Globalization Survived Populism Once Before—and It Can Again
January 30, 2018
Jan 30, 2018
21 Min read time
Forget retraining and compensation programs. History offers a better way forward.
From New Hampshire’s icy mountains,
From Florida’s coral strand,
To where the Rocky ranges
Roll down their golden sand,
Protection! oh, Protection!
The joyful sound proclaim,
Till each remotest section
Has learned the tariff’s name.
—Hymn sung at the 1881 National Tariff Convention in Philadelphia
Globalization is in deep trouble. In the United States, the election of Donald Trump and the wave of proposals to renounce old trade agreements, refuse new ones, and close borders to immigrants all suggest that populist and anti-globalization forces are succeeding. Elsewhere around the world, hostility to globalization can be seen in the Brexit vote in Britain, the Five Star Movement in Italy, the near-misses of far-right candidates in Austria and Netherlands, and the electoral tallies of left and right anti-globalization candidates in France.
The anti-globalization movement used to involve marginal groups—remember the “turtle defenders and Teamsters” during the Seattle World Trade Organization protests, eighteen years ago. But today, it mobilizes core groups in the population. In mainstream parties, protectionism and border level barriers to immigration are becoming ever more respectable while support for new international agreements on trade and investment has all but disappeared. Cross-border capital flows are in decline. In 2016, for instance, for the first time in a period of economic growth, the volume of U.S. trade declined.
Globalization can no longer afford to go it alone.
There are many valid critiques of globalization and of how it has been implemented. But now that we have had one year of anti-globalization policies with Trump, we can see that the arguments for blocking the borders to immigrants of one or another race or religion, for unilaterally shredding trade agreements with Mexico and Canada, or for scrapping our commitments to global accords on climate are all arguments that cut against our own deepest national traditions. They also defy the lessons we have learned about growth and prosperity.
If you accept, as I do, that globalization should be reformed but saved, it is time to identify good models for doing so. Most proposals today center around the provision of individual compensation and retraining to those who have lost their livelihoods because of imports and offshoring. Fairness and solidarity may justify such initiatives, but there is no good evidence to back up the claims that such policies would assuage the deep anxieties of the electorate about the impact of leaving the borders open to more or less unrestricted flows of people, money, and goods and services.
In Nordic social democratic countries, for example, strategies such as compensating and retraining unemployed workers or providing good vocational education and advanced skills to youth have been reasonably well implemented, and yet they have not stopped the rise of populism. Norway, Denmark, and Sweden have done all government can do to compensate and retrain the “losers of globalization.” But in Norway, the populist party is part of the government coalition; in Denmark, they are the second largest party and close to entering government; and in Sweden, the populists have the third-highest number of members of parliament. Anti-immigrant sentiment has a large part in feeding these populist movements in Nordic countries as in the rest of Europe.
We have been here before. While the word “globalization” did not come into use until the mid-twentieth century, the facts and pressures of global market integration were omnipresent in the last quarter of the nineteenth century. Flows of capital, people, and trade across the borders of major industrial countries in the last quarter of the nineteenth century were as great or greater than they are today. The first globalization, as it is now known, began in 1870 and lasted until war broke out in 1914. Historians and economists who have compared globalization today with that of the forty years before World War I invariably point out big differences between the global economy then and now. But that period also aroused major political threats from groups demanding protection, and important points stand out from that earlier period about the politics of defending open borders.
If you accept that globalization should be saved, it is time to identify good models for doing so.
Among the lessons we might take from the first globalization are approaches to preserving international openness that are quite different from those most often debated today. The approaches to saving globalization that worked well in the past were ones focused on building political coalitions that offered protectionist concessions as well as broad fiscal and social reforms, rather than individually-targeted solutions. Such programs are ones we ought to consider today.
• • •
The threats to the first globalization were severe. As in our own times, the challenges clustered around trade, immigration, and the movement of capital across borders. The arcane complexities of monetary standards—specifically, the bimetallic versus gold standard—and their impact on the economy had become the object of intense public interest and controversy. In the United States, mobilization against the gold standard was the response to global capitalism that captured the broadest and most intense popular attention. In 1894, for instance, William Hope Harvey’s Coin’s Financial School was a bestseller. The fictional work centered around a brilliant young lecturer who defied so-called financial experts and unmasked the interests underlying support for the gold standard. It sold around a million copies.
