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Globalization and the Poor Periphery before 1950

Author(s):Williamson, Jeffrey G.
Reviewer(s):Pamuk, Sevket

Published by EH.NET (June 2007)

Jeffrey G. Williamson, Globalization and the Poor Periphery before 1950. Cambridge, MA: MIT Press, 2006. xii + 189 pp. $28 (cloth), ISBN: 0-262-23250-2.

Reviewed for EH.NET by Sevket Pamuk, Department of Economics, Bogazi?i University.

In the last decade Jeffrey Williamson (Harvard University) has been studying the history of globalization and drawing some important lessons for the current era. This volume can be seen as another project belonging to that broader agenda. It is a revision of the Ohlin lectures he gave at the Stockholm School of Economics in 2004 based on a series of studies undertaken with different collaborators. Williamson examines the impact of globalization on the Third World in two sub-periods, rapid market integration and globalization from 1820 until 1914 and the emergence of inward-looking policies and economies from 1914 until World War II..

A large part of the story Williamson tells so masterfully is presented in terms of the analysis of price changes caused by the industrial and transport revolutions. Williamson pursues the global trends and their implications for growth and distribution in the periphery with some of the best examples of analysis using the economic historian’s toolbox. He is always theoretically well informed and brings in a wealth of new evidence, often creating new series, new data bases as he goes along.

The book begins with an overview of the impact of the transport revolution. Williamson emphasizes that even though the term “global economy” is often used for the earlier period, prices had not converged in the world markets between 1492 and 1820. In contrast, the transport revolution of the nineteenth century created commodity price convergence between all world markets and facilitated the rapid expansion of the trade between the core and the periphery. The result of rapid productivity increases in manufacturing in the core and the transport revolution was sharp improvements of the terms of trade for the periphery which Williamson documents in Chapters 3 and 6 better than anyone else to date.

For Williamson the relative price changes also hold the key to understanding changes in income distribution in the periphery during this period. Through a series of regressions based on the Heckscher-Ohlin hypothesis, he shows in Chapter 4 that rapid expansion in trade and the convergence of relative factor prices benefited the abundant factor, raising the wage-rental ratio in labor-abundant and land-scarce countries and lowering it in the land-abundant and labor-scarce countries of the periphery during the century until World War I.

In Chapter 5 Williamson emphasizes that the consequences of improving terms of trade for the periphery were not all positive. Improving terms of trade encouraged the shift towards export-oriented agriculture and accelerated the decline of manufacturing activities or de-industrialization. For countries whose terms of trade improved more strongly, de-industrialization was especially strong, as was the case in India. Technological improvements and productivity increases in agriculture remained weak, however. In fact, technological advances and human capital accumulation occurred mostly in the core during this period. As a result, rates of growth of per capita incomes in the periphery lagged far behind those of the center, substantially increasing the disparities in income around the globe until after World War II.

These global trends were reversed after 1914, however. The revolution in transport slowed down, demand for primary products fell and the terms of trade turned sharply against the primary producers of the periphery. What Prebisch, Singer and many others observed after World War II as a secular trend was in fact the second leg of what Williamson calls the boom-and-bust cycle of global trade and relative prices.

Rising disparities in incomes between the core and the periphery and the reversal of the terms of trade after World War I thus shifted the focus to the glaring asymmetry in the benefits from globalization and intensified the backlash against it. Williamson shows in Chapter 7 that tariffs in the periphery, especially in the politically independent countries of the periphery, rose sharply in the interwar years signaling the beginning of the shift towards ISI policies. He argues, however, that the most important single reason for the rising tariffs in the periphery was strategic, a response to the same trend in the core countries.

At the end of the volume, Williamson asks whether the anti-global backlash of the interwar period can be repeated during the current era of globalization. Once again, his answer remains close to the Heckscher-Ohlin-based political economy framework that he employs so fruitfully throughout the volume. In the first era of globalization, he argues, trade and politics were dominated by immobile, sector-specific factors such as land and unskilled labor. In contrast, labor is a lot more mobile between the manufacturing sectors today and any global backlash is unlikely to be equally strong, he insists.

It may be worth pursing the theme of labor mobility further. In an earlier study undertaken with O’Rourke and Hatton, Williamson had shown that a large part of the wage convergence involving the two sides of the Atlantic during the half century before World War I was due to migration. Labor mobility is mostly absent in this book probably because it was not as important for the poor periphery, but I wonder whether it should have been included for the sake of the contrast. After all, the degree of labor mobility is one big difference between the last century and the current era of globalizaton. Labor may be more mobile between sectors within a country but international migration is mostly illegal today. With greater international mobility of labor, the benefits from globalization in the present era would have been much more evenly distributed and the potential of political opposition to globalization probably much less significant.

Perhaps the key questions that the volume leaves with the reader are why technological progress and human capital deepening rates remained so different between the core and the periphery, and ultimately, why the benefits were so unevenly distributed during the first century of globalization. Were these asymmetries due to the inherent nature of agriculture vs. industry or should we (also) look elsewhere for the answer? For example, how important was the role of institutional differences between the core and the periphery in this outcome? Williamson does not offer answers but he is well aware of the significance of the questions he is raising not only for the last era of globalization but also for the present one.

This highly original volume by a leading economic historian provides an excellent analysis of global trends and the impact of globalization on the periphery until 1950. The questions it raises can provide an attractive research agenda in years to come. It is strongly recommended reading for economic historians and can be easily used as a supplementary text in more advanced courses.

Sevket Pamuk is Professor of Economics and Economic History at Bogazi?i (Bosphorus) University in Istanbul. He is the author of A Monetary History of the Ottoman Empire (Cambridge University Press, 2000, also reviewed at this website). Recently, he has been working on economic growth in southeastern Europe and the Middle East since 1800.

Subject(s):Transport and Distribution, Energy, and Other Services
Geographic Area(s):General, International, or Comparative
Time Period(s):20th Century: Pre WWII