That compares with the 192 states which, in 2009, were members of the United Nations. Of today’s nations, 113 used to be part of colonial and imperial systems, while a further thirty-three were parts of other states.
Economic globalization has, therefore, been associated with political disintegration. This is a very odd result. At the very least, it suggests the political challenges associated with modern-day globalization are very different from the challenges that emerged, so tragic-ally, in the second decade of the twentieth century. How, for example, can there be global agreement on capital markets, climate change or currency markets if multitudinous nation states all wish to pursue their own individual agendas? If, as was argued in Chapter 1, good government is essential for sustained economic progress, how easy is it to deliver good government at the international level in the absence of nineteenth-century empires?
The good news is that there has been considerable progress. Trade flows have gradually been rebuilt, partly through regional trading blocs but, most importantly, through the creation of global rules through the General Agreement on Tariffs and Trade (GATT) and its successor, the World Trade Organization (WTO), which China signed up to in 2001, heralding a new era for international trade. Soviet communism has gone and Chinese communism is not what it used to be. The British Empire has been replaced by American hegemony. As a substitute for the Gold Standard, more and morecountries have embraced the case for sound money through, most obviously, the use of inflation targets and links to the US dollar.
Meanwhile, in more recent times, cross-border capital flows have risen dramatically, reflecting in part the gradual abolition of capital controls and, for a while, a growing acceptance that cross-border capital flows subjected nations to useful market disciplines. Even as the Berlin Wall came down in 1989, many Western European countries still routinely used such controls. Only with the creation of the Single Market in 1992, just seven years before the creation of the euro, was a formal commitment made to free cross-border movements of capital within the European Union.
But does this really represent a return to the roadmap abandoned at the beginning of the twentieth century? I don’t think so. The political and economic backdrop to late-nineteenth-century globalization was fundamentally different from today’s version. There was a global law-enforcement officer, in the form of the Royal Navy, which kept the sea lanes open. The US, the most powerful nation on earth today, does not share the same commitment. It has no physical empire to protect and it chooses not to offer unequivocal support to the organizations that might enforce international law.
As we shall see in Chapter 8, there were huge movements of people across borders on a scale that can hardly be imagined today, at least in proportion to the size of indigenous populations. While border controls were, primarily, a twentieth-century innovation, they continue to distort the allocation of productive resources in the twenty-first century. Even where immigration controls have been lifted – in parts of the European Union, for example – this has generally been a patchwork affair.
The most powerful nation on Earth, the UK, ran a balance of payments current-account surplus in the late nineteenth century, using its excess savings to invest in potentially lucrative opportunities in less advantaged parts of the world. 12 Since 1977, the US has, for themost part, run an ever-widening balance of payments current-account deficit (punctuated by occasional recession-induced surpluses). By the beginning of the twenty-first century, the US had become enormously dependent on the deep pockets of emerging creditor nations.
Before the First World War, public sectors were small. Over the last hundred years, the role of the state in economic affairs has expanded
Economic globalization has, therefore, been associated with political disintegration. This is a very odd result. At the very least, it suggests the political challenges associated with modern-day globalization are very different from the challenges that emerged, so tragic-ally, in the second decade of the twentieth century. How, for example, can there be global agreement on capital markets, climate change or currency markets if multitudinous nation states all wish to pursue their own individual agendas? If, as was argued in Chapter 1, good government is essential for sustained economic progress, how easy is it to deliver good government at the international level in the absence of nineteenth-century empires?
The good news is that there has been considerable progress. Trade flows have gradually been rebuilt, partly through regional trading blocs but, most importantly, through the creation of global rules through the General Agreement on Tariffs and Trade (GATT) and its successor, the World Trade Organization (WTO), which China signed up to in 2001, heralding a new era for international trade. Soviet communism has gone and Chinese communism is not what it used to be. The British Empire has been replaced by American hegemony. As a substitute for the Gold Standard, more and morecountries have embraced the case for sound money through, most obviously, the use of inflation targets and links to the US dollar.
Meanwhile, in more recent times, cross-border capital flows have risen dramatically, reflecting in part the gradual abolition of capital controls and, for a while, a growing acceptance that cross-border capital flows subjected nations to useful market disciplines. Even as the Berlin Wall came down in 1989, many Western European countries still routinely used such controls. Only with the creation of the Single Market in 1992, just seven years before the creation of the euro, was a formal commitment made to free cross-border movements of capital within the European Union.
But does this really represent a return to the roadmap abandoned at the beginning of the twentieth century? I don’t think so. The political and economic backdrop to late-nineteenth-century globalization was fundamentally different from today’s version. There was a global law-enforcement officer, in the form of the Royal Navy, which kept the sea lanes open. The US, the most powerful nation on earth today, does not share the same commitment. It has no physical empire to protect and it chooses not to offer unequivocal support to the organizations that might enforce international law.
As we shall see in Chapter 8, there were huge movements of people across borders on a scale that can hardly be imagined today, at least in proportion to the size of indigenous populations. While border controls were, primarily, a twentieth-century innovation, they continue to distort the allocation of productive resources in the twenty-first century. Even where immigration controls have been lifted – in parts of the European Union, for example – this has generally been a patchwork affair.
The most powerful nation on Earth, the UK, ran a balance of payments current-account surplus in the late nineteenth century, using its excess savings to invest in potentially lucrative opportunities in less advantaged parts of the world. 12 Since 1977, the US has, for themost part, run an ever-widening balance of payments current-account deficit (punctuated by occasional recession-induced surpluses). By the beginning of the twenty-first century, the US had become enormously dependent on the deep pockets of emerging creditor nations.
Before the First World War, public sectors were small. Over the last hundred years, the role of the state in economic affairs has expanded
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