Globalisation is a controversial phenomenon. Not only are its effects debated, but even its definition is murky. The standard (Wikipedia) definition sees it as the international integration of markets and cultures. But measuring globalisation is tricky. When is a market integrated, for example? Is it when goods are traded between Region X and Region Y? What goods? How frequently? And at what price? And this is only trade in goods. What about the movement of people, ideas or the integration of cultures?
Economists have narrowed a definition of economic integration to the notion that prices in an integrated market will move together. Thus, if markets are integrated, an external shock in one market – like a flood destroying wheat crops – will also affect the wheat prices in those markets that usually rely on those farmers’ exported goods. There are, of course, several ways to measure this co-movement, with many technical nuances. It is best to think of economic integration – and, when this happens on an international scale, globalisation – as a reduction in transport costs to a sufficient level that would allow frequent trade in the products people consume most frequently, like wheat.
The next question is obvious: according to this definition, when did globalisation begin? Was it in antiquity, when the Roman Empire spanned several continents? Or when the economies of the East linked with Europe via the Silk Route (made famous by Marco Polo’s thirteenth century travels)? Or in 1492 when Columbus arrived on the Eastern shores of the Americas? Or when Vasco da Gama sailed around the Cape to India in 1498, opening a sea trade route to the East that would sea European powers compete for the regions rich trade resources?
No. Globalisation is a relatively recent phenomenon. While these earlier historical episodes certainly saw the establishment of new links across long distances and borders, little changed for the average global citizen. The effects of wars and famines were mostly restricted to the regions it occurred; in other words, external shocks in some regions had little impact on others. That is, until the nineteenth century when new technologies like steam power and lower trade barriers made the trade of everyday goods – and, in particular, agricultural produce like wheat and other grains – a profitable enterprise. In a series of papers during the early 2000s, Kevin O’Rourke and Jeffrey Williamson use wheat prices to show how prices within Europe and North America began to move together somewhere in the middle of the nineteenth century. Several papers since has confirmed their results, and asked additional questions about its causes.
When did South Africa globalise? I found it surprisingly difficult to find an answer, so Willem Boshoff and I collected wheat prices for South Africa (at the Cape Town and Durban ports) from 1837 to 1910 and compared it to similar prices for England (and other countries). We will present the results on Saturday at the Economic History Association conference in Washington D.C. What is clear from the graph is that the trend of South African wheat prices shows no similarity to those of England before the 1870s and then, remarkably, seems to move closely with wheat prices in London. It is not incidental, we believe, that diamonds were discovered only a few years earlier, which resulted in large inflows of capital and migrants. But – and this we still cannot answer – if integration happened throughout the Western world during this period, what causal role did the discoveries of minerals in the interior of South Africa have?
More importantly, can we really just look at wheat prices, and only at prices at the country’s ports? To check this, with the help of some students (and my brother), we collected monthly wheat prices for several commodities – wheat, potatoes, mealies, cattle, sheep and tobacco – across about 20 South African towns. Using a basket of these goods, we find that prices were much less integrated within South Africa even before the Second South African War. As expected the War didn’t help, and it was only after 1906 that we see prices beginning to exhibit co-movement that is typical of an integrated market. The political unification of 1910 was thus solidified by the economic integration following the War. The opening and expansion of the railway lines, both the trunk and branch lines, would have played an important role.
Ours is an increasingly globalised world, although it certainly is not true that the world is flat. Many African countries remain isolated from the global economy, mostly because of extremely poor infrastructure. The reason that South African incomes are so much higher than that of our African neighbours is at least partly due to our early entry into the global economy. One of the vital lessons of economic history is that, as Gary Fields summarised it, if you’re poor, you cannot get rich by selling to yourself.