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TRADE AND MIGRATION IN THE MODERN WORLD Carl Mosk

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Trade and Migration in the Modern World

Carl Mosk

ISBN 978-0-415-36520-8

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Trade and Migration in the Modern World

Revolutionized by the growing use of fossil fuels and electricity, and the reduced costs of transportation and communications, international trade and migration has received an unprecedented boost in recent years. Using a theory of economic and political gravitation, backed up with both quantitative analysis and qualitative description, Mosk argues that the tendency for trade and migration to flow together is tempered by market forces and political resistance to diversity in migration. This results in a glaring paradox: the political arenas of nation states are divided between embracing and opposing diversity in immigration, the same immigration flows their own policies helped create. A remarkable volume, this book will be invaluable to students of economics, demographic historians, policy makers, and political scientists. Carl Mosk is Professor of Economics at the University of Victoria. He specializes in economic history, population economics and Asian economies, especially the Japanese economy. He is the author of a number of books on the demographic and economic history of Japan and is presently working on the economic history of the nation state.

Routledge studies in the modern world economy

1 Interest Rates and Budget Deficits A study of the advanced economies Kanhaya L. Gupta and Bakhtiar Moazzami 2 World Trade after the Uruguay Round Prospects and policy options for the twenty-first century Edited by Harald Sander and András Inotai 3 The Flow Analysis of Labour Markets Edited by Ronald Schettkat 4 Inflation and Unemployment Contributions to a new macroeconomic approach Edited by Alvaro Cencini and Mauro Baranzini 5 Macroeconomic Dimensions of Public Finance Essays in honour of Vito Tanzi Edited by Mario I. Blejer and Teresa M. Ter-Minassian 6 Fiscal Policy and Economic Reforms Essays in honour of Vito Tanzi Edited by Mario I. Blejer and Teresa M. Ter-Minassian

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13 Competition and Trade Policies Coherence or conflict Edited by Einar Hope 14 Rice The primary commodity A.J.H. Latham 15 Trade, Theory and Econometrics Essays in honour of John S. Chipman Edited by James C. Moore, Raymond Riezman and James R. Melvin 16 Who Benefits from Privatisation? Edited by Moazzem Hossain and Justin Malbon 17 Towards a Fair Global Labour Market Avoiding the new slave trade Ozay Mehmet, Errol Mendes and Robert Sinding

22 The New Industrial Geography Regions, regulation and institutions Edited by Trevor J. Barnes and Meric S. Gertler 23 The Employment Impact of Innovation Evidence and policy Edited by Marco Vivarelli and Mario Pianta 24 International Health Care Reform A legal, economic and political analysis Colleen Flood 25 Competition Policy Analysis Edited by Einar Hope 26 Culture and Enterprise The development, representation and morality of business Don Lavoie and Emily Chamlee-Wright

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28 Geography of Production and Economic Integration Miroslav N. Jovanovi´c

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29 Technology, Trade and Growth in OECD Countries Does specialisation matter? Valentina Meliciani

21 Multimedia and Regional Economic Restructuring Edited by Hans-Joachim Braczyk, Gerhard Fuchs and Hans-Georg Wolf

30 Post-Industrial Labour Markets Profiles of North America and Scandinavia Edited by Thomas P. Boje and Bengt Furaker

31 Capital Flows without Crisis Reconciling capital mobility and economic stability Edited by Dipak Dasgupta, Marc Uzan and Dominic Wilson 32 International Trade and National Welfare Murray C. Kemp 33 Global Trading Systems at Crossroads A post-Seattle perspective Dilip K. Das 34 The Economics and Management of Technological Diversification Edited by John Cantwell, Alfonso Gambardella and Ove Granstrand 35 Before and Beyond EMU Historical lessons and future prospects Edited by Patrick Crowley 36 Fiscal Decentralization Ehtisham Ahmad and Vito Tanzi 37 Regionalisation of Globalised Innovation Locations for advanced industrial development and disparities in participation Edited by Ulrich Hilpert 38 Gold and the Modern World Economy Edited by MoonJoong Tcha 39 Global Economic Institutions Willem Molle

40 Global Governance and Financial Crises Edited by Meghnad Desai and Yahia Said 41 Linking Local and Global Economies The ties that bind Edited by Carlo Pietrobelli and Arni Sverrisson 42 Tax Systems and Tax Reforms in Europe Edited by Luigi Bernardi and Paola Profeta 43 Trade Liberalization and APEC Edited by Jiro Okamoto 44 Fiscal Deficits in the Pacific Region Edited by Akira Kohsaka 45 Financial Globalization and the Emerging Market Economies Dilip K. Das 46 International Labor Mobility Unemployment and increasing returns to scale Bharati Basu 47 Good Governance in the Era of Global Neoliberalism Conflict and depolitization in Latin America, Eastern Europe, Asia and Africa Edited by Jolle Demmers, Alex E. Fernández Jilberto and Barbara Hogenboom 48 The International Trade System Alice Landau

49 International Perspectives on Temporary Work and Workers Edited by John Burgess and Julia Connell

53 Macroeconomic Policies and Poverty Reduction Edited by Ashoka Mody and Catherine Pattillo

50 Working Time and Workers’ Preferences in Industrialized Countries Finding the balance Edited by Jon C. Messenger

54 Regional Monetary Policy Carlos J. Rodríguez-Fuentez

51 Tax Systems and Tax Reforms in New EU Members Edited by Luigi Bernardi, Mark Chandler and Luca Gandullia 52 Globalization and the Nation State The impact of the IMF and the World Bank Edited by Gustav Ranis, James Vreeland and Stephen Kosak

55 Trade and Migration in the Modern World Carl Mosk

Trade and Migration in the Modern World

Carl Mosk

First published 2005 by Routledge 2 Park Square, Milton Park, Abingdon, Oxon OX14 4RN Simultaneously published in the USA and Canada by Routledge 270 Madison Ave, New York, NY 10016 Routledge is an imprint of the Taylor & Francis Group © 2005 Carl Mosk Typeset in Baskerville by Wearset Ltd, Boldon, Tyne and Wear Printed and bound in Great Britain by MPG Books Ltd, Bodmin All rights reserved. No part of this book may be reprinted or reproduced or utilized in any form or by any electronic, mechanical, or other means, now known or hereafter invented, including photocopying and recording, or in any information storage or retrieval system, without permission in writing from the publishers. British Library Cataloguing in Publication Data A catalogue record for this book is available from the British Library Library of Congress Cataloging in Publication Data A catalog record for this book has been requested ISBN 0-415-36520-1

For Donna

Contents

List of figures List of tables Preface Acknowledgments

xiv xv xvii xix

PART I

Openness

1

1

Globalization, trade, and migration Openness and diversity 3 A formal presentation of the political economy gravity model 21 Marshalling evidence 29

3

2

Demographic openness and trade openness Measuring demographic openness and trade openness 31 Periods 36 The positive association between demographic openness and trade openness 41

31

3

Crossover Measuring net immigration 45 Land and expansionism in the nineteenth century 49 The attractiveness of the Western offshoots and net immigration in Western Europe 61 Birds of passage? Emigration in countries of net immigration 66

45

4

Emigration and immigration Emigration and trade 69 Immigration and trade 72 Conclusions 74

69

xii Contents PART II

Diversity

77

5

The British connection Infrastructure driven growth 79 Diversity, nationalism, and infrastructure 83 National infrastructure investment reduces international costs of transportation and communication 87 The crisis in human development and pressures on human capital enhancing infrastructure 101 The British connection erodes 111 The eugenics movement and Asian exclusion in the Western offshoots 121 Diversity and fissures within the British Empire 130

79

6

A splendid isolation Infrastructure investment and autarky in early modern Japan 134 From autarky to hybridization 138 The perils of openness: Japanese imperialism in the Asia-Pacific region promotes Japanese openness 145 Achieving consensus in a closed society 149 The paradoxes of infrastructure driven growth 154

134

PART III

Politics and markets 7

8

Into the maelstrom: the political economy that battled diversity and openness Nationalism, local hegemony, and multilateral architecture 161 Regional hegemony has trumped British Empire hegemony 164 The impact of World War I on the international political architecture 169 Assuming leadership for an open market regime 172 The United States creates a draconian immigration policy 174 An international economic order adrift 177 An open world being born The Cold War and American support for multilateral architecture 179 Catch-up growth in Western Europe and Japan, the formation of regional trade blocs, and multilateral architecture 182

159

161

179

Contents

xiii

The political economy of immigration policy in the postwar Western offshoots 184 Multiculturalism, nationalism, and diversity in the Western offshoots and the countries that experienced crossover 188 9

Conclusions The argument summarized 193 Globalization, regionalism, and the nation state 197

193

Appendix A.1 The data

203

Appendix A.2 The statistical analysis (by David Giles) Testing for causality between trade and migration 213 Trade openness and demographic openness – robust estimation 227

213

Notes References Index

229 244 257

Figures

2.1 2.2 2.3 2.4 3.1

3.2

3.3 4.1 4.2 4.3 4.4 5.1 5.2 5.3 5.4 5.5

Demographic openness and trade openness in Sweden, 1882–1990 Demographic openness and trade openness, pooled sample Demographic openness and trade openness, 1914–1945 Demographic openness and trade openness, 1950–1992 Attractiveness of the Western offshoots relative to Sweden and net immigration rate based upon migration data for Sweden Attractiveness of the Western offshoots and net immigration rates for Denmark, Finland, the Netherlands, Norway, Sweden, and the United Kingdom Demographic openness, immigration, and emigration, Sweden, 1880–1993 Emigration and trade to national income ratios for the United Kingdom, 1857–1936 Emigration openness and trade openness, Europe and Japan, 1880–1959 Trade and immigration rates, for the United States, 1891–1996 Immigration openness and trade openness for the four Western offshoots, 1904–1992 Immigration openness and diversity index for the United States, 1822–1912 Trade with, and immigration from, the United Kingdom and Ireland: the United States, 1842–1995 Trade with, and immigration from, Japan: the United States, 1842–1995 Proportion of New Zealand’s immigrants from, and trade with, the United Kingdom and Australia, 1897–1939 Proportion of New Zealand’s immigration from, and trade with, the United Kingdom, 1953–1981

37 42 43 43

63

66 67 70 71 73 73 87 115 116 117 121

Tables

A.2.1

A.2.2

A.2.3 A.3.1 A.3.2 A.3.3 A.3.4 A.3.5

A.3.6

A.3.7

A.5.1

A.5.2

Demographic and trade openness in Western Europe and a three country group of Northern European countries (Denmark, Norway, and Sweden) Demographic and trade openness in the four Western offshoots and in three former Dominions of the British Empire (Canada, Australia, and New Zealand) Demographic and trade openness for Japan Components of population growth in Western Europe Components of population growth in the Western offshoots Components of population growth in Japan Land and agriculture in the Western offshoots Indices of agricultural expansion (mid-nineteenth century to 1930) and emigration or immigration openness (1880s for emigration openness; 1900–1913 for immigration openness) Attractiveness of the Western offshoots [based on relative level of income per capita, the unemployment rate for the United States, and income per capita in the country of interest relative to 1990 $8,000 Geary-Khamis dollars (the crossover level of income)] and net emigration rates based upon migration data, Denmark, Finland, the Netherlands, Norway, Sweden, and the United Kingdom, 1890–1990 Ratio of short-term immigrants to long-term immigrants (100), nine countries, based upon data for years 1979–1988 Domestic transportation infrastructure in the United Kingdom and the Western offshoots and international transportation costs Length, tonnage, and horse power (H.P.) of some premier ships

38

39 41 47 48 49 55–9

60

64–5

68

90–5 97

xvi

Tables

A.5.3 A.5.4 A.5.5 A.5.6

A.5.7 A.5.8 A.6.1 A.6.2 A.6.3

A.7.1 A.7.2

A.2.1 A.2.2 A.2.3 A.2.4 A.2.5

Human development in the United Kingdom and the Western offshoots 104–9 The diversity of trade and immigration for the United States, 1840–1989 114 The diversity of trade and immigration in Canada and Australasia 118–20 Population (in 1,000s), population density (population per square mile), and percentage of population in various Asian ethnicities: States of Hawaii, California, Oregon, and Washington in the U.S.; Province of British Columbia and City of Vancouver in Canada (legal city boundaries) 122–3 Selected examples of restrictions on Asian immigration imposed within the Western offshoots 125 Diversity and migration in the British Isles, 1840–1979 132 Human and physical infrastructure in modern Japan 142–4 The diversity of Japan’s emigration and foreign trade, 1875–1939 148 The diversity of Japanese emigration both temporary and permanent and the diversity of Japan’s foreign trade, 1945–1994 155–6 Tariff rates and trade openness for selected countries, circa 1880 and circa 1913 167 Calculus of crossover or calculus of eugenics? Properties of “National Origins” quota groups established in 1927 for the 1924 Immigration Law of the United States 176 Summary of Granger causality test results: aggregate trade and migration ratios 219 Summary of Granger causality test results: country breakdown of trade and migration ratios 221–2 Summary of Granger causality test results: aggregate trade and migration growth rates 224 Wald test results for Granger non-causality 225–6 Least squares and quantile regression results: trade openness and demographic openness 228

Preface

As an academic born and raised in an academic family it is easy to be lulled into thinking globalization and openness to a global community is more profound, more far reaching, than it actually is. A few examples drawn from my growing up and maturity may usefully illustrate how globally open a modern academic career can be. My father’s research focusing on the economies of Latin America took me in my infancy to Mexico where maids cooed and coaxed me through the beautiful rolling phrases of Spanish. Spanish became my mother tongue. Later, growing up in the San Francisco Bay area with its rich history of Asian immigration, I developed an abiding interest in Japan’s culture that ultimately led to my learning Japanese, residing in three of Japan’s major cities (Tokyo, Nagoya, and Kyoto) for extended periods, and writing extensively on its economic and demographic history. In the late 1980s I moved from California to British Columbia in Canada where I joined a relatively small department that, today, boasts of members hailing from the United Kingdom, New Zealand, Australia, the Netherlands, and India. Many of my students come from Europe and Asia. The diversity of my academic life is mirrored by diversity in my consumption of material goods. The fruits and vegetables that we consume in Victoria mainly come from the United States and Mexico; the cars that my wife and I drive were manufactured in Germany; the computers that I use have components made throughout the Asia-Pacific. Academic economists tend to view the apparent global openness that permeates their lives as an indicator of how plummeting costs of transportation and communication have turned, or are turning, the world into a global village. They look for evidence of a convergence in wages and prices that is supposed to accompany the growing integration of national economies into a global market place, as more and more firms outsource production to far-flung lands, thereby surrendering and submerging their national identities. In my opinion the contemporary euphoria with globalization and the diversity that seemingly accompanies it within the circles of academia is naïve and misleading. It is the thesis of this book that the nation state is still in the driver’s seat as far as economic activity is concerned. Indeed,

xviii Preface my argument centers on the crucial importance of national infrastructure buildup for the economic development of individual nation states and for promotion of international trade and migration. Creating national infrastructure necessarily makes reaching political consensus a priority for economic activity. Wholesale diversity, stemming from trade or immigration, is often an enemy of consensus, is often an impediment to infrastructure investment. It is the thrust of this volume that a terrible paradox haunts the modern international economic order. Nation states that successfully develop do so by limiting their diversity through immigration and trade policies thereby facilitating the very infrastructure creation that promotes low cost trade and low cost international migration. In short, this book wrestles with one of the great tensions of the modern world, the tension between nationalism in economic affairs and internationalism in economic affairs. Like it or not, the nation state is not going to wither away in economic affairs. Spelling out the implications of this view is the burden of the pages that follow.

Acknowledgments

The present book grew out of my interest in international migration, an interest stimulated by the creation of the Research on Immigration and Integration (RIIM) Centre of Excellence by the federal government of Canada working in conjunction with Simon Fraser University, the University of British Columbia, and the University of Victoria. I owe a great debt to Don DeVoretz of the Economics Department at Simon Fraser University for encouraging me to participate in the RIIM project, and for inviting me to make a seminar presentation at Simon Fraser University where I laid out an initial formulation of the arguments concerning the linkages between trade and migration developed in Part I of the book. I am also indebted to Martin Taylor, Vice-President Research at the University of Victoria, who facilitated my work with the RIIM project and encouraged me in the research that is this volume. In the Economics Department at the University of Victoria, my greatest debt is to my colleague David Giles who helped me with the statistical analysis advanced in Part I of the volume. I am grateful to David for preparing the portion of the Appendix entitled “The statistical analysis” that econometrically analyzes the time-series relationships between trade and migration for the countries considered here, and takes up issues involving statistical “outliers” and deviations from “straight line regression” characteristic of a number of the cross-sectional relations explored in the book. David’s contribution is hardly limited to assisting me with statistical testing. He read earlier drafts of the book, correcting stylistic infelicities, and criticizing arguments too fuzzy or too incoherent to justify putting into print. It goes without saying that I bear full responsibility for all the errors and omissions marring the present version of the book. I am also grateful to two anonymous readers of earlier drafts of the book for pointing out errors and making suggestions that I have tried to incorporate into this volume. Finally I want to thank Robert Langham at Routledge for encouraging me to do a book for Routledge. It is my fervent hope that Trade and Migration in the Modern World bears out his faith in my endeavors.

