LESSON 2 we‟ll see throughout the history of trade: it thrives

Origins and History of Globalization when nations protect it, it falls when they don‟t.

A Brief History of Globalization Spice routes (7th-15th centuries)

When Chinese e-commerce giant Alibaba in 2018 The next chapter in trade happened thanks to
announced it had chosen the ancient city of Xi‟an Islamic merchants. As the new religion spread in all
as the site for its new regional headquarters, the directions from its Arabian heartland in the 7th
symbolic value wasn‟t lost on the company: it had century, so did trade. The founder of Islam, the
brought globalization to its ancient birthplace, the prophet Mohammed, was famously a merchant, as
start of the old Silk Road. It named its new offices was his wife Khadija. Trade was thus in the DNA
aptly: “Silk Road Headquarters”. The city where of the new religion and its followers, and that
globalization had started more than 2,000 years ago showed. By the early 9th century, Muslim traders
would also have a stake in globalization‟s future. already dominated Mediterranean and Indian Ocean
trade; afterwards, they could be found as far east as
Alibaba shouldn‟t be alone in looking back. As we Indonesia, which over time became a Muslim-
are entering a new, digital-driven era of majority country, and as far west as Moorish Spain.
globalization – we call it “Globalization 4.0” – it is
worthwhile that we do the same. When did The main focus of Islamic trade in those Middle
globalization start? What were its major phases? Ages were spices. Unlike silk, spices were traded
And where is it headed tomorrow? mainly by sea since ancient times. But by the
medieval era they had become the true focus of
So, when did international trade start and how did it international trade. Chief among them were the
lead to globalization? cloves, nutmeg and mace from the fabled Spice
islands – the Maluku islands in Indonesia. They
Silk roads (1st century BC-5th century AD, and were extremely expensive and in high demand, also
13th-14th centuries AD) in Europe. But as with silk, they remained a luxury
People have been trading goods for almost as long product, and trade remained relatively low volume.
as they‟ve been around. But as of the 1st century Globalization still didn‟t take off, but the original
BC, a remarkable phenomenon occurred. For the Belt (sea route) and Road (Silk Road) of trade
first time in history, luxury products from China between East and West did now exist.
started to appear on the other edge of the Eurasian
continent – in Rome. They got there after being Age of Discovery (15th-18th centuries)
hauled for thousands of miles along the Silk Road. Truly global trade kicked off in the Age of
Trade had stopped being a local or regional affair Discovery. It was in this era, from the end of the
and started to become global. 15th century onwards, that European explorers
connected East and West – and accidentally
That is not to say globalization had started in discovered the Americas. Aided by the discoveries
earnest. Silk was mostly a luxury good, and so were of the so-called “Scientific Revolution” in the fields
the spices that were added to the intercontinental of astronomy, mechanics, physics and shipping, the
trade between Asia and Europe. As a percentage of Portuguese, Spanish and later the Dutch and the
the total economy, the value of these exports was English first “discovered”, then subjugated, and
tiny, and many middlemen were involved to get the finally integrated new lands in their economies.
goods to their destination. But global trade links
were established, and for those involved, it was a The Age of Discovery rocked the world. The most
goldmine. From purchase price to final sales price, (in)famous “discovery” is that of America by
the multiple went in the dozens. The Silk Road Columbus, which all but ended pre-Colombian
