The Pre-Modern World
• The present world interconnections between the countries is the result of the trade, movement of goods and services, migration of people etc. in the last so many decades or centuries.
• In the ancient times the traders, travellers, priests, pilgrims have travelled through the different parts of the world for their own interests. This helped in the exchange of goods, money, values, ideas, inventions and even the germs and diseases.
• For example, in the early 3000 BCE an active coastal trade connected the well-known Indus valley civilizations with the present day countries of west Asia.
• Cowries or seashells was used as a form of currency and was medium of exchange in the Maldives, China and east Africa.
Silk Routes Link the World
• There were several silk routes over land and sea which helped in trade and cultural links between the different countries of the world especially Asia, North Africa and Europe.
• The silk routes got its name due to the Chinese silk cargoes along these routes which were actively functional before the Christian era and upto the 15th century. Chinese pottery, Indian spices and precious metals like gold and silver from Europe had travelled through these silk routes.
• These silk routes were also used for the cultural exchange by the Christian missionaries, Muslim preachers and the Buddhist travellers.
Food Travels: Spaghetti and Potato
• Trade routes are also responsible for the exchange of food stuffs. For example, the spaghetti and the noodles travelled to the West from China. Pasta reached to Sicily (an island in Italy) in the 5th century by the Arab traders.
• Some of the common foodstuffs like potatoes, soya, groundnuts, maize, tomatoes, chilies, sweet potatoes etc. were known to our ancestors only after the 5th century when these food stuffs were introduced in Europe and Asia by the most famous ancient traveler Christopher Columbus who discovered America.
• These new crops also held responsible for a long life and death. For example, the European poor used the humble potato and lived better and longer life whereas the poorest peasants of Ireland who were much dependent on potatoes died of starvation when the potato crops got destroyed due to disease in the mid-1840s.
Conquest, Disease and Trade
• In the 16th century, the European sailors found the sea route to Asia and America and shrank the world.
• The Indian Ocean was quite known for its bustling trade and the Indian subcontinent was the central to these trade routes which was expanded and redirected after the coming of the Europeans.
• The European sailors and traders were benefitted with the gold and silver from Peru and Mexico in the 17th century when they searched El Dorado (the city of gold).
• The Portuguese and the Spanish conquered America not just with the conventional military weapons but also with the germs such as the small pox.
• The small pox was carried on their person (Spanish invaders were immune to this disease) to America for which the Americans were not immune to and proved a deadly weapon as it killed the whole community there.
• These diseases could not be bought or captured and turned against the European invaders unlike the guns and other conventional weapons.
• Europe was facing the problems like poverty, hunger, deadly diseases, religious conflicts, slave traders etc. and therefore many Europeans shifted to America by the 18th century.
• China and India were among the richest countries of the world till the 18th century but after 15th century China restricted its overseas trade and was in isolation. The rising importance of America’s trade shifted the Centre of the world trade towards the west.
The Nineteenth Century (1815-1914)
• Due to the socio-cultural, economic, political and technological changes, the world societies were transformed and reshaped their relations with the countries of the world.
• There were three types of movements or flows noticed by the economists in the international market.
(a) Flow of trade in which there was large scale trade of goods such as clothes and food stuffs.
(b) Flow of labour in which the people migrated from one place to another in large numbers in search of employment.
(c) Flow of capital in which capital moved over long distances for short term or long term investments.
• Though the labour flow was often restricted even after all these three different types of movements or flows affected the lives of people.
A World Economy Takes Shape
• The following were the problems faced by Britain from the late 19th century – population growth, increased demands for food grains, expansion of urban areas, growth of industries, high prices of food grains and the corn laws.
• According to the Corn Laws in Britain, the government restricted the import of the corn which increased the prices of food items in Britain. The industrialists and the urban dwellers forced the government to abolish the Corn Laws.
• The abolition of Corn Laws was responsible for the movement of people to the cities and overseas because the imported corn was much cheaper which the British farmers were unable to compete as a result they either left the cultivation or were thrown out of the farm.
• The consumption of food crops rose in Britain due to the fall in prices. The food imports increased due to the higher income caused by the faster industrial growth in Britain.
• This increased demand of food crops in Britain was fulfilled by the countries in Western Europe, Russia, America and Australia where the lands were cleared for the expansion of the food grain production.
• Railways, ports, harbours and settlements were developed in America and Australia for the smooth supply of food stuffs and for the industrial raw materials. All this required capital and labour which flowed from the financial centres such as London.
• During this period around 50 million people migrated from Europe to America and Australia and around 150 million people migrated all over the world in search of their better future.
• Now the food was grown by the low paid agricultural workers and transported from thousands of miles through railways and ships.
