with it, argues Ashutosh Sheshabalaya.

The key challenge of the moment is to go beyond tribal patterns of analysis in the us-vs.-them style — and to forewear ahistorical here-and-nows. We need to understand, once and for all, that globalization is not a new thing. It has been with us since the dawn of history. On balance, globalization may be explained in the shape of three rounds.

Well before trade in goods and services, globalization consisted of the exchange of ideas across distinct civilizations — as opposed to loosely structured nations and/or tribes. Such ideas helped form worldviews and shape the world materially.

Cross-Border Ideas

Quite a few of these ideas originated in India, China, Greece and Rome. And undoubtedly there was significant cross-fertilization between these ancient civilizations, alongside the vanished memories of Babylon and Egypt. Evidence of such enriching exchanges are demonstrated in the writings of Megasthenes, the 4th century B.C. Greek Ambassador to India, or Chinese scholar Hieun Tsang, who visited India's 2,000 tutor-staffed Nalanda University a millennium later. At the time, Europe, as we should recall, was only beginning to settle down after the trans-territorial forays of the Burgundians, the Ostrogoths and their energetic cousins.

First Round of Globalization

The interplay between territory and distinct local cultures is therefore innate to globalization. These equations extend to today's debates on the subject, too. The Arabs were among the first ambassadors of the realm of ideas. Readers of the Islamic scholar Alberuni know that it was Arabs who transferred Indian science, medicine, literature and, above all, mathematics to western Europe. As Alberuni said, these are subjects which either are noteworthy for their strangeness, or which are unknown among our own people. This was the First Round of Globalization.

Comparative Advantage Comes into Its Own

Meanwhile, the underlying logic of globalization was itself metamorphosing. Newer, intensively explored and cross-fertilized ideas began to drive a more far-reaching exchange of goods. This was well beyond that required for subsistence and the achievement of basic standards of living. Comparative advantage had begun to come into its own.

The systemic acceleration of trade in goods was the invention and genius of Europe. It was fueled by cross-border finance, including sophisticated custody and settlement processes inspired by the likes of the Medicis — and backed by their powerful patrons in the continent's monarchies and of course, Rome.

Second Round of Globalization

For a variety of reasons, such financial flows went on to fuel the Second Round of Globalization — the age of colonies, Empire and the Industrial Revolution. The Second Round also turbocharged standards of living in Europe and America — its principal movers and shapers.

Loss of Global Equity

One consequence of the Second Round was the rapid decline of India and China, even then the world's two largest nations. The whys for this have been extensively debated, but one could argue that China opted out of the Industrial Revolution, while India was left out.

What is important is one widely accepted fact. In the early 19th century, India and China's share of the global economy corresponded roughly to their share of the world's population. And in terms of the know-how required for the Industrial Revolution, both were on par with Europe. In other words, this was a time of global equity. There may have been significant poverty inside nations, but there was much less between them.

Europe's Influence

By the time the Second Round came to an end after World War II, India and China were at the bottom of the world income league. But there also was a flip side to this displacement. In a reversal of the First Round, Europe's ideas had flowed into what had become an ideologically stagnant India and China. Some of these ideas were truly revolutionary — about equality, liberty, earthly justice and the promise of boundless material benefits.

The Third Round of Globalization

What we are witnessing now in the rise of India and China — the Third Round of Globalization — are some pivotal fruits of Europe's transfer of ideas and their refinement in the United States. And yet, it is useful to always recall that ideas had flowed before in the opposite direction. To be sure, spices — high value, low volume and easily transportable — could not have been the only reason so many Western adventurers went seeking Mother India. Nor were they wrongly naming entire lands and peoples from southeast Asia to the United States and Caribbean after India.

Rise of China and India

The rise of China and India today is, above all, a return towards global equity. It is a moral imperative that about 40% of the world's people have somewhere close to a similar share of its income. Such an emergence is, however, also part of the logic of previous rounds of globalization.

Steadily empowered and largely youthful populations in the world's demographic hubs are not just suppliers of cheap labour. They are also buyers of goods and services which their aging, consumption-saturated counterparts in the West simply do not need on a similar scale.

Borderless Finance

Investors seek the highest rate of return, and do this ever-more easily in a borderless world. Here lies a very critical point — and one which sometimes escapes debates on globalization. While industry seeks low wages, market growth is always potentially higher in places with lower standards of living — and larger gaps to bridge.

Today's finance, more borderless than simply cross-border, is making sure this will happen — just as Italy's Medicis saw fit to fund trade and raise standards of living in the Hanseatic League cities of northern Europe.

Diffusion of Know-How

But unlike past rounds, the Third Round of Globalization has some wholly-new facets. One of these is the rapid (and thanks to the Internet, the near-instantaneous) movement of know-how — a new factor of production alongside land, labor and capital. More than pure ideas, the diffusion of know-how powerfully unsettles the dynamics of trade in goods and, more crucially, services. Alongside, Western service sector workers — through no fault of their own — remain severely handicapped by their high-cost economic environments, which underpins their higher standards of living.

High-Value Services

The disruption in the origin of high-value services is a unique challenge of this round. Its symbol is the information technology-powered Indian economy, which is achieving near-Chinese double digit rates of growth — without the gift (or to some, Trojan Horse) of Western foreign direct investment.

Instead, Indians have begun to massively draw in or buy out some of the Western world's highest-value symbols — from IT, telecoms and pharmaceuticals to Arcelor and Trevira. Accompanied by China's manufacturing juggernaut, this is dramatically shaking up the entire supply chain and value-creation geoscape.




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