Part I

Openness

1

Globalization, trade, and migration

Openness and diversity Directing armies of recruits along wildly divergent roads, the drumbeats of global backlash press upon us in a dense and disparate cacophony. From the internationally organized guerrilla war against globalization emanates the smashing of glass and the clatter of rocks hurled from massed demonstrations confronting phalanxes of police bristling with clubs, mace and pepper spray in cities hosting meetings of the World Trade Organization. From the same guerrilla war emanates the headlong dash of suicide bomber directed trucks and airplanes crashing into massive structures that disintegrate in flames and clouds of falling debris, citizens from distant nations reaching across borders in order to visit a rain of ruin upon symbols of global finance like the World Trade Center in New York city. At the same time our ears are assailed by the election campaign speechifying, and florid parliamentary oratory, of politicians throughout the industrial world calling upon their governments to limit the quality and quantity of imports, demanding stringent reductions on the volumes and cultural diversity of immigration streams. What are we to make of the wide range evidenced by these disparate rumblings tossed up from the global backlash? At first glance, it would seem that globalization itself has multiple and totally unrelated facets, some involving markets and some involving power politics; some stemming from the fear that the integrity of the nation state itself is under siege; some from the fear that the global community is being pressed upon, either by hegemonic nation states flexing their military muscle in far-flung locales, or by multinational corporations and multilateral institutions synchronizing market activities outside the borders and purview of individual nation states that can only feebly regulate and react to their doings. According to this view, the phenomenon of globalization is best analyzed and understood by breaking it down into separate and distinct compartments, economic and political. This is a stance to which I take strong exception. Working with a

4 Openness conviction that the various facets of globalization overlap, a conviction informing the political economy gravity model central to this book, I establish theoretical and empirical linkages between a nation’s openness and diversity in trade and its openness and diversity in immigration or emigration. In doing so, I demonstrate that there is a global tendency of countries to either close themselves off or open up in a roughly synchronized fashion, a global tendency shaped by both markets and politics. In establishing these points, I argue that the linkages and international synchronization upon which I focus arise from a political economy process reflecting the relative market size of modern nation states; that national governmental policies involving domestic infrastructure investment impede or enhance the growth of that national market size and, as a byproduct, the degree to which its borders are potentially open to global markets; and that political power associated with the relative size of nation states shapes the creation of multilateral architecture impeding or encouraging the actual flows of goods and people moving across national borders. Before laying out the logic of my formal model in simple algebraic terms, I wish to describe it verbally. To facilitate this, I organize my presentation sequentially, starting with market driven gravitation; then turning to infrastructure driven growth within the borders of, and with the guidance of, the nation state; and finally to the grounding of national power in market production and the creation of multilateral architecture by a community of nation states with differential levels of power. I attempt to keep the story simple, working with a minimum of jargon and a minimum of variables. Stripping down the analysis may not be everybody’s cup of tea, but I hope and trust that it will permit me to address an audience not versed in the arcane methodology of contemporary economics. The market: gravitation and crossover I believe it is impossible to understand international trade and migration in the modern world without an understanding of the change in energy production from organic to inorganic sources that is an essential determinant of the rise in per capita income enjoyed by the high income countries today. Inorganic economy activity is focused on exploiting fossil fuels containing stocks of energy that can be turned into mechanical power. Contrast this with the exploiting of flows of organic energy like water and wind flows and fire that are the hallmarks of the organic economy.1 I argue that exploiting the inorganic economy naturally gave rise to geographically concentrated inorganic economy clusters driving growth in income per capita. Creating clusters that became growth poles generated gravitational pull centered on the growth pole cluster, inducing movements in goods and people into and away from the cluster, movements realized either within national borders or between national boundaries.

Globalization, trade, and migration 5 Creating clusters promoted the geographic spread of the knowledge underpinning the inorganic economy through pure imitation and through hybridization, innovations imported from distant clusters meshing and mingling with indigenous concepts and techniques. As the locus of inorganic clusters spread globally, the volume of global trade increased, suitably enriched in diversity by the proliferation of hybrid products in far-flung lands. From a geographic base mainly confined to the United Kingdom, the inorganic economy was transplanted onto the European mainland, later on into the regions of Western settlement in the Americas and Australasia, and eventually into China and Japan. Volumes of trade rose in response to the gravitational pull that spatially separated clusters exercised upon one another. The variety of products traded on international markets proliferated to a bewildering degree never before experienced: hybrid products that combined local craft techniques with mass production methods exploiting the inorganic economy were now churned out in districts hitherto innocent of the inorganic economy. To emphasize the diffusion of inorganic economy innovation through imitation and hybridization within a network of clusters is not to ignore other factors helping to generate rising levels of total factor productivity. Gains in productivity, output per unit of capital and labor combined, underlie the secular rise in per capita income in the post-1750 period. Innovations in the organic economy were important to that productivity gain. Think of the great American fleet of clipper ships of the nineteenth century or of the innovations in seed selection and animal breeding that have revolutionized agriculture. Indeed, innovations in both the organic and inorganic economies over the last several centuries share a common theme. They involve the application of scientific and technical knowledge to economic production, in manufacturing, in farming, and in transportation and communication. The point that I want to stress is that there is a bias towards advances in the inorganic economy integral to modern physics, chemistry, and engineering. Testifying to the dynamism of innovation in the inorganic economy is the fact that it has advanced through a set of distinct stages, newer technologies driving out older technologies through a process of creative destruction. Initially the inorganic economy centered on burning coal to generate steam power, and the harnessing of this steam power to produce rotary and linear motion for machines. Because a central steam engine generating power for semi-automated machines – say power looms in a cotton textile mill – was most efficiently exploited when there were many machines drawing from its motive power through transmitting force and pulling power via straps and pulleys, introducing steam power in manufacturing gave a strong push to concentrating workers in a single work place, in factories. By the same token, harnessing steam power for driving boats (the

6 Openness paddle wheeler first, later the screw propeller driven ship), and for pulling goods and people on rails (the railroad) vastly expanded the carrying capacity of individual vessels, thereby pushing down per unit transportation costs. It should be noted that improvements in iron and steel production, notably the elaboration of the puddling process to manage the molten iron and the use of rollers to get rid of slag, helped promote the energy revolution associated with steam production. Mass producing high grade iron and steel rod and plate made for the diffusion of sturdy steam engine boilers, rails for trains, and hulls for steamships, drastically cutting down on the costs of fabricating the new machinery revolutionizing manufacturing and transportation. Throughout the eighteenth and most of the nineteenth centuries, coal and steam dominated inorganic production. Only at the end of the nineteenth century, did electricity – especially hydroelectric power delivered across vast distances through high voltage power grids – and the internal combustion engine harnessed for driving trucks, cars and buses, and airplanes – usher in a new era in inorganic production. As these newer and more technically sophisticated forms of energy production were diffused, coal and steam engines were gradually supplanted by new sources of energy, and new machines. Dynamos transforming the motion of water into stored electrical power supplanted steam engines designed to pump out coal mineshafts; gasoline and diesel powered trains, airplanes and ships supplanted steam driven vehicles; small electrical motors powered up by a flick of the switch on a “unit” basis – one machine per electrical outlet – took over from a host of machines hooked up to a central steam engine. The mechanization of small factories took off with the spread of electrical power grids. Exploiting inorganic power requires infrastructure. Consider steam power. Deep harbors are needed to accommodate steamships driven by screw propellers. Without rail networks, steam railroads cannot run. Hydroelectric power is unimaginable without the power grid building up voltage in dynamos, sending it across vast distances, transforming it at local distribution stations from which customers corporate and household alike can draw power. To make effective use of trucks, buses, and cars, roads (ideally wide paved roads) are essential. Again, flying airplanes without airports, ideally blessed with lengthy runways, is not a feasible option. Building up infrastructure supporting the inorganic economy creates geographic scale economies. Access to relatively cheap energy and transportation exercises a strong centripetal pull, pulling factories into a vortex, encouraging close proximity, establishments springing up chock-ablock in the vicinity of one another. Exploiting a common infrastructure that facilitates the transport of raw materials and the distribution of energy, likewise driving down the costs of shipping out completed output, encourages geographic concentration. Creating labor pools that can be shared is another advantage to concentration. As organic production gives

Globalization, trade, and migration 7 way to inorganic production, as the inorganic economy supplants the organic economy, urbanization flourishes, industrial towns acting as whirlpools, drawing in factories that drive expansion of growth poles. The first great cluster, or rather set of clusters, emerged in the Midlands of the United Kingdom, along the Liverpool/London axis, during the closing decades of the eighteenth and the initial decades of the nineteenth centuries. Proximity to coal fields and relatively low cost access to wool and cotton supplies was crucial. The network of industrial towns that sprang up ran along a north–south axis from Leeds to Sheffield. A second cluster emerged in the vicinity of the great cotton textile town of Manchester. And a third cluster developed along a line running westward from Swansea on the coast of Wales. First knit together by a set of canals and rivers that were dredged and improved to facilitate barge traffic, the rapidly growing conurbations of the world’s first industrial belt were eventually linked by railroads in the early nineteenth century. As this industrial belt flourished and expanded, migration into, and return migration out of, the belt grew by leaps and bounds. So did the volume of raw materials brought into the region and the flood of clothing, sheets, cutlery, and furniture turned out by firms clustering in the nascent industrial belt of the Midlands. Imitation is easier than innovation. What took decades to accomplish – the slow aggrandizement of infrastructure (canals, railroads, roads, sewer lines), of textile factories and metal working establishments, and of coalmines in the Midlands of England and Wales – could be much more readily managed by imitators exploiting the knowledge painfully won by the British through decades of tinkering, through decades of trial and error experimentation. Imitators also had the benefit of hindsight, eschewing the mistakes that the innovator inevitably makes moving along the path of creation through trial and error. On the European continent, clusters sprang up in and around the Ruhr along an axis running north to south from Essen to Calais, around Munich, around Le Havre and Bordeaux. Eventually the impetus to imitate spread eastward through Poland where a Warsaw complex was thrown up, and even further east in Russia, where industrially oriented clusters around and in Moscow in the northwest and Donbas in the southwest sprang up. To a greater or lesser extent these clusters, these growth poles, were all industrial in composition. The same could be said of the industrial belt that was gradually built up in North America during the period 1820–1880, spreading out from New England to eventually include in its geographic extent the Saint Lawrence, the Great Lakes, and a swath of territory running through New York to Illinois and Michigan, from the southern reaches of Quebec and Ontario in Canada to Pennsylvania and Maryland in the United States. Countries of Western settlement with vast largely unsettled lands awash in coal and other minerals, graced with forests yet to be chopped down, their plains

8 Openness crisscrossed by mighty rivers that could be tapped for waterwheels and later on electric power enjoyed a comparative advantage in harnessing the inorganic economy. In those lands blessed with a large population base (providing domestic market heft which nascent manufacturers naturally took advantage of in moving down cost curves of production and distribution) industrial belts took root and flourished. The harnessing of the inorganic economy was hardly restricted to the proliferation of growth poles centered upon nascent industrial belts. Indeed, in many regions of Western settlement, in Australasia and in South America, clusters developed around food processing and raw material extraction and handling. For instance, in Australia a belt developed along the eastern coastline running from Brisbane to Sydney and further south to Melbourne; along the western coast a secondary cluster associated with mining emerged in the Perth/Fremantle zone. In New Zealand, clusters emerged along the Auckland/Wellington axis on the northern island, and along the Christchurch/Dunedin axis in the main southern island. In South America, a cluster stretching from Rio de Janiero and São Paulo in southeastern Brazil southward through Montevideo in Uruguay to Buenos Aires in Argentina developed during the nineteenth century. In Australasia and South America, a combination of mining and pastoral production focusing on sheep and cattle drove an inorganic economy that relied on railroads and steamships, and (after the 1870s) refrigeration. The same could be said of western North America, running from Alaska and British Columbia in the north, to California and Baja California to the south. Some clusters emerged from the imperialist adventures of the Western powers. Forcibly opened up by the Western powers in the 1840s and 1850s and subjected to humiliating treaties that gave the Western powers extraterritorial rights in specially designated treaty ports (Hong Kong, near the Portuguese entrepôt, Macao, was directly seized by the United Kingdom), China and Japan nurtured important clusters. On the Chinese coastline clusters developed in Shanghai and its hinterland and in the Hong Kong/Pearl River Delta zone. In Japan, an important inorganic economy cluster developed in the To¯kaido¯ belt stretching from Edo (later Tokyo) and Yokohama fronting on Tokyo Bay in the north through Nagoya to Osaka and Kobe in the south during the last three decades of the nineteenth century. The To¯kaido¯ cluster is particularly important because it became Asia’s first industrial belt. Thinking about clusters as growth poles exercising strong gravitational pull for labor, energy, and raw materials that turn out tremendous volumes of manufactured goods or processed raw materials and foodstuffs for consumption elsewhere, makes it evident that clusters are necessarily open. Their growth depends upon importing population and raw materials from near and far. Their growth derives from exporting goods for consumption elsewhere.

Globalization, trade, and migration 9 Note that the gravitational force of the cluster is proportional to the volume of activity taking place within in. Larger clusters – larger in terms of total value added generated locally – have greater gravitational pull. Presumably the pull also diminishes with distance, workers and raw materials being attracted in inverse proportion to the costs of being shipped to the cluster. What motivates movement of population facing costs of migration that loom large relative to their incomes? To be attracted to a cluster, a potential migrant to that cluster must anticipate improving his or her lot. To abstract from personal considerations of family and friendship that factor into individual level decisions, it is imperative that the migrant expect to gain in terms of standard of living. To approximate the idea of standard of living, let us use income per capita as a proxy, albeit imperfect. When the gap in income per capita between the hinterland of a cluster and the cluster itself is substantial, individuals and households driven by a burning desire to improve their circumstances abandon hinterlands. For most of the densely populated Eurasian continent where the bulk of the world’s population was concentrated at the dawning of the inorganic economy, clusters naturally drew heavily from their hinterlands. For the frontiers lands of Western settlement, for the Americas and for Australasia, the gravitational pull of clusters on their own immediate hinterlands was weaker. In sparsely settled frontier settlings the per capita income generated by farming and raw material production – in crop cultivation, forestry, fishing, animal husbandry – is relatively high. It outstripped, or at least equaled, that flowing from work in the shops, factories, and smelting mills of the growth poles. The frontier lands offered a dual opportunity denied to most of the districts of Eurasia. Not surprisingly, as transportation costs fell during the nineteenth century with the diffusion of inorganic economy transportation upon the oceans, on the mainland of Eurasia, in the waterways and plains of the countries of settlement, the volume of intercontinental migration from Eurasia to the countries of settlement picked up. In principle, moving to the frontier lands of settlement was superior to moving to a nearby cluster (albeit considerably more expensive) because a dual opportunity offers a richer menu of options than a single opportunity. Accordingly, the clusters of the countries of settlement tended to rely heavily on immigration from Eurasia for their labor recruiting. Of course, as the frontier lands dried up and were settled, the dual opportunity offered by the Western offshoots – the term Western offshoots refers to the United States, Canada, Australia, and New Zealand that are treated as a group in Chapter 5 – was gradually reduced to a single opportunity, working in a cluster. In the case of the United States, frontier expansionism was largely exhausted between 1880 and 1900; in the case of Canada, Australia, and New Zealand the turning point came later, after 1900. The focus of the argument involving differentials in per capita income

10 Openness has been on their role in shaping intranational and international migration flows. But these differentials also figure in many theories of trade including the one advanced in this account. That populations constrained by a low average standard of living spend more on basic necessities (food, clothing, and housing) that those with a higher standard of living is a well documented characteristic of per capita consumption patterns. Survival is the main business of life. Enjoying variety in consumption is not a priority. Eating Australian spring lamb on porcelain crafted in Japan through a mix of French and Chinese techniques with cutlery fashioned in Leeds was not an option for most Eurasians during the nineteenth and early twentieth century. The per capita income of nations shapes their demand for goods produced in foreign lands. Countries enjoying high average per capita incomes are free to import luxuries from abroad. Countries whose standards of living are low are constrained to mainly import necessities. For the migrant moving from a low standard of living environment to a higher standard of living environment, from the rural hinterland of a cluster in Eurasia, or from Eurasia to one of the Western offshoots, increasing his or her per capita income creates a possibility, modest perhaps, to partake of luxuries. By their very nature, luxury goods are sought out for their novelty, their diversity. We are social creatures and most of us want to impress our friends, neighbors, and business acquaintances with our purchases. By dint of the demand for diversity, clusters in distinct geographic zones exercise a pull upon each other in the sphere of trade. By the same token, there are limits to the hinterland’s capacity to absorb goods manufactured in the cluster imposed by the differential in income per capita. Clusters become Janus-faced in their production: focusing on shipping both lower quality and cheaper goods to their own hinterlands, and higher quality and more expensive goods for their own internal market and for markets in other clusters, where standards of living are nearly comparable with those enjoyed in the cluster, the per capita demand for novelty and luxury nicely complementing that arising from its own internal market place. Consider two growth poles i and j separated by distance dij. According to the logic of gravitational pull, these two clusters trade finished goods with each other in proportion to the product of the outputs produced in each separately adjusted for differences in per capita living standards enjoyed by residents of the two clusters. Since clusters tend to specialize in supplying finished goods and not resources – labor, raw materials, and energy – their trade in these factors of production is proportional to the product of the level of resources involved with an index of proportionality far below that governing trade in output. Plausible is the assumption that the movement of population between the two clusters is proportional to the product of their populations. Equally reasonable is the assertion that the level of the total gravita-

