Chapter Notes

The Pre-modern World

When we talk about ‘globalisation’, we often think of the economic system that has developed over the last 50 years. However, the story of our interconnected world is much older, built on a long history of trade, migration, people searching for work, and the movement of money and ideas. To understand the global world we live in today, we need to look at the historical phases that created it.

For centuries, human societies have been growing more and more interlinked. Ancient travellers, traders, priests, and pilgrims journeyed across vast distances for knowledge, opportunity, or spiritual reasons. As they travelled, they carried goods, money, ideas, skills, and even diseases with them.

• As early as 3000 BCE, a coastal trade network linked the Indus Valley civilisations with what is now West Asia.
• For over a thousand years, cowries (seashells used as currency) from the Maldives travelled all the way to China and East Africa.
• The spread of disease-carrying germs across long distances can be traced back to the seventh century, becoming an undeniable link by the thirteenth century.

Silk Routes Link the World

The silk routes are a fantastic example of the vibrant trade and cultural connections that existed in the pre-modern world. The name comes from the valuable West-bound Chinese silk cargoes that travelled along these paths.

Historians have identified several silk routes, both over land and by sea, that connected vast regions of Asia with Europe and northern Africa. These routes existed before the Christian Era and were active until about the fifteenth century.

• Goods Traded: Along with silk, Chinese pottery, textiles, and spices from India and Southeast Asia travelled these routes. In return, precious metals like gold and silver flowed from Europe to Asia.
• Cultural Exchange: Trade and culture were inseparable. Early Christian missionaries and later, Muslim preachers, travelled these routes to Asia. Long before them, Buddhism spread from eastern India to other parts of Asia through intersecting points on the silk routes.

Food Travels: Spaghetti and Potato

The movement of food provides clear examples of long-distance cultural exchange. Traders and travellers introduced new crops to the lands they visited.

• Noodles and Pasta: It is believed that noodles travelled west from China and became spaghetti. Another theory suggests Arab traders brought pasta to Sicily (now in Italy) in the fifth century. We may never know the exact origin, but it shows the possibility of cultural contact.
• Foods from the Americas: Many of our common foods today, like potatoes, soya, maize, tomatoes, chillies, and sweet potatoes, were unknown to our ancestors in Europe and Asia until about five centuries ago. These were introduced after Christopher Columbus accidentally discovered the Americas.

Conquest, Disease and Trade

In the sixteenth century, the pre-modern world began to "shrink" as European sailors found a sea route to Asia and crossed the Atlantic to America. This discovery connected continents that had been isolated for millions of years.

America's vast lands, abundant crops, and rich minerals began to transform trade and lives everywhere. Precious metals, especially silver from mines in Peru and Mexico, boosted Europe's wealth and financed its trade with Asia. Legends of El Dorado, a fabled city of gold in South America, inspired many European expeditions.

The Portuguese and Spanish conquest of America in the mid-sixteenth century was successful not just because of their superior military technology.

Because America's original inhabitants had been isolated for so long, they had no immunity to diseases from Europe. Smallpox spread rapidly, killing and destroying entire communities, which made it much easier for the Europeans to conquer them. This is an early example of what some might call "biological warfare."

By the eighteenth century, Europe had emerged as the new centre of world trade, shifting the focus away from India and China, which had been among the world's richest countries until then. This shift was partly due to China restricting its overseas contacts and the rising importance of the Americas.

The Nineteenth Century (1815-1914)

The nineteenth century was a period of profound change. Economic, political, social, and technological factors combined to transform societies and their relationships with one another. Economists identify three key types of movement or ‘flows’ in the international economy:

1. The flow of trade: This primarily referred to trade in goods, like cloth or wheat.
2. The flow of labour: This was the migration of people in search of work.
3. The movement of capital: This involved short-term or long-term investments over long distances.

These three flows were deeply connected and had a major impact on people's lives.

A World Economy Takes Shape

The changing patterns of food production and consumption in industrial Europe help us understand this new world economy. In nineteenth-century Britain, population growth and industrial expansion increased the demand for food, pushing up prices.