could prosper in part because two great empires civilizations. But the most consequential
dominated much of the route. If trade was exploration was the circumnavigation by Magellan:
interrupted, it was most often because of blockades it opened the door to the Spice islands, cutting out
by local enemies of Rome or China. If the Silk Arab and Italian middlemen. While trade once
Road eventually closed, as it did after several again remained small compared to total GDP, it
centuries, the fall of the empires had everything to certainly altered people‟s lives. Potatoes, tomatoes,
do with it. And when it reopened in Marco Polo‟s coffee and chocolate were introduced in Europe,
late medieval time, it was because the rise of a new and the price of spices fell steeply.
hegemonic empire: the Mongols. It is a pattern
Yet economists today still don‟t truly regard this yet another artery of world trade. Others built
era as one of true globalization. Trade certainly railways in India, or managed mines in African
started to become global, and it had even been the colonies. Foreign direct investment, too, was
main reason for starting the Age of Discovery. But globalizing.
the resulting global economy was still very much
siloed and lopsided. The European empires set up While Britain was the country that benefited most
global supply chains, but mostly with those from this globalization, as it had the most capital
colonies they owned. Moreover, their colonial and technology, others did too, by exporting other
model was chiefly one of exploitation, including the goods. The invention of the refrigerated cargo ship
shameful legacy of the slave trade. The empires or “reefer ship” in the 1870s, for example, allowed
thus created both a mercantilist and a colonial for countries like Argentina and Uruguay, to enter
economy, but not a truly globalized one. their golden age. They started to mass export meat,
from cattle grown on their vast lands. Other
First wave of globalization (19th century-1914) countries, too, started to specialize their production
This started to change with the first wave of in those fields in which they were most competitive.
globalization, which roughly occurred over the
century ending in 1914. By the end of the 18th But the first wave of globalization and
century, Great Britain had started to dominate the industrialization also coincided with darker events,
world both geographically, through the too. By the end of the 19th century, the Khan
establishment of the British Empire, and Academy notes, “most [globalizing and
technologically, with innovations like the steam industrialized] European nations grabbed for a
engine, the industrial weaving machine and more. It piece of Africa, and by 1900 the only independent
was the era of the First Industrial Revolution. country left on the continent was Ethiopia”. In a
The “British” Industrial Revolution made for a similarly negative vein, large countries like India,
fantastic twin engine of global trade. On the one China, Mexico or Japan, which were previously
hand, steamships and trains could transport goods powers to reckon with, were not either not able or
over thousands of miles, both within countries and not allowed to adapt to the industrial and global
across countries. On the other hand, its trends. Either the Western powers put restraints on
industrialization allowed Britain to make products their independent development, or they were
that were in demand all over the world, like iron, otherwise outcompeted because of their lack of
textiles and manufactured goods. “With its access to capital or technology. Finally, many
advanced industrial technologies,” the BBC workers in the industrialized nations also did not
recently wrote, looking back to the era, “Britain benefit from globalization, their work
was able to attack a huge and rapidly expanding commoditized by industrial machinery, or their
international market.” output undercut by foreign imports.