The big waves of immigration into the United States in the last quarter of the nineteenth century also gave rise to another powerful surge of anti-globalization politics. Hostility to differences of race and religion and the politics that are built on those cleavages are as old as the republic itself, but mobilizing nativist resentment of European immigrants developed only from the 1880s. The manifestations ranged from lynchings in the workplace, to union demands for restricting immigration, to public hysteria about foreign anarchists and terrorists that peaked around the Haymarket Affair (May 4, 1886). In Strangers in the Land: Patterns of American Nativism, 1860–1925 (1955), historian John Higham documented some of the reactions from mainstream publications: “The enemy forces are not American [but] rag-tag and bob-tail cutthroats of Beelzebub from the Rhine, the Danube, the Vistula, and the Elbe. These people are not Americans, but the very scum and offal of Europe. . . . Our National existence, and, as well, our National and social institutions are at stake.”
The approaches to preserving international openness during the first period of globalization are quite different from those most often debated today.
In Europe, too, the impact of global markets provoked deeply hostile political reactions and demands for closing the borders to immigrants, to trade, and to capital flows. Particularly in times of economic stress, such as the great depression of the 1870s or in the wake of the 1907 banking crisis, globalization’s enemies threatened to close borders. The fall in agricultural prices with the arrival of wheat from the United States and Russia led to a wave of demands for tariff protection culminating in the “Iron-Rye” tariffs in Germany in 1879 and in the Méline tariff in France in 1892. In Britain at the turn of the century, Joseph Chamberlain forced a major split in the Liberal Party over free trade and campaigned for tariffs in the hotly fought election of 1906. And the immigration of workers from southern and eastern Europe into the fields and mines of Germany and France met resistance that was often violent.
In the United States, William Jennings Bryan’s campaign for the presidency in 1896 against William McKinley was the high-water mark of populist mobilization. The main plank of Bryan’s program was putting the United States on a bimetallic or silver monetary standard—to save mankind from death on a “cross of gold” as Bryan shouted to thunderous applause in his July 9, 1896, speech at the Democratic National Convention. But what has been largely overlooked in analyzing the tremendous political passions stirred up by the gold standard and Bryan’s campaign is that the two candidates had fundamentally different views not just about silver and gold, but about how open or closed the U.S. economy ought to be to the international economy. As Bryan put it in his attack on McKinley at the convention: “[N]o personal popularity, however great, can protect from the avenging wrath of an indignant people the man who will either declare that he is in favor of fastening the gold standard upon the people, or who is willing to surrender the right of self-government and place legislative power in the hands of foreign potentates and powers.”
Trade protectionism, too, had considerable popular support, and Republicans such as Secretary of State James Blaine saw it as a promising issue to replace “the bloody shirt” on the Republican Party’s platform as that symbol of Civil War sacrifice and victory wore thin. At the start of the 1896 campaign, McKinley, too, thought “talk tariff, think tariff, dream tariff” was the right strategy. He quickly came to see that the monetary standard was what voters zeroed in on first, though he maintained tariffs as a major part of the program, particularly when addressing industrial audiences.
Bryan came close to winning. Whatever the political elites and the interest groups directly affected by the monetary standard thought about the question, the fact was that millions of Americans with only distant personal stakes in the issue rallied to Bryan because they had come to believe that their family’s future and the country’s fate depended on national control, silver, and closing the borders.
If Bryan had won, the country’s openness to the international economy would have been sharply reduced. By the end of the nineteenth century, all other major industrial countries were on a gold standard. In order to implement a silver or bimetallic standard, as Bryan wanted, the United States would have had to virtually wall off its economy from international monetary flows. Some kind of capital controls would have been essential. Otherwise the abundant stocks of silver in the world from countries that had already moved to a gold-based currency would have flooded into the United States, a point even pro-silverites recognized. Testifying before the United States congressional commission of 1876 that was investigating the impact of different monetary standards, witnesses favorable to silver acknowledged that unless Britain and Germany joined in, the United States could not adopt a bimetallic or silver standard and still remain open to the global economy. As one speaker put the point in a rhetorical question: “Shall our country make itself a sort of financial cess-pool for draining away the silver refuse of Europe, so long of highest use and beneficence, now made an unwholesome rejection of the bodies-politic?”