• The Corn Laws: The British government, under pressure from landowners, restricted the import of corn with laws known as the ‘Corn Laws’. This kept food prices high.
• Abolition of the Corn Laws: Unhappy industrialists and city dwellers forced the government to abolish these laws. As a result, food could be imported into Britain more cheaply than it could be grown there.
• Consequences: British agriculture couldn't compete with cheap imports. Vast areas of land were left uncultivated, and thousands of farm workers lost their jobs. Many flocked to cities or migrated overseas.

With lower food prices, consumption in Britain rose. To meet this demand, lands were cleared for food production in Eastern Europe, Russia, America, and Australia. This required:

• Capital: Money flowed from financial centres like London to build railways, harbours, and settlements.
• Labour: The demand for workers in places like America and Australia led to mass migration. Nearly 50 million people emigrated from Europe to America and Australia in the nineteenth century.

By 1890, a global agricultural economy had emerged. Food was no longer grown in a nearby village but transported thousands of miles by railways and ships, often worked by low-paid workers from Asia, Africa, and the Caribbean.

Role of Technology

Technology played a crucial role in these changes. Inventions like the railways, steamships, and the telegraph were vital for transforming the nineteenth-century world. Technological advances were often driven by larger social and economic factors. For example, colonialism spurred investment in transport, leading to faster railways and larger ships that could move food more cheaply.

Late nineteenth-century Colonialism

While trade expanded, this period also had a darker side. For many parts of the world, a closer relationship with the world economy meant a loss of freedom and livelihoods. European conquests in the late nineteenth century brought painful economic and social changes to colonised societies.

In 1885, the major European powers met in Berlin to divide Africa among themselves, drawing borders on a map, often in straight lines, without any regard for the people living there. Britain, France, Belgium, and Germany all expanded their colonial territories. The US also became a colonial power in the late 1890s.

Rinderpest, or the Cattle Plague

In the 1890s, a cattle disease called Rinderpest had a terrifying impact on Africa, showing how European imperialism could reshape lives.

• The Problem for Europeans: Europeans were attracted to Africa for its land and minerals but faced a shortage of labour. Historically, Africans had plenty of land and livestock and saw little reason to work for wages.
• The Disease: Rinderpest arrived in Africa in the late 1880s, carried by infected cattle imported from British Asia to feed Italian soldiers in East Africa. The disease spread like wildfire, killing 90 per cent of the cattle.
• The Impact: The loss of cattle destroyed African livelihoods. European colonisers, planters, and mine owners monopolised the few remaining cattle resources. This control over a vital resource allowed them to force Africans into the labour market and conquer the continent.

Indentured Labour Migration from India

The story of indentured labour from India highlights the two-sided nature of the nineteenth-century world: it was a time of economic growth for some and great misery for others.

Indentured labour was a system where a bonded labourer worked for an employer for a specific time to pay off their passage to a new country. Hundreds of thousands of Indian and Chinese labourers worked on plantations, in mines, and on construction projects worldwide.

• Origins: Most Indian indentured workers came from regions like eastern Uttar Pradesh, Bihar, and Tamil Nadu, where cottage industries had declined and land rents were high, forcing the poor into debt and migration.
• Destinations: The main destinations were the Caribbean islands (Trinidad, Guyana, Surinam), Mauritius, and Fiji. Tamil migrants also went to Ceylon (Sri Lanka) and Malaya.
• A ‘New System of Slavery’: Recruitment agents often used false information to tempt migrants. On arrival, labourers found harsh living and working conditions with few legal rights.

Despite the hardship, workers found ways to survive. They blended their own cultures with new ones, creating new forms of expression.

Indian Entrepreneurs Abroad

Growing crops for the world market required capital. While large plantations could borrow from banks, smaller farmers relied on Indian bankers. Groups like the Shikaripuri Shroffs and Nattukottai Chettiars were among the many bankers and traders who financed export agriculture in Central and Southeast Asia. They had sophisticated systems for transferring money over large distances. Indian traders and moneylenders also followed European colonisers into Africa.

