William Bernstein, “A Splendid Exchange (How Trade Shaped the World), Atlantic Monthly Press, 2008Bernstein is a financial theorist and historian. This book is a must-read for those interested in history, economics, and globalization. A very good book.
Most written history is about picking up weapons (war) and putting them down (diplomacy). Modern history in the West, certainly since the Fourteenth Century, has been a matter of reporting on the doings of princes and their successors, the leaders of modern states. However, Bernstein's A Splendid Exchange: How Trade Shaped the World is a history of the world told in terms of international trade.
Bernstein's interests coalesce in two groups of bunches. The first concerns the inception and spread of Islam as Bernstein presents Islam as a religion founded by traders. Even if one was not moved by religious fervor, embracing Islam at least did wonders for one's credit rating. Only later would the general population, impressed with the wealth and piety of their Muslim merchant neighbors, follow their path. The conversion of much of Southeast Asia was accomplished not by conquerors but rather by cloth and spice merchants from Cambay and Calicut, who often married native women. And the children were than raised as Muslims, regardless of the Mother’s religion.
The height of Islamic trade, stretching from Gibraltar to Sumatra, was stopped by the Black Death in the middle of the Fourteenth Century. It may come as news to Westerners that the Black Death was deadlier by far in the Muslim & Mongol world than in the Christian world. The Mongols, significantly, sank back into provinciality, leaving the Silk Road unprotected once more, while their Ming successors, perhaps even more significantly, aborted China's burgeoning Indian-Ocean trade in the 1430s. The field was thus left open to Europeans, who were not slow to rally from their relatively slighter devastation.
This brings us to Bernstein's second cluster (bunch) of interests, the aftermath of Vasco da Gama's exploration of the Indian Ocean. The outlines of the Age of Exploration trace the growth of the great trading corporations and the shifting of Europe's financial hub from Genoa to Amsterdam and then London.
Bernstein does not attempt a justification of "globalization." He merely argues, persuasively, that the tendency toward persistently enlarged trading networks is profoundly human and that protectionist measures are quite useless in all but the most budding economies.
Bernstein points out the stubbornness with which food production is subsidized wherever states can afford to support it. Agriculture is a densely complex activity that cannot be analyzed in terms of "trade" alone; in the developed West particularly, farming is a "land use," rather than a purely economic, activity. No one has figured out how to take farming out of the equations of global trade, but Bernstein's book suggests that clearer thinking on this and other subjects can realistically be anticipated. I found it disappointing that he did not deal with the ethanol issue.
The Free Trade Act of 1989 between the United States and Canada gave researchers a nearly ideal lens through which to observe the globalization trade-off. The act slashed tariffs from about 8 percent to 1 percent on goods moving north, and from 4 percent to 1 percent on goods moving south. Both nations have stable legal, banking, and political institutions, and since the United States dominates the Canadian economy, the most dramatic effects of the act occurred north of the border.
The economist Daniel Trefler calculated that although the act produced a significant net benefit to Canada as a whole, with long-term productivity in some industries increasing by up to 15 percent, it also vaporized about 5 percent of Canadian jobs, up to 12 percent of existing positions in some industries. These job losses, however, lasted less than a decade; overall, unemployment in Canada has fallen since the passage of the act. Commenting on this trade-off, Trefler wrote that the critical question in trade policy is to understand "how freer trade can be implemented in an industrialized economy in a way that recognizes both the long-run gains and the short-term adjustment costs borne by workers and others."
Which is another way of saying that, if globalization forces a small body of older workers out of work, there can be no moral harm — and no permanent liability — in cushioning the blow with subsidies and other transitory supports. Bernstein clearly does not believe that free markets will solve all economic problems, and he even embraces the idea that free trade may substantially impoverish some nations overall, and his example is none other than the United States.
Notes:
Pg. 18: Two notions anchor this book. First, trade is an irreducible and intrinsic human impulse, as primal as the needs for food, shelter, sexual intimacy, and companionship. Second, our urge to trade has profoundly affected the trajectory of the human species. Simply by allowing nations to concentrate on producing those things that their geographic, climatic, and intellectual endowments best enable them to do, and to exchange those goods for what is best produced elsewhere, trade has directly propelled our global prosperity.
Pg. 76: In the twelfth century Saladin ejected the crusaders from Jerusalem (although he was more than happy to trade with his Christian enemies) and consolidated Muslim power in the Middle East. With Saladin’s victories came Islam’s high point. Thereafter came a devastating series of misfortunes: the Mongol invasions in the thirteenth century, the plague in the fourteenth, and Vasco da Gama’s penetrations of the Indian Ocean in the fifteenth and sixteenth.
Pg. 111: Long-distance trade in the medieval period revolved around three stories: the spice trade, the slave trade, and the age-old struggle for mastery of the Bosporus and Dardanelles. Notably at this time most slaves were white, not black. Also, historians have suggested that rare spices were originally valued because of their medicinal properties. For example, one authority points out that the contents of a medieval French spice store and a nineteenth-century American pharmacy would have been nearly identical.
