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Notes for Exam 2 political economy
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Lecture notes of 87 pages for the course Political Economy at UvA (Lectures 7-13)
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Lecture 7: GLOBALISATION 1.0PROGRAM:
• Globalization 1.0: 19th century → WWI
• Hegemony and the end of British hegemony: Production, trade, finance
• Finance and Money
I. GLOBALIZATION 1.0
• 1896 – 1913 (although there are multiple globalizations): for the first time a real genuine
global market emerges by the end of the 19th c. due to trading connections between
different regions of the world intensify, innovation in transport, specialization so that
interdependencies emerge.
• Global trade more than doubled
• Real world market (instead of disconnected micro-economies) → specialization
of countries → migration and transformation of countries. Increasing migration (EX: Irish to
US due to potato famine), most of the border that we se today are grown → period of state
formation.
• Schwartz: world of today is the outcome of dynamics during globalization 1.0
- Which countries in which form → core / periphery? Colonialism?
- Who lives there → voluntary and involuntary migration
- What is being produced → agriculture, infrastructure construction, etc.
Studying this perisd in time helps us unedrstand the world of today, what countries? spacial
relatioships between them? history of colonial relationshipd and overcoming colonialism?
Who lives where and why: parterns of voluntary and involuntary migration? But also,
specialisation emerged in those times still shows today. Our actual world is in part is
determined by the decisions for the 19th c.
End of the 19thc finance sphere becomes
more and more important, there is another
layer and becomes dominant.
Hegemony in cycles: [recap last week]
,In relation to cyclical developemnt in economic deevelopemnt and in power relations there
are up swings and down swings in heenmonies and in general we can thing of the hegemnic
power as power having dominance ofver several fiels: trade, production, military, financial...
If we look over history and time this dominance is not stable, in a particular eriod it is stable
or seems very rigid but looking at the long-durée perespective it does up and down. These
cycles in several fiels: trade, production, military, financial are for intace not always
incongruent, we may already face a decline in military power for example but still for
instance top in trade relations. Or like England, while production and trade domianance goes
down, they remain firlmy in place in their financial position for a much longer perido in time.
This means that if we live in a sitution an dlook arround, as english people did in the
19th-20thc “this is not as good as it was before and ofc other countries are picking up but
we are still the top in finance and our indstry still ming profits → where is the problem?“.
Decline can happen in acertain area and not in others.
Political-economic hegemony?: source of the dominance
,Heemony is builded on dominanace in 4 domains, typically the heegenmon is the domiannat
entity in coonsuming (rich part of the world, money to consume creating alarge demanad).
This large demand has 2 benefits:
- the country has a big internal market, can produce for its own market
- if there is high demands the imports in goods increase.
Buying goods from other countries → means that this also determines what is produced in
others parts of the world (in terms of goods but also the guidelines this roducts and goods
have to follow, orgnization of production, standards, specifictions => rule, norm setters).
Typically you are not only leading in consumtipn (1), and that is ofetern the effect of t¡being
domaiante in production and export (2); ususally a hegemonic pwer bulds on a partivular
elading sector which generate s alot of profiat an dyou export abriad and influence what
other people buy.
The finance element: Usually there is a lso a dominance in investment (3) bc money clusters
or accumulates in the core bc they have the leading sector, higher profit margins and they
can choose to invest it. And then there is the leemnt of money an finanace (4): relates to
having a currency in which everything is trade, if you are an heegemon it is ur currency in
which the majority of the world trade is registered in → advantage an dpower position.
=> Main idea: the long term interests of the hegemon coincides with the way the
international economic system is structured. The structure of the international economic
system supports the hegemon. However it is not fully static, it is not always the same and we
will not always live in the current system indefinitely -”End of History idea”-.
British hegemony: instructive example
• First-mover advantage during industrialization (recap last week): financing, capital,
difference between inventions/innovations they were able to turn inventions into innovations,
one triggered another one. They became dominant in industrialization.
=> Result: dominance in all three domains (trade, finance, production)
• Bc of their dominance in
production and hegemon positon
, London also became a Global/International Financial Centre:
+ Global capital flows through British hands; profits for British banking sector
+ Position of Arbitrage:
- Foreign capital flows into London at low interest rates (because London =
trustworthy). Investments are make trough British banks but low interests but it is fine
for the investor cause the risks are very low.
- London takes that oney and lends out this money to foreign markets at high interest
rates (because others are less trustworthy).
+ Outcome: bc of this position, if all the financial flows go trough London other
countries become dependent on British banking sector adding another layer to this
hegemonic power.
But... the brittons miss out on key innovations: and this position did not last
By the end of the 19th c they miss out on some key innovations, they know about them but
they were not able to turn those inventions into a new leading sector, bad implementation
and the Germans did.
• Economies of scale & Economies of scope: in the UK the industry was mostly family based,
although the scale was bigger but relatively small factories.
• Chemical innovation, electricity, oil, steel 2.0 (hard innovations): much better served by
larger factories and needed more investment, more capital intensive → germans were able
to invest in those new factories and installed new management techniques rising the
productivity. This did not happen in the UK bc:
+ Professionalization management (soft innovations): did not happen in the UK most of
the factory owner were coming from family capital, all in the family, this works but it is
not professional and does not introduce new management techniques.
+ Taylor based division of labor emerges, scientific management: look at a production
process and try scientifically to make it as efficient as possible, rationalisation,
measure, monitor, evaluate… not happen in Britain as well.
+ Cartelization: the dominance of England went together with free trade they believed
that it was very important but in other countries they introduced more hierarchy and
coordination of production among firms in the same industry to keep supply and
demand balanced. Avoid down swings and up swings → keep it stable, prices,
production, and develop the market. Germany was very good at this, pilar of its
economic development and US too.
=> Beginning of the end of British hegemony.
Schwartz points out that they did not see it coming bc many of the companies (company
level) where still making big profits, a bit down but nothing alarming and thought that the
economy was still growing. Not a sense of urgency in the fact that the tables and the sides of
the game were turning, was difficult to see ahead.
• Dialectics of lead
• Law of the handicap of a head start (coined by Jan Romein, 1937)
• ‘Wet van de remmende voorsprong’
The end of british hegemony (and globalization 1.0):
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