The resulting globalization was obvious in the The world wars

numbers. For about a century, trade grew on It was a situation that was bound to end in a major
average 3% per year. That growth rate propelled crisis, and it did. In 1914, the outbreak of World
exports from a share of 6% of global GDP in the War I brought an end to just about everything the
early 19th century, to 14% on the eve of World War burgeoning high society of the West had gotten so
I. As John Maynard Keynes, the economist, used to, including globalization. The ravage was
observed: “The inhabitant of London could order by complete. Millions of soldiers died in battle,
telephone, sipping his morning tea in bed, the millions of civilians died as collateral damage, war
various products of the whole Earth, in such replaced trade, destruction replaced construction,
quantity as he might see fit, and reasonably expect and countries closed their borders yet again.
their early delivery upon his doorstep.”
In the years between the world wars, the financial
Keynes also noted, a similar situation was also true markets, which were still connected in a global
in the world of investing. Those with the means in web, caused a further breakdown of the global
New York, Paris, London or Berlin could also economy and its links. The Great Depression in the
invest in internationally active joint stock US led to the end of the boom in South America,
companies. One of those, the French Compagnie de and a run on the banks in many other parts of the
Suez, constructed the Suez Canal, connecting the world. Another world war followed in 1939-1945.
Mediterranean with the Indian Ocean and opened By the end of World War II, trade as a percentage
of world GDP had fallen to 5% – a level not seen in The result has been a globalization on steroids. In
more than a hundred years. the 2000s, global exports reached a milestone, as
they rose to about a quarter of global GDP. Trade,
Second and third wave of globalization the sum of imports and exports, consequentially
The story of globalization, however, was not over. grew to about half of world GDP. In some
The end of the World War II marked a new countries, like Singapore, Belgium, or others, trade
beginning for the global economy. Under the is worth much more than 100% of GDP. A majority
leadership of a new hegemon, the United States of of global population has benefited from this: more
America, and aided by the technologies of the people than ever before belong to the global middle
Second Industrial Revolution, like the car and the class, and hundred of millions achieved that status
plane, global trade started to rise once again. At by participating in the global economy.
first, this happened in two separate tracks, as the
Iron Curtain divided the world into two spheres of Globalization 4.0
influence. But as of 1989, when the Iron Curtain That brings us to today, when a new wave of
fell, globalization became a truly global globalization is once again upon us. In a world
phenomenon. increasingly dominated by two global powers, the
In the early decades after World War II, institutions US and China, the new frontier of globalization is
like the European Union, and other free trade the cyber world. The digital economy, in its infancy
vehicles championed by the US were responsible during the third wave of globalization, is now
for much of the increase in international trade. In becoming a force to reckon with through e-
the Soviet Union, there was a similar increase in commerce, digital services, 3D printing. It is further
trade, albeit through centralized planning rather enabled by artificial intelligence, but threatened by
than the free market. The effect was profound. cross-border hacking and cyber-attacks.
Worldwide, trade once again rose to 1914 levels: in
1989, export once again counted for 14% of global At the same time, a negative globalization is
GDP. It was paired with a steep rise in middle-class expanding too, through the global effect of climate
incomes in the West. change. Pollution in one part of the world leads to
extreme weather events in another. And the cutting
Then, when the wall dividing East and West fell in of forests in the few “green lungs” the world has
Germany, and the Soviet Union collapsed, left, like the Amazon rainforest, has a further
globalization became an all-conquering force. The devastating effect on not just the world‟s
newly created World Trade Organization (WTO) biodiversity, but its capacity to cope with hazardous
encouraged nations all over the world to enter into greenhouse gas emissions.
free-trade agreements, and most of them did,
including many newly independent ones. In 2001, But as this new wave of globalization is reaching
even China, which for the better part of the 20th our shores, many of the world‟s people are turning
century had been a secluded, agrarian economy, their backs on it. In the West particularly, many
became a member of the WTO, and started to middle-class workers are fed up with a political and
manufacture for the world. In this “new” world, the economic system that resulted in economic
US set the tone and led the way, but many others inequality, social instability, and – in some
benefited in their slipstream. countries – mass immigration, even if it also led to
economic growth and cheaper products.
At the same time, a new technology from the Third Protectionism, trade wars and immigration stops are
Industrial Revolution, the internet, connected once again the order of the day in many countries.
people all over the world in an even more direct
way. The orders Keynes could place by phone in As a percentage of GDP, global exports have stalled
1914 could now be placed over the internet. Instead and even started to go in reverse slightly. As a
of having them delivered in a few weeks, they political ideology, “globalism”, or the idea that one
would arrive at one‟s doorstep in a few days. What should take a global perspective, is on the wane.
was more, the internet also allowed for a further And internationally, the power that propelled the
global integration of value chains. You could do world to its highest level of globalization ever, the
R&D in one country, sourcing in others, production United States, is backing away from its role as
in yet another, and distribution all over the world. policeman and trade champion of the world.
It was in this world that Chinese president Xi
Jinping addressed the topic globalization in a
speech in Davos in January 2017. “Some blame
economic globalization for the chaos in the world,”
he said. “It has now become the Pandora‟s box in
the eyes of many.” But, he continued, “we came to
the conclusion that integration into the global
economy is a historical trend. [It] is the big ocean
that you cannot escape from.” He went on the
propose a more inclusive globalization, and to rally
nations to join in China‟s new project for
international trade, “Belt and Road”.

It was in this world, too, that Alibaba a few months

later opened its Silk Road headquarters in Xi‟an. It
was meant as the logistical backbone for the e-
commerce giant along the new “Belt and Road”, the
Paper reported. But if the old Silk Road thrived on
the exports of luxurious silk by camel and donkey,
the new Alibaba Xi‟an facility would be enabling a
globalization of an entirely different kind. It would
double up as a big data college for its Alibaba
Cloud services.

Technological progress, like globalization, is

something you can‟t run away from, it seems. But it
is ever changing. So how will Globalization 4.0
evolve? We will have to answer that question in the
coming years.