Globalization, trade, and migration 11 tional pull between the clusters – in the demographic sphere in terms of movement of persons, and in the production sphere in terms of income – is inverse to the costs incurred in going from one to the other c(dij). In the “many body problem” implicit in analyzing the gravitational pulls between the plethora of clusters that proliferated during the nineteenth century, the smaller is a cluster, the weaker is its gravitational pull on the others; the more isolated is a cluster, the weaker is its pull than clusters close to the others; the more unlike are two clusters in terms of per capita income, the weaker is their connection; the more similar, the greater the mutual attraction between them. Now let us embed inorganic economy clusters into national markets. Doing so generates market driven laws of gravitational pull between national entities. A reminder is in order. We are working with a world consisting of two regions: densely settled Eurasia in which inorganic economy clusters enjoy a superiority in income per capita over their rural hinterlands; and dual opportunity countries of Western settlement in which the inorganic economy cluster is more or less on equal par with its rural hinterland. Emigrants from the hinterlands of Eurasia either move locally, that is to clusters in Eurasia, or they purchase passage on the intercontinental clipper ship or steam powered liner bound for the distant lands, the Western offshoots. Eurasian clusters, and the nations harboring these clusters, compete with the Western offshoots for labor, for population. The more rapidly the national economies of the Eurasian countries shift towards inorganic economy production and transportation, the more rapidly they grow in per capita income, and hence the more competitive they become. As frontiers disappear in the Western offshoots, the competition boils down to a simple comparison of income per capita in the home country or somewhere else in Eurasia and the probable income per capita one might enjoy by emigrating to one, or more, of the Western offshoots. Thus, the gravitational pull between countries in Eurasia and countries of Western settlement is proportional to the product of the population of the two countries – a small population can only generate a small number of emigrants, and a large population can readily absorb a large number of immigrants – to the ratio of income per capita in the country of settlement relative to the country of emigration in Eurasia, and to the ratio of frontier land left to be settled in the Western offshoots relative to that left to be settled locally, and is inversely proportional to the distance – or the costs of transporting people from one country to the other – between the two countries. An additional consideration involves crossover income per capita, namely the existence of some level of income per capita in countries sending out emigrants sufficiently high to encourage most people to remain at home, sufficiently high to attract immigrants from other lands. The idea underlying this is the notion that incremental welfare falls off as

12 Openness income per capita increases. At sufficiently high levels of income per capita, the welfare loss attributable to abandoning one’s friends, relatives, and the culture of one’s homeland outweighs any gains that might accrue to the prospective emigrant by moving abroad. In the formal model developed in the next section I will develop a formula for the “attractiveness of the Western offshoots” that brings together the relative income per capita (of emigrant sending country relative to the Western offshoots) with a proxy for the probability of securing employment in countries of settlement and with the crossover level of income per capita. I use this formula to explain why countries “crossover,” shifting from being net sending to net intake countries in the demographic realm. An important implication of the crossover effect concept concerns my argument about why bilateral international trade and international migration between countries of Eurasia and the Western offshoots start out as complements, and eventually become substitutes. The key point concerns the contrast between the impact that differentials in income per capita play in migration gravitation, and the role that these differentials in income per capita have in trade gravitation. In my analysis of trade gravitation, I argued that the closer are levels of per capita income between two clusters, and by inference between two countries, the stronger is the pull between them. In the case of international migration relative income per capita works in the opposite direction: the greater are differentials, the greater is the migration. Keeping this in mind, consider two countries i and j. Employing the gravitational concepts used earlier, trade between them is proportional to the product of the sizes of their economies (to the product of their national incomes) and, in addition, is directly proportional to the relative level of per capita income of one country compared with the other (it is inversely proportion to the distance between the two countries, or to the costs of moving goods from one country to the other). When a country in Eurasia closes the gap between itself and a Western offshoot through successful harnessing of the inorganic economy, its trade with any one of the Western offshoots is bolstered. At the same time, the extent to which it ships emigrants to any one of the Western offshoots is diminished. The point is relevant because there is a strong compelling rationale that bilateral flows of trade and migration move together in a complementary fashion. Ships carrying migrants also carry goods on the same voyage; the consumption tastes of emigrant populations in a country of settlement are strongly shaped by their formative years in their country of origin, these tastes giving rise to a demand for imports from their homelands; remittances sent back to relatives in homelands fuel demand for goods from the country of settlement; merchants facilitating trade between their country of origin and their country of settlement often take up residence in the country of settlement, setting up shop with the products of their homeland. Strong glue holds together flows of trade and migration.

Globalization, trade, and migration 13 However, as the country of origin reaches crossover income levels, the adhesiveness of this glue is inexorably eroded. A final proposition about the relationship between market driven trade and migration concerns openness. Defining the degree of demographic openness in terms of the flow of immigrants and emigrants per 10,000 persons in the population, and trade openness as the flow of imports and exports as a percent of national income (gross domestic product in many of the empirical results reported on here) yields measures of the extent to which a country is open or closed in its demographic and economic affairs. With these definitions in hand, let me return to the considerations regarding trade and migration gravitation that I have already elaborated. From the point of view of any one country – that we can think about as the “home” country – the rest of the world is a trading partner, and a net supplier of immigrants or emigrants, to the home country. Based upon my general proposition that the degree of attraction in trade and the degree of attraction in migration affairs are associated (counteracted by the crossover effect at the level of individual countries, an effect that tends to dissolve when all other countries other than the home country are lumped together in a group), I predict that demographic openness and trade openness are positively related. The nation state: infrastructure driven growth and diversity My next set of propositions deal with the relationship between the modern nation state, infrastructure investment that promotes the diffusion and consolidation of the inorganic economy at the national level, and diversity. In this section I directly incorporate politics (power and political organization) into my analysis of globalization. I wish to call the reader’s attention to the fact that I refer to the “modern” nation state. By a modern nation state, I mean a national entity in which citizenship is defined by some theory of social interaction (e.g. a common religious or ideological commitment, or a constitution that defines the rights and obligations of individuals in reference to each other or the state); the state is intimately involved in creating and maintaining political, human capital enhancing, physical and financial infrastructure that either positively or negatively affects the diffusion of the inorganic economy; and the government of the state participates in multilateral political architecture with a clearly formulated foreign policy. Without carrying our discussion into matters of political theory that are outside the concerns of this work, it is worth emphasizing that various theories of the state as arising from a social contract between government and governed were put forth in the eighteenth and nineteenth centuries in Europe, and these theories or variants of them have been used to justify the actions of modern states on a worldwide basis since then.

14 Openness The theory of Hobbes is based on a kind of natural “dog eat dog” state of nature; without the state to enforce peace and codes of acceptable behavior anarchy naturally erupts. The rationale for the state lies in its role in enforcing civil order, providing security for the citizenry as a group from disorder arising from outside or inside the polity. Natural rights thinkers like Locke argued that state garners legitimacy through its protection of unalienable natural rights: life, liberty and the pursuit of happiness in the famous American version of Locke’s theory. Theorists of social interaction like Rousseau argued that the participation in political matters socializes persons to be more socially oriented in their thinking, more socially cohesive, than they might otherwise be. A “better” social animal arises through political participation than might otherwise be the case. States based upon religious ideas, ideologies like the cult of personality, have much in common with Rousseau’s ideal of the state as the expression of social solidarity, although that thought would almost certainly make a contemporary advocate of Rousseau’s philosophy shudder. From the viewpoint of this study, the key contributions of the modern state are in the fields of infrastructure investment and foreign relations. I emphasize four types of infrastructure: political infrastructure (courts and laws, government agencies with regulatory authority, fiscal agents for collecting revenues and disbursing them); human capital enhancing infrastructure (education, health); physical infrastructure (roads, canals, harbors, airports, rail line networks, hydroelectric power grids); and financial infrastructure (banking, stock and bond markets, national currency issue, adherence to some system governing the way foreign exchange rates are set). The thrust of my analysis is that the modern state can either promote, or deter, the diffusion of the inorganic economy through the policies it adopts in the fields of infrastructure development. In protecting or limiting private property rights; in allocating funds for building schools and educating all citizens or failing to do so; in participating in the building of roads, rail lines and harbors throughout national territory or in failing to encourage this activity; in creating central banks that serve as lenders of last resort for a central banking system and in regulating the activities of brokerage houses or failing to do so; the state makes important decisions about the level of infrastructure that is created within the borders that it governs. The point that I wish to stress is that by taking a stance in these matters, the state either encourages, or discourages, the diffusion of the inorganic economy within its borders. Consider China in the nineteenth century. Civil war – the great Taiping and Nian peasant rebellions in the midnineteenth century left over twenty million persons dead – and ongoing battles between warlords prevented Chinese authorities and investors, domestic or foreign, from deeply investing in infrastructure. As a result, developing effective internal transportation and communications was squelched, limiting the mobility of Chinese within China. A national

Globalization, trade, and migration 15 program of universal literacy did not take hold and the healthfulness of many rural populations languished. Barriers due to high costs of internal communication and transport sealed off the Chinese interior from the coastal clusters developing in cities like Shanghai. Widespread diffusion of innovations that were nurtured in the clusters failed to take place. China’s national per capita income stagnated, stuck in the doldrums. Diversity in a population – in terms of the number of languages spoken, the number of distinct legal regimes operating, the degree to which religion or clan loyalty overrides national allegiance – raises the costs of implementing nationalistic programs aimed at improving infrastructure. Because infrastructure investment brings in the state either as direct investor, or as standardized agent bent on making sure that privately created infrastructure conforms to certain minimum standards, creating infrastructure is inherently a political process. The more tangled are politics by regional or cultural divisions, the more divisive are politics, the more difficult is it to successfully negotiate tradeoffs between priorities, the more difficult deciding on particular projects becomes.2 A classic case is education. As the number of languages spoken at home proliferates, the difficulties of teaching in one tongue intensify. As the number of religions in the population increases, so do the problems that school authorities and teachers face in satisfying the parents of the children being educated. Indeed, many religious groups are concerned about the education that the children of their adherents receive in government managed schools, encouraging their members to pull their children out of the public system in order to educate them in religiously oriented parochial schools. This detracts from efforts creating a standardized national curriculum that all persons passing through the school system are expected to master. In discussing my concept of diversity, I believe it is important to explain what it is and what it is not. For many readers the term “diversity” may conjure up words such as “race,” “visible minority status,” or “persons with disabilities.” Defining diversity in these terms is surely important, but it is not what I have in mind here. My concept revolves around language, cultural and religious identity. Linguistic diversity affects communication in the workplace and in the classroom; cultural and religious diversity affects politics, the religious pulpit serving as a magnet for communicating the tenets of faith and the proper way to exercise the franchise in the voting booth. In actually measuring an index of diversity, I restrict my attention to flows, namely the impact that flows of immigrants have on the existing stock of a population. I compute the immigrant openness ratio – the flow of immigrants per 10,000 persons – using breakdowns in immigrant flows by national origin to classify immigrants by linguistic affiliation. Multiplying the immigrant openness ratio by the number of distinct language groups yields a measure of the impact of diversity in the immigration stream upon the society as a whole.

16 Openness That this has nothing to do with “race” or “visible minority” status per se, can be seen from the fact that the index of diversity rose dramatically in the United States during the 1880s and the first decade of the twentieth century and in Australia during the 1950s and 1960s, despite the fact that most of the immigrants did not fall into “visible minority” status. It was the simultaneous influx of large numbers of Italians, Portuguese, Swedes, Russians, Polish, Dutch, Greeks – Europeans whose native language was not English – that generated the surge in diversity. Bolstering this point is the fact demonstrated in Chapter 8 that American diversity during the 1990s, when the number of immigrants coming from Latin America and Asia far exceeds the number coming from Europe, is far lower than it was in the period 1900–1914, indeed in most decades after the midpoint of the nineteenth century. Restricting my use of the diversity concept to an analysis of the impact of immigration flows upon countries does not mean rejecting the importance of stock definitions of diversity in economic and social analysis. Indeed, diversity computed in terms of the linguistic or religious affiliation of population stocks has a powerful bearing on the economic development of nation states or regions. A particularly dramatic case is the Balkans, historically a buffer zone where conflicts between Eastern Orthodox, Roman Catholic, and Moslem were played out over centuries of bloody conquest and re-conquest. Consider the former Yugoslavia, now dissolved by centripetal political conflict into Croatia, Bosnia-Herzegovina, Montenegro, and a rump Yugoslavia consisting of Serbia and Kosovo that cooperate in an uneasy political alliance. Or consider Belgium gradually sliding into political divorce like that spinning off the Czech and Slovak Republics out of the former Czechoslovakia, or Canada, whose political and economic fate is profoundly shaped by the ideology of Quebec separatism based on being French rather than English. Those who would deny the importance of diversity might well contemplate the Balkans, the fate of Afghanistan dismembered by warlord power centers and clan conflict, or Iraq torn between Shiites, Sunnis, and Kurds. A classic case of escaping the pitfalls of diversity in creating infrastructure is Japan. As will be shown in Chapter 6, Japan’s high degree of cultural homogeneity stemming from its low level of demographic openness was a factor in the Japanese state’s successful promotion of infrastructure investment, and hence, in its rapid growth of per capita income. For these reasons, within nation states bent on rapid infrastructure buildup, resistance to diversity developed. This point will be demonstrated for all four Western offshoots. As Part II of this volume shows, all four countries – the United States, Canada, Australia, and New Zealand – erected walls limiting immigration from certain regions of the world and from certain nations during the second half of the nineteenth century and the beginning of the twentieth century. In imposing limits on immigration from certain specified countries, the Western offshoots drove a

Globalization, trade, and migration 17 political wedge between the propensity to trade with a certain set of countries and the propensity to embrace immigration flowing from these very same nations. The wedge so fostered encouraged a growth in trade diversity in the Western offshoots unmatched by the growth in immigration diversity. The consequence of these political actions – a wedge drawn between trade diversity and immigration diversity – was no different than that reached through the crossover process whereby diversity in trade and migration diverge due to market forces. However, the implications for international politics were wholly different. The market outcome stemmed from voluntary action on the part of the populations in countries supplying emigrants; the political outcome imposed constraints on the populations of emigrant supplying nations. The latter creates international political tension. The former does not. It is worth noting that a byproduct of a nation’s infrastructure investment is the bolstering of its potential openness in both demographic and economic matters. Reducing transportation and communication costs within a country reduces the costs of going to and fro to foreign lands; as well, it cuts the costs of shipping goods to distant nations. Educating a country’s population in at least one designated officially sanctioned standard language makes it easier for foreigners to cope with learning the language(s) needed to do business in that country. If everyone within a country speaks and reads a common language, a foreigner bent on conducting business affairs in the country knows that he or she need master but one tongue. Multilateral architecture and synchronization I have emphasized that the modern state takes a stance on domestic infrastructure investment that either promotes or detracts from its capacity to generate growth in income per capita, and as a byproduct either enhances or impedes the potential openness of the nation to international trade and international migration. I want to turn to the other face of the modern state: the face that it shows to the international community of nations. As the global volume of trade expanded in the nineteenth century with the proliferation of inorganic economy clusters based on imitating Western technology and engineering, the theory of the modern nation state spread with it. As it spread, it came into conflict with the imperial reach of the European powers that had staked out empires out in parts of Asia and Africa and the Americas prior to the era of modern nation states. In some cases – Japan is a striking example – the response to this tension was the creation of an increasingly powerful nation state that successfully resisted Western imperialism. In other cases – most of Africa and substantial stretches of the Eurasian landmass including India and China – the drive to create nation states was blunted by the military muscle of the European powers.

