[Fwd: FWD: Globalization Wage Convergence, Review]

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Tue Aug 8 17:16:11 MDT 2000


Long review on economic globalization history, but interesting for its
relevance to today.



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Subject: McInnis on O'Rourke and Williamson, _Globalization and History_

------------ EH.NET BOOK REVIEW --------------
Published by EH.NET (August 2000)

Kevin H. O'Rourke and Jeffrey G. Williamson. _Globalization and History:
The Evolution of a Nineteenth-Century Atlantic Economy_. Cambridge, MA: MIT
Press, 1999. xii + 343 pp. $47.95 (cloth), ISBN 0-262-15049-2.

Reviewed for EH.NET by Marvin McInnis, Department of Economics, Queen's
University, Canada. <mcinnism at qed.econ.queensu.ca>

For almost a decade Jeffrey Williamson, in collaboration with various other
authors, has been investigating the many facets of late nineteenth century
international economic integration. It was the topic he chose for his
presidential address to the Economic History Association. Parts of this
ongoing project have appeared in many articles; I could tally at least
fifty-two. The project and many of its findings are well known to
specialists in economic history, and many of these experts have closely
followed Williamson's work. Why, then, this book?

This work represents an attempt at a final statement. Various pieces of
research are brought together into an integrated whole. Moreover, whether
or not it is the primary intention, the book speaks to a wider
readership--to economists, and historians and many others beside who have
not been following the reports in the journals. It is important to assess
the book with that in mind. Economic historians who have been following the
Williamson project will encounter few surprises. There is little in the
book that avid followers of EH.NET do not already know. Nevertheless,
seeing it all pulled together into a final compilation will be, for most, a
worthwhile read.

For Kevin O'Rourke (University College, Dublin) and Jeffrey Williamson
(Harvard) globalization means a substantial increase in the international
movement of goods and also of factors of production. As economic historians
are well aware, this process was clearly occurring in the late decades of
the nineteenth century and was the initial inspiration for their
undertaking. To relate nineteenth century globalization to today's
concerns, O'Rourke and Williamson start with its alleged
consequence--economic convergence. They pay some attention to convergence
of real per capita output, but their asserted primary interest is in
convergence of wages. Williamson and O'Rourke view this primary dependent
variable in the light of its inherent interest as a measure of the economic
well being of large numbers of people as well as its provision of an angle
on the distributive question, which emerges as one of the central themes of
the book. Trade, factor flows, and globalization all have their initial
effects on factor earnings. It is the urban, unskilled wage, seen as a
measure of the return to raw labor, that is focused upon as the central
measure of labor earnings. Already that raises some questions about what is
being put forward. Most of the economies included in the study had
proportionally large numbers of agricultural workers. On the other hand,
increasing numbers of workers were gaining some element of skill, so the
measure of the return to urban, unskilled labor has to be interpreted with
care. One might also question the claim that the wages of urban unskilled
workers is more reliably measured than real per capita income, which
O'Rourke and Williamson assert rather than demonstrate.

Globalization, in the O'Rourke and Williamson scheme, does not evidently
encompass the international transfer of technology. The authors argue that
they are able to fully account for such convergence, especially that of
real wages, occurring in terms of international factor flows and the
convergence of prices brought about by increased international trade. There
is no residual left to be attributed to technological convergence; ergo,
international flows of knowledge can be ignored. Hints that those might be
lurking behind the closed door, however, appear here and there throughout
the book. The implementation of improved transport technology is seen to
play a powerful role as factors of production are attracted to natural
resource rich regions, exploiting frontier opportunities that have
important technological underpinnings. Connecting the primary period of
convergence, 1870-1900, with a surge of technological developments that
revalued natural endowments and gave greater weight to the distribution of
accumulated human capital suggests that the whole story might be told from
a different perspective and with a different set of prime movers.

It is difficult to give a concise resume of a book that encompasses so
much, but a quick overview will allow us to highlight certain important
points. The authors begin with what they conclude is evidence of
substantial convergence, especially of real wages, among seventeen national
economies for which statistical data are available--essentially OECD
countries plus Argentina. Experiences among members of this group were
quite varied, and O'Rourke and Williamson are fairly careful to show how
the selection of countries alters the outcome. They emphasize the contrast
between the New World and Old World economies, which is where the big
change occurred. Within the European set, the evidence for convergence is
much slimmer. The New World economies consist only of the resource-abundant
areas settled by Europeans. Surely this conveys an inherent bias within the
narrative. It must inevitably be a tale dominated by the movement of
European labor and capital to the (almost) unoccupied spaces of the earth.

The authors, assuming there was important economic convergence in the late
nineteenth century, seek to relate it to the "forces of globalization."
They begin with the convergence of commodity prices and in chapter 3 show
that there was a lot of it (yet again mostly trans-oceanic) and that it was
much more a result of greatly reduced transport costs rather than of more
liberal trade policy. In chapter 4 they forge the link, following
Heckscher-Ohlin, between trade-induced price convergence, factor prices,
and the distribution of income. The evidence on income distribution broadly
supports the predictions of Heckscher-Ohlin, but once more the main
component of the effect is trans-Atlantic. In chapter 5 they turn to trade
liberalization and show that the British took the lead because they
realized that they were able thereby to generate large and widespread gains
in real wages. The same analysis explains why there was less enthusiasm on
the Continent for trade liberalization. In chapter 6 O'Rourke and
Williamson turn to the backlash stirred up by price convergence and the
return to protectionism. They aim to prove that this falls well within the
predictive consequences of the interests affected by the grain invasion. In
Britain, as expected, large numbers of (potentially voting) urban wage
earners gained increases in real wages. On the Continent there commonly
were larger reductions in land rents offsetting smaller wage gains, and in
France real wages actually fell. Hence the backlash in many of the
Continental jurisdictions is understandable and politically predictable.