• A network of irrigation canal was built in India in the Punjab region for converting the semiarid waste lands into fertile cultivable lands. The peasants settled near the canal were from other parts of Punjab and thus the area was called the canal colonies.
Role of Technology
• All these developments throughout the world was possible due to the development in technologies such as railways, steamships, telegraph etc. which were the results of socio-economic and political factors.
• Due to the colonization there was capital flow and improvement in faster means of transport for the quicker delivery of goods and people from the supply areas to the demand areas.
• There was trade in meat till the 1870s from America to Europe. They were slaughtered after they reach the destination. There were number of problems in carrying the live animals into the ships such as they took lot of space, many died on the way, fell ill, lost their weight, became inedible.
• To solve the problems of this meat trade, refrigerated ships were developed for carrying these for a longer distance. The animals were slaughtered at the starting point and then transported as frozen meat to Europe which solved the problems of space, shipping cost and the price of the meat in the European market.
• As the price of the meat reduced in the market, the European poor could also consume butter, eggs and meat which helped in better living conditions and social peace in the country. This condition supported for imperialism abroad.
Late Nineteenth Century Colonialism
• In the late 19th century there was expansion of trade and market which increased prosperity among the people but the darker side of this was loss of freedom and livelihoods for many people.
• The borders of some African countries run straight as these borders were drew up by the European powers for demarcating their territories.
• Britain, France, Belgium, Germany and US were the main colonial powers in the African continent.
• The big European powers met in Berlin for completing the carving up of the territories in Africa between them in the year 1885.
Rinderpest or the Cattle Plague
• Earlier, Africa had vast land resources and minerals which attracted the European powers to establish plantations and mines which could be exported to Europe.
• But there was shortage of labour because the African people rarely worked for a wage because they had abundant land and enough livestock for the livelihood of the small population.
• To solve the problem of labour shortage, recruitment and retaining the labour, heavy taxes were imposed, inheritance laws were changed and confined the mineworkers in the compound itself.
• To pay the heavy taxes the Africans were bound to work for wages on plantations and mines. According to the new inheritance law, only one member in the family was allowed to inherit the land and thus the other members of the family were displaced from the land and pushed into the labour market. The mine workers also not had the freedom of movement.
• Rinderpest was a disease of cattle plague spreading fastly in Africa in the 1880s. It had terrible impact on the livelihood and the local economy in Africa.
• This disease was carried by the infected cattle which were imported from the British Asia in order to feed the Italian soldiers who were deputed for invading Eritrea in the east Africa.
• Rinderpest spread from the east Africa to the West Africa and reached the Atlantic coast of Africa in the year 1892 and the southernmost tip of Africa (the Cape) in 1897.
• Along the way from East to West Africa this rinderpest killed 90% of the cattle which destroyed the livelihoods of the Africans.
• Now the leftover or scarce cattle was monopolized by the planters, mine owners and the colonial governments. This incident helped the European powers to conquer and subdue Africa and easily forced the Africans into the labour market.
Indentured Labour Migration from India
• Indentured labour means bonded labourers who are under contract to work under an employer for a specific time period.
• A large number of labourers were hired from China and India to work on plantations, mines, construction of roads and railways etc. throughout the world.
• The indentured labourers were hired from India (Uttar Pradesh, Bihar, central India and dry districts of Tamilnadu) for a period of five years to work on plantations.
• The various reasons for this indentured labour from India were – decline of cottage industries, high land rents which made them deeply indebted and the lands were cleared for mines and plantations.
• The indentured labourers from India were recruited to Caribbean islands, Mauritius, Fiji, Ceylon and Malaya (Tamil migrants) and tea plantations in Assam.
• The recruitment of the indentured labourers was not done directly. It was through the agents engaged by the employers for which the agents were paid a small commission.
• Many became indentured willingly in order to escape from poverty and oppression in their villages.
• The 19th century indentured labour was a new system of slavery because the agents also gave false information to the migrants regarding the place of work, nature of work, living and working conditions and the modes of travel. Usually the labourers found the harsh living and working conditions with few legal rights to them. If the workers tried to escape and were caught they had to face severe punishment.
• The indentured labourers also gave rise to the cultural fusion in which things and people from different places get mixed and blended with different culture, losing their original characteristics and becoming something totally new.
• For example, the annual Muharram procession was transformed into a riotous carnival in Trinidad. It was called Hosay which means for Imam Hussain. The workers of all the races and religions joined in this carnival.
• Another example of cultural fusion is the protest religion of Rastafarianism which was made famous by the Jamaican reggae star Bob Marley which reflects the social and cultural links of Indian migrants and the Caribbean.