18 Openness One of the key objectives of the modern state is to maintain its national security, the integrity of its territory, and its citizenship. Indeed, searching for security in a Hobbes like world of international anarchy, with no super-national state enforcing cooperation among nations that wrangle with one another, routinely lying to one another and dissembling when they feel it is in their interests to practice deception, invites governments to build militaries, police their borders, and search for domestic conspiracies aimed at undermining civil order. Maintaining security has a domestic dimension. In the domestic arena, the problem is one of divided loyalties. Fanatic creeds advocating primary loyalty to a religious doctrine or a political ideology over and above loyalty to the nation state and its infrastructure constitute a security threat that governments cannot and do not ignore. The degree of diversity presents another potential problem for governments bent on minimizing security risks. Newly arrived immigrants to a country are often conflicted in their loyalties. Gradually, as they accept the social contract in the sense of Locke or participate in the political process and are socialized into the norms of the polity in the sense of Rousseau, the immigrant’s primary loyalty shifts to the country to which he or she has moved. Another problem posed by diversity is conflict between national or religious groups imported from abroad into the country of settlement, the hatreds and conflicts of the old world coming to haunt the new world as it were. The waves of Irish immigrants reaching American shores in the midnineteenth century incited anti-British sentiment in the United States, Great Britain having humiliated and exploited Ireland in the eyes of most Irish fleeing the island after the potato famine (see Chapter 5). Supporters of separatist regional independence movements in the Indian subcontinent have raised arms and organized terrorist activities in North America. During the 1930s, when tension between Japan and China was running high due to Japan’s takeover of Manchuria and its threat to invade northern China, the Japanese and Chinese overseas communities skirmished and harassed one another. Arguing that this is the case is not to denigrate the assertion commonly made by immigrant communities worldwide that the vast majority of their members do not threaten the security of their countries of residence. Still, it cannot be denied that immigrant communities do tend to harbor grievances inherited from the old world even in the new. To refuse to acknowledge this reality is to be naïve, well meaning perhaps, but naïve. The domestic side of the security problem pales in comparison with the international side. States rely on power and multilateral architecture – the balance of power, multilateral institutions like the United Nations, treaty commitments like those binding together the North Atlantic Treaty Organization – in attempting to maximize their security in the global arena. What determines power? Theorists of national power differentiate between power that is latent

Globalization, trade, and migration 19 and power that is realized in military terms. Basically, latent power is economic size: the national income or output of a country, its gross domestic product for instance, is a proxy for its latent power. Governments that choose to convert some of this latent power into actual military power by using fiscal resources to build navies, air forces, land armies, and coast guards are converting latent power into actual power to a lesser or greater degree depending on the political priority they give to military security. Projecting military power abroad, or even domestically, involves both national economic size and geography. For instance, the oceans and seas create “stopping power”: it is far easier to move troops across land than it is to move troops over the water. Overcoming geographic distance is a major consideration in developing a program of military security that involves stationing and using troops outside a country’s national border. Enjoying the capacity to extend military power beyond one’s borders is key to securing local hegemony. Local hegemony is important to the nation state because within their zone of hegemony, states are secure from military attack directed from other states. Because of the stopping power of water, securing local hegemony is most easily achieved within continents. However, throughout most of the nineteenth century, one nation state – the most powerful in latent terms because it was the first to harness the inorganic economy – was able to secure local hegemony in an empire that stretched across the globe, across all oceans and seas. This country, Great Britain, was able to achieve this remarkable hegemony because it commanded a huge navy that far exceeded the naval power of contending states. Hegemony within its empire did not confer on Great Britain hegemony on continental land masses: in Europe the big continental powers (Germany, France, the Austro-Hungarian empire, and Russia) vied for regional power; in the Americas, the United States emerged as a hegemonic power, warning off Great Britain and the other European countries with the Monroe Doctrine (see Chapter 3). As a result a concept that had guided European monarchies in the era before modern nation states emerged – the balance of power between big powers – was gradually extended from Europe which had nurtured the system to incorporate a growing number of independent nation states stretching from the United States across the Pacific to Japan and from Japan through Russia to Western Europe. Conferences and secret negotiations and diplomacy amongst these powers served as a multilateral architecture. The balance of power of the second half of the nineteenth century involved a weighing up of Great Britain’s local hegemony on the oceans and in its far-flung empire against the regional hegemony of the United States in the Americas and against various contenders for regional hegemony in Europe like Germany. While the stopping power of water prevented Great Britain from becoming a global hegemonic power that exercised unrivaled dominance in all theaters, its latent power was the greatest in the world, both because

20 Openness its national economy was the largest, and also because it could command resources in its empire, raising armies in Canada, Oceania, and India with which it could fight wars. Thus, in the balance of power that was created in the later half of the nineteenth century, Britain was the dominant local hegemonic power. Deriving from the multilateral political architecture was an international economic order. Because Great Britain was by far the greatest trading country in the world and the greatest source of the international migration flowing into the Western offshoots, it had the strongest selfinterest in maintaining an open system. It promoted global trade through its advocacy of most favored nation bilateral trade agreements, and through its willingness to manage a system of international currency exchange through the agency of the British pound based gold standard. The emergence of contending modern nation states whose growing latent power overshadowed that of the United Kingdom and its empire threatened this system of British dominated openness and British dominated balance of power. In the Americas, the United States emerged as a massive economic behemoth; in Europe, Germany emerged as a fearsome rival, unified through a succession of wars between the mid-1860s and 1871; in Asia, Japan emerged as an important regional power. In each case harnessing the inorganic economy through national programs of infrastructure investment threw up nation states that threatened British predominance within the balance of power architecture that gave Britain a leadership role in international economic affairs. Not surprisingly, each of these regional contenders began to build up powerful navies rivaling that of Great Britain. In short, the tension between nationalism, local hegemony and multilateral architecture was accelerating at the end of the nineteenth century and the beginning of the twentieth century. With Great Britain and its empire in decline, leadership in international affairs and the future of a multilateral architecture based solely on the balance of power was up for grabs. The painful and protracted shift from a world in which the United Kingdom took leadership for international economic affairs within a balance of power system (a state of affairs that ended with the outbreak of World War I) to a world in which the United States took leadership in international economic affairs – within a system of international political affairs replete with regional and global multilateral institutions that bind together the interests of nations outside the balance of power, the cornerstones of this new world order being laid during the late 1930s – is the principal theme of Part III of this book. I will show that the openness of the British dominated system gave way to a period in which most countries became closed (in their demographic and trade dimensions), emerging out of this valley into an open world with the establishment of a new international economic order dominated by the United States. A key part of my argument as to how and why this

Globalization, trade, and migration 21 occurred concerns the way nationalism and local hegemony have interacted with the drive on the part of the international community to create a multilateral architecture that can more effectively cope with a Hobbes like world of anarchy than did the balance of power system governing international affairs in the mid-nineteenth century.

A formal presentation of the political economy gravity model I have spelled out the key theses of this book in discursive style. In order to sharpen up the arguments I am making, I would like to recast some of them – those most amenable to being represented in equation format – with some simple algebra. I would advise readers with a strong distaste for formalization to indulge me throughout this section, and at a minimum, come away with an understanding of the seven propositions that I draw from the formal analysis. My main purpose in spelling out an equation system is heuristic. As will be apparent from the nature of the equations, I cannot use the system to statistically “test” the validity of the theory using quantitative data. However, the logic of my model leads to a set of propositions, whose validity can be examined with actual data. As with any other deductive theory, all that I give with my formalism are conditions sufficient to explain the historical evidence examined. I do not claim that my model gives necessary and sufficient conditions. A word is in order concerning my term “political economy gravity model.” I coin the term to describe the fact that both political power and markets play roles within my model. The market model The first set of equations concern gravitational pulls in trade and migration.3 The pulls are between nations, the “home” country H interacting bilaterally within another country i through migration and trade flows between the two countries, and internationally with the rest of the world (RW) through all flows of persons and goods moving in and out of the home country. To facilitate the presentation, I assume that the home country H is one of the Western offshoots receiving immigrants, and i is a country in Eurasia initially sending out emigrants. Let: PH Pi PRW yH

 population of the home country  population of a foreign country i  population of the rest of the world  real per capita income of the home population

22 Openness  real per capita income of a foreign country I  real per capita income of the rest of the world  yH/yi  real income per capita of country H relative to real income per capita of country i ryHW  yH/yRW  real income per capita of country H relative to average real income per capita of rest of world YH  total real income of home country  yH * PH Yi  total real income of a foreign country i  yi * Pi dHi  average distance between home country and foreign country i (average distance separating the two countries can be computed either by taking the distance between the geographic centers of the two countries involved or by computing the population distribution weighted distance calculated by weighting through by the populations of regional sub-districts within each of two countries involved to generate a distance between the population weighted centers of the two countries. For instance because over 80 percent of Canadians live within a hundred miles of the border between Canada and the United States, the population weighted distance between the two countries is small, whereas the geographic distance measured in terms of land area is large, most of Canada consisting of unpopulated land in the far north) dHRW  average distance between home country and rest of world cg(dHi)  average cost of moving goods between home country and country i cP(dHi)  average cost of moving people between home country and country i cg(dHRW)  average cost of moving goods between home country and rest of world (rest of world weighted through by income weighted centers of gravity) cP(dHRW)  average cost of moving people between home country and rest of world (rest of world weighted through by population weighted centers of gravity) IndLEH  index of expansion of land area that can be improved for use in cropping or for animal husbandry in the home country IndLEi  index of expansion of land area that can be improved for use in cropping or for animal husbandry in the country i RLEHi  relative index of expansion of land area, home country compared to country i  (IndLEH/IndLEi) MHi  total number of immigrants and emigrants going between home country and country i yi yRW ryHi

Globalization, trade, and migration 23 MHRW THi THRW dO tO

 total number of immigrants and emigrants going in and out of the home country  merchandise trade between home country H and country i (total exports from H to I, and imports from i into H)  merchandise trade between home country H and the rest of the world (sum of total exports and imports for H)  demographic openness  [(MHRW)/PH] * 10,000  trade openness  [(THRW)/YH] * 100

With these definitions, I relate migration flows between H and i to the product of the populations, the relative levels of the income per capita in the two countries, the absolute level of real income per capita in the country sending emigrants, and the relative index of land availability: MHI  kMHi * [{(PH * Pi)/cP(dHI)}, ryHi, yi, RLEHi]

(1.1)

and: MHRW  gkM * [(PH * PRW)/cP(dHRW), ryHW, RLEHRW]

(1.2)

Where RLEHRW measures the relative availability of land expansion for the home country relative to the rest of the world. Turning to trade flows, my theoretical perspective suggests: THi  kTi * [{(YH * Yi)/cg(dHi)}, ryHi]

(1.3)

and: THRW  gkT * [{(YH * YRW)/cg(dHRW)}, ryHW]

(1.4)

It is worth noting that comparative advantage in raw materials production, and in agriculture and animal husbandry, could be captured in these equations by introducing RLEHi and RLEHRW in the trade flow equations. No attempt is made to deal with this consideration here, largely because the focus of this book is not on exploring in detail the empirical nature of international trade flows per se, but rather on exploring the relationship of trade to international migration movements. Turning to demographic and trade openness we have: dO  [{1/cP(dHRW)} * (gkM * PRW)] * 10,000

(1.5)

tO  [{1/cg(dHRW)} * (gkT * YRW)] * 100

(1.6)

and

24 Openness To capture the crossover effect we need some additional definitions. Let: AHi  relative attractiveness of country H relative to country i My argument is that this attractiveness depends upon the relative land availability of H relative to i, the relative level of income per capita in the two countries, and the probability of securing employment in H, and the level of income per capita in country i. In order to approximate this, I write: AHi  h(RLEHi, ryHi, yico, urH)

(1.7)

In this equation yico is a “crossover” level of per capita income for country I discussed in the previous section, and urH is the unemployment rate in the home country. It should be noted that kMi and kTi tend to be correlated because of remittances sent back to country of origin because immigrants to a country demand goods from their home countries (niche markets are created), that is the two tend to move together because the gravitational pull of trade and the gravitational pull of migration are mutually reinforcing. It should be stressed that this logic is based only on the market. The logic of our equations leads to the following three propositions. Key implications of the market model 1

2

3

There is a tendency for trade diversity (the national origin or a country’s imports and the national destination of its exports) and its demographic diversity (the national origins of its immigration/emigration flows) to be positively associated. This is attributable to transportation costs and to the mutually reinforcing nature of bilateral trade and bilateral migration working through demand for goods and flows of remittances. However, as income per capita rises in the country or region with the lower per capita standard of living, this association tends to weaken. This is due to the crossover effect. The relative income per capita effects work in contrary directions: a widening of the differentials tends to encourage migration, discourage trade; a closing of the differentials tends to discourage migration. Ultimately trade diversity and migration diversity tend to diverge for countries receiving immigrants. Because the openness of a home country with respect to trade or demography is the weighted sum of the bilateral interaction between the home country and all other countries, there is a tendency for trade openness and demographic openness to be positively associated.

Now let us bring the nation state into the analysis.

Globalization, trade, and migration 25 Infrastructure and diversity Let I be an index of political/physical/human capital enhancing/financial infrastructure, and let Gx be the growth rate of a variable x. Then the infrastructure driven growth thesis states: Gy  growth in income per capita  f(I, GI)

(1.8)

Growth in income per capita depends upon present levels of infrastructure, and upon the growth rate of infrastructure (new infrastructure supplanting old infrastructure through the process of creative destruction discussed in the previous section).4 The thesis that diversity affects the growth rate of infrastructure formation can be formulated algebraically in an equation capturing the costs of constructing infrastructure, whereby costs rise with an index of diversity Indiv. That is: C(GI)  C(Indiv)

(1.9)

Diversity in a country of net immigration depends on the level of demographic openness of that country multiplied by a measure of the language/cultural diversity of the immigrant flow coming in. This discussion leads us to the following two propositions: 4

5

As diversity increases in countries of net immigration, resistance to immigration increases due to a rise in the cost of constructing new infrastructure, especially human capital enhancing infrastructure. This resistance takes the form of national political movements designed to limit the diversity and/or volume of incoming immigrant streams. As a result of this opposition, the nation state formulates policies limiting openness. These policies are either negotiated on a bilateral basis, or through unilateral formulation of an immigration policy. To understand the precise nature of a country’s response to limiting diversity, international political constraints must be taken into account. As a result of the preceding proposition, a political wedge is driven by the diversity of immigration and the diversity of trade in countries of net immigration.

Now let us turn to the position of the nation state in international affairs. The international political power model and synchronization National security NS is a positive function of national power NP and multilateral architecture and, from the viewpoint of government agencies

26 Openness concerned with the “divided loyalty” problem, a negative function of Indiv. That is: NSH  NSH(NPH, Indiv, multilateral architecture)

(1.10)

NP is a relative concept, depending upon the power of any one country relative to other countries (potential enemies) and upon the power of a country relative to all other countries. Geography matters. The closer a country is – in particular the closer is a country on the land – the greater is the potential threat exercised by that country on the home country H. Thus, to maximize its security, the leaders of a country attempt to secure regional hegemony (security from land attacks) or local hegemony (e.g. Britain and its empire), and they attempt to prevent other countries from becoming regional hegemonic powers through strategic interaction with other nations as part and parcel of their foreign policy.5 The relative level of national power of a country H relative to another country i, NPHi, can be expressed as: NPHi  NPHi(YH/Yi, MIH/MIi, dHi)

(1.11)

Where MIx is the military strength of country x, and dHi is the distance between country H and i. The global power of a country NPH depends upon its economic size relative to the rest of the world (YH/YRW) and its military power relative to the rest of the world (MIH/MIRW). That is: NPH  NPH(YH/YRW, MIH/MIRW)

(1.12)

The latent power of a home country depends upon its relative level of income, its infrastructure and the technology that its firms and government can command. To simplify, for any two pairs of countries H and i the latent power of H relative to i is: LPOHi  LPOHi(YH/Yi, multilateral architecture)

(1.13)

The actual power that H has relative to I, POHi depends additionally on the capacity of H to exercise effective military threats, thus it depends upon the military capability of H and I, MI (which depends upon income, technological capacity of the country, the geographic distance between the countries, i.e. the costs of applying threats to the other country), and the architecture of the international geopolitical system. POHi  POHi (YH/Y, MIH/MIi, dHI, multilateral architecture)

(1.14)

Paralleling the idea of trade and demographic openness as the resultant of weighted sums of bilateral exchanges of goods and population, we

Globalization, trade, and migration 27 can define the latent and actual power of a country H with respect to the rest of the world. However, in doing so we must take into account the relative standing of a country compared to its main contenders. Sticking to great powers for a moment, the latent power of H with respect to the world depends upon the size of the country’s economy relative to the world’s economy, and also relative to the most powerful contending powers, nations number 1 and 2: LPOHRW  LPOHRW(YH/YRW, YH/Y1, YH/Y2, multilateral architecture) (1.15) and its actual power is: POHRW  POHRW(LPOHRW, MIH/MIRW, MIH/MI1, MI/MI1, MIH/MI2, dHRW) (1.16) I assume that the national government attempts to maximize its security by maximizing its power POHRW. Maximizing its power also allows it to maximize its degree of domestic independence, where degree of independence refers to the ability of a government to formulate its policies independently from the pressure imposed by other countries or multilateral organizations. It can be seen from the latent power equation that smaller countries are net beneficiaries of a stronger multilateral architecture, the stronger the multilateral architecture, the more level is the power playing field. Thus, governments of larger countries enjoy greater levels of domestic independence than smaller countries. It can also be seen that there is a potential “contradiction” between a country’s encouraging economic growth in other countries, which, if successful, tends to weaken the latent power of the country by reducing its share of global output, but at the same time gives a push to its trade thereby promoting its own domestic economic growth. The key problem involves the disjoint between absolute income and relative income. An important application of this idea involves supporting multilateral architecture. From the viewpoint of selfish national economic interest, a country enjoying a large share of world exports and/or an expanding share of these exports, has a greater incentive to unilaterally promote multilateral architecture. By the same token, a country whose share of world exports is declining tends to resist becoming (or remaining) a leader in promoting multilateral architecture. Getting a consensus depends upon the relative shares of trade and on trade growth between the largest national economies; it is shaped by the architecture of international trade. To explain why great powers promote multilateral architecture or help build up competitor economies – American support for the General

