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The various countries of the world are interconnected through trade and through exchange of thoughts and cultures. The interconnectedness has increased dramatically in recent times but the world was also interconnected even during the days of Indus Valley Civilisation.

Silk Route

The trade route which linked China to the western world and to other countries is called Silk Route. There were many Silk Routes. The Silk Routes existed before the Christian Era, and persisted till the fifteenth century.Chinese potteries travelled from China to other countries through the Silk Route. Similarly, gold and silver travelled from Europe to Asia through this route.Religions; like Christianity, Islam and Buddhism travelled to different parts of the world through the Silk Route.

 

Food Travels:

Noodles travelled from China to different parts of the world. The sevian; which are used in India are localized form of noodle. Similarly, spaghetti of Italy is the European version of noodles.Many common food of today; like potato, chillies, tomato, maize, soya, groundnut and sweet potatoes were introduced in Europe after Christopher Columbus accidentally discovered the American continents.Potato brought dramatic changes for the life of people of Europe. Because of introduction of potato, the people in Europe could eat better and could live longer. The peasants of Ireland became so dependent on potato that when disease destroyed the potato crop in the mid-1840s, hundreds of thousands died due to starvation. This famine is known as Irish Famine.

Conquest, Disease and Trade

The European sailors discovered the sea route to Asia and Americas in the sixteenth century. The discovery of new sea route not only helped in expanding the trade but also in European conquest over other parts of the world.America had vast reserves of minerals and there was abundant crop in this continent. The food and minerals from America transformed the lives of people in other parts of the world. By the mid-sixteenth century, the Portuguese and Spanish colonization of America began in a decisive way. But the conquest could not be facilitated because of arms and ammunition but because of a disease. Europeans had been exposed to small pox and hence they had developed immunity against this disease. But the Americans had been isolated from the world and they had no immunity against small pox. When the Europeans reached there, they carried the germs of small pox alongwith them. The disease wiped off the whole communities in certain parts of America. And thus, the Europeans could easily get control of the Americas. Till the nineteenth century, Europe was suffering from many problems; like poverty, diseases and religious conflicts. Many religious dissenters fled to America for the fear of prosecution. Those people utilised the opportunities in America and could dramatTill the eighteenth century, India and China were the richest countries of the world. But from the fifteenth century onwards, China began to restrict overseas contacts and went into isolation. Because of China’s reduced role and America’s rising importance; the centre of the world trade shifted to Europe.

The Nineteenth Century (1815 – 1914)

The world had changed dramatically during the nineteenth century. There were changes in social, political, economic and technological factors in much complex way during this period. The changes altered the external relations beyond recognition.

Economists identify three types of flows within international economic exchanges. These are as follows:

Flow of trade

Flow of labor

Flow of capital

A World Economy Takes Shape

Changing pattern of food production and consumption in Europe: Traditionally, countries liked to be self sufficient in food. But self sufficiency in food meant a low quality of life for the people of Britain. There was immense growth of population of Britain during eighteenth century. Due to this, the demand for food had increased exponentially. Under pressure from the landed groups, the government restricted the imports of corn. This further aggravated the food prices in Britain. The industrialists and urban dwellers forced the government to abolish the Corn Laws.

Effects of abolition of Corn Laws:

Abolition of Corn Laws meant that food could be imported at much cheaper rate than at what it could be produced in Britain. British farm produce was unable to compete with cheaper imports. Vast areas of land were left uncultivated and a large number of people became unemployed. People migrated to cities; in large numbers; in search of work. Many people also migrated overseas. Many people also migrated overseas. Falling food prices resulted in increased demand for food in Britain. Moreover, industrialization also helped in increasing the income of the people. This necessitated more import of food items into Britain. To fulfill the demand, large tracts of land were cleared in Eastern Europe, America, Russia and Australia. The foodgrains also needed to be supplied to the ports. For this, railway lines were to be laid so that the agricultural hubs could be connected to the ports. Moreover, new habitations also had to come up in agricultural hubs. For all these activities, capital flowed from financial centres; such as London; to these places. There was shortage of labour in Americas and Australia. The demand for workforce resulted in large scale migration of people to these places. Nearly 50 million people migrated from Europe to America and Australia during the nineteenth century. All over the world, about 150 million people migrated to different placeBy 1890s, a global agricultural economy had taken shape. This was accompanied by complex changes in labour movement, capital flow and technological changes.

