The Three Waves of Globalization

Examining the process of global integration from a long term perspective we can distinguish three waves of globalization from 1870 to the present day. Analyzing the economic characteristics of these distinct processes the present wave of globalization can be contrasted with two previous ones with a view to showing how it is affecting poverty and equality.

The first wave of globalization (1870-1914), was led by advances in transportation and reductions of trade barriers, which generated a dramatic increase in the flow of goods and capital, and an unprecedented rise in global per capita income. The flows of labour were even more dramatic, as nearly 10 percent of the world’s population migrated from the less developed and densely populated areas to North America and other parts of the world. Among the globalizing countries there was convergence in income per capita, primarily a result of migration; however, world inequality increased as the gap between the globalizers and the countries left behind widened.

The inward-looking economic policies, driven by nationalism, that prevailed during the periods of the First World War, the Great Depression, and the Second World War, resulted in a giant step backward in global economic integration. During this period the growth of per capita income fell substantially, the number of poor people continued to rise and world inequality continued to increase, despite the great advances in life expectancy due to the global spread of improvements in public health.

The second wave of globalization (1950 to 1980), was marked by the multilateral trade liberalization under the auspices of the General Agreement on Tariffs and Trade (GATT). Integration occurred mainly among rich countries, (Western Europe, North America, and Japan). As the relatively poor industrial countries grew faster than the richer ones, there was a modest trend toward greater equality (aided by social welfare policies and programs). The developing countries also experienced some growth recovery during this period; however, most of them were unable to advance beyond primary commodity exporting and were largely isolated from capital flows. So the gap between rich and poor countries widened. The number of poor people continued to increase.

The present wave of globalization, starting around 1980, has been spurred by technological advance in transport and communications technologies and by the decision of large developing countries to open up to foreign trade and investment. The rise of the new globalizers is the most spectacular feature of this process. For the first time poor countries have broken into the global market for manufacturing and services.

Countries that dramatically increased their participation in global trade and investment include Brazil, China, Hungary, India, and some 24 developing countries with 3 billion people. Their growth rates now substantially exceed those of the rich countries, allowing them to catch up, just as during earlier waves of globalization there was convergence among OECD countries.

The crucial question is whether growing integration is leading to greater inequality within countries. This is not generally the case. Most of the globalizing developing countries have seen only small changes in household inequality, and inequality has declined in such countries as the Philippines and Malaysia. However, there are some important examples of an opposite trend: in Latin America, due to previous extreme inequalities in educational attainment, and in China, due to the initial extreme equality. Nevertheless, this increase in inequality in China has been accompanied by a massive reduction in poverty (from 250 million in 1978 to just 34 million in 1999). The reduction of poverty can be illustrated by the examples of Chinese provinces, Indian states, and the countries of Bangladesh and Vietnam and Uganda. While some aspects of the data are controversial, the evidence for substantial poverty reduction is strong.

Source: Collier P., Dollar D.

Globalization, Growth and Poverty

Building and Inclusive World Economy/

World Bank Policy Research Report, 2002

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