From free trade to globalization

Uncovering the mist of 21st century

José Alberto Pérez Toro

• Publisher: Universidad Jorge Tadeo Lozano
• Year: 2016
• eBook ISBN: 9789587251845
• Topic: Politics & International Relations
• Subtopic: Globalisation
• Index: Politics & International Relations

One topic of interest for the social sciences and similar fields, such as business administration, economics and political science is globalization. Many researchers suggest that this is a new topic. Our research; however, looked into the assumptions of political and economic history concerning the particularities of this event and attempted to establish the existence of common events taking place in the 19th century that gave rise to the formation of a world trade system. This exercise aimed at seeking explanations that would help us better understand the emerging phenomenon of globalization. It was found that Great Britain, as a nation extended across the globe, experienced an enormous and unprecedented maritime and territorial expansion. We consider that this was a significant and most certainly very complex globalizing experiment.

PART I

INITIAL CONDITIONS THAT EXPLAIN THE PATH OF THE MODERN WORLD MARKET SYSTEM

INITIAL CONDITIONS THAT EXPLAIN THE PATH OF THE MODERN WORLD MARKET SYSTEM

This research chapter attempts an exploratory inquiry to identify some of the initial conditions associated with the long-term “path development process” that took place during the expanding world trade system in the 19^th century. This historical event allows us to foresee and understand trends that characterize 20^th and 21^st century expansion of the global market. This historical experience lead to the formation of a world commodities and manufactures market and it shows how this new-world liberal order allowed more regional countries to participate in this inclusive process that characterize the early 21^st century advancement of world events.

Under these emerging circumstances, new initial conditions for a growth path will determine how the transforming market relations in many countries will determine the accumulation and the world’s economic growth as the new 20^th and 21^st century globalization process advances. For the particular case of Colombia, this inquires attempts to explore why this particular economy is facing new challenges and opportunities to grow according to liberal rules of exchange. A historical survey is considered an important approach to framing nineteen-century environment for a transforming liberal Nation-State and expanding world economy where initial conditions for development are a matter of serious concern for analysts to understand future globalization changes. This picture will be related with the emerging scenarios where politics and economics seems to open the development opportunities as bloc trading rules are day to day business practices for most countries.

A special issue that merits deeper inquiry is the identification of early political conditions that influenced the appearance of the Nation-State on several continents, especially during the 19^th century when trade and investment touched many countries political practices. This inquire research will also attempt to foresee challenges and transforming conditions that will divert current Nation-States activities from those observed during the 19^th century golden age of globalization. We try to foresee 21^st century new world institutional changes affecting path progress whose divergent trends will affect world political and institutional system.

The United States as a Superpower and leading World International Organizations, like the IMF and WTO as World leading Institutions, perhaps will exercise institutional influence to change in some extent the rules that lead to the development and growth paths according to general economic liberal practices in the evolving century. Although, some emerging powers like China, India, Brazil and South Africa, or BASIC group, believe that transforming their own priorities as independent states will affect the world’s political agenda.¹

1.1. FORMATION OF THE MODERN WORLD-SYSTEM

History reminds us that during the 19^th century the World-System economy experienced a long trend process of change where political and economic structures developed promoting as a result of this technological change the path of long term economic growth.² In the two sections that follow we study some arguments that explain the expansion of the political and economic system, and in the second, the old and new condition for expansion of this structure. Nation-States and nations developed according to the liberal ideology we know today, but at a world scale they gradually structured a new Nation-State system ruled by interdependence and cooperation. The early political advancement of evolving territories linked to a world market economy brought promising conditions for enlarging world competitive market transactions and increasing larger volumes of trade and value. Specialization of production helped to link a disperse variety of geographical territories previously separated by distance, due to a lack of complementary trading practices and reliable exchange principles —this lead into a larger world of money exchange systems.³ During the 19^th century, maritime and railway developments helped to connect markets into a global system. Under this new political and economic environment, trade currents increased which lead to new patterns of world consumption and industrial use made to raw materials. In different time spaces, new investment opportunities and higher rate of growth improved people’s welfare according to historical stages of development.

Developing imperial political institutions —mainly in the United Kingdom—helped to articulate and develop new states around the Crown’s interests. Some other countries strengthened its political institutions and its geographical boundaries, structuring a modern Nation-State. Financial exchange facilities, larger trade currents, complementary investment and larger migration flows improved international conditions for an integrated world economy (Parker, 1998, p. 148). Foreign trade institutions linked commercial activities all over the world favoring political institutions to develop and make countries exchange relations a current world routine. Regulations in world trading practices helped to organize other complementary economic activities, enlarging market mechanism operations, and integrating these countries economic activities. The expanding transportation network and financial investment institutions that spread all over the world encouraged and facilitated trading practices. Political institutions became better organized particularly in more advanced and industrialized countries; however, little by little peripheral countries organized according to efficiency principles and made of their economic structures agents more prone to trade and innovative activities.