Indian Trade, Colonialism and the Global System

Historically, India was famous for its fine cotton exports to Europe. However, with industrialisation in Britain, things changed.

• Decline of Indian Textiles: British industrialists pressured their government to impose tariffs on cloth imports. This made it difficult for Indian textiles to compete in the British market. The share of cotton textiles in India's exports fell dramatically, from around 30 per cent in 1800 to below 3 per cent by the 1870s.
• Rise of Raw Material Exports: As manufactured exports declined, exports of raw materials like raw cotton and indigo increased rapidly. For a time, opium grown in India and exported to China became India's single largest export. Britain used the money from opium sales to finance its tea imports from China.
• India's Role in the World Economy: Britain had a ‘trade surplus’ with India, meaning the value of British exports to India was much higher than British imports from India.

The Inter-war Economy

The First World War (1914-18) was a global conflict that plunged the world into a crisis. It was fought between the Allies (Britain, France, Russia, and later the US) and the Central Powers (Germany, Austria-Hungary, and Ottoman Turkey). The war led to decades of economic and political instability.

Wartime Transformations

The First World War was the first modern industrial war. It involved the use of machine guns, tanks, and chemical weapons on a massive scale.

• Human Cost: An estimated 9 million people were killed and 20 million were injured. Most were men of working age, which reduced the workforce in Europe and caused household incomes to decline.
• Economic Impact: Industries were restructured to produce war-related goods. To pay for the war, Britain borrowed large sums of money from US banks and the public. This transformed the US from an international debtor to an international creditor.
• Social Changes: As men went to fight, women stepped in to do jobs that had previously been considered men's work.

Post-war Recovery

Economic recovery after the war was difficult. Britain, once the world's leading economy, faced a prolonged crisis.

• Britain's Decline: Britain struggled to recapture its dominant position in the Indian market and compete with Japan. It was also burdened with huge debts to the US.
• Unemployment: The end of the war boom led to a contraction in production and massive job losses. In 1921, one in every five British workers was unemployed.
• Agricultural Crisis: During the war, wheat production had expanded in Canada, America, and Australia. When production in eastern Europe revived after the war, it created a glut in the market. Grain prices fell, and farmers fell deeper into debt.

Rise of Mass Production and Consumption

In the US, recovery was much quicker. A key feature of the US economy in the 1920s was mass production.

• The Assembly Line: Car manufacturer Henry Ford pioneered this method, adapting the assembly line from a Chicago slaughterhouse for his car plant. This method forced workers to repeat a single task at a pace dictated by a conveyor belt, dramatically increasing output. The T-Model Ford was the world's first mass-produced car.
• Higher Wages, More Consumption: To retain workers who couldn't cope with the stress of the assembly line, Ford doubled the daily wage to $5 in 1914. This high wage, which he later called his "best cost-cutting decision," allowed workers to afford consumer goods like cars.
• A Cycle of Prosperity: Mass production lowered the cost of goods. Higher wages meant more people could buy them, often through ‘hire purchase’ (credit). This created a cycle of higher employment, rising consumption, and more investment, leading to a housing and consumer boom in the US.

The Great Depression

This prosperity did not last. The Great Depression, which began around 1929 and lasted until the mid-1930s, was a period of catastrophic decline in production, employment, and trade across the world.

The depression was caused by a combination of factors:

• Agricultural Overproduction: Falling agricultural prices were a major problem. Farmers tried to produce more to maintain their income, which only worsened the glut and pushed prices down further.
• Withdrawal of US Loans: In the mid-1920s, many countries financed investments with loans from the US. When US overseas lenders panicked at the first sign of trouble in 1928, they drastically cut back on loans, creating a crisis for countries that depended on them.
• Collapse in the US: The US was the most severely affected industrial country. Banks slashed lending, businesses collapsed, and unemployment soared. By 1933, over 4,000 banks had closed, and about 110,000 companies had collapsed.