28 Openness Agreement on Tariffs and Trade (G.A.T.T.), the World Bank, the United Nations, the Marshall Plan that helped rebuild war ravaged Europe, procurement of equipment in Japan and Australasia during the Korean War are all examples from the late 1940s and early 1950s – the nature of the international distribution of power, and the shares of export trade and growth in export trade must be taken into account. In the aftermath of World War II, the Soviet Union, though economically weaker than the United States, fielded a massive army on its own soil. Because the Soviet Union was geographically close to Western Europe and Asia, not separated from Western Europe by an ocean, its military might posed a potential military threat to the Western powers. Hence, the United States promoted multilateral political and economic structures and the rebuilding of economies in Western Europe and Japan, thereby undermining to some extent its own latent power. These arguments can be used to explain why the United Kingdom abandoned openness in the late nineteenth/early twentieth centuries, and why the United States became a proponent of openness beginning in the late 1930s (1936 is a key date). The story involving the decline of the United Kingdom’s support for multilateral architecture and the rise of the American support for multilateral architecture informs Part III of the book. To repeat: the foreign policy of a country, and its commitment to a multilateral architecture, depends upon the relative distribution of national incomes in the world. It also depends upon its internal domestic pressures and the degree to which pressure is applied to it by other countries and by multilateral institutions. In countries of net immigration, a community fashioned from immigrants and previous generations of immigrants hailing from a particular country or region, may constitute an important lobby group, advocating policies related to country of origin. The more open is a country, the more likely are international pressures to be felt, in this case acting through domestic politics. Small countries of net in-migration are the most vulnerable to foreign political pressures, their degree of domestic political independence being the most strongly circumscribed. Similar remarks apply to trade openness. Trade between two countries spawns vested interests on both sides in promoting healthy bilateral relations between the countries. In this sense there is overlap of domestic and international political economy. Two propositions flow from the considerations advanced here: 6

Trade and migration policies are sub-branches of foreign policy. As such, these policies arise out of the nexus of domestic and international pressures influencing foreign policy in general. At the international level, the degree to which a country A exercises influence over the policy of another country B, and B upon A, depends upon (i) the extent to which populations A and B exchange population and/goods, (ii) the relative standing of countries A and B in the inter-

Globalization, trade, and migration 29

7

national power pecking order, and (iii) the extent to which they can exercise potential military threats upon each other. Because countries are linked bilaterally in this way, when one country becomes more closed, it forces other countries to either become more closed or to divert their demographic interactions and trade to third parties. Synchronization of openness – countries tending to either open up or close down in tandem – is more than the resultant of bilateral interactions. It depends upon leadership undertaken by either one, or a group of, local hegemonic power(s) taking action to encourage openness (the smaller the number of local hegemonic powers involved, the easier it is to reach agreement on how openness is to be achieved). For a particular country, willingness to take leadership depends on the diversity of its bilateral relations. In the field of trade, for instance, the larger are the number of countries with which a country wants to maintain reciprocal arrangements, the greater is its incentive to promote a regime of openness.

Marshalling evidence I devote the remainder of this book to laying out the evidence in support of the seven propositions advanced in the previous section. I do not attempt to “test” a model in the sense of estimating parameters for one or more of the equations expressed in the section. It would neither be desirable or practical to do so. Ultimately, my propositions are what matter, not the formal structure of my argument or the sequence of equations that I have put forward. In the remainder of Part I, I explore the relationship between trade openness and demographic openness over the period 1880–1992, for nineteen countries (not all nineteen countries have figures for all eleven decades.) I also analyze the crossover effect. The main focus of this section is on demonstrating how the market works in shaping trade and migration. In particular in Part I, I show: (1) trade openness and demographic openness are positively related; (2) trade openness and immigration openness (the ratio of immigrants to population) are positively related for the Western offshoots; (3) trade openness and emigration openness (the ratio of emigrants to population) are positively related for Eurasian countries during the period before they experienced crossover; (4) growth in trade and growth in immigration are related for the Western offshoots; the causality linking the two growth rates – which variable was in the driver’s seat? Was trade growth “causing” immigration growth or was immigration growth “causing” trade growth? – is not always the same, varying between countries and for particular countries between historical periods; (5) growth in trade and growth in emigration are related for Eurasian countries, the causality between the two growth series varying

30 Openness from country to country; (6) synchronization, countries opening up and closing down in tandem, is quite strong over the period 1880–1992 although there are exceptions to this rule; and (7) there is a close relationship between a variable capturing the relative “attractiveness of the Western offshoots” and the crossover effect for Eurasian countries. Befitting its focus on measurable variables, this section of the book is basically quantitative. The rest of the book is more qualitative, emphasizing historical “stories.” Part II deals with diversity and infrastructure driven growth. In order to get a handle on an immense theme in a relatively short text, I focus on the five relatively open countries enjoying a strong “British” connection – the United Kingdom, the United States, Canada, Australia, and New Zealand – showing how the approach to infrastructure development and diversity developed within this group of countries had its roots in the United Kingdom. But diversity within the United Kingdom prior to the twentieth century was limited, not nearly on the scale experienced by the Western offshoots after the mid-nineteenth century. I demonstrate how political resistance to growing diversity developed in the four Western offshoots, relating this to costs of developing infrastructure in these countries, especially in human capital enhancing infrastructure. I also show how political resistance to diversity drove a wedge between the growing diversity of trade and the diversity of immigration in the Western offshoots. The remainder of Part II deals with a relatively closed country, Japan, by and large avoiding the problems posed by diversity in developing its infrastructure. However, after Japan was forcibly opened up by the West from its self-imposed autarky, its openness did grow, and during one period, the period between the two World Wars, it became relatively integrated with its growing empire on the Asian mainland. This openness through imperial expansion created problems for Japan’s internal political economy, problems that vanished when her empire crashed in ruins at the close of World War II. In short, Part II deals with infrastructure driven growth in the context of relatively open countries and in the context of relatively closed countries. In Part III, I tackle the synchronization problem with a theory of international political economy that hinges on the shift in leadership supporting openness from the United Kingdom to the United States. I use the analysis in this section to analyze the 1924 Immigration Law of the United States in detail, and to explain why the four countries of Western settlement abandoned policies severely restricting diversity in their immigration. I close out the discussion by comparing various approaches to coping with diversity in the high income per capita countries that enjoy net immigration flows. This section attempts to place contemporary problems generated by, and policies designed to cope with, diversity in international migration into historical perspective.

2

Demographic openness and trade openness

Measuring demographic openness and trade openness National yardsticks are indispensable for calibrating globalization. The backbone of any comprehensive statistical analysis of global trade and global migration must be evidence collected by officials in the employ of nation states, eventually appearing in official publications of governments. The data I use come down to us from the efforts of legions of customs officials, immigration bureaucracies, and port authorities counting flows of migrants and goods. Ultimately, measuring openness in trade and migration – my main measure of globalization, more open regimes evidencing greater globalization – means taking the measure of movements in people and goods at national borders. These data are far from perfect. Taking account of the blemishes of the data is the message of Appendix A.1 that I ask the reader to peruse at this junction. To address the concerns of this study I was constrained by the geographic scope of the useable figures. Try as I might to come up with estimates of trade and demographic openness for every continent on the globe, I found that countries for which trade and migration are adequately reported over a long time period are mainly limited to Western Europe and the Western offshoots. My efforts to calibrate openness properly were also hampered by deficiencies in reporting, plagued by underestimation and definitional changes arising from the gritty reality of activity that government bureaucrats only imperfectly capture. That said, I believe the data that are used here are acceptable. In Appendix A.1 I stress this point. My aim is to show that demographic openness and trade openness are related to one another. I use cross-sections of national estimates for pairs of numbers representing demographic openness and trade openness to do this. Each number that I use is the average of annual values for distinct sub-periods of the 1880–1992 era. I work with eight sub-periods of this eleven-decade period, thereby generating eight cross-sections that I pool together. In addition I generate time series involving annual growth rates for either emigration or immigration and growth rates for real trade (nominal trade adjusted for price changes), and use these

32 Openness growth rates to say something about the causal relationship linking trade and migration. Inevitably, I am operating under the assumption that the analogy between my measurement of demographic openness and my measurement of trade openness is robust. Moreover, I inject meaning into this analogy, mainly by constructing estimates for the two variables that can be seen to mirror each other in a formal sense. To see this, let: Y  national income, and T  trade  IX  EX  imports plus exports Then trade openness is: to  (T/Y) * 100 and by construction this is analogous to demographic openness do calculated as: do  [(IM  EM)/P] * 10,000 with IM, EM, and P standing for immigrants, emigrants, and population respectively. As can be seen, both variables gauge the sum total of inflows and outflows relative to national activity or national population stock. Despite these definitions being roughly similar, it is apparent that there are differences between demographic openness and trade openness so calibrated. Trade openness is the ratio of flows to flows, both trade and national income being flow measures typically measured on an annual basis; demographic openness involves the ratio of (annual) flows of immigration and emigration relative to population stock, typically estimated on a single date during the year, ideally calibrated through a census. Further deficiencies in the analogy are apparent when net immigration (immigration minus emigration) and net trade (exports minus imports) is considered. For a detailed discussion of net immigration, which basically measures whether a country’s population is increasing or decreasing due to international movements of persons who have resided or are about to reside within its jurisdiction, the reader is referred to Appendix A.1. For net exports we have: NX  net exports  EX  IM  exports minus imports To understand the significance of this measure, and to see why its implications are considerably different from those involving net migration, consider the various national income components of total Y viewed as aggregate national demand:

Demographic openness and trade openness 33 C  aggregate national consumption arising from the household sector I  investment arising from the acquisition and creation by private firms of new plant, equipment, and infrastructure; and from the government’s balance sheet relative to the rest of the economy G  government spending (including acquisitions and maintenance of public or semi-public infrastructure) F  government transfers to the private sector (e.g. unemployment and welfare benefits, subsidies to businesses) N  interest on national debt TA  taxes Supplementing these wholly national (i.e. involving domestic activity within a country) flows, there are flows linking national economies to the rest of the world. In addition to trade flows involving imports and exports linking a nation’s economy to the rest of the globe, there are factor and transfer payments that link national activity to foreign activity and assets lodged abroad, namely: V  (factor income from abroad)  (transfer payments from abroad) Now the total private savings generated by nationals is: SP  (Y  V  F  N  TA)  C

(2.1)

the government’s net savings being: SG  (TA  F  N)  G

(2.2)

The rest of the world provides savings to the national economy through: SR  (NX  V)

(2.3)

Where total savings at the national level equals total investment at the national level: S  SP  SG  SR  I

(2.4)

As can be seen, ignoring V, the significance of the trade surplus (NX positive) or trade deficit (NX negative) lies in the fact that a trade deficit requires drawing upon the rest of the world for savings, and a trade surplus implies the opposite, capital flowing out to other nations. One cannot completely reject the logical similarity between the rest of the world contributing to (or drawing down) the population growth of a

34 Openness nation through contributions to that country’s net immigration, and the rest of the world assisting (or diminishing) the capital formation of the country through the country’s net trade position. From my viewpoint, the problem arises from changes in the net trade and net immigration position of countries due to expansion or contraction of their income per capita relative to levels in other countries. According to the crossover pattern, countries shift from a net emigration to a net immigration posture over time. A country’s net trade position is not so easily analyzed. Indeed, many countries shift from being net debtors to net creditors and then revert back to being net debtors. The experience of the United States over the course of the twentieth century, shifting from being a net debtor to a net creditor at the beginning of the century and from a net creditor to a net debtor in the post-World War II period, is a case in point. It should be noted that many economists view the degree to which the international flow of capital, the financial flows from the banks and lending agents of one country to another country, contributes to savings in some lands, and draws down savings in other countries, the linchpin of economic globalization, the best single indicator of international economic integration. The view that the investor who purchases foreign securities in Indonesia or snatches up beef futures in Uruguay, or the global stretch of powerful banks in the high income nations into financing shoe and rug manufacturing in the lofty mountains of the Andes or Pakistan, are the truest expression of global market outreach is an opinion with which I have sympathy. Indeed, an important strand in global backlash is outrage within the developing world at the demands imposed by officials of the International Monetary Fund for reforms in the aggregate economic policy making of Third World nations.1 Nor is this new. In the nineteenth century gunboat diplomacy was used to discourage governments from reneging on repayment of debts. Protecting the financial interests of French and British owners of Suez Canal shares, and European access to the canal, was a major factor in the decisions of the British and French governments to establish a Dual Control regime in Egypt; and it continued to rear its head in the twentieth century, as evidenced by the Suez Crisis of 1956 precipitated by the decision of Nasser’s Egyptian government to nationalize the canal. Again, the myth of a Jewish international financial conspiracy has fanned nationalist xenophobic rhetoric in Europe, America, Asia, and the Middle East. The “Protocols of the Elders of Zion,” a blatant forgery cobbled together from an anti-Semitic work by the czarist secret police under Nicholas II of Russia, became grist for the Nazi propaganda mill in the 1930s. Its arguments even influenced the famed American industrialist Henry Ford who penned an anti-Semitic tract that has enjoyed an eclectic audience ever since, recently distributed in Malaysia by the ruling party of that country.2 As a practical matter I do not attempt to measure financial flows in this study. Attempting to construct an annual data set on financial flows that

Demographic openness and trade openness 35 parallels the data set I have prepared on trade and migration for a considerable body of nations covering the period 1880–1992 is an immense and forbidding task. It is worth doing. I would invite other scholars to undertake this task so the interrelationships between demographic openness, trade openness, and capital market openness can be systematically examined. Even restricting attention to trade openness as a proxy for economic openness involves compromises. In theory trade includes visible trade (merchandise trade) and invisible trade, flows of services. Tourism, business consulting, and shipping are three prime examples of service trade. Unfortunately, acquiring comprehensive data on this form of trade over the period 1880–1992 for a host of countries is an immense task in itself, a task that requires bold assumptions even greater than those revealed in Appendix A.1. In this study I restrict attention to merchandise trade. Since service trade seems to rise as a share of total trade over time (not surprising since the service sector increases its share of national output and employment as income per capita rises, at least once income per capita reaches reasonably high levels), excluding service sector flows from the data on trade that I analyze means I underestimate the degree of trade openness of countries, especially in the period since the early 1970s. Other problems involve smuggling of merchandise flows, and the capacity of officialdom to accurately enumerate flows of cargo, even those legally shipped with properly prepared bills of loading. Exports pose a particularly vexing problem. In this regard, it is interesting that the Canadian government estimates its exports to the United States by adopting the American figures on imports from Canada. Again, what is to be done with re-export trade, which is very important in the case of the United Kingdom and entrepôt economies like Hong Kong and Singapore? In this study re-exports are included in the export flows whenever the official estimates include these numbers. The point is not that the figures on trade flows employed here cannot be justified. Rather the point is that underlying this justification are hard choices and compromises necessitated by the realities of crime and the overworking of hard-pressed officials. What holds for trade holds with even greater force for immigration and emigration. The undocumented, and tragic, traffic in human cargo – the smuggling of migrants buried down in the holds of ships, squeezed into containers where they often find themselves gasping for insufficient oxygen, and crammed into the backs of densely packed trucks where, on occasion, they have perished in the most gruesome way possible – is a major issue for agencies involved in protecting national security in countries all over the globe and a major concern of those concerned with human welfare. No nation state can completely monitor the flow of humans coming onto its shores over land and sea; no nation state can completely protect the lives of those who attempt to steal clandestinely into its environs.

36 Openness Legally sanctioned migration, fully documented and authorized, presents its own special set of problems. The focus of this study is permanent immigration. What is to be done with the immigrant who arrives on a temporary student or employment visa, switching categories later on to permanent resident or landed immigrant status? What about circular or return migration, the immigrant returning to his or her homeland after a one or two year residence in the country of immigration? What about immigration that immediately generates emigration to a second country, as happened in Australasia where New Zealand bound migrants passed through Australia or in North America where United States bound immigrants passed through Halifax and Montreal in Canada? Appendix A.1 discusses at considerable length the manifold adjustments I have made to arrive at estimates of immigration and emigration flows. Suffice it to say that adjustments must be made: the actual data generated by governments are too often flawed because of the way they are collected, and the way they are reported. With these provisos and working under the assumption that the proof of the pudding is in the eating, let us turn to the estimates of trade openness and demographic openness. Are they positively related one to the other? Do levels of openness for countries tend to move together?