• The Indian nationalist leaders opposed this cruel and abusive system of indentured labour system and hence it was abolished in the year 1921.
Indian Entrepreneurs Abroad
• Shikaripuri Shroffs and Nattukottai Chettiars were amongst the many groups of bankers and traders who financed the export of agricultural products in the central and south East Asia through a sophisticated system of transfer of money over long distances. They had also developed indigenous forms of corporate organisations.
• For this type of finance they either used their own funds or those borrowed from the European banks.
• The Hyderabadi Sindhi traders and other Indian traders and moneylenders followed the European colonisers to Africa and even ventured beyond these colonies.
Indian Trade, Colonialism and the Global System
• Earlier, India was the main exporter of fine cotton to Britain but when the British cotton industries began to expand after the industrialisation they put pressure on the government to restrict the import of cotton to Britain.
• As a result, tariffs were imposed on the import of cotton cloth from India which protected the local manufacturers in Britain and thus the inflow of the fine cotton from India declined.
• Though the export of manufactured materials declined but the export of raw materials and indigo which was used for dyeing the cloth rose equally fast.
• To finance the tea and other imports from China, the British grew opium in India and shipped it to China. During 1820s India was the single largest exporter of opium.
• Even after Britain had a trade surplus with India which means that the value of British exports to India was more than the value of British imports from India.
• This trade surplus was used by Britain for balancing its trade deficit with other countries from where Britain imported more than the export. This type of settling the balance was called multilateral settlement system.
• Thus it can be said that India played an important role in helping Britain to settle its trade deficits, home charges like the private remittances home by British officials and traders, paying the external debt interests and pensions to the British officials.
The Inter-War Economy
• The First World War which took place mainly in Europe from 1914 to 1918 had a profound impact on economic and political stability which took over three decades to overcome.
• The First World War was fought between the two power blocks of the world. In this war the allies (Britain, France, Russia and US) were fighting against the central powers (Germany, Austria-Hungary and Ottoman Turkey).
• The First World War was called the first modern industrial war because – the leading industrial nations of the world were taking part, they wanted to harness the vast powers of the modern industries for the greatest possible destruction, modern weapons like tanks, aircrafts, machine guns and chemical weapons were used, large ships and trains were used to move the recruited soldiers, around 9 million died and 20 million injured, the industries were restructured to produce war related goods and also the societies were reorganized for war.
• The large scale deaths and injuries in the First World War reduced the working age people in Europe, declined the family income and the women had to undertake jobs to run the family.
• During the First World War the US became the international creditor from being international debtor because, to finance the war, Britain borrowed huge sums of money from the US banks and US public.
Post War Recovery
• Before the First World War, Britain was the world’s leading economy but after the war Britain was over burdened with external debts.
• In the meantime, Industries in India and Japan developed a lot. Due to these conditions it became difficult for Britain to get its dominance over India back and compete with Japan internationally.
• The First World War led to an economic boom which means large increase in demand, production and employment but the production decreased and the unemployment increased when the war ended. In the year 1921, there was huge job losses, almost 1/5th of the British workers were out of job.
• Eastern Europe was the major supplier of wheat in the world which was disrupted when Europe was busy with the First World War. During this war period the production of wheat rose in Canada, US and Australia. Again after the war Eastern Europe revived the wheat production. Due to this there was tremendous supply of wheat in the world market which resulted in falling prices, decline of the rural income and the farmers fell in debt.
Rise of Mass Production and Consumption
• In the 1920s mass production was one of the most important feature of the US economy. Henry Ford, a well-known car manufacturer was the pioneer of mass production.
• He adapted the method of assembly line which was used in Chicago slaughterhouse to do the production in much faster and cheaper way for his new car plant in Detroit.
• The use of the assembly line does not allow the worker to delay the motion and thus the output per worker increased a lot. The T-model Ford was the world’s first mass produced car.
• The factory workers were not able to cope up with the assembly line pace and therefore they quit in large numbers. To solve this issue Ford doubled the daily wage to 5 dollar but banned trade unions operating from his plants.
• To recover the high wage Ford took the best cost cutting decision that was speeding up the production line and forced the workers to work much harder.
• A hire purchase system was started in the US. There was increase in the purchase of refrigerators, washing machines, radios, gramophone players and even the house construction and home ownership etc. on credit which was to be repaid in weekly or monthly installments.
• All these created a cycle of higher employment, higher income, rising demand, consumption and investment.
The Great Depression
• The year 1929 was called the year of Great Depression which lasted till mid-1930s. Production, employment, income and trade declined all over the world due to which the agricultural regions and communities were worst affected because the prices of the agricultural products declined sharply and for long period than the price fall in the industrial goods.
