PERSPECTIVES
The Future of Globalisation
Learning from History
Deepak Nayyar
An analysis of globalisation in a
historical perspective can help us
understand how the past or the
present may shape the future. In
so doing, this article outlines the
contours of the present era of
globalisation since its inception,
circa 1975, to find that the
successive epochs of globalisation
during the second millennium
came to an abrupt end because of
their own consequences embedded
in the process. Given this, the
article seeks to focus on the present
conjuncture, at the intersection of
economics and politics, when
globalisation is again in crisis to
reflect on its future.
The ideas developed in this article have evolved in
public lectures over the past two years, beginning
with the Abid Hussain Lecture at New Delhi in
December 2017, followed by the Karl Marx
Lecture at Patna in June 2018, and the Malcolm
Adeseshiah Lecture at Chennai in August 2019.
The author would like to thank Ronald Findlay
and Romila Thapar for helpful discussion on
the subject, and Dipankar Gupta for valuable
suggestions.
Deepak Nayyar (nayyar.deepak@gmail.com) is
Emeritus Professor of Economics, School of
Social Sciences, Jawaharlal Nehru University,
New Delhi.
30
G
lobalisation is a multidimensional
phenomenon that has profound
implications for economies, poli-
ties, societies and cultures. Thus, globali-
sation means different things to different
people. In the economic sphere, the word
globalisation is used in two ways, which
is a source of some confusion. It is used
to describe a process of integration into
the world economy, or to prescribe a
strategy of development based on such
an integration. It can be defined, simply,
as an expansion of economic transactions
across national boundaries, where inter-
national trade, international investment
and international finance provide their
cutting edge. More precisely, it can be
defined as a process associated with in-
creasing economic openness, growing
economic interdependence, and deepen-
ing economic integration among countries
in the world economy. This process extends
beyond trade flows, investment flows
and financial flows, to flows of services,
technology, information, ideas and people
across borders.
The last quarter of the 20th and the first
decade of the 21st centuries witnessed a
phenomenal acceleration in this process
of globalisation. There is a common pre-
sumption that this world is altogether
new and represents a fundamental depar-
ture from the past. But globalisation is
not new. In fact, there was a similar phase
of globalisation, which began around 1870
and gathered momentum until 1914,
when it came to an end. A comparison of
these two epochs of globalisation reveals
striking parallels in many characteristics
of the world economy. In some ways,
the 2010s also resemble the 1910s. History
does not repeat itself. Even so, there is
much that we can learn from history, for
there is the past in our present. Indeed,
the past might also help us to explore
how the future might unfold.
NOVEMBER 9, 2019
For this purpose, we need a historical
perspective that is longer than just one
century. Globalisation began life much
earlier. The movement of goods, people,
skills, ideas, knowledge, cultures and reli-
gions across the world goes back a long
time, even before there were borders or
nation states. Some beginnings are dis-
cernible in the first millennium. During
the second millennium, there were waves
of globalisation and deglobalisation,
which straddled continents and geo-
graphies, driven by trade and flag, war
and peace, or technology and politics.
For people who lived in those times, the
process seemed unstoppable at every
juncture. But history suggests that glo-
balisation has always been a fragile pro-
cess. In fact, it has come to an abrupt or
unexpected end many times in the past.
The process has also been reversible, as
globalisation has sometimes been fol-
lowed by deglobalisation. The underly-
ing reasons have been embedded in the
consequences of the process of globalisa-
tion, ranging from the spread of disease
or pandemics to economic strains or
political conflict between winners and
losers, whether countries or people. Of
course, the backlash has taken different
forms at different times. Thus, globalisa-
tion has never been the end of either
history or geography.
Long-term Historical Retrospective
I will begin with a long-term historical
retrospective, to set the stage before the
play begins. The first millennium provides
a prelude. The beginnings of globalisation
surfaced in the second millennium.1 Of
course, the movement of people across
geographies is as old as humankind. For
centuries, communication routes and trade
paths, both land and sea, criss-crossed
Eurasia, linking the East and the West.
Such routes traded in a wide range of
goods. The traders were Arabs, Armenians,
Chinese, Georgians, Greeks, Indians,
Persians, Romans, Sogdians and Syrians.
Moreover, the vast networks were about
far more than merchandise trade, as
knowledge, ideas, cultures, beliefs, lan-
guages and religions traversed the same
paths to influence each other in ways that
vol lIV no 44 EPW Economic & Political Weekly

sometimes changed history. These ancient
routes had no names. In fact, it was only
in the late 19th century that Ferdinand
von Richthofen—a German geologist,
geographer and explorer—named the
network of routes across Central Asia as
Die Seidenstraßen (the Silk Roads). The
term is an entirely colonial construct.
There were three historical routes
connecting Asia and Europe: the southern
land route via Central Asia; a route to
its north along the southern edge of
Mongolia used much less; and a maritime
route across the Indian Ocean.
There was no single overland route that
ran directly from China to the Mediter-
ranean. It was made up of segments,
each of which was a loop in a chain,
which was also not a single named entity.
To begin with, Han rulers gifted bolts
of silk to the nomads of Central Asia.