• • •
To beat back threats to an open economy, supporters of globalization—parties, interest groups, governments—groped their way toward two different strategies: first, concessions such as tariffs that slowed the rate of change without diverting its course; and second, coalition-building on reform programs that brought together strong supporters of globalization with groups that had more mixed or conflicted interests in open borders. Across a great diversity of national cases from 1870 to 1914, it is possible to identify these two general approaches at work.
Nowhere did globalization advance alone on its economic merits, but always as part of larger visions in which a nation’s domestic order was moving toward greater social justice.
Tariffs and quotas, which largely served to counterbalance declining transportation costs, multiplied rapidly in the last quarter of the nineteenth century. By and large, free-trade supporters accepted such concessions to protectionism as the necessary price to pay for leaving the borders mostly open to exchange. Importantly, while such efforts slowed the move to global market integration, they did not stop it.
This was a radically different outcome from the situation brought about by the tariffs and quotas adopted in the 1920s and ’30s. Over the period of the first globalization, despite protectionist legislation in most industrial countries except Britain, there was major commodity price convergence. As scholars have documented, relative commodity prices in key markets narrowed. Liverpool wheat prices were 57.6 percent higher than Chicago’s in 1870, down to 17.8 percent higher in 1895, and only 15.6 percent higher in 1913. In the case of France, for example, despite new tariffs on grain and on some manufactured goods, volumes of trade still increased and imports rose from 18.2 percent of GDP in 1887–96 to 20.3 percent in 1907–13. About a quarter of the shift can be attributed to liberalizing policies while the rest resulted from lower costs of transportation.
While the spread of protective tariffs from the 1870s onward initially slowed the rate of trade growth, in the two decades before the war the rate of growth in exports of even most of the protectionist countries was higher than it had been in the ten years before the passage of the tariffs. The bottom line was significant advance toward global market integration with rising proportions of national economies involved in trade.
Some of the politically most sensitive concessions involved immigration. Until the last quarter of the nineteenth century, the United States had had a virtually open borders policy with little federal involvement. (The 1882 Chinese Exclusion Act was a flagrant exception.) The massive entry of southern and eastern Europeans at the turn of the century put the wages of unskilled and low-skilled U.S. workers under pressure. Unions were divided in their reaction. Unions with large numbers of members who themselves had emigrated from those parts of the world were reluctant to block the flows, while other unions wanted controls. The compromise was a law in 1885 that blocked contract labor—workers who were recruited abroad by companies who then paid their passage and employed them on arrival. These immigrants were especially resented because they were paid less than going wages and often used as strike breakers. When English gardeners, for instance, were found on the Rhinebeck estate of the Republican vice presidential candidate Levi Morton in 1888, a scandalized New York Times article asked, “Mr. Morton’s Gardeners. Were They Brought Here under Contract?” Concerns about terrorists among immigrants also surfaced. At a congressional hearing on contract labor, a witness from a mainly Jewish union was questioned about how many of the “Russian Hebrews” entering the country were anarchists. (Response: only a handful.)
The 1885 ban on contract labor has strong resonance with today’s opposition to H-1B visas.
The ban on contract labor was implemented with new bureaucracy. Ellis Island was established as the main entry point, and would-be immigrants had to prove their independence with proof that they had paid their own ship passage and had enough money to live for a month. The ban was reinforced in 1897 when President McKinley appointed Terence V. Powderly, a former leader of the militant labor group the Knights of Labor, to head the administration of immigration checks at Ellis Island. The norm of independence from any single employer and resentment of employers who bring in foreign workers to replace native workers at lower wages is one that still has strong resonance today, as opposition to H-1B visas demonstrates. In the end, the contract labor ban had little impact on the total number of unskilled and barely-literate immigrants coming into the country; that number continued to rise sharply toward the end of the century. But it served as an important concession to workers on a sensitive point, and it helped protect a general regime of openness until World War I.