Periods In order to capture decade by decade changes punctuated by the impact of changes in the international economic order initiated by global wars or drives toward national autarky due to disorder in the system of international accounts settlements or to tariff wars, I divided the period 1880–1992 into eleven sub-periods – the 1880s, the 1890s, the period 1900–1913, the World War I era (1914–1918), the 1920s, the period 1930–1938 leading up to World War II, the World War II years (1939–1945), the 1950s, the 1960s, the 1970s, and the period 1980–1992 – most sub-periods being approximately ten years in length. I devised this schema with full knowledge that the 1920s and 1930s were marred by ongoing and mostly failed attempts to revive a British pound based gold standard that had functioned fairly during the period 1880–1913, and half hearted and unsuccessful attempts to negotiate tariff reductions throughout the industrial world (see Chapter 7). By the same token, I was fully aware of the fact that the period 1950–1969 was a golden age for the countries that had already industrialized by the 1930s, with income per capita in Western Europe and Japan converging towards American levels. In short, my a priori knowledge of the periods 1880–1913, 1914–1949, 1950–1969, and 1970–1992 conditioned the choice of periods that I employed in computing national averages for demographic and trade openness that served as the basis for cross-sectional analysis. With this in mind consider the averages (weighted by relative popu-

Demographic openness and trade openness 37 lation size in the case of the migration measure, and by relative national income size for the trade measure) for demographic and trade openness for Western Europe given in Table 2.1.3 As the reader can see, both demographic and trade openness fell off during the 1890s, revived somewhat during the period 1900–1913, then dropped sharply during World War I, trade openness reviving somewhat during the 1920s, both types of openness dipping deeply during the 1930s and especially during the World War II period. After 1950 a reverse tendency, both forms of openness gaining decade after decade, is apparent. To see this pattern graphically, consider the pattern traced out for Sweden, a country with exceptionally good data (see Appendix A.1), in Figure 2.1. Note that Table 2.1 separates out three relatively small Northwestern European countries in order to demonstrate that the overall Western European pattern is mimicked within a distinct sub-region of the Western European mainland. It is important to keep in mind that most of Western Europe was sending out emigrants to the Western offshoots during the period prior to the 1930s, their demographic openness being mainly driven by huge outflows of emigrants. It would stand to reason that countries receiving the emigrants would experience a similar pattern of relative openness giving way to a comparatively closed regime followed by a reversal in this trend after 1950, demographic openness being mainly a reflection of the volume of immigrant flow. Figures for the Western offshoots – the four major countries of immigration, the United States, Canada, Australia, and New Zealand – largely bear out this assertion. Relevant population and income-weighted averages for the period 1900–1992 (usable data on trade and demographic openness for these countries is unavailable prior to 1900) appear in Table 2.2. 140 demographic openness, Sweden, 1880–1993 trade openness, Sweden, 1880–1993

120 100 80 60 40 20

1880

1890

1900

1910

1920

1930

1940

1950

1960

1970

1980

1990

Figure 2.1 Demographic openness and trade openness in Sweden, 1882–1990 (five year moving averages).

88.0 59.2 69.4 46.2 59.4 29.3 18.1 44.5 69.9 91.9 115.1

46.9 43.1 56.4 46.4 34.4 23.1 15.9 33.0 33.1 42.9 46.7

5.5 0.1 9.5 107.5 0.5 0.8 201.5 11.0 1.3 25.6 5.8

Demographic 82.5 60.2 59.1 28.5 35.3 27.7 23.9 58.2 86.0 98.1 98.1

3.2 1.8 3.0 2.2 4.8 0.9 1.9 7.4 6.9 6.3 1.4

3.0 4.4 3.9 25.4 11.4 1.0 38.4 5.1 7.6 1.7 2.6

Migration

Growth rates

3.5 2.3 2.9 4.8 10.5 2.0 9.0 4.7 4.5 5.2 0.8

Trade

Notes a Averages computed by weighting demographic figures by relative population sizes, and trade figures by relative levels of national income. b For 1880–1899, Denmark, Germany, Norway, Sweden, and the United Kingdom; for 1900–1918, Denmark, Finland, Germany, the Netherlands, Norway, Sweden, and the United Kingdom; for 1920–1938, Denmark, Finland, Germany, Italy, the Netherlands, Norway, Spain, Sweden, and the United Kingdom; for 1939–1945, Denmark, Finland, the Netherlands, Spain, and Sweden; for the post-1950 period, Austria, Belgium, Denmark, Finland, France, Greece, Italy, the Netherlands, Norway, Spain, Sweden, and the United Kingdom (except for 1980–1992, for which data for Austria and Greece are excluded). c For 1939–1945, Denmark and Sweden only.

42.6 45.3 46.1 36.9 43.8 36.2 21.6 44.7 44.3 51.9 54.6

Trade

Migration

Demographic

Trade

Openness

Growth rates

Openness

Trade

Denmark, Norway, and Swedenc

Western Europeb

Sources: Various tables in Maddison (2000) and Mitchell (1998). See Appendix A.1 for details.

1880–1889 1890–1899 1900–1913 1914–1918 1920–1929 1930–1938 1939–1945 1950–1959 1960–1969 1970–1979 1980–1992

Years

Table 2.1 Demographic and trade openness in Western Europe and a three country group of Northern European countries (Denmark, Norway, and Swedena

129.3 66.0 74.4 18.0 6.9 35.8 35.1 39.0 53.0

11.3 14.0 12.8 8.5 8.3 9.7 9.7 15.0 18.5

7.1 18.9 3.7 7.8 18.6 3.9 4.0 4.1 9.0

1.2 11.7 3.9 1.7 9.6 2.5 5.2 9.4 8.4

Trade 222.6 158.6 220.5 71.3 35.2 149.7 133.1 128.2 119.8

Demographic 39.2 33.4 43.2 33.9 27.8 37.1 36.1 40.6 48.5

Trade

Migration

Demographic

Trade

Openness

Growth rates

Openness

10.1 5.6 2.0 4.4 33.2 10.9 5.3 1.5 8.9

Migration

Growth rates

Canada, Australia, and New Zealandb

Western offshootsa

1.3 8.1 2.2 5.8 5.9 4.0 8.0 6.8 5.8

Trade

Notes a For 1900–1913, based only upon figures for the United States (1908–1913) and Australia (1904–1913); for 1914–1918, based only upon figures for the United States and Australia; for 1920–1929, figures for Canada are for 1926–1929; for 1939–1945, based only upon figures for the United States and Canada; for 1980–1992, the figures used for Canada are for 1980–1991, and growth rate figures are for 1980–1990. b For 1900–1913 and for 1914–1918 the numbers are solely for Australia. In 1900–1913 the figures are for 1904–1913; for 1920–1929, the Canadian averages used are for the years 1926–1929; for 1939–1945, the figures are only for Canada; for 1980–1992, the figures used for Canada are for 1980–1991, and the growth figures are for 1980–1990.

Sources: Various tables in Australian Bureau of Statistics (various years); Canada. Ministry of Industry, Trade and Commerce (various years); Leacy (1983); Maddison (2000); Mitchell (1993); Statistics New Zealand (various years); United States. Department of Commerce (1975); United States. Department of Commerce, Economics and Statistics (various years); Urquhart and Buckley (1965); and Willcox (1969). For details see Appendix A.1.

1900–1913 1914–1918 1920–1929 1930–1938 1939–1945 1950–1959 1960–1969 1970–1979 1980–1992

Years

Table 2.2 Demographic and trade openness in the four Western offshoots and in three former Dominions of the British Empire (Canada, Australia, and New Zealand)

40 Openness Because the United States is by far the largest of the countries involved (around 85 percent of the entire population of the Western offshoots was American) averaging it in generates measures mainly reflecting the American experience. Thus, in order to see whether the experience of the three former Dominions of the United Kingdom (Canada, Australia, and New Zealand) substantially differed from that of the United States, I separated them out as a distinct group. As is evident from my estimates, the largest of the Western offshoots, the United States, was considerably less open than the others. In accessing the upward and downward movements documented in Tables 2.1 and 2.2, it should be kept in mind that the number of countries sampled varies from period to period. To some extent movement in the Table 2.1 averages from period to period reflects the changing composition of the countries sampled during each epoch. For instance, many countries only enter the sample in the post-1950 period. In the case of Denmark, Norway, Sweden, and the United Kingdom, estimates for all eleven periods (except the World War II years in the case of Norway and the United Kingdom) can be generated. For Denmark, the average for demographic openness drops period by period from 1880–1989 until 1920, revives somewhat during the 1920s and 1930s, sinks during World War II, and then strongly revives after 1950; the Danish contour for trade openness is somewhat different (openness rising at first, then dropping sharply during the 1930s and World War II). For Norway, reflecting fairly high levels of demographic openness in the 1880s, the drop in demographic openness between the 1880s and the 1930s is especially striking; in all other respects, the Danish pattern is paralleled in the Norwegian case. Sweden, documented in Figure 2.1, shows a clear descending and then ascending pattern. For the United Kingdom, demographic openness climbs between the 1880s and the thirteen year period leading into World War I, then drops to very low levels in the 1930s, reviving in the post-1950 period, although not to pre-1913 levels; trade openness follows a similar path, oscillating somewhat prior to the 1920s before precipitously collapsing during the interwar period. In sum, synchronization occurred. This is less evident from the decade to decade movements but it is clear enough from an examination of the longer periods: the 1880s through to 1913, 1913 to 1929, 1929 to 1950, 1950 through the early 1970s, and the early 1970s to 1992. As a whole for almost all countries the openness of the decades leading up to 1913 gave way to interwar closure, and interwar closure to post-World War II openness in the fields of international trade and international migration. For Western Europe and the Western offshoots linked together through reciprocating trade and migration flows, countries tended to close down and open up together in a synchronized fashion. That this is not necessarily true for every corner of the globe is indicated by the figures for Japan shown in Table 2.3. Generally closed from a

Demographic openness and trade openness 41 Table 2.3 Demographic and trade openness for Japan Years

1921–1929 1930–1933 1954–1959 1960–1969 1970–1979 1980–1992

Growth ratesa

Openness Demographic

Trade

Migration

Trade

5.0 5.1 2.1 9.8 20.9 9.8

33.5 39.6 19.3 18.5 22.6 22.6

3.4 9.8 3.6 19.7 4.4 7.3

5.2 8.7 12.0 10.3 9.7 0.3

Sources: Various tables in Japan. Prime Minister’s Office (various years); and Japan Statistical Association (1987). For details see Appendix A.1. Note a Growth rate for migration for the period 1930–1933 is actually for 1930–1932.

demographic viewpoint in all periods after 1920, the trade openness of Japan increased during the interwar period, only to drop sharply during the 1950s and 1960s. Synchronization is not universal. As well, openness mattered for the pace of trade expansion. Estimates in Maddison (2000: 236–9) for world export trade in real terms demonstrate the following: taking 1870 as a base for the volume of export trade (equal to 100), the volume of export trade in 1913 was about 320; taking 1913 as the base, the volume for 1929 was 41.5 (trade volumes were more than cut in half); taking 1929 as a base, the volume for 1950 was 12.9 (trade volumes continuing their slide); taking 1950 as a base, the volume of trade in 1973 was around 378; finally, with 1973 as the base, the volume of trade for 1992 was 110.6. Not surprisingly, trade openness is good for trade expansion and closure is bad. By analogy, demographic openness is good for expansion in international migration, and closure is bad. Underlying this reasoning by analogy is the notion that there is a positive association between trade openness and demographic openness: trade expansion encouraging immigration or emigration; the closing down of trade discouraging immigration or emigration. While full confirmation of these hypotheses await the reader in Chapter 4, the evidence marshaled in the next section takes us a step closer to establishing the validity of this argument.

The positive association between demographic openness and trade openness Pooling the period averages for each country covered in my data set (for a full list please consult Appendix A.1), I secured pairs for demographic openness and trade openness, the first of each pair representing the average over a specified period of demographic openness, and the second

42 Openness the average for trade openness for a particular country. In this section I analyze the resulting association between demographic openness and trade openness in the entire sample, pooling all observations together. I report my main findings in Figure 2.2. I display in the graph a scatter of points, the horizontal axis calibrating levels of demographic openness and the vertical axis measuring trade openness. In addition, I provide in the graph a line based upon minimizing the sum of the square of the residuals, the differences between points on the line and points in the scatter. Two points leap out from the graph: trade openness and demographic openness are positively associated; and there are numerous “outliers” in the scatter. The second observation harbors an important methodological point. Analyzing the data with a simple linear model does not fully characterize the relationship between the two variables. In Appendix A.2, a more sophisticated set of tools (using Tukey’s quantile method to deal with outliers, for instance) is applied to the data set. The point I want to emphasize here is that use of these more carefully sculpted methods does not invalidate the principal conclusion of my analysis here. Regimes of trade openness and demographic openness are linked positively. Is this conclusion extremely sensitive to the fact that I have pooled figures for all eleven periods? To explore this issue I divided my sample of observations into two subsets: those for the period 1914–1945 (the number of observations for the 1880–1913 period was too small to permit creating a meaningful scatter for the period leading up to World War I); and those for the period 1950–1992. Figure 2.3 displays the resulting scatter for 1914–1945; Figure 2.4 displays the data for the post-World War II era. Perusal of the graphs supports the conclusion reached earlier for 140

Trade openness

120 100 80 60 40 20

50

100

150

200

250

300

350

Demographic openness

Figure 2.2 Demographic openness and trade openness, pooled sample.

400

Demographic openness and trade openness 43 120

Trade openness

100 80 60 40 20

50

100

150

200

250

300

Demographic openness

Figure 2.3 Demographic openness and trade openness, 1914–1945. 140

Trade openness

120 100 80 60 40 20

50

100

150

200

250

300

350

400

Demographic openness

Figure 2.4 Demographic openness and trade openness, 1950–1992.

the pooled sample. Countries more open in the trade dimension tend to be more open in terms of immigration and emigration flows combined, and countries that are more open demographically tend to be more open in embracing exports and imports combined. The conclusions reached here are consistent with one of the main inferences of the political economy gravity model. To probe the meaning of the association in greater depth – particularly to examine the implied relationship between trade growth and migration growth with formal tests

44 Openness of causation – it is essential that we decompose demographic openness into its two constituent elements: the degree to which a jurisdiction is open to immigration in the case of countries that are net immigration countries; and the degree to which a country is open to emigration in the case of countries of net emigration. Proceeding with the distinction between net immigration and net emigration nations raises a further problem. What determines whether a nation is a net immigration or a net emigration country? To analyze this issue I feel that an appreciation of the crossover effect is essential. It is to elucidation of this effect that I now turn.

3

Crossover

Measuring net immigration First a simple definition: a country is a net immigration nation when the volume of immigration exceeds the volume of emigration; it is a country of net emigration when the volume of emigrants exceeds the volume of immigrants, its net immigration level being negative. Formulating the definition is easy enough. Actually measuring net immigration is a considerably more daunting task. For the purposes of this book, by immigration I mean permanent immigration and by emigration I mean permanent emigration. How do I justify excluding the temporary migrant, the person who takes up employment or academic study for several years in another land? I am primarily interested in those who came to stay and start a new life, and those who left to take up residence in another nation precisely because I am concerned with the dimension of globalization involving the mingling of persons from diverse backgrounds in a common national experience, a mingling achieved in the domestic political and economic market places of a country over years and years of residence. Consider the other extreme, defining immigrants as those who land in a country, perhaps for a purpose no more ambitious than a short tourist visit or a brief reunion with friends and relatives. Passing in and out of the country in a matter of weeks or months, the tourist contributes precious little to the forging of a national experience. Defining immigration and emigration in this way dictates critical examination of the figures generated by governments or scholars purporting to measure immigration or emigration. As the reader can see from Appendix A.1, I have found the quality of the estimates, both official and unofficial, variable. It appears that countries tend to be better at either enumerating immigration – this is the case for the Western offshoots that are nations of net immigration – or at counting emigration, something at which countries of net emigration tend to be reasonably competent. Some nations, but not many, are good at both. In recognition of this reality, I ended up classifying countries into three

46 Openness groups: countries for which the data are excellent; countries for which the data are good; and countries for which the data are acceptable. My list informs Appendix A.1. I ask the reader to peruse my account there. Estimating both immigration and emigration is essential for accurately calculating demographic openness and net migration, the former involving the sum of immigration and emigration, the latter the difference between the two. As Appendix A.1 shows there is an alternative method for estimating net immigration – alternative because it does not use figures on immigration or emigration – namely calculating the population growth rate and subtracting the natural rate of increase from the population growth rate (see the Appendix for definitions and the algebra involved). In estimating either immigration or emigration, but not both, for some countries I rely on this alternative formula, but in the case of only one table (Table 5.7) do I depend solely on this method, and this method alone, to estimate net immigration rates. In all of the other tables and for all the estimates other than those reported on in Table 5.7, I restrict my empirical analysis to countries and periods for which I have hard figures on either immigration, or emigration, or both. When I lack hard data on both immigration and emigration, I use the method based upon the population growth rate and the natural rate of increase to estimate one or the other series. As my discussion in Appendix A.1 establishes, wherever possible I try to make adjustments in order to arrive at figures for both permanent immigration and permanent emigration. To appreciate the issues involved I provide estimates for groups of countries in this chapter, and for individual countries in Appendix A.1, allowing estimates of net immigration computed using population growth rates in conjunction with the natural rate of increase to be compared to those computed from estimates of permanent immigration and permanent emigration. For Western Europe, the estimates appear in Table 3.1. Comparison for the Western European group average and for the Northwestern European group (Denmark, Norway, and Sweden) is reassuring. The two sets of figures are fairly close. Unfortunately, as study of Table 3.2 shows, for the Western offshoots the correspondence between the two series is far less close. From this evidence it is apparent that considerable care must be taken in calculating demographic openness and net immigration rates.1 The existence of these discrepancies is one of the reasons that I restrict my analysis to countries and periods for which I was able to secure series on either immigration or emigration or both. I always use the estimates secured from migration data. I cannot over-emphasize the importance of doing this. The figures marshaled in Tables 3.1 and 3.2 highlight another important issue, the demographic transition and the resulting change in natural rates of increase stemming from it. As a result of a secular decline in fertil-