Large-scale commercial exchange came
later, and with it the trade in horses.
The Central Asians, as traders, took the
silk west, to the Oxus Valley, from where
it went to India and Iran, and further to
the eastern Mediterranean through local
traders, from where it went to Rome
through their traders. Much else was
traded besides silk from China. Silk, and
other goods, moved from East to West,
while Buddhism travelled from India
through Central Asia to China and East
Asia, with site after site of Buddhist
shrines along the route. The routes were
not subject to any centralised political
control. Trade and commerce recognised
that none had a monopoly on trade,
which flowed through many channels.
In that sense, it was a precursor to what
could be described as globalisation.
Asia and Europe were also connected
by sea. There were three segments in
this maritime route: the Red Sea to the
coasts of India; the Bay of Bengal to
South East Asia; and South East Asia to
South China. It all began with trade in
spices, and the demand for spices took
Indians to South East Asia. Religions—
Hinduism, Buddhism and Islam—also
moved on these routes. It was Arabs and
Indians who dominated the maritime
trade in the first two segments, while the
Chinese dominated the third segment.
There were three profound historical
events during the second millennium,
Economic & Political Weekly EPW NOVEMBER 9, 2019
which were conducive for globalisation in
a more substantive sense that connected
different regions and peoples of the
world. The first was the Pax Mongolica
in the early 13th century. The second
was the Voyages of Discovery circa 1500.
The third was the Industrial Revolution
in Britain in the late 18th century.
Pax Mongolica: The Mongol tribes of
Central Asia were forged into an effec-
tive union by the genius of Temujin, who
was proclaimed as Genghis Khan (uni-
versal ruler) in 1206. Under his leader-
ship until his death in 1227—and fol-
lowed by his descendants in the same
tradition—the entire Eurasian landmass
from China in the east to Iraq, Iran and
Russia in the west, extending to Hungary
and the Adriatic Sea by 1240, was con-
quered to establish the Pax Mongolica.
Globalisation has always required an
infrastructure of law, order and security,
provided by political hegemony. The
Mongols were the hegemons in this era
who unified the Eurasian landmass under
their political control and encouraged
trade flows between all regions across
this vast geographical space. In fact, it
was only the Mongol Empire that welded
the segments and loops of the Silk Roads
into a single route. Once established, every
region—Central Asia, South Asia, South
East Asia, East Asia, the Islamic world and
Europe—participated in this international
trade (Findlay and O’Rourke 2007).
The geographical unification drove
economic interaction in a horizontally
linked world system even if it was not
hegemonic (Abu-Lughod 1989). But there
was a flip side. Bacteria, germs and viruses,
that were local to particular regions, also
moved across long distances, carried by
people or animals. Plague germs were
carried by Mongol troops, with their
horses, from Central Asia to the Black Sea
in 1347. These were transmitted by ships to
ports around the Mediterranean, and then
across Europe. It is estimated that the
plague—Black Death—killed more than
25 million out of a total population of 80
million in just three years from 1348 to 1351
(Cipolla 1994). Its impact on the Islamic
world was perhaps worse (Dols 1977).
This was among the most devastating
catastrophes in human history. The global
vol lIV no 44
PERSPECTIVES
spread of disease was a corollary of the
economic integration brought about by
the Mongol Empire. It led to the forma-
tion of a common market not only for
goods but also for microbes and germs
(Le Roy Ladurie 1981). The mid-14th cen-
tury witnessed the disintegration of Pax
Mongolica, when the internal conflict
among Mongol states coincided with the
loss of Persia and China. In the absence of
imperial rule, trade routes were no longer
safe, secure and open. The Silk Route,
too, was closed down by the Ottoman
Empire in the early 15th century. It would
seem that, in this epoch, globalisation
sowed the seeds of its own destruction.
Voyages of discovery: The voyages of
discovery in the late 15th century, led by
the Iberian states, were perhaps the next
major turning point.2 The Europeans
were trying to bypass the Arabs, who
had monopolised the Asian maritime
trade. Hence, there was a need to find a
direct sea route to India, which could
also lead further east. The first milestone
was attained in 1488 when Bartolomeu
Dias found the southern tip of Africa that
was aptly named as the Cape of Good
Hope. Christopher Columbus, a native of
Genoa, peddled his idea of sailing west
across the Atlantic to many European
states, which was ultimately supported
by the monarchs of Spain in Aragon and
Castile. Columbus sailed from Cadiz
in 1492, with just 90 men in three ships,
to his momentous discovery, “even if he
rarely knew where he was, let alone
where he was going” (Morris 2010).
Vasco da Gama left Lisbon in 1497, with
two ships and a support vessel, to reach
Calicut on the Malabar Coast of India in
May 1498. The voyages of Columbus to
the Caribbean were followed by several
Spanish expeditions. The exploratory
flotilla led by Hernan Cortes, of 11 ships,
100 sailors and 500 soldiers, touched
the Mexican coast in Yucatan and landed
at Vera Cruz in April 1519. Just two years
later, the mighty Aztec Empire was
destroyed. These voyages were brought
to completion by Magellan’s circumnavi-
gation of the globe in 1521.