 

Role of Technology

Technology definitely played an important role in globalizing the world economy during this period. Some of the major technological innovations were the railways, steamship and telegraph. Railways helped in connecting the hinterland to the ports. Steamships helped in transporting goods in bulk across the Atlantic. Telegraph helped in speeding up the communication and thus facilitated better economic transaction.

Trade in Meat: Trade in meat shows a very good example of benefit of technology on the life of common people. Till 1870s, live animals were shipped from America to Europe. Shipping live animals had its own problems. They took more space and many animals either died or became sick during the transit. Due to this, meat remained a luxury item for most of the Europeans. ury item for most of the Europeans.

Arrival of refrigeration technology changed the picture. Now, animals could be slaughtered in America and processed meat could be shipped to Europe. This helped in better utilization of space in the ships. This also helped in better availability of meat for the Europeans and thus prices fell. Now, even the common people could afford to eat meat on a regular basis.

Better availability of food promoted social peace within the countries. People of Britain were now more receptive to imperial ambitions of the country.

Late Nineteenth Century and Colonialism

While the expansion of trade improved the quality of life of many Europeans; it had negative implications for people of the colonized countries. When you will carefully observe the modern map of Africa, it would appear that most of the boundaries are straight lines. It appears as if someone had deliberately made those straight lines. In 1885, the big European powers met in Berlin and demarcated the African continent for respective powers. That is how boundaries of most of the African countries appear as straight lines.

 

Rinderpest or Cattle Plague

Rinderpest is a disease which affects cattle. The example of rinderpest in Africa shows that even a cattle disease can widely alter the power equations in a geographical area. Africa was the land of vast resources of land and minerals. Europeans had come to Africa to make fortune out of mining and plantations. But they faced a huge scarcity of labour. There was another problem and that was that the local people were not willing to work in spite of being offered wages. In fact, Africa was a sparsely populated continent and people’s needs could be easily met with the available resources. There simply was no need to work for wages.

The Europeans applied various ways to force the people to work. Some of them are as follows:

Heavy taxes were imposed which could only be paid by working on plantations and in mines.

Inheritance laws were changed and only one member of the family was allowed to inherit land. This forced others into the labour market.

Mineworkers were confined to the campus and were not allowed to move freely.

Arrival of Rinderpest: Rinderpest arrived in Africa in the late 1880s. It came with the horses which were imported from British Asia. Those horses came as reinforcements for Italian soldiers who were invading Eritrea in East Africa. Rinderpest spread in the African continent like the forest fire. It reached to western coast of Africa by 1892 and within five years after that, it reached to southernmost tip of the continent. Rinderpest wiped off 90% of the cattle population of Africa during this period. Loss of cattle meant loss of livelihood for the Africans. They had no choice but to work as labourers in plantations and mines. Thus, a cattle disease enabled the Europeans to colonise Africa.

Indentured Labour Migration from India

Indentured labour is a bonded labour who is hired on contract for a specific employer for a specific period of time. Many poor Indians from modern day Bihar, Uttar Pradesh, central India and dry districts of Tamil Nadu became indentured labours. These people were mainly sent to the Caribbean Islands, Mauritius and Fiji. Many of them were also sent to Ceylon and Malaya. In India, many indentured labours went to work in tea plantations of Assam. The agents often gave false promises and the workers were not even told about the place they were heading for. The condition in the alien land was quite horrible for the workers. They did not have any legal rights and had to work under tortuous conditions. From the 1900s, the Indian nationalists began to oppose the system of indentured labour. The practice was finally abolished in 1921.

Indian Entrepreneurs Abroad

Shikaripuri shroffs and Nattukottai Chettiars were among the groups of bankers and traders from India. They financed export agriculture in Southern and Central Asia. They had their own sophisticated system of money transfer to different parts of the world and even in India. Indian traders and moneylenders also ventured into Africa alongwith the European colonizers. The Hyderabadi Sindhi traders ventured even beyond European colonies. By 1860s, they established flourishing emporia at busy ports around the world.

