The Mediterranean Response to Globalization before 1950

Sevket Pamuk, Jeffrey G. Williamson

• Publisher: Taylor & Francis
• Year: 2000
• Print ISBN: 9780415224253
• eBook ISBN: 9781134592098
• Edition: 1
• Topic: Business
• Subtopic: Business General
• Index: Business

The studies in this exceptional volume explore the challenges and opportunities presented by globalization events prior to 1950, and identify how countries around the Mediterranean responded to them. In addition to comparative assessments of regional performance, the volume offers detailed case studies of Spain, Italy, the Balkans, Turkey, Israel a

Part 1
Introduction

1 Globalization challenge and economic response in the Mediterranean

Sevket Pamuk and Jeffrey G.Williamson

As the process of economic integration between Europe and the Mediterranean advances into a new century, it becomes increasingly urgent for economic historians to try to shed more light on current policy debates by improving our understanding of the past. As if in response to this call, recent research on the economic history of Spain, Portugal and Italy has exploded. Alas, the same cannot be said of the rest of the Mediterranean, since the longrun economic experience of what are now called the Balkans, Turkey, the Middle East and North Africa remain too little studied by economists and economic historians.

This fact motivated our organizing a three-day conference which met at the Old Ottoman Mint in Istanbul on 4–6 June 1998. The guiding focus common to all the papers was to better understand the globalization challenges and opportunities that the Mediterranean faced prior to 1950, and how the region responded to them. This focus included dimensions of international trade, international capital mobility, technology diffusion, and policy response. Furthermore, the papers tried to assess country performance comparatively. Our goal was to provoke new research on the region, research which was more quantitative and analytical than has been true of past scholarship, and more comparative as well. Certainly the time is ripe: if economic history is going to inform policy around the Mediterranean, and between it and eastern and western Europe, a collective debate about the sources and impact of Mediterranean economic change over the past two centuries must begin now.

We hope that this volume will serve as a beacon for more analytical and quantitative work on the economic history of the Mediterranean basin. The thirteen papers deal with a number of interrelated themes regarding long-run economic change, but globalization issues are common to all of them. The first three of these focus on the performance of the Mediterranean in relation to the rest of Europe (Part 2). The Mediterranean countries all had a large agrarian base during the nineteenth century, with industrial activity becoming significant only towards the end of the century, and in many cases even later. Thus, this volume dwells more, although not exclusively, on the economic performance within sectors rather than on industrial revolutions and structural transformations. Documentation is difficult, but the most ambitious collection of world income statistics compiled by Angus Maddison (1995) does not point to any ubiquitous pattern of convergence between the southern and western European countries after 1850, or even between 1870 and 1914, when the first great globalization boom took place. In fact, as Gabriel Tortella (1994a) has emphasized, the gap continued to widen after 1870 and southern European countries like Spain, Greece and Portugal did not begin to start catching up with the leaders until 1950, although Italy showed some signs earlier.

Why southern European economic backwardness persisted for so long has inevitably attracted considerable attention in recent years. Jaime Reis (Chapter 2) compares the performance of southern European countries after 1850 with another group in the European periphery: the Scandinavian countries. Using various proxies (including real wages) for the missing per capita income estimates, he concludes, in contrast to the arguments put forward by Paul Bairoch more than two decades ago (1977 and 1979), that a sizable income per capita gap had already emerged within the European periphery by the early part of the nineteenth century. This finding is consistent with those of Jeffrey Williamson in this volume, and with a recent paper by Robert Allen (1998a). With the Scandinavian countries growing at rates above the European leaders before World War I, this gap became only more pronounced by 1914.

Reis only touches on the possible reasons for this divergence in performance: demography, accumulation, and natural resource endowment. He concludes by pointing to the advantages of thinking in terms of two convergence clubs for the nineteenth century, not just one.

Jeffrey G.Williamson (Chapter 3) also underlines the existence of a northsouth gap within Europe and the relatively poor performance of the western Mediterranean basin during the wave of convergence around the Atlantic economy from about 1850 until 1914. Making use of real wage data that were recently compiled or that remained under-utilized for such comparisons, he first explores the origins of the great divide between the north and the south. Williamson, like Allen, shows that the wage gap did not emerge solely in the aftermath of the Industrial Revolution. Instead, it was also the product of two earlier events: the pre-industrial success of Britain and the Low Countries coupled with southern European retardation during the seventeenth and eighteenth centuries.