This sequence of discoveries led to the
first phase of European colonial expan-
sion in the early 16th century. It began
31
PERSPECTIVES
with Spain and Portugal. The slave trade
from Africa, the search for silver in the
New World and the colonisation of the
Americas were a part of this process,
which unleashed a somewhat different
dynamic in the formation of the world
economy. It was the age of mercantilism
in Europe. The acquisition of colonies was
associated with a mercantile expansion
of trade. Old World trade and New World
silver turned out to be powerful comple-
ments in stimulating trade flows, as
Europe paid for its imports of textiles,
spices, porcelains and silks from Asia
by exports of silver obtained from the
Americas. The New World provided Europe
with a source of primary commodities such
as sugar, tobacco, cotton and timber,
apart from the windfall ecological gains
through access to indigenous plants like
maize and potatoes, just as these colonies
provided export markets for manufactured
goods from Europe (Maddison 2007). The
slaves from Africa provided the labour for
plantations, mines and agriculture, while
the migrants from Europe provided entre-
preneurs in the New World. At the same
time, profits from the slave trade generated
resources. This period from 1500 to 1780
was clearly the second wave of globalisa-
tion during the second millennium, in
which Europe, Asia, the Americas and
Africa were all part of the process.
The growing network of world trade laid
the foundations for a specialisation in pro-
duction between continents, the benefits
of which accrued in large part to Europe.
It is no surprise that there was a struggle
for hegemony in the emerging world
economy. In the late 16th century, Portugal
and Spain were displaced by Holland, a
merchant oligarchy, as the Dutch rose to
primacy in world trade. Their dominance
continued into the 18th century before it
was lost to the British. In this world, where
“guns and sails” were critical, power
provided for plenty (Findlay and O’Rourke
2007). This power was obviously sustained
by economy and technology. Geopolitics
shaped possibilities. Economic primacy
was about state power and naval power,
which provided protection for economic
interests in distant lands and for mer-
chant ships in distant waters.
Such competition for power unleashed
political rivalries in Europe. The period
32
after 1780 experienced a worldwide
military conflict. It culminated in the
Napoleonic Wars from 1803 to 1815. Trade
was severely disrupted. But that was not
all. Independence for the United States
(US) in 1776, and for most countries in
Latin America beginning around 1810,
deprived the European powers of most of
their colonies in the New World. In 1807,
the Slave Trade Act for abolishing, slave
trade between the British colonies and
Africa was passed in the British Parliament,
while the US banned its transatlantic
slave trade in 1808. Globalisation, which
had evolved over three centuries in this
age of mercantilism, came to an end once
again, essentially because of the political
challenges and conflict it created.
Industrial Revolution: It is ironical that
this disruption coincided in time with
the beginnings of the Industrial Revolu-
tion in Britain, which laid the founda-
tions of the third wave of globalisation
during the second millennium that would
surface a century later. The mercantile
expansion of trade during the period of
1500 to 1780, supported by state power
and naval power, led to an expansion of
commerce and an increase in urbanisa-
tion, which were conducive to social,
political and institutional change that
created the initial conditions for capitalist
development in Western Europe. There
was a wide range of factors underlying the
occurrence of the Industrial Revolution
in Britain during the late 18th century.3
Thus, single explanations are futile.
High wages combined with cheap capi-
tal and cheap energy made it profitable
to invent and use the new technologies,
while the substitution of coal for wood,
as a source of energy, made an enormous
difference. But the search for new techno-
logies was also driven by competition
from Asian manufactures and shortages
of wood that followed deforestation
(Parthasarathi 2011). International and
overseas expansion in the mercantilist era
laid the foundations, while state action
in the form of trade policies that protected
domestic industry or patronage for science
and technology, performed a critical role
(Bairoch 1993; Chang 2002).
The Industrial Revolution in Britain had
far-reaching implications and consequences
NOVEMBER 9, 2019
not only for Europe but also for Asia and
the world economy (Nayyar 2013). Its
beginnings, the steam engine, cheap
iron, and the spinning jenny with the
cotton mill turned out to be transforma-
tive (Allen 2009). The cotton mill pio-
neered the mechanisation of industrial
production. The steam engine produced
energy through technology using water
and burning coal. The cheap iron came
from coal that made it possible to substi-
tute coke for charcoal in smelting. Taken
together, these developments helped
create an engineering industry that
could produce machinery to unleash
large productivity increases. The process
was reinforced by improved technologies
that reduced coal consumption for a
more fuel-efficient steam engine. This
led to an industrial and geographical
spread in the use of the new technologies.
More was to come later, in the mid-19th
century, from the same beginnings. The
idea of railways began life much earlier,
to haul coal in mines and from mines to
rivers. It was iron rails and steam loco-
motives that made it into means of sur-
face transport on land when roads did
not exist or were not suitable for the pur-
pose. The substitution of steam for sails
and of iron for wooden hulls in ships led to
a revolution in shipping. Both led to an
enormous reduction in the time needed,
as also the cost incurred, in traversing
geographical distances.4
The revolutionary change in methods
of manufacturing, which were developed
in Britain in the late 18th century and
spread to countries in Western Europe
through the early 19th century, meant
profound changes in the economic life of
Europe. Innovation, followed by continu-
ous improvements in technologies, yielded
sharp increases in productivity, output
and incomes. The rapid diffusion of the
new technologies, combined with their
geographical spread, brought about rap-
id industrialisation in Britain, Belgium,
Netherlands, France and Germany.