Crossover 47 Table 3.1 Components of population growth in Western Europea Years

Birth rate

Death rate

Natural increase rate

Population growth

Panel A: Entire Western European sampleb 1880–1889 33.5 21.3 12.2 8.0 1890–1899 31.9 20.0 12.1 10.5 1900–1913 29.1 16.6 12.4 10.8 1914–1918 22.7 15.4 7.3 4.8 1920–1929 23.4 14.5 8.9 7.3 1930–1938 19.9 12.8 7.1 7.2 1939–1945 20.8 13.5 7.3 8.6 1950–1959 16.8 11.1 5.7 5.3 1960–1969 18.0 11.2 6.7 6.8 1970–1979 14.9 10.2 4.7 5.0 1980–1992 12.4 9.9 2.5 3.5

Net immigration rate ( from vital statistics)

Net immigration rate ( from migration data)

4.2 1.6 1.6 2.5 1.6 0.1 1.2 0.3 0.1 0.4 1.0

4.6 1.6 2.5 0.1 1.4 0.4 0.2 1.1 0.8 0.3 0.5

Panel B: Three Northern European countries (Denmark, Norway, and Sweden)c 1880–1889 30.3 17.5 12.9 5.7 7.2 6.7 1890–1899 28.6 16.8 11.9 8.9 3.0 2.9 1900–1913 26.5 14.5 12.1 8.5 3.6 3.3 1914–1918 22.9 14.2 8.8 8.6 0.2 0.03 1920–1929 19.9 11.8 8.0 6.0 2.0 1.4 1930–1938 15.6 11.2 4.5 5.3 0.8 0.7 1939–1945 18.7 10.6 8.2 9.5 1.3 1.0 1950–1959 15.4 9.6 5.8 6.6 0.9 1.2 1960–1969 16.0 9.9 6.1 7.5 1.4 1.4 1970–1979 13.5 10.3 3.1 3.9 0.8 1.1 1980–1992 12.2 11.1 1.3 3.1 1.8 1.4 Sources: See sources to Table 2.1. For details see Appendix A.1. Notes a Averages computed by weighting demographic figures by relative population sizes. b For 1880–1899, Denmark, Germany, Norway, Sweden, and the United Kingdom; for 1900–1918, Denmark, Finland, Germany, the Netherlands, Norway, Sweden, and the United Kingdom; for 1920–1938, Denmark, Finland, Germany, Italy, the Netherlands, Norway, Spain, Sweden, and the United Kingdom; for 1939–1945, Denmark, Finland, the Netherlands, Spain, and Sweden; for the post-1950 period, Austria, Belgium, Denmark, Finland, France, Greece, Italy, the Netherlands, Norway, Spain, Sweden, and the United Kingdom (except for 1980–1992, for which data for Austria and Greece are excluded). c For 1939–1945, Denmark and Sweden only.

ity and mortality known as the demographic transition (the plummeting in the birth rate outstripping that for the death rate), natural rates of increase fell dramatically in Western Europe and the Western offshoots during the late nineteenth century and the first half of the twentieth century. This transition took place in Japan slightly later (or at least was completed in Japan later than in most of the other countries that we are concerned with), a fact documented in Table 3.3. The table for Japan also

48 Openness Table 3.2 Components of population growth in the Western offshootsa Years

Birth rate

Death rate

Panel A: All four countries 1900–1913 29.8 13.9 1914–1918 27.6 14.3 1920–1929 24.8 11.8 1930–1938 19.4 10.9 1939–1940 20.9 10.5 1950–1959 25.0 9.4 1960–1969 20.5 9.3 1970–1979 15.8 8.8 1980–1992 15.8 8.5

Natural increase rate

Population growth

Net immigration rate ( from vital statistics)

15.9 13.3 13.1 8.5 10.3 16.7 11.2 7.0 7.4

18.9 10.8 15.2 7.3 11.2 18.7 13.6 11.3 10.1

3.0 2.5 2.1 1.2 0.9 3.1 2.3 4.3 2.7

7.6 3.2 3.2 0.3 0.2 2.2 2.0 1.8 2.6

22.7 13.2 19.1 9.9 12.5 25.3 18.8 14.8 12.6

6.5 3.1 6.1 0.2 0.6 8.0 5.2 5.5 4.7

19.2 10.4 9.4 1.9 1.3 7.5 4.6 2.4 1.8

Panel B: Three former British Dominionsb 1900–1913 27.1 10.8 16.2 1914–1918 26.6 10.4 16.2 1920–1929 23.6 10.5 13.1 1930–1938 19.7 9.6 10.1 1939–1945 22.9 9.8 13.1 1950–1959 25.9 8.7 17.2 1960–1969 21.8 8.1 13.7 1970–1979 16.9 7.7 9.2 1980–1992 15.1 7.2 7.9

Net immigration rate ( from migration data)

Sources: See sources to Table 2.2. For details see Appendix A.1. Notes a For 1900–1913, based only upon figures for the United States (1908–1913) and Australia (1904–1913); for 1914–1918, based only upon figures for the United States and Australia; for 1920–1929, figures for Canada are for 1926–1929; for 1939–1945, based only upon figures for the United States and Canada; for 1980–1992, the figures used for Canada are for 1980–1991, and growth rate figures are for 1980–1990. b For 1900–1913 and for 1914–1918 the numbers are solely for Australia. In 1900–1913 the figures are for 1904–1913; for 1920–1929, the Canadian averages used are for the years 1926–1929; for 1939–1945, the figures are only for Canada; for 1980–1992, the figures used for Canada are for 1980–1991, and the growth figures are for 1980–1990.

compares the net immigration rate computed using the two different methods. Noteworthy is the fact that according to both sets of estimates for Japan’s net immigration, Japan appears to be demographically closed. The net immigration rate estimates in Table 3.1 are of primary interest to us because they document switches from a net emigration to a net immigration regime. It is apparent that for most of Western Europe crossover occurred several times: during World War I, during the 1930s, during World War II, and after the 1960s. Setting aside the two World War periods that interrupted cross-border mobility on an unprecedented scale due to military campaigns and attendant political disruption, it seems that

Crossover 49 Table 3.3 Components of population growth in Japan Years

Birth rate

Death rate

Natural increase rate

Population growth

Net immigration rate ( from vital statistics)

Net immigration rate ( from migration data)

1921–1929 1930–1933 1954–1959 1960–1969 1970–1979 1980–1992

35.3 33.2 21.5 17.5 17.4 11.6

21.1 18.2 8.7 7.1 6.4 6.3

14.3 15.0 12.8 10.5 11.0 5.3

14.4 14.7 11.7 10.5 12.2 5.0

0.1 0.3 1.1 0.1 1.2 0.2

0.01 0.10 0.01 0.02 0.02 0.15

Sources: See sources for Table 2.3. For details see Appendix A.1.

crossover stemming from non-belligerent conditions occurred twice in twentieth century Western Europe, during the 1930s and during the late 1960s. What explains this crossover phenomenon? One factor that has to be taken into account is the availability of land for settlement in the Western offshoots. In my opinion, land availability is not important for explaining twentieth century crossover. It was a very important magnet for drawing migrants into the Western offshoots when vast frontier acreage was being settled during the mid-nineteenth century. By the beginning of the twentieth century it was of secondary importance, especially in the United States, which was absorbing the great bulk of emigrants flowing out of Europe. Land was a driving force when global expansionism – the mass movement of settlers onto regions of the earth that had extremely low population densities – was in its heyday, and land development ceased to be an engine of growth when the frontiers were largely settled.

Land and expansionism in the nineteenth century In discussing nineteenth century expansionism within the Western offshoots, we must keep three considerations front and center. The British connection (the British common law governing land ownership and the alienation of land through the market), the shaping impact of climate and geography, and the decisive influence of infrastructure investment harnessing the inorganic economy which acted as a magnet drawing the nation state actively into the settlement process are all fundamental. In theory, it should be possible to unravel these separate influences. In practice, untangling diverse strands of influence is conceptually difficult. Consider the plantation. In Latin America where Spanish and Portuguese practices dominated, the proliferation of large haciendas was a major vehicle for expansionism. However, in the British sugar islands of the Caribbean, in the American South where cotton and tobacco were

50 Openness king, and in humid Queensland in Australia, plantation style production caught on, becoming well entrenched. In referring to property relations and property rights I am highlighting the fact that land development and land transfer through sale and alienation involves law and politics.2 The legal system delineates the scope of private property rights and enforces these rights. Politics shape policies regarding the taxation and subsidization of the development of land, including investments in infrastructure such as railroads, roads, and harbors that raise land values by linking farmers to distant markets. In considering the evolution of the common law tradition regarding land – originally emanating out of England, later to be adopted and modified in the United States, Canada, Australia, and New Zealand – it is important to keep in mind that the common law emerged gradually in England in response to changing economic activity. For instance, until the seventeenth century, open field farming with much land farmed on common fields dominated English agriculture. Partly a result of England’s venture into republican rule in the middle of the seventeenth century, the movement to enclose the open fields gathered force, picked up momentum during the eighteenth century.3 As a result of enclosure, carefully defined private property rights in farms encircled by fencing became thoroughly established throughout England. Enclosure had other consequences: the driving off of households squatting on common lands from rural communities; and the steady aggrandizement of holdings in the hands of wealthy landowners commanding great estates. This group seems to have reached the apogee of its success during the late eighteenth and early nineteenth centuries. With the repeal of the Corn Laws in the 1840s, their relative economic prowess went into decline. The common law tradition in land alienation and the attitudes toward great agrarian estates was carried over from England to its colonies, influencing land development on the frontiers. But English practice was also shaped by the pressure to innovate in land settlement in areas only sparsely settled by aboriginal and First Nations populations. Treaties alienating land and turning it over to the British crown for subsequent alienation had to be devised and negotiated. Incentives had to be created for clearing land of forest, rocks, and other physical impediments so that it could usefully be applied to farming. As Harris (1970) demonstrates, these experiments in colonial land development led to a tripartite division of land ownership: crown or royal land; proprietor held land; and land held by corporations. Each of the original thirteen American colonies adopted one, or several in a composite mixture, of these types of land holding schemes. As a result, the three commonwealth frontier nations considered here inherited a tradition of dividing lands into three major categories and of initiating the process through the signing of treaties with aboriginal groups. In particular, the category of crown land managed by state,

Crossover 51 provincial, or national governments has been of immense importance in Canada, Australia, and New Zealand.4 Meanwhile the Americans, having established independence from the mother country, lurched off into experiments with land alienation that reflected the belief widely held in the former colonies, and ideologically espoused by Thomas Jefferson and his followers, that large estates were anathema. In the Jeffersonian theory of “republican political economy” a nation of self-sustaining farmers managing their own acreage freely owned was an ideal allowing the United States to escape the vice of proletariatization of agriculture cursing England and other continental Europe. The truest basis for a republic was the independent farmer. The Jeffersonian ideal was not accepted in all regions and among all groups in the United States. Jeffersonian policies of encouraging pioneer squatting on frontier lands followed by their preempting of ownership rights over the land they cleared became the basis for the political call to pass a homestead act opening up lands in the West to wholesale settlement and were popular in the Western frontier and in some Northeastern circles but not in the South where plantation production of cotton, tobacco, and sugar held sway. Indeed Ransom (1989: 144) argue that disputes over homestead legislation were one of the main factors dividing the North from the South, paving the road to Civil War. Ultimately, under conditions of conflict, the Congresses held in what remained of the United States after Southern secession passed a Homestead Act (in 1862), that allowed for free acquisition of farm land of a stipulated acreage subject to the improvement of that land. Land policy reflected politics.5 It also reflected the economic realities of infrastructure construction. For instance generous amounts of land were given wholesale to the railroad companies, for eventual sale to the public, as an incentive to build transcontinental rail lines into areas of sparse settlement. In effect, railway companies were allowed to internalize the externalities associated with bringing transport infrastructure into the frontier. Land close to roads and train stations is far more valuable than land remote from transport depots. By granting land to railways that they would sell off at prices reflecting propinquity to the rail lines (and to the depots and grain elevators erected along the paths of the rail lines) the American Congress permitted the railway companies to recoup a portion of their investment costs through land sales.6 Situated on the northern boundary of the United States and competing for immigrating settlers with its massive southern neighbor, Canada was constrained to follow the American lead in homestead and infrastructure investment. As a result the settlement of the Canadian prairies (the region that ultimately became Manitoba and Saskatchewan) and the West (Alberta and British Columbia) was accomplished mainly through homestead settlement, a generous portion involving grants of land to the Canadian Pacific Railway that subsequently sold the land off to the public.

52 Openness The regime of property relations and property rights is crucial to the development of agriculture and the settlement of frontier lands. Also crucial are the complex of natural resources/climate/soil conditions, and the ratio of these resources to population at the time when land is settled and improved for production. The argument that the ratio of the factors of production, the ratio of labor to capital and land combined, shapes the path of technological progress, and land use in agriculture, has been eloquently advanced and defended by Hayami and Ruttan (1971, 1985). Relying on the notion of a meta-production function, Hayami and Ruttan contrast the type of agriculture associated with the “green revolution” characteristic of Japan with the mechanized form of agriculture favored in the United States, Canada, Australia, and New Zealand. In Japan, where labor was abundant and elastically supplied, labor was relatively cheap and land rents high. As a result, labor-intensive production eschewing mechanization and reliance on draft animals prevailed. Technological progress was biased toward saving on the relatively expensive factor of production, namely land. Thus, land augmenting technical change – generous use of fertilizers, intensive irrigation and systematic draining of fields at key points in the production cycle, and ongoing experimentation with new seed varieties resistant to early thaws and insect invasions – that rendered land more productive, enhancing its quality as it were, prevailed there. Of course, this analysis begs the question of why Japan had high population densities to begin with. However this can also be explained in terms of climate, namely in terms of the natural endowments emphasized by Hayami and Ruttan. Because Japan lies along a path bathed by monsoon rainstorms, rainfall is abundant during the spring and early summer months. Naturally, both for purposes of preventing flooding and for purposes of harnessing water for economically useful production, the surging swollen rivers were tamed through elaborate embankments and by digging elaborate irrigation networks in river deltas and in valleys carved out by mountain ranges. Through this agency, rice cultivation, originally imported from the Eurasian landmass, increasingly took hold and flourished in Japan. Now rice farming yields exceptionally high levels of calorie output per cultivated hectare. Hence population densities reached extremely high levels in the Japanese island archipelago in the period prior to industrialization. By contrast, on the frontiers of the countries of settlement, labor was scarce relative to land, relatively expensive and inelastically supplied, its price rising rapidly as demand increases. Thus technological progress favored the labor augmenting path, the farmhand’s efforts being supplanted by a gathering chorus of mechanical devices spewed forth from the inorganic economy: harvesters, reapers, threshers, tractors, and the like.7

Crossover 53 Regardless of the validity of the Hayami and Ruttan (1971, 1985) framework, common sense supports the view that natural resources and climate do matter. The lack of rainfall in most of Australia means much of that continent remains in desert; high levels of rainfall in New Zealand favor intensive use of the land there; the Canadian shield, conditioned by a northern location that limits the growing season and a hard and unworkable soil dramatically limits its economic usefulness. Understanding why overall population densities are relatively high in Japan, the United Kingdom, and New Zealand and relatively low in Australia and Canada requires no great leap of imagination. The essential point to glean from this discussion is that property relations and rights, natural resource endowments, and infrastructure investments like those in the steam railroads were conjoined in nineteenth century expansionism in the Western offshoots. As we have seen it is likely that these separate influences interacted to some degree. That much of the land in Canada and Australia is crown land can either be explained by the fact that the crown land concept was favored by the British government for developing the colonies and dominions, or by the fact that much of the land area lying within these two jurisdictions is of little value to a proprietor. Who wants to alienate economically unproductive land? Which is the chicken and which is the egg? The fact is that both property right regimes and natural endowments/climate are the chicken and the egg. Crucial infrastructure investment was not restricted to building steam railroad lines. Constructing dams, building river embankments and irrigation networks was integral to land development in the Mountain and Pacific states of the United States, the Prairie and Western provinces of Canada, and Australia. In the case of North America, expansionism was inseparable from the extension of national political control from the East coast to the West coast, the actual acreage devoted to farming expanded vastly during the nineteenth and early twentieth centuries. In particular, settling the prairie and Western provinces of Canada, and the Mountain and Pacific states in the case of the United States, markedly increased the acreage under cultivation and the amount of grazing land devoted to raising cattle and sheep. The shift Westward was sharp and decisive in both nations. Establishing political control was essential since nation states – the Canadian and American governments – were drawn into the infrastructure investment process as grantors of land, regulators, and mediators between local jurisdictions contesting claims to resources. For instance, the fate of Western agriculture was inextricably tied up with the proliferation of water districts and water boards. While it is sometimes said that the American West could not have been settled without barbed wire and the pistol, it might be more accurately said that it could not have been settled without the water board. In the West water was political power. An excellent case in point is the San Fernando Valley whose