Williamson then moves toward the eastern Mediterranean. In the tradition of Arthur Lewis (1969, 1978a, 1978b), he explores how the eastern half of the Mediterranean fared after 1870 and whether this region, with even lower wage and per capita income levels compared to the poor western Mediterranean, was pulled up during the pre-World War I globalization boom. Making use of new wage, price and land-rental data, he finds the evidence from the Balkans, Turkey and Egypt quite consistent: while there was no catching up, there was no falling behind either; that is, it appears that the eastern Mediterranean was pulled along by economic growth in industrial Europe and North America. The forces of globalization had another large impact on the region as well. Evidence from Egypt shows that the growth of trade led to a spectacular fall in the wage/rental ratio as the cotton boom drove up land values and rents, leading to growing inequalities. Other indicators constructed by the author confirm rising inequality everywhere in this part of the Mediterranean from 1880 to 1938, and it seems very likely that it was globalization forces yielding that result. Williamson also speculates that since the countries around the eastern part of the Mediterranean, like Portugal and Spain in the western half, did not participate in the intercontinental waves of labour migration before World War I, “under”-emigration may explain, at least in part, the persistence of the real wage gap between the eastern Mediterranean and the rest, as well as some of the rising inequality. In this sense, his results are consistent with those of Blanca Sánchez-Alonso in this volume.

Measuring comparative growth performance is hard enough; explaining it is far harder. Economic historians have always emphasized institutions and technologies in searching for those explanations, and the paper by James Foreman-Peck and Pedro Lains (Chapter 4) is certainly in that tradition. The authors employ a model to explain why countries in the Balkans and Iberia showed no ability to catch up with the European leader, the United Kingdom, between 1870 and 1910. The paper is in the tradition of the new growth empirical work on the late twentieth century by macroeconomists like Jeffrey Sachs, Robert Barro and others. However, the authors also use the model to infer what played the biggest role in suppressing late nineteenth-century growth in these two parts of the Mediterranean. Their conclusions are that the lag can be explained largely by high tariffs, poor natural resource endowments and low literacy, conclusions that sit very well with most of the rest of the papers in this volume. The toughest challenge, of course, is to show why remedial trade and education policies were rarely used in the Balkans and Iberia to overcome these disadvantages.

With the stage set by these three comparative macro-assessments of longrun Mediterranean growth, the volume then moves on to the two country studies in Part 3, one from each end of the Mediterranean. Stretching from Macedonia in the west through Anatolia to Syria in the east, economic growth in the Ottoman Empire was linked, above all, to the performance of agriculture, since industrialization remained limited until World War I. Ahmet Akarli (Chapter 5) emphasizes that our understanding of the Ottoman economy during the nineteenth century has improved considerably in recent decades. Within the context of free trade, growing commercialization, infrastructure development and consolidation of European financial control, it now seems more plausible than it was two decades ago to link Ottoman growth with its integration into world markets, a theme that permeates so many papers in this volume.

In the absence of production statistics, Akarli strives to measure the performance of the agrarian economy of Ottoman Macedonia around the turn of the century. He cautions that fiscal data may be a questionable source for constructing production and national income estimates since the government’s capacity to collect taxes may have changed. Nonetheless, fiscal data and consumption-based estimates both show that the rapid decline in international cereal prices after the 1870s damaged Macedonian agricultural producers and pushed them into the production of other cash crops. In that, they must have been successful since Akarli’s series suggests that agricultural production in Macedonia experienced rapid growth up to 1905. However, there was a slowdown and decline thereafter, results that lead Akarli to question the optimistic estimates of overall Ottoman agricultural growth after 1890 first offered by Vedat Eldem (1970). Unless there were faster rates of growth in per capita income in urban regions and non-farm sectors, the increases in Ottoman per capita income implied by even the optimistic agricultural scenario must have been below 1 per cent per annum, lower than the rates experienced in industrial Europe before 1914, and below the catching-up rates achieved around the European periphery (e.g. Scandinavia, Ireland and Italy). But suppose there were faster rates of growth in non-farm regions and sectors, and suppose further that the poorer agriculture sector was shrinking, both of which would have been the expected responses to increased agricultural competition from abroad. Such facts would imply more rapid rates of Ottoman GDP per capita growth, rates more consistent with the real-wage growth documented by Williamson in this volume. In any case, available evidence suggests that the eastern Mediterranean did not belong to the Atlantic economy convergence club before World War 1.