Globalisation in the Age of Empire
The 19th century witnessed the evolution
of an international economic order that led
to a profound change in the balance of
economic and political power in the world.
It was attributable to three developments.5
vol lIV no 44 EPW Economic & Political Weekly

The first was the Industrial Revolution
in Britain in the late 18th century, which
spread to Western Europe, even if slowly,
during the first half of the 19th century.
The second was the emergence of a newer,
somewhat different, form of colonialism
in the early 19th century, beginning in
Asia and spreading to Africa, which cul-
minated in the advent of British and
European imperialism that gathered
momentum through that century. The
third was the revolution in transport and
communication in the mid-19th century,
manifest in the railway, the steamship and
the telegraph, which dismantled geo-
graphical barriers of distance and time
to shrink the world. These three devel-
opments, which overlapped and partly
coincided in time, transformed the world
economy by creating patterns of speciali-
sation in production associated with a
division of labour through trade rein-
forced by the politics of imperialism.
These three developments provided
the foundations for the next wave of
globalisation. It began around 1870 and
came to an end in 1914. This epoch of
half a century coincided with what Eric
Hobsbawm (1987) described as the “Age
of Empire.” It was the age of laissez-faire.
The movement of goods, capital and
labour across national boundaries was
almost unhindered. Government interven-
tion in economic activity was minimal.
There were, of course, differences among
countries. The openness of economies
that characterised this era was associated
with a rapid expansion in trade, invest-
ment and finance across borders.6
During this era, growth in exports and
imports was much faster than growth in
national income for most countries, so that
the share of world trade in world output
rose steadily. It is believed that the rapid
expansion in world trade was attributable
to trade liberalisation. It was but only in
part. Britain and the Netherlands prac-
tised free trade. But most countries in
Europe, and the US, practised protection
with import tariff levels in the range of
20%–50% (Bairoch 1993; Maddison 1989).
Free trade was, however, imposed on
the rest of the world. Imperialism prised
open markets in Asia, Latin America and
Africa, through gunboat diplomacy or
colonial dominance. Reality did not mirror
Economic & Political Weekly EPW NOVEMBER 9, 2019
the myth of free trade. Europe and North
America were “islands of liberalisation
surrounded by a sea of protectionism”
whereas Asia, Africa and Latin America
were “an ocean of liberalisation with
islands of protectionism.”
There was a similar expansion of
international investment. And, by 1914,
the stock of foreign direct investment in
the world was $14 billion, which was the
equivalent of 9% of world output. The
stock of portfolio investment was even
larger at $30 billion. Britain, Germany
and France were the primary sources of
foreign capital and accounted for three-
fourths of the total. For Britain, income
from foreign investment accounted for
10% of national income (Foreman-Peck
1983). About half the total foreign invest-
ment went to Asia, Latin America and
Africa (equal to one-third of their gross
domestic product [GDP]), while the re-
maining half, in equal parts went to
Europe and North America (in the newly
industrialising countries where it consti-
tuted half of total investment).7
There was also a significant integration
of international financial markets to pro-
vide a channel for portfolio investment
flows. The cross-border ownership of
securities, including government bonds,
was high. In 1913, for example, of the
total securities traded in London and Paris,
more than half were foreign securities.
Interest rates, exchange rates, and stock
prices in the leading markets were closely
related. There was also an established
market for government bonds. Moody’s
rated bonds were issued by 50 govern-
ments. International bank lending was
substantial. Both private investors and
governments floated long-term bonds in
the financial markets of London, Paris and
New York. Merchant banks were the inter-
mediaries in channelling these capital flows
from private individuals and financial
institutions in Europe, in search of long-
term investments, to firms and govern-
ments in newly industrialising or under-
developed countries, which issued long-
term liabilities (for railways or ports).8
The Global Economic Divide
This epoch of globalisation, reinforced by
the politics of imperialism, created huge
asymmetries and inequalities in the
vol lIV no 44
PERSPECTIVES
world economy, which was divided
into countries (mostly with temperate
climates) that industrialised and coun-
tries (mostly with tropical climates) that
did not industrialise. The geographical
divides turned into economic divides.
The industrialised countries prospered.
But, for countries in Asia and Africa, the
same integration into the world econo-
my led to underdevelopment. The rise of
“the West” was concentrated in Western
Europe and North America. The decline
and fall of “the Rest” were concentrated
in Asia, much of it attributable to China
and India.
This process was associated with a
growing divergence in levels of income.