The theory of International Relations has experienced important evolution and changes after the study that much has to be worked to see how the harmony of interests integrates to produce valid explanations of country relations. The Realist School of international relations, according to the work of Carr, insists that for the case of wealth derived from commerce and industry were a means to acquire military power particularly in the 19^th century.⁴ Elaborating this approach, and examining events closer, it is possible to arrive to conclusions like “in the field of political action one can relate existing forces and tendencies”, to make a correct predictive arrangement of events. This development may interpret the impetus towards convergence where the advancement of a higher degree of specialization of a country’s production, or educational acumen, helps to integrate markets accumulate power to lead self-interests within a wider political or economic space that explains why the market expanded to reach a world size.

Political and economic consent as a state of common purposes helps to conciliate new expanding world forces. Following the realist political tradition, or perhaps other related avenues with world political economy considerations, helps to clarify some of the explicatory circumstances that raised trading organization structures that surrendered the world of business globally during that century. This merging development has been the consequence of integrating trade to historical economic and political laissez-faire ideas, oriented towards the establishment of political freedom and liberty.

The commercially structured world that expanded during the time-coordinate of the nineteen-century-variable strictly abided contemporary institutional commitments. Part of this coincidence was the institutional consequence of better distribution of gains of trade and investment opportunities that together helped to enlarge domestic market size within stabilizing emerging political climate.⁵ Trading nations gradually were in the capacity to diversify production more efficiently, being afterwards enforced to remain tied to a single or very few staple export commodities. Fortunately, they achieved sustained expansion of some subsidiary or complementary industries when world price-cycle was favorable to growth.

1.1.1. Formation of the World-Political and Economic System

World Politics as a system that governed the world includes every aspect of power as a defined exercise of authority, while international political economy relates aspects of production and distribution of goods and services on a growing interdependent world scale. State action has been oriented toward constructing power systems to defend and protect people’s rights and, at the world political level, to contain actions of competing state against a country’s self-interest. States’ external relations tend to be anarchical, while structural components of power incline toward the determination of new forms of state interaction. World institutional architecture shaped to development of political interest to preserve nations communication channels and structure organizing patterns of investment, exchange of goods and services at world scale, finally this model determined a progressive expansion of world markets.

During the 19^th century, the Latin American notion of the Nation-State acquired a new structural framework converging in new institutions that emerged as a consequence of wars of independence or declining colonial status for some others, sometimes facilitating new political relations like launching new Constitutions or creating political parties and, in the economic filed, promoting increasing exchange of products on a national and world scale. Specialization generated value to extractive activities helping to sustain increasing institutional participation of trade in total world production (Foreman-Peck, 1995, Ch. 3).

Industrialized countries and the emerging World Economy was in the 19^th century the result of accelerated development process that followed after industrialized nations spread their power and economic influence around the world. This process was accompanied by a particularly intense world market expansion and exchange of productive factors. This emerging phenomenon occurred just following the period of the Industrial Revolution in England and its aftermath, as well as in nations like France and Germany, that considered overseas empire as a political and economic gain for exchange and row materials provision.

During this expanding age some economists suggested evident discontinuities and also structural transformations attributed to jumps in productivity and incorporation of peripheral markets with increasing purchasing power, encouraging a widespread phenomenon of expanding and sustained trade volume at cheaper world prices. Commodities, raw materials and consumer goods made up the bulk of this expanding pattern of world consumption. The process of technical innovation spread across the new geographical board composed of the industrializing European countries and North American continent, shaping this innovative nations a dynamic process of exchange of goods and services within their own frontiers, particularly because the richer countries absorbed technological innovation at a fast pace, putting this improvement into large scale production for their own benefit.

The improvements and gains in efficiency attributed to specialization led primary goods and manufacturing output production to add substantial value to final goods, making exchange activity a profitable venture. Asymmetries perhaps were associated with market distortions and were of likely occurrence in the late 20^th century and early twenty-first century. The discontinuities in growth introduced by the structural change stimulated sustained long-term economic growth in some virtuous circles,⁶ accelerating through growth the urbanization process and in some cases improving social conditions for change, benefiting workers’ welfare after the diffusion of higher market wages took place. Some barriers to growth have to be removed first before growth could be sustained,⁷ many identified as the initial factor condition that allowed for powerful exogenous forces to sustain and expand production for world market consumption. The removal of this barriers helped strengthening economic links with countries where productive activity became more specialized acting as a component to satisfy changing world demand patterns.