Pg. 118: In 1095 Pope Urban II convened the Council of Clermont, at which the assembled temporal rulers of Christendom pledged to regain the Holy Land. By 1099, Jerusalem was in the hands of the First Crusade, which completed its sacred mission by slaughtering nearly every Muslim, Jewish, and Armenian man, woman, and child inside the city’s gates. Much of the Holy Land remained under Christian rule until 1187 when Saladin took it back. In contrast to the slaughter wrought by the crusaders of 1099, Saladin spared the civilian population of the city.
P. 241: Boston Tea Party was not about “No taxation without representation.”
The only levy on tea in the colonies at that time was an import duty of about 10 percent imposed by the Townshend Act a full six years before the Boston Tea Party. Colonists easily circumvented this modest tax by smuggling the dried leaves via Holland and France. Why then were Bostonians so riled up in 1773, six years after the fact? Answer: In May 1773, Parliament, at the request of the East India Company, passed the Tea Act and thus allowed the EIC to import tea directly from Asia into America. The act cut the price of tea in half and was therefore a boon to colonial consumers. But it was not a boon to the middlemen cut out by the act, local smugglers and tea merchants. It was these two groups that took action against the “unfair foreign competition” from the EIC, ignoring the inconvenient fact that the act would save their countrymen a substantial amount of money.
Pg. 275: Between 1519 and the end of the slave trade in the late 1860’s, 9.5 million African slaves arrived in the New World. Since the best estimates of mortality on the middle passage are around 15 percent, this means that eleven million captives began the journey in Africa. Fully 80 percent of slaves came to Brazil and the Caribbean where they cut, crushed, and boiled cane while most of the rest went to Spanish North America and South America. Only after the mid-nineteenth century, when the institution was finally outlawed, did the majority of immigrants have white skin. Surprisingly, only about four hundred thousand—about 4.5 percent—came to the British North American colonies. Yet, in spite of the fact that the U.S. and Canada received less than one slave in twenty, these two nations now contain nearly one in three of their descendants. The opposite pattern holds for the Caribbean, which received over two-fifths of the slaves, but now contains just one-fifth of their descendants, suggesting that it was difficult to maintain the slave population in the islands. The reason is that sugar is the deadliest of crops, and for the most part British North America did not grow it. The cutting, grinding, and boiling meant overwork and an early death for millions of Africans—most of them men, since vigorous males were the import of choice on the plantations. So ravaged by overwork, malnutrition, and disease were their slave workforces that a constant stream of fresh humanity was required merely to keep their numbers level.
Pg. 343: The Stolper-Samuelson theorem predicts that the main beneficiaries of increased trade would be the owners of abundant factors in each nation. The factors are the typical inputs of classical economics: land, labor, and capital. For instance, in general continental Europe had scarce capital and land but abundant labor. Stolper-Samuelson predicts that falling transport costs after 1870 would have generated a wave of protectionism by continental capitalists and farmers. Again, the theory is dead-on: European farmers reacted vehemently and brought to an end the free-trade era that began with Corn Law repeal and the Cobden-Chevalier Treaty.
Pg. 355: Recently, economic historians have calculated that the tariff wars of the 1930’s caused less than half of the falloff in trade, the rest being due to the Great Depression itself, which decreased demand for trade products. Interestingly, the combination of “specific tariffs” and deflation caused at least as much unintentional damage as the intentional increases in tariff rates. Specific tariffs are those calculated on a per pound or per unit basis; if the price per pound falls and the amount of tariff per pound does not, this unintentionally increases the effective rates. That is, a specific tariff of twenty cents per pound on meat worth forty cents amounts to a 50 percent tariff; if the price of the meat falls to twenty cents, the effective rate is now 100 percent.
Pg. 359: As a rough approximation, we can divide the history of modern globalization into four periods:
1. 1830-1885: when rapidly falling transport and communication costs combined with relatively low tariffs (except in the U.S.) to dramatically increase the volume of trade and to produce global convergence of wages, land prices and rents, and interest rates.
2. 1885-1930: intense agricultural competition from the Americas, Australia, New Zealand, and the Ukraine caused a European protectionist backlash; this was easily overwhelmed by the continuing fall in transport prices.
3. 1930 (Smoot-Hawley)-1945: This period, which began with the Smoot-Hawley tariff, saw slowing improvements in transport technology swamped by large tariff hikes. These events resulted in a devastating fall in world trade.
4. 1945-xxx: This period began with the U.S. free-trade initiative as outlined in Cordell Hulls Proposals which opened the flood gates of world trade. The real value of world commerce exploded and grew at the astonishing rate of 6.4 percent per year over the next half century. Between 1945 and 1998 the volume of world trade increased from 5.5 percent of world GDP to 17.2 percent.
Pg. 380: Paul Krugman believes that almost all of the growing inequality in wages in the U.S. is due to the increase in the skill premium (and more recently, changes in tax policy), whereas data from economist Adrian Wood suggest that much, if not most, is due to increased international trade. The consensus seems to be somewhere in the middle: perhaps one-fifth to one-quarter of the widening inequality in U.S. wages is due to trade, the rest to tax cuts aimed at the wealth and the increasing rewards of domestic education and training.
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