Between 1870 and 1913, as a percentage
of GDP per capita in Western Europe and
North America, GDP per capita in Asia,
as also in Africa, dropped from one-
fourth to one-sixth. The period from 1820
to 1950 witnessed the “Great Divergence,”
as this proportion dropped from one-
half to one-tenth for Asia and from
one-third to one-seventh for Africa. It
also led to a major transformation in
international division of labour, the
“Great Specialisation,” which meant that
Western Europe, followed by the US,
produced manufactured goods, while
Asia, Africa and Latin America produced
primary commodities. Between 1860
and 1913, the share of Asia, Africa and
Latin America in world manufacturing
production, attributable mostly to Asia,
in particular China and India, collapsed
from 40% in 1860 to 7.5% in 1913, while
the share of Europe, North America and
Japan rose from 60% in 1860 to 92.5% in
1913. In 1830, these shares were 60%
and 40% respectively.9
The much greater competitiveness of
industry in Britain and Europe, attri-
butable to scale economies that sharply
reduced prices of manufactured goods,
also led to the demise of traditional
industries in Asia, particularly China and
India, which reduced their skill levels
and technological capabilities over
time. This process was reinforced by the
politics of imperialism that imposed
free trade and the economics of the
transport revolution, which dismantled
the natural protection provided by geo-
graphy implicit in distance and time, to
33
PERSPECTIVES
hasten the process of de-industrialisa-
tion in Asia with a devastating impact on
China and India (Nayyar 2013).
During this phase of globalisation,
some of the most open economies, which
practised free trade and were among
the largest recipients of foreign invest-
ment—India, China and Indonesia—expe-
rienced an economic decline that led to
underdevelopment. The outcome was
similar elsewhere in Asia and Africa.
Export-oriented production in mines,
plantations and cash-crop agriculture
created enclaves within these economies,
which were integrated with the world
economy in a vertical division of labour.
But there were almost no backward
linkages. Productivity levels outside
export enclaves stagnated at low levels.
They simply created dualistic economic
structures, where the benefits of glo-
balisation accrued mostly to the outside
world, and in small part to local elites.
The income gap between the West and
the Rest widened rapidly.
Much of the gains from international
integration in this era accrued to the
imperial countries, which exported capital
and imported commodities. There were
a few countries like the US and Canada—
new lands with temperate climates and
white settlers—that also derived some
benefits. In these countries, the precondi-
tions for industrialisation were already
being created, so that foreign direct
investment in manufacturing stimulated
by rising tariff barriers, combined with
technological and managerial flows,
strengthened industrialisation and devel-
opment (Nayyar 2006). But this did not
happen everywhere. Development was
uneven in the West. Most of southern
and eastern Europe lagged behind. This
meant divergence rather than conver-
gence in incomes, industrialisation and
growth. At the same time, inequality rose
in resource-rich, labour-scarce, indus-
trialising countries of the New World
(Keynes 1919).
Late 20th and Early 21st Centuries
The growing inequalities between and
within countries, particularly in the indus-
trial world, were perhaps a significant
factor underlying the retreat from
globalisation after 1914. The economic
34
consequences of the peace in 1918 had
political consequences. The Great Depres-
sion accentuated these strains and
induced autarchy. World War II fol-
lowed. International economic transac-
tions were progressively constrained by
barriers and regulations that were erected
during this period of economic and
political conflict. In effect, the world eco-
nomy experienced deglobalisation for
more than three decades.
But the return of economic openness
took another three decades. In industri-
alised countries, particularly Western
Europe, there was a period of economic
reconstruction after the war. This coin-
cided with the politics of social demo-
cracy and the idea of the welfare state.
Economic openness in trade and invest-
ment remained restricted for some
time. In developing countries, at the
beginning of the postcolonial era, there
were concerns about unregulated mar-
kets and open economies, which were
perceived as the causes of underdevel-
opment in the past. There was a consen-
sus that developing countries must
industrialise, in which state interven-
tion and calibrated openness were an
integral part of development strategies.
Such thinking began to change in the
mid-1970s.
The world economy experienced a
rapid internationalisation of trade, invest-
ment and finance during the last quarter
of the 20th century, which gathered
momentum during the first decade of the
21st century. This was made possible by
a dismantling of barriers to internation-
al economic transactions. Globalisation
followed the sequence of deregulation.
Trade liberalisation came first, which
led to a remarkable expansion of inter-
national trade between the mid-1950s
and the mid-1970s. The liberalisation of
regimes for foreign investment came
next, so that there was a surge of inter-
national investment from the mid-1970s.
Financial liberalisation came last, gather-
ing momentum through the 1980s. This
had two dimensions: deregulation of
domestic financial sectors and converti-
bility on capital account in the balance
of payments in the industrialised coun-
tries, followed with a time lag by the
emerging economies in the developing
NOVEMBER 9, 2019
world. This led to the internationalisation
of finance at a scorching pace.