Indian Trade, Colonialism and the Global System

Historically, fine cotton from India was exported to Europe. After industrialization, the local manufacturers forced the British government to impose a ban on Indian imports. This resulted in British manufactured cotton textiles flooding the Indian market. The share of cotton textiles in Indian export was 30% in 1800. It declined to 15% by 1815 and to 3% by 1870s. But from 1812 to 1871, the export of raw cotton increased from 5% to 35%. During this period, Indigo emerged as a major export item from India. Opium was the largest exported item from India and it was mainly exported to China.

Although export of raw materials and food grains from India to Britain grew manifold but import of finished goods from Britain also increased. This resulted in a situation in which Britain was having the trade surplus. In other words, the Balance of Payment was in Britain’s favour. Income from the Indian market was utilised by Britain to serve its other colonies and also to pay ‘home charges’ for its officials who were posted in India. The home charges also included payment of India’s external debt and pension for retired British officials in India.

The Inter-war Economy

The First World War wreaked large scale havoc around the world in many senses. About 9 million people died and 20 million people were injured in the wake of the war. Most of the people who were killed or maimed were people from working age. This resulted in a significant reduction in the number of able-bodied workforce in Europe. Due to fewer earning members in the families, the household incomes drastically reduced in Europe. Most of the men were forced to engage in war and thus women had to replace them in factory jobs. Women were now working in those jobs which were earlier considered as male bastions. The war also led to snapping of ties between some major economic powers of the world. Britain had to borrow from the US to finance the war. The war transformed the US from an international debtor to an international creditor. Now, US and its citizens owned more overseas assets than foreign governments or citizens owned in the US.

Post-war Recovery

While Britain was preoccupied with war, industries developed in India and Japan. After the war, Britain found it difficult to regain its earlier dominant position in India. Similarly, it was unable to compete with Japan at the international level. At the end of the war, Britain was under huge debts from the US. During the war, there was increased demand for goods which resulted in economic boom in Britain. After the war ended, the demand drastically fell to come in tune with the peace-time economy. About 20% of the British workers lost their job after the war. Before the war, Eastern Europe was a major supplier of wheat. But during the war, Canada, America and Australia emerged as the leading suppliers of wheat because Eastern Europe was involved in war. Once the war was over, the Eastern Europe resumed the supply of wheat. This resulted in a glut of wheat in the market and prices fell. This created havoc in the rural economy.

 

Rise of Mass Production and Consumption

The US economy was quick to recover from the aftershocks of the war. During the 1920s, the unique feature of the US economy was mass production. Henry Ford, the founder of the Ford Motors was the pioneer of mass production in factories. Mass production helped in increasing productivity and reducing prices. Workers began to earn better in the US and hence had better disposable income. This created huge demand for various products. The car production rose from 2 million in 1919 to 5 million 1929 in the US. Similarly, the production of white goods; like refrigerators, washing machines, radio, gramophone, etc. increased manifold in the US. There was a housing boom as well in the US market. The demand could be further maintained because of the beginning of the hire purchase culture. All of this made for a prosperous US economy. In 1923, US resumed exporting capital to the rest of the world and emerged as the largest overseas lender. This also helped in European recovery and boosted the world trade for the next six years.

 

The Great Depression

Agricultural Overproduction: Agricultural overproduction was a major problem during the 1920s. More supply of farm produce resulted in lower price. Farmers tried to compensate by producing even more. This created a glut of farm produce in the market; leading to further fall in prices. Farm produce rotted because of lack of buyers.

Withdrawal of US Loans: Many European countries heavily depended on US loans. But the US lender panicked at the first sign of trouble. In the first half of 1928, the US loan amounted to $ 1 billion. But within a year, it was just a quarter billion dollar. Withdrawal of US loan affected many countries in various ways.

This led to the collapse of many banks and currencies in Europe. The British Pound Sterling also crashed during this period. The Agricultural market slumped in Latin America. The US tried to protect its economy by doubling its import duties. It also had deleterious effect on the world economy. The US was most severely affected by depression. Prices were falling and economy was in bad shape. The US banks slashed domestic lending and called back loans. Household incomes fell in many people were not in a position to repay the loan which they had taken to buy homes and white goods. Unemployment level increased and banks were unable to collect loans. Thousands of banks in the US went bankrupt. By 1933, over 4000 banks had closed. Between 1929 and 1932, about 110,000 companies collapsed in the US. In most of the economies, a modest recovery began by 1935.