• • •
While concessions on tariffs and immigration were critical, the most important lessons from defending the first globalization involve building political coalitions between “natural” supporters of an open international order and other groups with more mixed and conflicted interests. By and large, bankers were and are obvious defenders of open borders while industrial workers are not. Yet in the major European economies before World War I, workers and unions became key actors in the political coalitions supporting free trade, the gold standard, and open borders for capital mobility. British workers were ardent defenders of free trade, as might be expected because of British industrial predominance in the global economy at the time, but so, too, were French, German, and Belgian trade union and socialist movements. These working-class movements and parties also supported free movement of capital across borders, even though it was obvious that such investment would not create new jobs at home and that goods made abroad might eventually turn up in the domestic market.
In globalization this time around, there have been relatively few concessions to opponents.
The internationalist ideological convictions of nineteenth- and early twentieth-century unions and left-wing parties played an important role in the support for open borders. French socialist leaders could persuasively defend letting French capital be invested in Russia by arguing that Russian workers were brothers who also deserved to have a chance to improve their livelihoods. It is difficult to imagine any U.S. or European trade union leaders making such a case today for the Chinese or Turks or Cambodians. But what remains relevant to our own times is that coalitions in the first globalization that supported free trade, immigration, and cross-border capital flows joined an open borders agenda with programs of political, fiscal, and social reform. Liberal free-traders worked with socialist party leaders to build programs that accommodated and reshaped the interests of both partners in the coalition.
Economic historian Michael Huberman has closely tracked this coalition building in Belgium. There, he documents, “labor had successfully transformed debate on free trade into a project on social policy.” In exchange for support for globalization, unions and parties of the left demanded social reforms. Belgium had been far behind Germany, France, and Britain in instituting welfare policies, but at the turn of the century the Belgian coalition of free-traders and socialists accelerated the passage of laws on old age pensions, accident compensation, and unemployment insurance legislation. The same coalition of free-trade liberals and labor pushed through legislation reducing tariffs and shifting the fiscal base of government revenues to a redistributive income tax.
These coalitions of free-traders and social reformers took very different shapes in different countries. In Britain there was passionate support for free trade across social classes, and this was based not only on working-class interest in cheap food, but on the belief that freedom in trade was an integral part of basic civil rights. Even in Britain, however, free-traders felt the need to buttress support for open borders with advocacy for welfare reforms. The 1906 elections were a landslide for the free trader Liberals who decisively beat back Liberal unionist imperial protectionist challenges. The Liberals then promptly introduced the first elements of a welfare state: old age pensions, free school meals, and a proposal for national insurance. David Lloyd George then fought the 1910 election on fiscal reforms and a “People’s Budget” that linked redistributive taxes to free trade.
In France and Germany, socialists lined up with free-traders because they saw this issue through the lenses of their old struggles with a nationalist or religious reactionary right. What allowed the left to define positions on trade, immigration, and capital flows was that they could identify on the other side a familiar enemy in nationalism. Nowhere did globalization policies advance alone on their own economic merits, but always as linked to larger visions in which internationalism was defended as the outward face of a nation whose domestic order was on the move toward greater well-being and social justice.
It is hard to decide where to draw a line or where to put up a border-level barrier when, in principle, one is committed to a borderless world.
The international economy of open borders thus survived protectionist politics, resentment and hatred of immigrants, and severe financial crises. But it all crashed to a close when war broke out in August 1914. As Hartley Withers, a British financial journalist, described it a year later: “It came upon us like a thunderbolt from a clear sky. At the end of July, 1914, any citizen of London who was asked what a [debt] moratorium meant would probably have answered that there was not such a word. Possibly he might have said that it was a large extinct woolly beast with big tusks. If he was exceptionally well-informed in matters of finance he would have replied that it was some sort of device used in economically backward countries for blurring the distinction between meum and tuum. On the second of August we had a moratorium on bills of exchange. On the sixth of August we had a general moratorium.”