The gathering momentum of globali-
sation brought about profound changes
in the world economy. It had three attri-
butes. An increasing proportion of world
output entered into world trade, while
an increasing proportion of the world
trade was intra-firm trade. Between 1975
and 2010, the share of world merchan-
dise exports in world GDP rose from 14%
to 24%, while the share of intra-firm
trade in world trade rose from 20% to
40%. The significance of international
investment rose rapidly. Between 1975
and 2010, the stock of foreign direct
investment in the world as a proportion
of world output rose from less than 5%
to 32%, while the flows of foreign direct
investment in the world as a proportion
of investment in the world rose from 2%
to 25%. The growth in international
finance was explosive, so much so that,
in terms of magnitudes, trade and in-
vestment were simply dwarfed by fi-
nance. The expansion of international
banking was phenomenal, while the in-
ternational market for financial assets
experienced a similar growth. The inter-
national market for government bonds
also became massive.10
A comparison of the world economy in
the early 21st and the early 20th centuries
reveals striking similarities between these
two epochs of globalisation. Both coin-
cided with a technological revolution in
transport and communications, which
brought about an enormous reduction in
the time needed and the cost incurred in
traversing geographical distances. The
second half of the 19th century saw the
advent of the steamship, the railway and
the telegraph. The second half of the
20th century witnessed the advent of the
jet aircraft, computers and satellites. It
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vol lIV no 44 EPW Economic & Political Weekly

was not long before technological devel-
opments in communication and trans-
mission created information technology,
which had an even more dramatic impact
on the transcending of geographical
barriers. Obviously, enabling technologies
made the globalisation of economic acti-
vities much easier in both phases.
The politics of hegemony was just as
necessary for globalisation. The first
epoch from 1870 to 1914 coincided with
the age of empire when Britain more or
less ruled the world. The second epoch
starting around 1975 coincided with
the political dominance of the US as the
superpower that grew stronger with the
collapse of communism. Globalisation
has always needed such a hegemon. But
Pax Britannica and Pax Americana were
also conducive to the economics of
globalisation in providing national cur-
rencies—the pound sterling and the US
dollar—which became the equivalent
of international money as a unit of
account, a medium of exchange and a
store of value.11
Outcomes in development also reveal
strong parallels between these two epochs
of globalisation. In the four decades since
the mid-1970s, the process has been
characterised by uneven development
and emerging divergences. It would
seem that globalisation has created two
worlds that coexist in space even if they
are far apart in well-being. For some, in
a world more interconnected than ever
before, globalisation has opened the door
to many benefits through innovation,
entrepreneurship and wealth creation.
For many, the fundamental problems
of poverty and unemployment persist,
which existed earlier too, but have been
accentuated by globalisation. There is
inclusion for a few and exclusion for the
many (Nayyar 2007).
It is perhaps necessary to identify, in
broad categories, the winners and the
losers. If we think of economies, capital-
exporters, technology-leaders, net lenders,
those with a strong physical and social
infrastructure, and those endowed with
structural flexibilities are the winners,
whereas capital-importers, technology-
followers, net borrowers, those with a
weak physical and human infrastructure,
and those characterised by structural
Economic & Political Weekly EPW NOVEMBER 9, 2019
rigidities are the losers. If we think of
people, asset-owners, profit-earners, rent-
iers, the educated, and those with pro-
fessional, managerial or technical skills
are the winners, whereas asset-less,
wage-earners, debtors, the uneducated,
the immobile, and the semi-skilled or
unskilled are the losers. This classifica-
tion, which paints a broad-brush picture
of a more nuanced situation, does convey
the simultaneous, yet asymmetrical,
inclusion and exclusion that characterises
the process of globalisation.
Among countries, the benefits of pros-
perity created by globalisation have
accrued essentially to a small number
of industrialised countries and a few
emerging economies in the developing
world. But development has been most
uneven across geographical space. In
industrialised countries, the benefits have
been captured by the US and some in
Western Europe, while Southern Europe
and the transition economies in Eastern
Europe have fared worse and fallen
behind. In developing countries, the
benefits of globalisation have been cap-
tured by a few emerging economies in
Asia—China, India, Indonesia, South
Korea, Malaysia, Philippines, Singapore,
Taiwan, Thailand, Turkey and Vietnam—
that were latecomers to industrialisa-
tion, but created the initial conditions,
combined with institutions and policies,
to benefit from economic openness. Even
among this small group in Asia, some
have done better than others. China, for
instance, has been the star performer.
Latin America stayed roughly where it
was around 1980, although Brazil, Chile
and Mexico have derived some benefits,
but much of Africa experienced some
regress. The increasing divergences
within the developing world are striking
(Nayyar 2013, 2017). The least developed
countries, as many as 48, have fallen
behind rapidly in every sphere.
In all countries that are winners, most
of the benefits have accrued to relatively
small proportions of their populations.
Hence, this era of globalisation has wit-
nessed a marked increase in economic
inequality between people within coun-
tries, and between the rich and the poor
in the world. There has been an alarm-
ing increase in the share of the super-rich
vol lIV no 44
PERSPECTIVES
(top 1%) and the ultra-rich (top 0.1%), in
national income everywhere, as income
distribution has worsened across the
world. It is no surprise that inequality in
wealth is even more pronounced as the
distribution of assets has become far
more unequal.12 These mounting ine-
qualities are not only sources of potential
conflict but are also ethically unaccepta-
ble and politically unsustainable.
Disrupted Present and
Uncertain Future
The strains are beginning to surface.
Globalisation is confronted with mount-
ing economic problems and political
challenges. These have begun to disrupt
the smooth existence of globalisation,
so that the future is far from certain.