While Akarli deals with agriculture in the eastern Mediterranean, Joan Ramon Rosés (Chapter 6) deals with industry in the western end. Rosés investigates the different technological choices made by Catalan, Lancashire and New England cotton textile producers and the implications of their choices for Catalan competitiveness during the mid-nineteenth century. From the early stages of industrialization, American, Spanish and Italian cotton textile mills tried to adapt British technology to their own needs as a consequence of differences in Spanish relative factor scarcity. By the 1850s, these followers had cut the technology gap with the leader. However, Rosés points out that choice of technology and output quality mix were closely related in cotton textiles; early technological choices had important long-term consequences not only for the choice of inputs but also for the quality of the final product. Coarse cloth used raw material intensively but labour less intensively, while the opposite was true of finer qualities. On average, Catalan textile firms produced a cotton cloth that was between the unskilled-labour-using and raw-materials-using coarse cloth of New England versus the skilled-labour-using and raw-materials-saving fine cloth supplied by Lancashire.

Rosés also introduces several new questions into the debate over the sources of Mediterranean retardation relative to the industrial leaders. He argues that Catalan industry could not compete in international markets over a broad range of products because of the high cost of energy and raw materials, as well as the superior productivity of British mills. He concludes that a less ambitious cotton industry in Catalonia, employing imported yarn and specializing in quality differentiated products, might have had lower costs and greater competitiveness in international markets.

As should be apparent, one of the main themes of the Istanbul conference was the role of globalization on Mediterranean economic performance. Transport revolutions in international shipping had a spectacular impact on commodity price convergence and trade in the world economy at this time, as two of the authors in this volume have shown elsewhere (O’Rourke and Williamson 1999, ch. 3). The Mediterranean was certainly part of it, and this fact justifies the appearance of the next three papers in Part 4, which deal with trade and transport costs from the 1870s to the 1930s.

A major Mediterranean nineteenth-century export commodity was olive oil. Together with wine, vegetables and citrus fruits, it was one of the few commodities in which most Mediterranean countries enjoyed a comparative advantage in world markets until World War II. Ramon Ramon-Muñoz (Chapter 7) shows that there emerged three well differentiated world markets for olive oil. He also documents the existence of a well established hierarchy among the Mediterranean suppliers by the early part of the twentieth century. France and Italy occupied the top rung of this ladder, specializing in the export of high-quality products while Greece, Turkey, Algeria and Tunisia occupied the low-quality end of the market. Spain was in the middle, exporting products for both ends of the market. Ramon-Muñoz explains this specialization pattern not only in terms of relative factor endowments but also in terms of other factors emphasized by the new theory of international trade—consumer preferences, product differentiation and path dependence. Ultimately, however, the hierarchy established in olive oil reflected the differences in the levels of economic development around the Mediterranean. Ramon-Muñoz points to the existence of similar hierarchies in other export commodities from the region, such as wine. One might conclude that the Mediterranean countries were exporting similar goods, but they tended to cover different market niches.

José Morilla Critz, Alan Olmstead and Paul W.Rhode (Chapter 8) examine an interesting phase in the globalization of the Mediterranean economy, and from an unusual perspective. In 1880, the vast majority of the citrus fruits, dried fruits and nuts entering the European and North American markets originated in the Mediterranean. These crops frequently accounted for a significant fraction of export earnings, and they had strong linkages to financial, manufacturing and transportation sectors. The economic performance of these sectors, and the world market conditions they faced, had a profound impact on the Mediterranean economies themselves. This was certainly true in the half-century following 1880, when a number of new areas—most importantly California and Florida, but also South Africa, Australia and Brazil—began to specialize in these crops, vastly increasing world supplies. These new areas wrested commercial leadership away from traditional Mediterranean producers whose reliance on export markets meant that, unlike the producers of grain, they could not benefit from tariffs and thus they had to absorb the full impact of increased world competition. Drawing from six country histories, Morilla Critz, Olmstead and Rhode explore how the emergence of the new producers substantially reduced the expected benefits of specialization and trade for the traditional Mediterranean producers, and, in some cases, led to outright economic and political crisis. The authors estimate that in the absence of American supplies, the revenues of Mediterranean traditional producers would have risen sufficiently to support approximately half a million persons at prevailing income levels on the eve of World War I.

Gelina Harlaftis and Vassilis Kardasis (Chapter 9) examine the development of bulk sea trade in the eastern Mediterranean and the Black Sea regions. The half-century before World War I was characterized by revolutionary declines in freight rates and the rapid growth of deep-sea trade dominated by a small number of bulk commodities. Indeed, it was this revolutionary change in transport technologies that lowered the cost of trade and generated the globalization boom. Grain from the Ukraine, southern Russia and the Danube, plus cotton from Alexandria, were shipped to British and northern European ports, with return cargoes from the British coalfields going to Mediterranean cities and coaling stations. The opening of the Suez Canal in 1869, in conjunction with the introduction of steamships in the area, also gave Mediterranean sea routes a primary role, a role they had lost three centuries earlier as the economic centre of gravity shifted to the Atlantic. The result was an exponential increase in trade and shipping in the eastern Mediterranean during the second half of the nineteenth century.