• The first major factor of the great economic depression in US was agricultural overproduction due to which the prices of the agricultural items declined which resulted to decline in income of the farmers. To retain their income, the farmers increased the production which again pushed the prices down and the farm produce rotted in the absence of buyers.
• The second major cause is the economic factor. During the First World War, US financed through loans a number of countries. The withdrawal of US loans caused the failure of some major banks and collapse of currencies in Europe.
• The banks in US slashed domestic lending and called back loans but many households were unable to repay the loan due to decline in sale of agricultural products, collapse of business and falling income which finally resulted into collapse of the US banking system.
• To protect its economy, US doubled the import duties which led to another severe blow to the world trade.
India and the Great Depression
• The Great Depression of US also affected India severely. The exports and imports fell down almost by 50%.
• The peasants who were producing for the world market were hit hard than the urban dwellers because of the sharp decline in the price of the agricultural products in the international market and also the colonial government refused to reduce the revenue.
• The jute producers of Bengal fell into debt due to the collapse of the gunny exports and decline in the price of the raw jute.
• To come out of the situation of indebtedness, Indian peasants used their savings, mortgaged lands and sold their jewellery and precious metals.
• During this Depression period, India became an important exporter of Gold which helped Britain to speed up its recovery and also helped in promoting the global economic recovery.
• The urban India people were not much affected as their income was fixed. Either they were dependent on rental income or they were salaried employees.
Rebuilding a World Economy: The Post War Era
• The Second World War took place from 1939 to 1945 between the Axis powers (which included Nazi Germany, Japan and Italy) and the Allies (which included Britain, France, Soviet Union and US).
• 60 million people were killed and millions were injured in this war in which civilians deaths were more than the soldiers. Many European and Asian cities were destroyed due to the aerial bombardment and artillery attacks.
• This war had caused great social and economic fracture. The post war reconstruction was shaped by – the US’s emergence as a super power in the western world and the dominance of the Soviet Union.
Post War Settlement and the Brettonwoods Institutions
• Two important lessons were drawn from the Second World War economic experiences – the first was economic stability in the country and the second was full employment.
• The industrial societies have mass production which is dependent on mass consumption which is further linked with high and stable income and full employment.
• The governments should step in to control the fluctuation of price, output and employment in the market because the market alone could not guarantee full employment.
• Therefore it can be said that economic stability could be ensured only with the interference of the government. It means if the government have the power to control the movement of goods, labour and capital, then only the country’s economic links with the world could be strengthened.
• The framework for preserving the economic stability and full employment was agreed upon at the UN monetary and financial conference which was held in 1944 July, at Brettonwoods in New Hampshire (USA).
• The Brettonwoods twins or the Brettonwoods institutions are – the International Monetary Fund and the World Bank which commenced its financial operations in the year 1947.
• Though these two institutions are controlled by the western industrial powers, the US has right of veto over the key decisions.
• The IMF was established at the Brettonwoods Conference for dealing with the external surpluses and deficits of its member countries whereas the World Bank was setup to finance the post war reconstruction.
• The Brettonwoods system was based on fixed exchange rates in which the national currencies were pegged to the dollar at a fixed rate of exchange.
The Early Post-War Years
• The post war international economic system was called the Brettonwoods system which led to the growth of trade and income for the western industrial nations and Japan.
• During the period of 1950 and 1970 the world trade rose by 8%, income by 5% and the unemployment rate in the most industrial nations of the world was less than 5%.
• The developing countries of the world invested in the industries, technology and capital of these industrial nations so that they could catch up with these industrial countries.
Decolonization and Independence
• After two decades of the Second World War the European colonies started becoming free as independent nations but there was poverty, lack of resources and a handicapped society and economy.
• Basically the IMF and the World Bank were designed for the western industrial nations but after rebuilding their own nations their attention shifted towards the developing countries from the late 1950s.
• The developing countries were not benefitted from the fast growing western economies so they organized together and formed a Group of 77 which is commonly referred to as G-77 and demanded a new international economic order.
• Their demand for NIEO was to get the real control over their own natural resources, development assistance, and fairer prices for the raw materials and access for their manufactured goods in the markets of the developed nations.
End of Brettonwoods and the Beginning of Globalization
• The Brettonwoods system of fixed exchange rates collapsed and a system of floating exchange rates was introduced because the US dollar did not remain the principal currency of the world and could not maintain its value in relation to gold.
• Earlier the developing countries were not able to take loan from the financial institutions but now are forced to borrow which led them to periodic debt, lower income and increased poverty.
• From the 1970s the MNCs shifted their production operations to the low wage Asian countries where they could maximize their profits. This step of the MNCs again stimulated the world trade and capital flows.