Could globalization collapse? It may seem unlikely today. Yet despite many warnings, people were shocked the last time globalization crumbled, with the onslaught of World War I.
Like today, that period was marked by imperial overstretch, great-power rivalry, unstable alliances, rogue regimes, and terrorist organizations. And the world is no better prepared for calamity now.
Ninety years ago this May, the German submarine U-20 sank the Cunard liner Lusitania off the southern coast of Ireland. Nearly 1,200 people, including 128 Americans, lost their lives. Usually remembered for the damage it did to the image of imperial Germany in the United States, the sinking of the Lusitania also symbolized the end of the first age of globalization.
From around 1870 until World War I, the world economy thrived in ways that look familiar today. The mobility of commodities, capital, and labor reached record levels; the sea-lanes and telegraphs across the Atlantic had never been busier, as capital and migrants traveled west and raw materials and manufactures traveled east. In relation to output, exports of both merchandise and capital reached volumes not seen again until the 1980s. Total emigration from Europe between 1880 and 1910 was in excess of 25 million. People spoke euphorically of “the annihilation of distance.”
Then, between 1914 and 1918, a horrendous war stopped all of this, sinking globalization. Nearly 13 million tons of shipping were sent to the bottom of the ocean by German submarine attacks. International trade, investment, and migration all collapsed. Moreover, the attempt to resuscitate the world economy after the war’s end failed. The global economy effectively disintegrated with the onset of the Great Depression and, after that, with an even bigger world war, in which astonishingly high proportions of production went toward perpetrating destruction.
It may seem excessively pessimistic to worry that this scenario could somehow repeat itself–that our age of globalization could collapse just as our grandparents’ did. But it is worth bearing in mind that, despite numerous warnings issued in the early twentieth century about the catastrophic consequences of a war among the European great powers, many people–not least investors, a generally well-informed class–were taken completely by surprise by the outbreak of World War I. The possibility is as real today as it was in 1915 that globalization, like the Lusitania, could be sunk.
The last age of globalization resembled the current one in numerous ways. It was characterized by relatively free trade, limited restrictions on migration, and hardly any regulation of capital flows. Inflation was low. A wave of technological innovation was revolutionizing the communications and energy sectors; the world first discovered the joys of the telephone, the radio, the internal combustion engine, and paved roads. The U.S. economy was the biggest in the world, and the development of its massive internal market had become the principal source of business innovation. China was opening up, raising all kinds of expectations in the West, and Russia was growing rapidly.
World War I wrecked all of this. Global markets were disrupted and disconnected, first by economic warfare, then by postwar protectionism. Prices went haywire: a number of major economies (Germany’s among them) suffered from both hyperinflation and steep deflation in the space of a decade. The technological advances of the 1900s petered out: innovation hit a plateau, and stagnating consumption discouraged the development of even existing technologies