Economic problems: The present phase
of globalisation experienced its first set-
back with the financial crisis in the US
that surfaced in late 2008. It was attrib-
utable to the domestic deregulation of
financial sectors and external capital ac-
count liberalisation. The globalisation of
finance meant that it spread through
contagion across the world. Its transmis-
sion to the real sectors of economies was
also rapid, as it led to a sharp contraction
in output and employment. International
trade and international investment also
contracted. The downturn moved quickly
into a recession. Even if cycles are embed-
ded in the nature of capitalism, it is clear
that this Great Recession, which lingers
on, is the deepest crisis in world capitalism
since the Great Depression, 80 years ago
(Nayyar 2011).
Recovery is slow, uneven and fragile.
And the prospects are uncertain. It
would seem that the problem has been
compounded by a return to orthodox
macroeconomic policies, which seek to
focus on managing inflation and public
debt at the expense of growth and
employment. In the industrialised world,
the US and Japan are exceptions. There
is some recovery in output but not as
much in employment. This is attributable
essentially to countercyclical macroeco-
nomic policies in both countries where
monetary easing continued for long and
there was no fiscal retrenchment. The
rest of the world was countercyclical with
35
PERSPECTIVES
a fiscal stimulus or monetary easing but
only for a short while. In the European
Union (EU), not just economies are in
crisis, but also in countries such as
Germany, Britain and France, decisions
to sharply reduce fiscal deficits are being
implemented. The solution might turn out
to be worse than the problem. Unemploy-
ment levels remain high, while real wages
for a large proportion of workers have
stagnated or declined.
Many of the emerging economies have
also experienced a distinct slowdown in
growth. This is attributable partly to
the Great Recession and the consequent
economic slowdown that persists in most
industrialised countries. But it is also
significantly attributable to their own
mistakes as macroeconomic policies are
back to being pro-cyclical. High interest
rates have stifled private investment while
reduced fiscal deficits have squeezed
public investment and curbed domestic
demand, which have dampened growth.
Strong exchange rates to sustain portfo-
lio investment inflows have adversely af-
fected export performance. Such policy
responses in both industrialised and de-
veloping countries are, in fact, shaped
by globalisation as governments worry
about credit rating agencies and interna-
tional financial markets.
High unemployment in industrialised
countries and persistent poverty in deve-
loping countries is juxtaposed with a
rising share of profits and a falling share
of wages in national income everywhere.
The super-rich have become richer so
that income inequalities among people
have risen sharply. The distribution of
assets has become even more unequal so
that concentration of wealth is much
greater. The consumption patterns and
lifestyles of the rich associated with glo-
balisation have powerful demonstration
effects, as electronic media spreads the
consumerist message far and wide. It cre-
ates frustration and alienation among
those excluded. The reaction of people
who experience this exclusion differs.
Some seek short cuts through crime,
drugs or violence. Some seek refuge in
cultural identities, national chauvinism
or religious fundamentalism. Thus, such
economic problems have social and politi-
cal consequences within countries.
36
Political challenges: The most common
manifestation of a political backlash are
resurgent nationalisms. Economies might
have become global. But politics remains
national or local. Citizens like govern-
ments to be responsive to their concerns,
instead of catering to international finan-
cial markets or global economic obliga-
tions. And, in democracies, governments
are accountable to their people. Even
authoritarian regimes are not immune
in a globalised world.
In the industrialised world, recent elec-
tion outcomes highlight the political con-
sequences of globalisation. The referen-
dum in Britain, on whether to stay or leave
the EU, was an early warning. It was the
first sign of such discontentment among
people. The mess that it has created in
British politics defies resolution. The
election of Donald Trump, who cam-
paigned against economic openness with
a tirade about immigration and trade, as
President of the US came next. It showed
the resentment of people against the esta-
blishment in American politics, whether
Republicans or Democrats. And Trump,
who retains popularity in his core con-
stituencies, might well be re-elected.
France elected Emmanuel Macron as
President. But, in the first round of the
elections, he had only a slender lead
against Marine Le Pen of the National
Front. The rejection of mainstream politi-
cal parties—Republicans and Socialists—
was explicit. Since then, popular disillu-
sionment with Macron has grown. There
was a political impasse in Germany, as
the share of the erstwhile Grand Coalition
partners (Christian Democrats and Social
Democrats) in the total vote dropped
from two-thirds to one-half, while the
nationalist party (alternative for Germany)
became the third largest party in the
Bundestag. The revival of the Grand
Coalition is fraught with risk for its con-
stituent parties.
Austria elected Sebastian Kurz as
Chancellor, leading a political coalition
of the Austrian People’s Party and the
Freedom Party of Austria on the far
right. In May 2019, he resigned follow-
ing a no-confidence vote, but could well
be back as Chancellor in the election
scheduled for September 2019. In Italy,
the far right xenophobic Northern League,
NOVEMBER 9, 2019
which captured the rich north, and the
populist, anti-establishment Five Star
Movement, which swept the poorer south,
formed a coalition government in Decem-
ber 2017. Since then, the Northern League
has gained steadily in opinion polls.
