One of the things that fascinates me about globalization is the parallels between its current manifestation and the first wave of globalization in the late 19th and early 20th centuries. Both were driven by financial liberalization and information revolutions, resulting in dramatic increases in global trade and capital flows. Last Thursday's Wall Street Journal (subscription required) cites a recent lecture by Niall Ferguson, historian and bestselling author, spelling out this comparison in great detail. The article leaves open the same question I've been asking for six or seven years: what could cause the direction of today's globalization to reverse, as it did at the onset of World War I?
One similarity between Globalization I (1880-1914) and Globalization II that has only been true recently is rising commodity prices, including energy. Free and expanding global trade in energy has not only been a key feature of the last thirty years, but is the foundation upon which the energy security of this country rests. This mechanism becomes more critical with each passing year, as the gap between our energy demand and our indigenous supply expands. But as long as the market remains tight and prices continue rising, the temptations to circumvent it will grow.
While some continue to look for signs of the type of "Guns of August" event that halted Globalization I in its tracks, the real vulnerability could be less drastic than war. For a while, the anti-Globalization movement looked like a candidate, though it seems to have peaked a couple of years ago. A response to rapid climate change could have the same effect, depending on how it played out. Or it could come from a competing approach to trade.
The recent tussle over Unocal illustrates two competing visions of world trade, and despite the pro-free-trade rhetoric from CNOOC and the seemingly-protectionist backlash in the US, we shouldn't mistake the difference between a system solidly based on private ownership of the oil and gas companies that invest in the production of global energy resources and sell into the free market, and a system of state-controlled enterprises managing resources earmarked for a state-subsidized internal market. If the next era of the energy industry turns out to be a race between these two systems, the risks for the entire globalization system will increase.
Those of us who've grown up during this sustained period of accelerating global trade and prosperity probably find it hard to imagine that this might not continue unabated. Yet I'm sure that someone living in 1910 would have felt a similar confidence, only to be proved disastrously wrong within a few years. Ironically, recent arrivals to prosperity, including China itself, stand to lose much more than the rich, developed countries if globalization goes into retreat.