By the last decade of that century Istanbul became the meeting point for all western European and eastern Mediterranean shipping and seamen, where all the necessary information about purchases and sales of ships, of chartering, insuring, financing, manning and equipment purchase could be found. The inter nationalization of the port, however, depended almost entirely on the transit bulk sea trade and its destinations in western Europe. When the sea routes to the Black Sea were blocked soon after the beginning of the Balkan wars, when Soviet grain ceased to be exported after the Revolution, and when Romanian and Bulgarian exports dried up after World War II, the port of Istanbul declined in importance.

One of the big winners from the development and the internationalization of bulk trades in the eastern Mediterranean was Greek shipping, which grew by carrying grain, coal and cotton between southern and northern Europe, and in the twentieth century by carrying the same cargoes along the Indian and Pacific routes as well. The increase of shipping thus made maritime communities in some Aegean and Ionian islands highly prosperous.

The next four papers deal with policy choice and the political economy of growth. The two in Part 5 explore pre-1914 experience with Italian protection and Spanish “under”-emigration. The two in Part 6 deal with interwar policy debates in Turkey and Egypt, the former focusing on the 1930s and the latter on internal transport and the unification of national markets.

Giovanni Federico and Kevin H.O’Rourke (Chapter 10) examine the impact of Italian protectionism that began in 1887 when the fear of foreign competition for wheat induced many landowners to relinquish their traditional free-trade stance and to side with the industrialists. Adopting a general equilibrium model to assess the economy-wide impact of the tariffs, they compare the effects of protection with a variety of alternative policies that might have been. Under standard comparative static assumptions and constant returns to scale, the authors find it unlikely that protection had a significant negative effect on aggregate welfare either in the short or the long run. The static impact of a move to free trade is estimated to increase real GDP by less than 2.6 per cent, more than other static models predict but still a lot less than the controversies over Italian trade policy might suggest. Even the dynamic effects of protection on real GDP were small. Their results are fairly robust and they appear to cast doubt on the importance of Italian trade policy. Federico and O’Rourke also suggest that while protection did matter for individual sectors—it benefited wheat and sugar, but lowered the output of Italian textiles—the impact of protection on income distribution was small and protection did not seem vital for any large social group. The authors also argue that even large changes in the output of individual sectors could not have had a significant impact on the regional distribution of income, since wheat-growing was widely diffused and the losing and winning industries were both concentrated in the northern triangle. These results may help explain why, unlike Germany or Great Britain, protection was not a big political issue in Italy.

Blanca Sánchez-Alonso (Chapter 11) asks why emigration from Spain was so low compared with Italy, another southern European country. What was the obstacle that was present in Spain but absent in Italy, even in very poor southern Italy and Sicily? The existing historiography is based, implicitly or explicitly, on a sector-specific model that singles out the tariff on agricultural imports as the key to the low response of Spanish labour to better foreign jobs, the tariff favouring agriculture and retaining labour there as a consequence. In contrast, Sánchez-Alonso uses Heckscher-Ohlin thinking which considers land as the relatively scarce factor and labour as the abundant factor. She argues that tariffs on wheat must have reduced the returns to labour, the abundant factor, and should have increased emigration. What explains the difference between the Spanish and Italian rates of emigration was not the tariff, therefore, but something else. Sánchez-Alonso argues that the something else was the depreciation of the peseta after 1895 which increased the cost of moving for the income-constrained emigrant: potential emigrants, who were very poor, found an investment in the move simply too expensive. Sánchez- Alonso’s empirical work shows that the Spanish and Italian rates of emigration would have been similar in the absence of Spanish rejection of the gold standard and acceptance of currency depreciation. Thus, Spain failed to take advantage of a global economy friendly to labour migration: when mass migration was playing a critical role in fostering convergence of poor emigrating countries on rich immigrating countries in the Atlantic economy, Spain opted not to participate. Spanish emigrants h...

Table of contents

• Cover Page
• Title Page
• Copyright Page
• Figures
• Tables
• Contributors
• Acknowledgments
• Part 1: Introduction
• Part 2: Long-run growth: A comparative assessment
• Part 3: Long-run growth: Country studies
• Part 4: Trade, transport and domestic production in the century before World War II
• Part 5: Pre-1914 policy choices and the political economy of growth
• Part 6: Interwar policy choices and the political economy of growth
• Part 7: Twentieth-century Palestine
• Bibliography