Back to 1913?

What are the lessons of the breakdown in globalization in 1914 for today?

February 6, 2003

What are the lessons of the breakdown in globalization in 1914 for today?

The numbers are impressive. By 1913, exports totaled 8.7% of world ouput — and foreign direct investment had reached 9.0% of world output. Trade and investment were knitting the world ever closer.

Then came the era of the big wars. In 1950 — after two world wars and 20 years of international tension between those two calamitous events — the share of trade was actually just 7.0% of global GDP.

That is lower than it had been in 1913. And foreign direct investment was a smaller portion of world output in 1991 than it had been in 1913.

It surely sounds ominous enough that, a century ago, all this economic vitality came to naught because of a war. At the time, it was even more surprising. Economists of the era had been sure that no such thing could happen.

For example, Sir Norman Angell, a British writer who eventually won the Nobel Peace Prize (in 1933), published "The Great Illusion" in 1910.

In that book, he argued that the intensive level of economic integration that had been reached at the time — as well as enlightened self-interest — was a sure-fire guarantee against the outbreak of any military hostilities between the major powers.

After all, why would nations go to war with each other if they could better benefit by trading with each other instead?

He actually wrote: "It is an economic impossibility for one nation to seize or destroy the wealth of another, or for one nation to enrich itself by subjugating another."

Intriguingly, the detour that began in 1914 has been cited as an exhibit to buttress their own view of the world by both sides on the fences of the globalization debate.

Anti-globalizers have used that war as a prop to argue along the lines of: “See, what can go wrong — if you keep pushing this thing at breakneck speed.”

Meanwhile, the proponents of rapid globalization argued that 1914 should be seen as an eerie reminder to anybody keen on playing with "fire."

They pointed out that the global economy could be set back by decades once again — if the cause was not strongly supported.

It is amazing to see that both opposing sides were — and are — able to seek validation for their chosen course out of such a terrible event.

Outside those expert circles, however, the citizenry at large has not been much impressed by these competing interpretations.

Their real concerns were far away from the trench warfare of the big globalization debate. The year 1914 seemed like another stage of history, long past and far removed from today’s concerns.

But history does contain lessons. And one of the most chilling currently might be this: War has the power to overcome the seemingly inexorable forces of integration. And the world is currently moving very close to war.

Of course, there are many differences between the outbreak of hostilities in Europe in 1914 and today's conflicts in Iraq and Afghanistan.

But just as "some damn fool thing in the Balkans" killed the harmonious integration of the global economy for half a century, so is the seeming sideshow of the Middle East exposing significant divisions among today's leading nations.

The "animal spirits" of the world's citizens are in danger of being diverted from seeking prosperity through hard work and supplying each other's needs and desires.

Instead, they are being called by the siren songs of nationalism and religion away from cooperation with others.

Just ask yourself: What is bigger than globalization? War, for one thing. Nobody expects the United States and Europe to go to war over Iraq the way that the Central and Allied powers mobilized over Serbia.

If U.S. soldiers are dying in the Middle East, while Europe is criticizing from the sidelines, U.S. leaders will have a hard time selling compromise on economic issues.

And if Europeans are treated to nightly news reports of civilian bombings and unnecessary casualties, their leaders will be less able — and less willing — to convince Europeans that U.S.-inspired ideas and proposals are worth pursuing.

Even when the two sides manage to compromise, the war colors — and even drives — the agreement.

What else could be larger than globalization? Religion is another possibility. Radical Islam is driving the Middle East away from the mutually advantageous transactions that characterize a healthy global economy.

Evangelical Christians in the United States and in Africa return the favor, by viewing the millions of people in the Arab and Muslim world as enemies — rather than as potential economic partners. Those are not the conditions for peaceful globalization.

The unnerving prospect, then, is for a world in which major economic players are divided by non-economic issues — and have lost the ability to trust one another. There is no place to compromise on religion — and little ability to compromise on the life and death issue of war.

That, ultimately, is why war trumped economic interests in 1914. The same "patriotism" that led people to the trenches also led them to cut economic ties with other countries — even at great cost to themselves. Worse, it taught them that "foreigners" were to be seen as enemies rather than as potential partners.

It took over 50 years to unlearn the bad habits of 1914. We should beware of the possibility that the world will learn them again.