Chapter 7 presents yet another explanation of the great trans-Atlantic
migration. This account begins with a large wage gap, essentially
exogenously introduced, that subsequently narrows as large-scale migration
proceeds. In the O'Rourke and Williamson scheme the out-migration is then
impelled by "demographic forces" that are not clearly explained but which
result from past natural increase augmented by an "emigrant stock" effect
(relatives and friends, or chain migration). The falling costs of migrant
transportation and the emigration-depressing effects of industrialization
in sending countries are claimed to be insignificant influences.

The effects of mass migration, which in O'Rourke and Williamson are by far
the leading force for convergence, are examined in chapter 8. Attention
there is on the United States as the foremost receiving economy and on
Ireland and Sweden as two prominent sending economies. Large impacts are
found for the United States (negative of course) and Ireland (positive),
which will come as a surprise only to those who have convinced themselves
that immigration did not lower wages in the United States. In Sweden, on
the other hand, large-scale emigration gave wages only a modest boost. The
following chapter looks at the effects of globalization on income
inequality via factor prices. Once more the main result is the contrasting
experience of Europe and the New World. In Europe, in the era of
globalization, rising ratios of unskilled wages to land rents were
associated with decreasing inequality in the distribution of income.

In chapter 10 O'Rourke and Williamson return to the political backlash
against the consequences of globalization. They tell a story of
increasingly restrictive immigration policy. This occurred not only in the
United States, but in other receiving countries as well during an extended
period of time. O'Rourke and Williamson construct an index of
restrictiveness in immigration policy and, in a regression analysis, show
that it moves most significantly in relation to the impact of immigration
on the labor market.

The authors devote two chapters to international capital flows and the
integration of world capital markets. The major claim here is that, in
relative terms, capital markets were even more integrated than they are
today. The big problem for O'Rourke and Williamson is that capital was not
generally flowing in the opposite direction to labor. The labor abundant
regions of the world were not attracting large capital flows. Capital,
then, was acting as a divergent influence, substantially offsetting the
convergent effects of international migration. It was the abundant land and
the unexploited natural resources of the New World that attracted most of
the capital. Here O'Rourke and Williamson explicitly recognize that
European, especially British, capital flows were greatly attracted by
foreign investment demand on the frontier. It would have been more
satisfying to see that thought more effectively integrated into the
analysis of labor migration (chapter 7) where capital is repeatedly
described as "chasing labor." An alternative model, which O'Rourke and
Williamson do not consider in their migration analysis but which is implied
in their treatment of international capital flows, would have capital
attracted to the New World to combine with the abundant natural resources
there and with the labor drawn there by the abundance of capital.

In chapter 13 O'Rourke and Williamson directly address an issue that has
been much debated in recent years--whether trade and factor flows are
substitutes or complements. This is one of the fresher sections of the
book, relying less on previous publications by the authors. Cases of
substitutability are not to be found. There are some notable cases of
complementarity between trade and factor flows, but more commonly the
relationship is neutral.

In their final summing up (chapter 14), O'Rourke and Williamson reiterate
their message that the globalization force most responsible for wage and
even per capita income convergence was mass labor migration, given the
generally perverse direction of capital movements and the more modest
contribution of commodity trade and price integration. They ask whether
serious wage and income convergence can be expected without large-scale
international migration. A second important point is that in the late
nineteenth century globalization backlash was endogenous and could well be
again. O'Rourke and Williamson also offer a partial admission that they may
have underplayed the role of technology and the role of its international
diffusion. Throughout, they have ignored that influence and neglect it on
the grounds that they can obtain substantial explanation of the phenomena
they wish to account for without calling technology into play. That makes
less than a wholly convincing case against it.

Throughout their book O'Rourke and Williamson acknowledge the limitations
of their study. Their continuous inclination, though, is nevertheless to
forge ahead. They return to some of those limitations in their final
chapter. The authors, for example, admit that individual national
experiences were highly varied--so varied, some readers might suspect, that
generalizations cannot be made. The results reported are often from the
most prominent cases that best exemplify the authors' argument. Time and
again the focus is on the relationship between the United States and
Europe. That is an important case, but probably sui generis and not enough
of a basis for an international generalization.

This book should be widely read due to the very fact that the authors'
arguments are open to debate. Professional economic historians, especially
those interested in entering the debate, should see the whole account in
its crystallized form. For students this book is a useful introduction to
an important topic. It is also a book to be recommended to our colleagues
in economics, history, or other disciplines who do not ordinarily pay
attention to what is being written as economic history.

Marvin McInnis primarily studies Canadian economic development in the late
nineteenth and early twentieth centuries. His most recent writing includes
two chapters on Canada in Michael Haines and Richard Steckel, (eds.)
_Cambridge Population History of North America_. New York: Cambridge
University Press, 2000.

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(administrator at eh.net; Telephone: 513-529-2850; Fax: 513-529-3308).
Published by EH.NET (August 2000).
Michael Pierce McKeever, Sr.

Economics Instructor, Vista Community College, Berkeley, CA
MIEPA URL: http://www.mkeever.com/
Corp Ethics List: http://www.egroups.com/group/corp-ethics/


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