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·         That globalization has increased over the last 30 years is both fairly obvious and easily supported by data (using - the chart below covers off a number of differing variables. For example freedom of movement (social) vs freedom of capital (economic). Note one small trend – the index hit a peak leading into the GFC and has only tracked sideways since then.

Chart 1: 30 years of Globalisation

Source: ETH, Zurich;

Source: ETH, Zurich;

But what is lesser known is that whilst we feel like we are living in unprecedented times (doesn’t every generation think that?), we are not. Keynes in 1919 in his “Economic Consequences of the Peace” (which was his indictment on the Treaty of Versailles) had a rather nostalgic section looking at the world before World War 1:  

"What an extraordinary episode in the economic progress of man that age was which came to an end in August, 1914..The inhabitant of London could order by telephone, sipping his morning tea in bed, the various products of the whole earth, in such quantity as he might see fit, and reasonably expect their early delivery upon his doorstep; he could at the same moment and by the same means adventure his wealth in the natural resources and new enterprises of any quarter of the world, and share, without exertion or trouble, in their prospective fruits and advantages; or he could decide to couple the security of his fortunes with the good faith of the townspeople of any substantial municipality in any continent that fancy or information might recommend. He could secure, forthwith, if he wished it, cheap and comfortable means of transit to any country or climate without passport or other formality, could dispatch his servant to the neighboring office of a bank for such supply of the precious metals as might seem convenient, and could then proceed abroad to foreign quarters, without knowledge of their religion, language, or customs, bearing coined wealth upon his person, and would consider himself greatly aggrieved and much surprised at the least interference.”
Economic Consequences of the Peace (New York: Harcourt, Brace, and Howe, 1920), pp. 11-12

Indeed the last 40 years have been simply getting us back to where we were in 1900 -  I have used below a Treasury chart of Trade intensity (Chart 2) . In some respects we never got back there: that was a period of complete free labor mobility (passports didn’t exist). This time round it’s been trade and capital largely.

Chart 2: Trade intensity in 20th century

Source: US Treasury,

Source: US Treasury,


Surely we can’t make the same mistake twice...

  • I generally find it does a disservice to those who came before you to assume that somehow you are superior in judging situations…which we generally aren’t. I think it’s important to understand what globalization does and for that we need to go back to uni.  
  • The simple theory on trade sits in undergraduate textbooks and comparative advantage. Postgraduate economics on trade looks at Krugman’s new theory of trade (which got him his Noble prize), but for me the best descriptor always lay in the Heckscher-Ohlin model (remembering it is a MODEL). But one of the key conclusions was that you should see “hollowing out” in western countries as they were rich in capital but labor constrained, with jobs flowing to the opposite (emerging) economies.
  • But the true paradox is what flows from globalization is that the model raises GLOBAL income levels and reduces the global Gini coefficient, but will INCREASE the Gini coefficient in western countries
  • The chart below shows that whilst the Gini coefficient did rise up to 1991, since then we have integrated 1.5bn workers in Asia and it’s actually fallen globally.
  • This would surprise a lot of people. Workers globally aren’t getting scre*ed. They are just getting scre*ed in western nations exactly like the theory says it should be. Globalisation is very good for the whole globe

Chart 3: 50 years of global inequality 



So where did it go wrong in 1910 and now?

  • For this we shift gears to psychology. Our understanding of humans is improving and one interesting thing is how success affects people. Lots of studies show the same thing: People who are randomly assigned power or told they were “leaders” behave badly; lie; and are less generous 
  • So when we see the failure to redistribute gains in the US and the UK (and Europe) we see the 1% who have protected their gains, but in the long run harmed themselves as they truly believed they deserved those gains – this is the divisions created within the Republican party.
  • Consider Denmark as the counterfactual. They were exposed to the same levels of globalization as everyone else (arguably more as they are a small open economy) yet have worked hard to re-distribute gains internally and retrain and yet remain in the top GDP per capita and have the limited Gini coefficient  getting worse:
  • If you think of the urban professional city dwellers, the 1% globally, this backdrop is a made by us and our peers. In the same way 1914 was the conclusion of what the robber barons started in the 1880’s industrialization because they too make the same behavioral errors.
Source: Minack Advisors

Source: Minack Advisors

  • So I disagree about discounting Tariffs and trade barriers saying they won’t happen again – I think they are just the next stage in the natural evolution of society. I think my kids will look back in wonder at the idea that I could trade US shares from my desk and live and work in London. Which is not to be confused with saying society is going to end.

Globalization always carries the seeds of its own destruction..