Seventeenth century globalisation story time

Gather round children. Do you know where black pepper comes from? Where it used to come from?

Black pepper is native to South East-Asia and Europeans needed it, because without it the rotten food we ate tasted awful. But Europeans produced nothing much that Asians wanted other than silver and gold, and we didn’t produce much of that. So do you know how we bought pepper?

We sent guns to Africa to buy slaves. We sent slaves to Latin America to dig up shiny metals. We sent the shiny metals via Europe to South East-Asia to buy pepper and they told us to bugger off.

“Bugger off?” Asked Jenkins.

“Yeah,” said Obduluwangay “we’re naked, why do we need these round pieces of metal?”

So we changed tactics. We sent guns to Africa to buy slaves. We sent slaves to Latin America to dig up shiny metals. We sent the shiny metals via Europe to India. In India we hired brokers to hire weavers. The weavers sold us cloths and we took them to South East-Asia and they told us to bugger off.

“Bugger off?” Asked Jenkins, now he was really annoyed.

“Yeah,” said Obduluwangay “I’m not wearing that! Is that chintz?”

“Yes” said Jenkins, “don’t you like chintz?”

Obduluwangay looked offended, “that’s the sort of thing they wear in Bantam, not round here.”

So we changed tactics again. We sent guns to Africa to buy slaves. We sent slaves to Latin America to dig up shiny metals. We sent the shiny metals via Europe to India. In India we hired brokers to hire weavers. The weavers sold us cloths and our brokers told us where to go and we took these specific cloths to specific cities in South East-Asia where specific styles were worn.

“Oh lovely,” Obduluwangay said “have some pepper.”

“Hooray!” declared Jenkins, who promptly died of scurvy.

Thus concludes our story. The world has been a globalised place for a very long time, but it is a significantly better one now than it ever has been before.

Migration as Technology

I was a little confused by this Robin Hanson post. He cites with approval the fact that since 1970 40% of all the extra consumption in the world has occurred in the United States. Below are the top 30 gainers in terms of tens of billions of dollars a year.

United States 583, Japan 183, China 103, United Kingdom 73, Germany 63, France 53, India 47, Brazil 47, Italy 39, Canada 37, Mexico 37, Spain 28, Indonesia 14, Netherlands 11, Greece 9, South Africa 8, Thailand 8, Switzerland 8, Belgium 8, Austria 7, Colombia 7, Sweden 7, Philippines 7, Norway 7, Malaysia 7, Portugal 6, Chile 6, Finland 5, Ireland 5, Denmark 4. (source)

Robin argues that this is argument against Tyler’s notion of a slow down in technological innovation. But the population of the US is 48% bigger in 2010 (310,000,000) than in 1970 (209,000,000). At first I couldn’t see why this would counts as evidence against some notion of a slow down in intensive growth. The US got more from more which is great for all those people involved, but it is not evidence we can get more from less, is it?

Well, in a way it is, although you have to denationalise your perspective. The US does have an overwhelming lead in one “technology”; that of receiving and assimilating migrants. The factors behind this are geographical, historical and cultural, but it still as a really important technology in terms of increasing “our” productive and consumptive capacity.

The productivity of millions of people has been hugely increased simply by them moving across a border. Allowing more migration is an innovation that can make many people better off by improving their productivity. But it is a technology which cannot be excercised by a single firm, it is better thought of as a society-wide innovation akin to germ theory or corporation law.

Then versus Now: Or, why all the inequality?

Via, via, via. Click to embiggen, commentary below.

A few things are driving this.

  1. The entrance of South East Asia, then China, then India into the global division of labour and the global market for consumer goods and services. This pushed up returns for the wealthy who could hirer cheaper and sell more widely and pushed down returns to labour as workers had to compete with their ever poorer neighbours (although many goods were cheaper and inflation lower).
  2. A decline in innovation, a la Tyler Cowen. We became much better at doing things from the 1920s-1970s. Most of the modern world was created then and we haven’t created anything like a big a breakthrough as kidney dialysis, chemotherapy, the airplane, TV, refrigerators, air-conditioning, etc., in the last 30 years. The internet is nice, but not a huge boon to GDP.
  3. Some combination of declining returns in the real economy and rent-seeking in the financial sector has caused a shift from real production to finance. With attendant crises and diminished growth. As it became harder to profit from real production capital fled to finance. As finance became more dominant it became more difficult to profit from real production, a vicious cycle.
  4. The above graph looks at US incomes and so overstates the divergence. Policy may be set in the main at the national level but production occurs globally. Many people worse off than those living in the US have become significantly better off. The deceleration from the 1980s in the west is mirrored by an acceleration in the rest of the world. Little comfort to some, great comfort to others.
  5. Policy in the west erred in two ways:
    1. It sought to trade equality for more growth. Taxes were reduced on the wealthy to incentivise them to innovate more. Unfortunately the incentive effects of tax cuts on the wealthy are weak, especially compared to how much more difficult it became to innovate (see 2) or produce profitable non-financial firms (see 3).
    2. Secondly, the decline of trade unionism didn’t just make workers more “flexible”. It also caused a decline in worker “voice” in the workplace. Compensating for this, and I would argue provoked by this, there was an increase in occupational licensing (from baby-sitter to lawyers) and centralised directives to protect workers. Where workers could have once demanded whatever protection was deemed necessary with union backing, they now had a significantly weaker on site negotiating position. Workplaces became more intimidating for workers, and more regulated for employers.

UPDATE: Read Noahpinion (do it, it is excellent) for an expansion and deepening of the argument I make in point 1.