There are already far-right political
parties that rule Poland and Hungary.
But that is not all. Far-right nationalist–
populist political parties, which are anti-
immigrant and anti-EU, are emerging as
significant political forces in Denmark,
Finland, Germany, Netherlands and
Sweden. In Finland, in the April 2019 elec-
tion, the Social Democrats polled just 0.2%
more of the vote than the nationalist–
populist Finns Party. The latter is now in
the government as part of a centre-right
coalition. It would seem that political
parties on the right and far-right are
capturing the space created by unequal
economic outcomes associated with glo-
balisation. Their political mobilisation of
economic discontents is based on popu-
lism and nationalism, which exploits fears
about openness in immigration and trade
as threats to jobs. Thus, national identities
become means of political mobilisation,
reinforcing majoritarian nationalisms that
prosper by stoking fears and seeking to
exclude the perceived other.
The changed international context
poses another political challenge. Globali-
sation has always required a hegemon to
set the rules of the game and ensure
conformity by the players. In the 1990s,
after communism collapsed, the US
appeared stronger than before as the sole
superpower. But, starting around then,
the economic resurgence of Asia, attri-
butable partly to globalisation, and the
rising share of developing countries in
world output, trade and manufacturing,
which gathered momentum over the
next two decades, began to chip away at
its economic hegemony and political
dominance. The global economic crisis led
to a further erosion of the US hegemony.
There was a de facto recognition of this
reality as the G7 was immediately replaced
by a more representative G20 for the
international coordination of economic
policies. Under President Trump, however,
it would seem that Pax Americana is in
voluntary decline. Indeed, a withdrawal
syndrome is discernible, as the US appears
vol lIV no 44 EPW Economic & Political Weekly

to be relinquishing its political leadership
role in the world. President Xi Jinping of
China seems anxious to move into this
vacant space, but Pax Sinica is not yet on
the horizon. And it will be a long time
before the Chinese Yuan is the equivalent
of international money.
In retrospect, the early 19th century
was a turning point in the world economy.
It was the beginning of the end of Asia’s
overwhelming significance in the world
economy. And it was the beginning of the
rise of Europe, in particular, to dominance
in the world. The early 20th century was
the next turning point. It was the begin-
ning of the end of Britain’s dominance.
And it was the beginning of the rise of the
US to dominance in the world. This trans-
formation of the world spanned half a
century in a period of deglobalisation. The
early 21st century perhaps represents a
similar turning point. It could be the
beginning of the end of dominance of the
US in the world. There is a discernible
shift in the balance of economic if not
political power. The emergence of the
developing world, particularly the power-
house economies of Asia, constitutes a
striking transformation (Nayyar 2013).
But history shows that dominant powers
are reluctant to cede economic and politi-
cal space to newcomers. Such processes
of change are always slow, complex and
unpredictable. The outcome, 50 years lat-
er, might be a multipolar world, without
a single dominant power. This uncertain
future does not augur well for globalisa-
tion that needs a hegemon.
In my view, our era of globalisation is
under stress. Its present is disrupted and
its future is uncertain. The problems and
challenges that have surfaced are largely
attributable to its own economic and politi-
cal consequences. Learning from history
suggests that earlier epochs of globalisa-
tion, during the past millennium, have
come to an end because of their conse-
quences embedded in the process. It is
clearly not the end of geography. The
nation state is alive and well. And it is not
the end of history either. Obviously, it is
exceedingly difficult to predict how the
future might unfold for the age of glo-
balisation we live in. Even so, it would be
idle to pretend that nothing has changed
and that it will be business as usual.
Economic & Political Weekly EPW NOVEMBER 9, 2019
notes
1 For a detailed discussion on these earlier epochs
of globalisation, see Nayyar (2019).
2 For an analysis, see Findlay and O’Rourke
(2007) and Nayyar (2013).
3 For a detailed discussion, see Pomeranz (2000);
Findlay and O’Rourke (2007); Allen (2009);
Morris (2010); Nayyar (2013).
4 The advent of the steamship reduced ocean
freight by two-thirds between 1870 and 1900
(Lewis 1978).
5 This argument is developed at greater length
in Nayyar (2013).
6 For more details, and sources of the evidence,
on international trade, investment and finance
during this era, set out briefly in the discussion
that follows, see Nayyar (2006).
7 The statistics on foreign investment in the
world economy circa 1914, are estimates made
by the League of Nations, which are reported in
UNCTAD, World Investment Report 1994, United
Nations, Geneva.
8 For a more detailed discussion, see Nayyar (2006).
9 For sources of evidence cited in this paragraph,
see Nayyar (2013).
10 Same as note 9.
11 For a more detailed discussion on the similari-
ties and parallels between these two epochs of
globalisation, see Nayyar (2006).
12 There is extensive literature on the subject of
rising economic inequalities across the world.
See, for example, Milanovic (2011); Stiglitz
(2012); Nayyar (2013); Piketty (2014); Atkinson
(2015); Bourguignon (2015); Nayyar (2017);
Stiglitz (2017). On the share of the top 1%, or
0.1%, across countries in the world, see Atkin-
son and Piketty (2010).
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