The First Economic Globalization: 1850-1914 – Industrial Revolution Impact
The First Economic Globalization (1850-1914)
Introduction
From 1820 to 1914, strong economic and population growth occurred due to global industrialization, the Second Industrial Revolution, and the first wave of globalization. Early industrializers like Northwestern Europe and the US began around 1830, while later joiners like the rest of Europe and Japan followed after 1870.
Globalization integrated markets worldwide, increasing trade, migrations, and capital flows, which led to price and cost convergence. Regions specialized based on land and resource availability: those with abundant land produced raw materials, while others focused on industrial manufacturing. This resulted in varied development trends influenced by the levels of industrialization and globalization.
Diffusion of Industrialization
The Second Industrial Revolution led to a shift from agrarian to industrial economies, reducing agricultural workforces across Europe and the UK. Industrialization initially spread to Northwestern Europe and the US from 1830, then to the rest of Europe and Japan from 1870. Key drivers included natural resources, similar institutional frameworks, and demand-side incentives. Legal equality, entrepreneurship freedom, and abundant capital supported this shift. Early industrialization in Britain and other leading countries increased demand for raw materials, focusing peripheral regions on primary production. However, by the late 19th century, lower prices and new technologies allowed these regions to industrialize.
First Comers & Britain’s Decline
Early industrializers like Germany, the United States, Belgium, France, and Switzerland shared factors such as natural resources, technological innovations, and supportive policies. Germany rapidly industrialized with railways and a mixed banking system. The US grew from a small nation to an economic powerhouse fueled by cotton exports and regional specialization. Belgium focused on exports due to a small domestic market. France’s industrialization was slower due to political instability and coal scarcity, resulting in diverse production and small companies. Switzerland specialized in high-quality exports. Meanwhile, Britain’s decline in the mid-19th century was due to mature sectors, rising labor costs, and competition from other nations.
Second Industrial Revolution
The Second Industrial Revolution emerged in the 1870s, focusing on new technologies and organizational schemes for production and commercialization. New leading countries like Germany and the US emerged, advancing sectors like steel, chemistry, electricity, and the internal combustion engine. These innovations transformed industries and transportation, leading to the evolution of modern corporations and production methods like Taylorism and Fordism.
Late Joiners
Latecomers to industrialization faced challenges initially but found new opportunities by the 1860s-70s due to increased raw material supply and the Second Industrial Revolution.
Scandinavia, the Netherlands, and Japan pursued alternative strategies, leveraging productive agriculture and state-led initiatives. Mediterranean and Eastern European countries partially industrialized. Spain faced hindrances like a poor rural workforce and protectionism, while the Habsburg Empire’s diversity limited industrialization. Russia’s attempts failed due to weak internal markets.
Money and Monetary Standard
The transition from coins to paper money was facilitated by promissory notes, with monetary standards shifting from single metals to bimetallism, often coordinated with leading economies. The classical gold standard ensured currency convertibility to gold at fixed rates, facilitating international trade and investments.
Expansion of Trade
The expansion of trade was driven by lower transportation costs and shifts in trade policies, leading to increased integration of trade, capital, and labor. Transportation advancements, including railways and steam-ships, reduced costs and expanded trade globally, reaching regions like Latin America, Africa, and the US West Coast by 1870-1913.
Trade policies evolved from mercantilism to liberalism, but protectionism returned from 1880-1914 due to cheap imports flooding European markets, leading to tariffs to promote industrialization.
Mass Migration
Mass migration in the 19th century involved large-scale movements of people from various regions, driven by push factors like unemployment and pull factors like high wages. Facilitating factors included reduced transportation costs and chain migration.
Consequences of mass migration included wage convergence at destination countries, economic growth from ethnic markets and remittances, but also rising costs at origin countries. At destination countries, there was increased production and economic growth, but also pressure on wages and tensions between groups.
Effects of Globalization: Inequality and Conflict
Globalization has led to inequality and conflict. In Europe, the arrival of food from the New World decreased income for agricultural producers, causing unemployment and political movements. In the New World and European offshores, migration from Europe lowered salaries, benefiting landowners and businessmen but harming workers. In the world’s periphery, globalization led to deindustrialization and specialization in raw materials production, such as in the Opium Wars and the decline of Indian manufacturing.
Reactions: Increasing Role of the State
In response to globalization, governments increase their intervention, adopting protectionist measures like tariffs to protect agriculture and promote industrialization. They also use force to suppress social unrest and implement migration controls. Imperialism becomes a strategy for political and economic gains, focusing on control over strategic locations, securing raw materials, accessing new markets, and ensuring investment stability.
End of 1st Globalization
The end of the first wave of globalization was caused by reactions from states to the effects of industrialization and globalization. This included protectionism and imperialism. Tariffs and immigration controls were responses to economic challenges. If politicians ignore the consequences of globalization, they risk pressure from the electorate to halt global economic integration.