Trade, Power and Innovation

Trade and its globalisation are at the top of the political agenda now. After decades in which national economies have become more and more entwined, populist politicians are questioning the benefits of globalisation. Meanwhile in the UK, we are embarked on a process of turning our backs on our biggest trading partner in the quest for a new set of global relationships, which, to listen to some politicians’ rhetoric, will bring back the days of Britain as a global trading giant. There’s no better time, then, to get some historical perspective on all this, so I’ve just finished reading Ronald Findlay & Kevin H. O’Rourke’s book Power and Plenty: Trade, War, and the World Economy in the Second Millennium – a world history of a millennium of trade globalisation.

The history of world trade is one part of a history of world economic growth. Basic economics tells us that trade in itself leads to economic growth – communities that trade with each other on an equal basis mutually benefit, because they can each specialise in what they’re best at doing.

But trade also drives innovation, the other mainspring of economic growth. The development of larger markets makes innovation worthwhile – the British industrial revolution would probably have fizzled out early if the new manufactured goods were restricted to home markets. Ideas and the technologies that are based on them diffuse along with traded goods. And the availability of attractive new imported goods creates demand and drives innovation to provide domestically produced substitutes. This was certainly the case in England in the 18th century, when the popularity of textiles from India and porcelain from China was so important in stimulating the domestic cotton and ceramics industries.

This view of trade is fundamentally benign, but one of the key points of the book is to insist that in history, the opening up of trade has often been a very violent process – the plenty that trade brings has come from military power.

The direct, organised,large-scale involvement of Western European powers in trade in the Far East was pioneered by the Dutch East India Company (VOC), formed in 1602. Continue reading “Trade, Power and Innovation”