India and the Great Depression

The impact of the depression on India showed just how integrated the global economy had become.

• Trade Collapse: India’s exports and imports nearly halved between 1928 and 1934. As international prices crashed, prices in India also plunged. Wheat prices in India fell by 50 per cent.
• Peasants and Farmers Hit Hardest: While agricultural prices fell sharply, the colonial government refused to reduce its revenue demands. Peasants producing for the world market, like the jute producers of Bengal, were the worst hit.
• Rural Indebtedness: Peasants across India fell deeper into debt, using up their savings and selling their land and jewellery. During these years, India became a major exporter of precious metals, especially gold. This helped Britain's recovery but did little for the Indian peasant.
• Urban India: The depression was less severe for urban India. Those with fixed incomes, like salaried employees, found themselves better off because prices were lower.

Rebuilding a World Economy: The Post-war Era

The Second World War (1939-45) broke out just two decades after the first. It was fought between the Axis powers (Germany, Japan, Italy) and the Allies (Britain, France, the Soviet Union, the US). The war caused immense death and destruction, with at least 60 million people killed.

Two crucial developments shaped the post-war world:

1. The emergence of the US as the dominant economic, political, and military power in the Western world.
2. The rise of the Soviet Union as a world power.

Post-war Settlement and the Bretton Woods Institutions

Economists and politicians learned two key lessons from the inter-war economic experiences:

1. An industrial society based on mass production requires mass consumption, which in turn requires high, stable incomes and full employment. Governments must intervene to ensure economic stability.
2. A country’s economic links with the outside world must be managed. The goal of full employment requires governments to have control over the flows of goods, capital, and labour.

Based on these lessons, a framework for the post-war international economic system was established at the United Nations Monetary and Financial Conference held in July 1944 at Bretton Woods in New Hampshire, USA.

• The conference established the International Monetary Fund (IMF) to deal with the external surpluses and deficits of its member nations.
• The International Bank for Reconstruction and Development (the World Bank) was created to finance post-war reconstruction.

The Early Post-war Years

The Bretton Woods system led to an era of unprecedented growth for Western industrial nations and Japan between 1950 and 1970. World trade grew annually at over 8 per cent, and incomes grew at nearly 5 per cent. Growth was stable, and unemployment was low.

Decolonisation and Independence

When the Second World War ended, large parts of the world were still under European colonial rule. Over the next two decades, most colonies in Asia and Africa became independent nations. However, they were burdened by poverty and handicapped by long periods of colonial rule.

• The IMF and World Bank were designed to meet the financial needs of industrial countries, not the challenges of poverty in former colonies.
• Even after independence, former colonial powers and large US corporations often controlled vital resources in these new countries.
• Most developing countries did not benefit from the rapid growth seen in the West. In response, they organised themselves into the Group of 77 (or G-77) to demand a New International Economic Order (NIEO). The NIEO was a system that would give them real control over their resources, fairer prices for raw materials, and better access for their manufactured goods in developed countries' markets.

End of Bretton Woods and the Beginning of 'Globalisation'

From the 1960s, the US's financial strength weakened, and the US dollar could no longer maintain its value in relation to gold. This led to the collapse of the system of fixed exchange rates and the introduction of a system of floating exchange rates.

From the mid-1970s, developing countries were forced to borrow from Western commercial banks, leading to debt crises and increased poverty in Africa and Latin America. At the same time, Multinational corporations (MNCs)—large companies that operate in several countries—began to shift production to low-wage Asian countries.

China, which had been cut off from the world economy since its 1949 revolution, and countries in Eastern Europe re-joined the world economy after the collapse of the Soviet Union. Low wages in countries like China made them attractive destinations for foreign investment.

The relocation of industry to low-wage countries stimulated world trade and capital flows, transforming the world's economic geography. In the last two decades, countries like India, China, and Brazil have undergone rapid economic transformation.