Second wave of globalization

After the World War II (WWII), protectionist tendencies of the past thirty years had been
partly eliminated by the attempts of two powers, namely Britain and the United States. The
intention was to reform the world order. The scope  for change involved not only
international trade, but also the financial system  and the growth of national economies.
Global reconstruction was concentrated on the formation of international (multinational or
supranational) institutions to organize financial relations, developmental issues and
international trade. One of the resulting institutions of the so called “Bretton Woods
Conference” (1944) held in Bretton Woods (New Hampshire) was the International
Monetary Fund (IMF) which was supposed to provide an orderly framework for monetary
relations. Another one was the International Bank for Reconstruction and Development
(IBRD, later the World Bank, WB) that was formed in order to mobilize available
resources for reconstruction and development. 

In the international trade side, the Economic and Social Council of the United Nations
(formed in 1945) was the responsible body of multilateral trade negotiations. However, the
Council adopted a resolution that envisaged the formation of International Trade
Organization (ITO) (Matsushita, Schoenbaum & Mavroidis, 2003, p.1). The following
negotiations on this formation were held in New York (1947), in Geneva (1947) and in
Havana (1948). With the Geneva meetings, it was decided to prepare a multilateral treaty
that aimed to clarify the codes of international trade. As a result, the General Agreement on
Tariffs and Trade (GATT) that aimed to direct the orderly conduct of trade and to promote
trade liberalization had been completed by the end of 1947. However, for the formation of
the ITO, the planned program did not work well. Even though being the ideological
founder of the new order, the United States whose decision was vital for this formation did   31
not approve the legislation that would enable the establishment of ITO1
. Hence, the ITO
was dead before its birth. However, international trade should not be left alone; as a result,
the establishment of ITO had been substituted by “a Protocol of Provisional Application to
apply the GATT provisionally on and after January 1, 1948” (ibid., p.2).

The seeds of the second wave of globalization came  into existence through these
international institutions. At first sight, one big difference between the first and second
waves of globalization can be noticed. It is the existence of international organizations.
The role of these institutions is to arrange, when it is necessary, the smooth working of the
international system on their subject area. Additionally, the role of hegemonic power        
–namely, the United States, at this time– and the other leading countries should also be
clear in this new system. Hence, while the first era of globalization was obviously
characterized by the imperialist ideology of the leading powers, the second era can also be
said to be characterized by hegemonic powers, but in this case in a disguised form, i.e. via
Bretton Woods Institutions and the GATT system2
. 

Taking into account the ratio of world trade to world output leads the conclusion that
although there has been a general trend toward freer trade after WWII, trade as a share of
world output does not seem to have improved to its  1913 level until the mid 1970s
(Krugman et al., 1995, p.330).  Albeit it is not easy to compare two periods due to the
different time related characteristic features of the history and present, when it is looked at
the statistical figures, the following comparison can be noted about the two (O’Rourke &
Williamson, 2002a, p.422):

The growth of world trade was pretty much the same  in the nineteenth and
twentieth centuries, roughly 3.7 or 3.8 per cent per annum. This is a surprising fact,
given that world GDP growth doubled from 1.5 to 3 percent per annum between
1820 1913 and 1913 1992. Since the growth of world trade was almost identical in
the two centuries, it follows that trade shares rose much faster in the nineteenth
                                                
1
 In fact, with the success of the Republicans in the 1948 election, President Truman did not send the
legislation for the ITO to the Congress (Matsushita et al., 2003, p.2). 
2
 During the first decade after the WWII, the US was the unique hegemonic power.   32
century than in the twentieth century. So far, it looks as though the nineteenth
century is the canonical globalization epoch par excellence. 

In the second wave of globalization, declining political barriers to trade and fast income
growth –especially in the late twentieth century– have also been seen as a link between
distant markets. Moreover, there are several new features of the modern trade relative to
the past experience such as the rise of intra trade (trade in similar industries),   splitting
production process into different geographic areas  and the emergence of countries that
have high ratios of trade to GDP (like Singapore and Hong Kong). While in the first wave,
trade was mainly based on the comparative advantage (countries traded what they could
not produce themselves), in the second wave, with declined transportation costs, trade in
similar goods or intermediary products has become significant and resulted in increased
bilateral trade ties between countries that have similar endowments. Expansion of trade in
services, developments in the commercial law, increased acquaintance with doing business
abroad have further contributed to the growth of world trade (Krugman et al., 1995, p.332). 

In addition to these, although they do not represent complete diversion from the elements
of the first wave of globalization, there are some significant factors that contributed to the
integration pace of the second wave (SavaL, 2004, p.31 35). First of all, the adoption of
floating exchange rate system instead of fixed exchange rate system has changed the
working of underlying principles in international economics. Secondly, “import
substitution” strategy in which states apply domestic protection on vulnerable sectors has
been substituted with the “export promotion” strategy that emphasized the place of
openness and trade for economic development. Thirdly, advances in information
technology have resulted in increase in the speed of capital mobility. Technological
innovations, trade and capital account liberalizations are the integral parts in both waves of
globalization. While in the first wave technological developments depicted themselves in
railroads, steamships, and the advances in communication, developments in the airfreight
and advances in the information technology that skyrocketed via computers, mobile
phones, and internet have been the primary technological advancements of the second
wave. The technological and organizational innovations in the production system, i.e.
changing the pattern of production from “fordism” to “post fordism”, have also   33
significantly facilitated international integration. Moreover, while there had been both
trade and capital liberalization mainly as an end result of colonialism in the first wave, in
the second wave, related liberalizations are either employed unilaterally, or enforced by the
international institutions. 

Beside gradual decreases in the level of trade restrictions through the successive “rounds”
of the GATT and advances in production systems, afterwar period has also witnessed rapid
increase in the number of countries. While in 1920, there were 69 countries in the world,
the number increased to 89 in 1950 and 192 in 1995 (Alesina et al., 2000, p.1292). Now,
there are approximately 200 countries in the world1
.  But this rise in the number of
countries does not represent the increased participation to the global management of
international trade, finance or politics.  It cannot be said that it is the game of equals.
Throughout the world, ‘triadization’ that emphasizes the dominance of Japan and the
newly industrialized states in the South and South East of Asia, Western Europe and North
America on the process of technological, economic and socio cultural integration is
another fact of the second wave of globalization (Adriana, 2008, p.315).