Adam Smith proclaimed the set of institutional requirements for an upward spiral of economic growth, and for the continuous accumulation of capital increase and improvement in productivity.⁸ Fashionable 19^th century economic theories partially explained productive factor connections to sustain larger world market scale contribution to output, efficiency to propel costs reduction, and gains in efficiency for market growth. Marking such a structural change for market development required taming opposing political commitments to the pursuit of self-sustaining development.

This emerging transformation gradually required developing world-trading institutions like property ownership, worldwide transportation, and banking practices —also concurrent improvements helped increase what we now define a global commercial exchange and its investment system. The world trading process that developed in this intense and interactive period of growth helped advance or modernize the world economic and political system. Along with this modernization process led by a group of much more organized countries engaged in modern productive activities, developed a complex institutional set of requirements allowing for the advancements and improvement of modern investment and production of world mass consumption goods. World demand for trade goods increased as world purchasing power helped diversify consumption needs. However, this social improvement would not have been possible if previous political and trading arrangements had not taken place to satisfy conditions to accomplish for long and stable exchange processes.

This expanding world system mechanism has been widely analyzed by different theoretical development currents, and has been identified with the development of assumptions that relate theoretical elements to confirm resulting structural changes attributed sometimes to the action of exogenous factors and recently to endogenous growth. This dynamic process has been the result of factor movements and variable combinations that according to different empirical developments make these models better to foresee future changes.

Ragnar Nurkse suggested theoretical balanced growth approaches and at the other end of the analytical spectrum Hirschman followers’ suggested the unbalanced growth paradigm to better explain sustained growth, now complemented by more sophisticated and rigorous mathematical models where technological change and its effect on growth is attributed to endogenous factors.⁹ Solow-type models started the neo-classical tradition approach suggesting that aggregated factor proportions combined with exogenous variables do well to explain sustained growth.

Contemporary fashionable convergence assumptions of growth are supported by other line of inquiry where authors like Romer, Barro and Sala-i-Martín show, with the help of elaborate theoretical assumptions, that endogenous factors like innovation within the firm explain further growth developments conditions for the economy as a whole, views that are particularly useful for emerging countries making efforts to link their economies to global markets through the introduction of innovative products, perhaps in a different fashion compared with 19^th century experience where technology and some factors were exogenously given.¹⁰

1.1.2. Old and New Conditions for Modern ...

Table of contents

• COVER PAGE
• TITLE PAGE
• COPYRIGHT PAGE
• TABLE OF CONTENTS
• PREFACE
• INTRODUCTION
• PART I: INITIAL CONDITIONS THAT EXPLAIN THE PATH OF THE MODERN WORLD MARKET SYSTEM
• PART II: FROM THE GLOBAL LIBERAL ORDER TO A GLOBAL MARKET SYSTEM
• PART III: FORMATION OF THE EMERGING WORLD POLITICAL SYSTEM
• PART IV: CAPITALISM SPREADS AROUND THE GLOBE
• PART V: THE TWENTY-FIRST CENTURY AND THE GLOBAL KNOWLEDGE ECONOMY´S OPPORTUNITIES
• PART VI: WORLD FINANCIAL MARKETS AND GLOBAL POLITICS
• PART VII: THE NATION-STATE TRANSFERS ITS SOVEREIGNTY TO NEW POLITICAL ACTORS
• PART VIII: REACHING BILATERAL FREE TRADE AGREEMENTS—FTA'S
• PART IX: REGIONAL DEVELOPMENT: A ROUTE TO GLOBALIZATION
• PART X: THE CITY-REGION A MODERN ACTOR TO COMPETE IN THE ENVIRONMENT OF GLOBALIZATION
• PART XI: THE CRISIS OF THE DOLLAR AND THE EURO, EFFECTS ON THE INTERNATIONAL ECONOMY. “GLOBAL FINANCIAL CRISIS”
• PART XII: CONCLUDING REMARKS ABOUT THE HISTORICAL ROOTS OF GLOBALIZATION
• REFERENCES
• APENDIX 1: BIBLIOGRAPHICAL REFERENCES
• APENDIX 2: BIBLIOGRAPHICAL RESEARCH ON INTERNATIONAL POLITICAL ECONOMY
• APENDIX 3: LITERATURE ON ECONOMIC INTEGRATION IN LATIN AMERICA
• APENDIX 4: LITERATURE ON THE DEVELOPMENT OF THE “CITY REGION”
• APENDIX 5: LITERATURE ON THE CHAPTER ABOUT “GLOBAL FINANCIAL CRISIS”
• APENDIX 6: BIBLIOGRAPHY ON THE HISTORICAL ROOTS OF GLOBALIZATION