Globalization turned out to be reversible. Stock exchanges around the world closed; borders hardened up. At the end of the war, the new technologies of transportation and communication that had enabled global economic integration were all still operating, but the political coalitions that had built and protected globalization had been destroyed. Not until the early 1980s did levels of cross-border economic flows return to what they had been on the eve of World War I.
• • •
In the first two decades after World War II, policies that freed up trade, reduced capital controls, and lowered barriers to immigrants were once again the product of party coalitions made up of very diverse interests. Advocates, foot-draggers, and opponents of globalization were able to come together on party platforms such as those of the Democratic Party because the platforms included both lowering border-level barriers and a broad social reform agenda. But from the 1980s on, as neoliberal policies triumphed across the board, the reform agenda was hollowed out. The coalitions have fallen apart.
Indeed, the responses of political actors in the first globalization to demands for monetary, trade, and immigration controls stand in sharp contrast to policies that have prevailed in Western countries over the past three decades. In globalization this time around, there have been relatively few concessions to opponents. Advances on the globalization trajectory have been so rapid since 2000 that they have left little time for adjustment. And so globalization has moved ahead alone, shorn of the reform agenda that had previously been its domestic legitimation.
The anger of voters who turned out to elect Trump, the discouragement and depression in rural areas and old manufacturing centers of the country, and the wave of proposals from Washington to renounce old trade agreements, refuse new ones, and close the borders to immigrants all suggest that globalization can no longer afford to go it alone. Indeed, globalization is facing challenges today that are more menacing that any it has had to overcome in recent years.
With no channels for voice, those most fearful of globalization remain isolated, angry, and vulnerable to the siren calls of populist politicians.
Drawing the lessons from the first globalization suggest three general approaches that go beyond compensation to individuals. First, we need to acknowledge that there is a problem of representation and voice. In the first globalization, the parties and unions in the coalitions that advanced both free trade and social and fiscal reforms were organizations close to their base. They played an essential role in transmitting the grievances, demands, and aspirations of working-class and rural populations into public debate and political decision. From the Depression through the 1960s, the Democratic Party and trade unions were such transmission belts in the United States. No longer: unions have shrunk, and today represent less than 7 percent of the workforce in the private sector. As for the Democratic Party, its critics claim with some justification that the party has jettisoned its links to workers for connections to Wall Street, Silicon Valley, and the educated elite.
With no channels for voice, those most fearful of globalization remain isolated, angry, and vulnerable to the siren calls of populist politicians. Voice requires more than simple expression. While anyone can tweet an instantaneous reaction, parties, unions, and social organizations are needed to process the cacophony of individual expressions that might otherwise disappear in the ether. It is not just the volume or tone of demands that shape policy, but how those voices are transformed into useful social information and connected to sites in which policies are being formulated. It is this function of transmission that makes it critical to build organizations that can bring the voices of those most directly affected by globalization into the arenas of policy-making.
Second, just as tariff protection slowed the pace of the first globalization, it may be necessary to slow the pace of integration of local and national markets into global markets. This may be hard to justify for free-trade purists and, in the case of immigrants and refugees, even more difficult to justify morally. It is hard to decide where to draw a line or where to put up a border-level barrier when, in principle, one is committed to a borderless world. H1-B visas, for example, arouse anger because they often bring in workers who will do a job at lower cost than U.S. workers. Indeed, in some cases, the H1-B jobs are already held by U.S. workers who have been required to train their replacements. Many of the jobs might be filled by U.S. workers if only companies were willing to invest more in training. However inconsistent with general principles, the practical consequences of not slowing the pace of border opening may be too dangerous to liberal democracy, as we saw in Germany in response to Angela Merkel’s courageous but optimistic welcome to a surge of immigrants in 2016.
Finally, and most importantly, to rebuild a coalition in support of globalization, support for open borders must once again be linked to a broad program of social and fiscal reforms. There are many obvious candidates: raising minimum wages, consolidating national health insurance, lowering financial barriers to post-secondary education for working- and middle-class children, tax reforms, and tackling the sources of inequality. Constructing such coalitions in a period of slow productivity growth and after years of stagnation of middle-class incomes will be difficult. But all the alternatives look even worse, both for an open economy and for liberal democracies.
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January 30, 2018
21 Min read time