 

India and the Great Depression

The Depression affected the Indian economy as well. Between 1928 and 1934, the imports and exports of India became nearly half. During this period, the wheat prices in India fell by 50%. In spite of falling prices of farm produce, the government continued to demand the same revenue from the farmers. Thus, farmers were the worst sufferers in this situation. Many farmers were forced to utilize their savings, sell their lands and jewelry. Thus, India became a net exporter of precious metal during this period. The depression proved less grim for the urban dwellers in India. With falling prices, many urban landowners and salaried people found the life much easier. Under pressure from the nationalist leaders, the industrial protection grew which led to more investment in the industries.

The Post-war Settlements

The Second World War was different than earlier wars. There were more civilian casualties in this war and many important cities were devastated beyond recognition.The recovery after the Second World War was influenced by two important factors:

 

The emergence of the US as the dominant economic, political and military power in the west.

Transformation of the Soviet Union from an agrarian economy into a world power.

The world leaders met and discussed to work for post war recovery. They focused on two main objectives; which can be summarized as follows:

Preservation of economic stability and full employment in the industrial world.

Controlling the influence of the outer world on flow of capital, goods and labour.

 

Bretton Woods Institutions

United Nations Monetary and Financial Conference was held in July 1944 at Bretton Woods in New Hampshire, USA. The Bretton Woods Conference established the International Monetary Fund. This organization was established to deal with external surpluses and deficits of its members. The International Bank for Reconstruction and Development was set up to finance post-war reconstruction. This is popularly known as the World Bank. The IMF and World Bank are often referred to as Bretton Woods Institutions. The post-war economic system is also referred to as the Bretton Woods System. The IMF and World Bank began their operations in 1947. Western industrial powers controlled the decision-making in these institutions. The US had an effective veto right over key decisions made by these institutions. The Bretton Woods System was based on fixed exchange rate for currencies. The dollar was anchored to gold at a fixed price of $35 per ounce of gold. Other currencies were linked to dollar at fixed rates.

The Early Post-war Years

The Bretton Woods System started an era of unprecedented economic growth in the Western industrial nations and in Japan. Between 1950 and 1970, the world trade grew annually at 8% and incomes grew at nearly 5%. The unemployment rate averaged less than 5% in most of the industrialized countries during this period; which speaks about the stable nature of economic growth during this period.

Decolonization and Independence

Within the two decades after the Second World War, many colonies became independent and emerged as new nations. These countries were in deep economic trouble because of their long history of exploitation. During the initial phase, the Bretton Woods Institutions were not in a position to cope with the demands of these new nations. Meanwhile, Europe and Japan quickly rebuilt their economies and thus grew independent from the IMF and World Bank. From the late 1950s, the Bretton Woods Institutions began to shift their focus on developing economies of the world. These institutions were under the control of former colonial powers. Hence, most of the developed countries still ran the risk of being exploited by the former colonial powers; in the name of development. These countries organized themselves into G-77 (Group of 77) to demand new international economic order. They wanted real control over their natural resources, fairer price for raw materials and better access to the markets in the developed world.

End of Bretton Woods and Beginning of Globalisation

From the 1960s onwards, US finances and competitive strength was weakening because of its rising cost of overseas involvement. The dollar could not maintain its value in relation to gold. Thus the system of fixed exchange rate collapsed and the new system of floating exchange rate began. From the mid 1970s, the international financial system changed in many ways. Earlier, developing countries could turn to international institutions for financial assistance. Now they were forced to borrow from Western commercial banks and private lending institutions. This led to periodic debt crises, lower incomes and unemployment in the developing world. Many African and Latin American countries suffered from such crises. China had been cut off from the world economy since its revolution in 1949. China began to follow new economic policies and came back into the fold of world economy. Collapse of the Soviet Union and that of Soviet style communism in many Eastern European countries brought many countries into the fold of world economy. Wages were quite low in countries; like China, India, Brazil, Philippines, Malaysia, etc. These countries became preferred sourcing destinations for many MNCs. India has also emerged as the most preferred hub for Business Process Outsourcing. In the last two decades, many third world countries have grown at a rapid pace and India, China and Brazil are their leading examples.