54 Openness rich fields alive with sugar beets, alfalfa, beans, and fruit groves were irrigated by water brought into the Los Angeles basin first from the Owens Valley and later from more distant sources including the Colorado River by aqueducts constructed by the Los Angeles Department of Public Service.8 Los Angeles engineered the incorporation into its jurisdiction of the San Fernando Valley precisely in order to market the water that it was bringing in from far-flung sources over the Sierra Nevada mountain range. All of this jostling around and grabbing for control of resources like water by local communities led national, state, and provincial authorities to become deeply involved in the land settlement process. In sum, building dams, irrigation ditches, railroad track, and loading docks – for shipping grain, dairy products, and frozen meat – were instrumental to the settling of the North American West, Australia, and New Zealand. The resulting expansion of land area under cultivation and in use for grazing animals is documented in Table 3.4.9 The data in the table suggest several points: expansionism in the United States had largely lost momentum by 1900, although it continued on a regional basis in the far West; Canadian expansionism peaked later than United States expansionism but was of far less significance than American land expansionism because relatively small proportions of Canadian land could be effectively improved for cropping; as with Canada, expansionism in Australia and especially in New Zealand lagged expansionism in the United States, but was principally associated with developing land for grazing sheep and cattle, the proportions of land area going into cropping being sharply limited in both Oceanic lands. Land expansionism in Canada, Australia, and New Zealand being sharply limited by climate and soil conditions, land expansionism in the Western offshoots was primarily associated with American expansionism, which had largely lost its drive by 1900. Securing land for farming and animal husbandry was very important in drawing migrants from Europe in the nineteenth century, but was of limited significance for the twentieth century. In part expansionism in the Western offshoots was of limited significance after 1900, because expansionism on a far more constricted scale went on within Western Europe during the nineteenth and twentieth centuries. To see this point consider the figures in Table 3.5 on crop acreage and livestock for a group of Western European countries for which the relevant statistics are available circa 1860 and 1930. Especially intriguing in regard to the expansionism that did occur in Western Europe is the fact that the United Kingdom is the one, very striking, outlier. In the United Kingdom, acreage in crops plummeted between mid-nineteenth century and the early 1930s. It is difficult to escape the conclusion that one of the principal reasons (perhaps the driving force) behind British emigration in the nineteenth century was lack of land within the United Kingdom to accommodate rural dwellers wanting to take up farming. But can we not turn this

1850 1870 1900 1920 1940 1959 1969

Year

15.6 21.4 44.1 50.2 55.7 49.5 47.0

6.0 9.9 16.8 21.1 21.0 17.3 17.0

n.e. n.e. 54.8 52.0 50.7 37.4 36.6

35.0 48.6 100.0 114.0 126.4 134.0 126.8

Farm land (%)

Grazing land (%)

Farm land (%)

Farm cropland (%)

Indices

% of land area in:

n.e. n.e. 100.0 94.7 92.4 81.5 79.3

Grazing land (%) n.e. n.e. 100.0 91.4 116.0 250.3 271.4

Forestry land (%)

n.e. n.e. 100.0 107.0 102.3 55.5 34.5

Farm population

203 153 147 149 175 303 390

Average farm acreage (acres)

n.e. n.e. n.e. n.e. 50.0 81.3 102.9 continued

Index of farm real estate relative to CPI a

Panel A.1: Land use, indices of farm land, grazing land, and forestry land, and index for farm population for the United States (all indices have 1900 100)

Panels A.1–A.3: Land and agriculture in North America

Table 3.4 Land and agriculture in the Western offshoots

4.8 16.8 100.0 182.9 269.5 357.5 343.8

n.e. n.e. 100.0 185.9 200.2 135.3 84.8

1.6 4.0 11.5 18.4 24.4 30.7 31.2

Western farm land (%)

Western farm land

Western farm population

% of U.S. totals

Indices

n.e. n.e. 4.0 6.9 7.8 9.7 9.8

Western farm population (%) 695 336 393 364 504 987 1250

Western farm average farm acreage (acres)

n.e. n.e. 100.0 186.9 230.9 425.8 502.3

Index of all land

Irrigated land

n.e. n.e. 100.0 184.1 228.6 407.5 461.2

Index of land in 17 Western states

n.e. n.e. 96.8 95.9 95.9 92.7 88.9

% of irrigated land in the West (%)

1871 1901 1911 1921

Year

57.5 100.0 161.6 234.6

0.8 1.2 2.0 2.9

n.e. 42.0 52.2 68.4

n.e. n.e. n.e. n.e.

Prairies and the West (per farm population)

Total (per farm labor force)

Index with 1901  100

% of total land area in improved farm land (%)

Acres per farm labor force and per farm population

Improved farm land

n.e. 20.1 48.1 64.2

Improved farm land (%)

n.e. n.e. n.e. n.e.

Farm population (%)

Percentage of Canadian total in the prairies and West

Panel A.3: The crucial role of twentieth century development in the prairies and the West for the expansion of Canadian agriculturec

1850 1870 1900 1920 1940 1959 1969

Year

Panel A.2: The expanding role of the West in the agriculture of the United Statesb

Table 3.4 continued

284.2 303.8 321.1 342.8 358.5

3.6 3.9 3.9 4.2 4.4

76.0 84.5 116.6 161.4 224.8

1902 1912 1922 1932 1942 1952 1962 1972 1981

Year

100.0 145.4 189.9 288.4 234.8 202.9 287.9 344.9 545.4

100.0 133.7 158.8 234.8 316.0 511.8 670.1 661.5 582.9

,100.0 ,156.7 ,403.3 ,463.3 1,056.7 1,506.7 3,216.7 8,440.0 8,173.3

Barley 100.0 116.0 104.2 91.6 102.5 58.0 71.4 65.6 47.1

Maize

Total

100.0 117.1 148.6 280.0 294.3 325.7 448.7 668.6 822.9

100.0 144.1 182.4 252.9 244.1 238.2 352.9 417.7 541.2

0.4 0.6 0.8 1.1 1.1 1.1 1.6 1.8 2.4

% of land area in crops

Oats

Wheat

70.6 72.6 75.4 79.0 82.7

Percentages Sugar cane

46.6 53.2 67.3 96.0 131.1

Indices for acreage of cropland (1902  100) for:

Panel B.1: Expansion of cultivated land area in Australia, 1902–1981

Panels B.1–B.3: Land and agriculture in Australasia

1931 1941 1951 1961 1971

60.9 61.4 63.4 69.4 58.6 51.9 49.7 50.3 61.4 continued

% of cropland in wheat

39.5 39.7 37.2 39.9 45.8

1902 1912 1922 1932 1942 1952 1962 1972 1981

Year

n.e. n.e. 24.0 28.9 40.0 39.7 44.7 42.6 59.0

n.e. n.e. 2.6 2.8 3.0 2.4 3.8 5.9 4.4

n.e. n.e. 51.0 60.0 88.6 86.0 71.8 60.6 97.1

3.4 3.7 3.8 4.1 4.2 4.2 4.9 5.4 5.3

Wool per sheep 6.0 8.8 8.7 15.6 14.8 12.0 14.4 10.1 8.5

Butter and cheese per cattle 100.0 n.e. 85.7 90.0 92.6 73.8 78.0 70.4 50.8

n.e. n.e. 100.0 102.0 132.1 101.7 127.9 161.4 139.7

Meat produced (1922  100)

Cattle, sheep, and pigs (1902  100)

Meat per pig

Meat per cattle

Meat per sheep

Indices of per capita:

Production (tons) per 1,000 animals:

Panel B.2: Meat, wool, and butter and cheese produced in Australia, 1902–1981

Table 3.4 continued

100.0 n.e. 168.7 218.8 210.4 156.0 180.1 159.2 107.4

Butter and cheese produced (1902  100)

100.2 86.0 49.4 30.8 n.e.

Grain (wheat and oats) acreage

Indices (1900  100)

111.1 70.3 27.7 13.7 n.e.

Grain (wheat and oats) acreage per person 98.1 116.7 141.6 186.0 291.1

Sheep 84.6 157.1 310.8 415.8 664.6

Cattled

25.7 22.0 18.5 18.6 19.9

Sheep

Per capita:

1.4 1.9 2.6 2.6 2.8

Cattled

Notes a CPI  consumer price index; both indices have 1967  100, and the relative index given here has 1967  100.0. b For the irrigation figures, seventeen states are included in the list of Western states. For the remainder of the table, the West is defined as the sum of the following states: Montana, Idaho, Wyoming, Colorado, New Mexico, Arizona, Utah, Nevada, Washington, Oregon, California, Alaska, and Hawaii. As above, all indices have 1900  100. c The Prairies and the West consist of the four provinces Manitoba, Saskatchewan, Alberta, and British Columbia. d For the index of cattle and the number of cattle per capita, the figures for 1890–1899 are actually an average for 1891, 1894–1899, and the figures for 1900–1919 are actually an average for 1900–1909, 1911, and 1916–1919. n.e.  not estimated.

Sources: See sources to Table 2.2. For details see Appendix A.1.

1890–1899 1900–1919 1920–1939 1940–1959 1960–1979

Years

Panel B.3: Grain acreage, sheep, and cattle in New Zealand, 1890–1979

60 Openness Table 3.5 Indices of agricultural expansion (mid-nineteenth century to 1930) and emigration or immigration openness (1880s for emigration openness; 1900–1913 for immigration openness) Country

Indices of crop acreage and livestock a 1930/circa 1860  100 b Acreage

Livestock

Combined index (equal weights)

Emigration or immigration openness, 1880s for emigration, 1900–1913 for immigration Emigration

Immigration

Western Europe Belgium Denmark Germany Italy Netherlands Norway Sweden United Kingdom

97.6 142.3 110.4 102.7 120.9 104.8 137.9 65.3

129.5 246.3 96.0 148.4 172.5 115.6 136.2 90.8

113.6 194.3 103.2 125.5 146.7 110.2 137.1 78.1

n.a. 35.4 52.0 n.a. 40.8 101.0 82.6 76.7

– – – – – – – –

Western offshoots Australia Canada New Zealand United States

252.9 494.5 41.6 114.7

153.0 n.a. 185.5 n.a.

207.5 n.a. 126.3 n.a.

– – – –

207.5 n.a. 126.3 98.1

Sources: See sources to Table 2.1. For details see Appendix A.1. Notes a For the European countries, the crop acreage figures are secured by summing the acreages for wheat, rye, barley, oats, corn, potatoes, sugar beets, and buckwheat; and the livestock figures are the sum of figures for horses, cattle, pigs, sheep, asses and mules, and reindeer. For Australia, the crop acreage figures are the sum of acreages in wheat, oats, barley, maize, and sugar cane, and the livestock figures are the sum of cattle, sheep, and pigs. For Canada, the acreage figure is the land area in improved farm holdings. For New Zealand, crop acreage is for grains, and livestock totals are the sum of cattle and sheep. For the United States, the land is all land in farms (in crops and in pasture), plus all land used in grazing and not in farms. b For Belgium, the mid-nineteenth century figures are circa 1845; for Denmark, the figures are for 1861; for Germany, crop acreage figures are for 1849, and the livestock estimates are for 1873; for Italy, the figures are for 1872; for the Netherlands, the acreage base is for 1852, and the livestock base is for 1885; for Norway and Sweden, the figures are for 1865; and for the United Kingdom, the figures are for 1867. For Australia the base is 1902, and the terminal date is 1932; for Canada, the base year is 1871, and the terminal year is 1930; for New Zealand, the base year is 1889, and the terminal year is 1930; for the United States the base year is 1880. n.a.  not available.

reasoning around? It may be the case that the mass exodus of the British farming population to an empire, or former empire, that exported back to the mother country the harvest of the soil encouraged a fall-off in British farming and animal husbandry. Finally, it is important to keep in mind that expansionism in the United States was strongly rooted in American foreign policy and American drive

Crossover 61 to hegemony in the Americas. Zimmermann (2002) argues that the Monroe Doctrine that warned the European powers to leave the Americas alone – originally promulgated in 1823 as Spain’s colonies in Latin America were breaking free of the imperial grip that had held them in thrall for centuries – was by mid-century being used to justify American takeover of territory from Mexico (Texas, California, and New Mexico) and hence served as a rationale for American continental expansion from the Mississippi River basin to the Pacific Ocean. Indeed, at the end of the nineteenth century it was being used to justify American aggrandizement over the waters of the Pacific Ocean, including Hawaii that was formally annexed by the United States as a result of its victory in the Spanish– American War of 1898. As American expansionism gathered force during the nineteenth century it was wrapped in an ideology, Manifest Destiny, making claims for the natural right of the British and their descendants in the Americas to take over by force if necessary the vast continental expanse that became the United States. Manifest Destiny as the extension of the Monroe Doctrine was quite frankly imperialistic, certainly hegemonic, in its claims of supremacy in the Americas as a birthright of the United States. Land expansionism was principally a nineteenth century phenomenon, its drive largely spent and dissipated by the early twentieth century. For this reason, in constructing a measure of the attractiveness of the Western offshoots relative to the countries settling these offshoots for countries in the twentieth century I will ignore land availability.

The attractiveness of the Western offshoots and net immigration in Western Europe Turning to the twentieth century I take up the task of computing a measure that calibrates the capacity of a country to “compete” with the combined Western offshoots – the United States, Canada, Australia, and New Zealand – for immigrants (including emigrants, who are “negative immigrants”). I call this variable the attractiveness of the Western offshoots, and I calculate the attractiveness of the Western offshoots specific to each country and year for which I have the requisite data. In calculating attractiveness, I make use of three variables: (1) the relative level of per capita income in the Western offshoots, computed by averaging together per capita income in the Western offshoots, weighted by the relative population size of each country; the figures are all in 1990 Geary-Khamis U.S. dollars as computed by Maddison (2000);10 (2) the probability of securing employment in the Western offshoots (which I estimate as one minus the unemployment rate in the United States, restricting my measure of labor market conditions to the United States in recognition of the fact that the American population is about 85 percent of the total population of the Western offshoots, and the fact that it is

62 Openness impossible to make annual estimates for unemployment in Canada, Australia, and New Zealand for the period prior to 1950 whereas yearly estimates for American unemployment go back to 1890); and (3) an absolute income per capita term for the country involved, capturing the diminishing marginal utility of income per capita above a certain point. I use $8,000 U.S. 1990 Geary-Khamis dollars for this “crossover” real income level, the figure being the approximate level of per capita income in Western Europe in 1960. To put this in formal terms, let: Ryi  [WOy/yi] WOy being the level of real per capita income in the Western offshoots (weighted by the relative population size of each country), and yi the level of per capita income in the country “competing” with the Western offshoots. This variable captures the attraction that a jurisdiction exercises on another jurisdiction due to its superiority in income per capita. Define: USun  [1  (urUS/100)] the variable urUS being the unemployment rate in the United States, specifically the unemployment rate for the private non-farm labor force. This variable is a proxy for the “probability of securing employment in the Western offshoots.” Finally, let: Ayi  [1  ((8000  yi)/8000)] this variable capturing the sway exercised by absolute income per capita in the country sending emigrants. The notion underlying the construction of this variable is that improvements in income per capita in the country sending out emigrants discourages further outflows. The “crossover” level of income per capita that acts as a “hinge” for this variable is $8,000 in Geary-Khamis 1990 dollars which is the approximate level of income per capita for Western Europe is a region in 1960. With these definitions, I define the relative attractiveness of the Western offshoots, RAWOi, as follows: RAWOi  (Ryi) * (USun) * (Ayi). I rely heavily on this variable in analyzing net immigration rates for countries sending emigrants to the Western offshoots. To see why the “attractiveness of the Western offshoots” variable helps explain why countries “crossover,” consider Figure 3.1 displaying figures

Crossover 63 on net immigration and the attractiveness of the Western offshoots variable for Sweden between 1890 and 1990. First concentrate on the secular trends. As the attractiveness of the Western offshoots relative to Sweden diminishes, Sweden crossovers from net emigration to net immigration. Second, note that prior to the mid-1950s, fluctuations in the relative attractiveness of the Western offshoots mirror fluctuations in net immigration. The most dramatic instance of this mirroring occurred during the 1930s. As the relative attractiveness of the Western offshoots deteriorates in the downswing of the 1930s (due to soaring unemployment in the United States and a fall-off in the relative level of income per capita of the Western offshoots compared to Sweden) Sweden achieves its first sustained “crossover” of the twentieth century. To further explore the validity of the crossover hypothesis I constructed estimates of the attractiveness of the Western offshoots for six Western European countries (Denmark, Finland, the Netherlands, Norway, Sweden, and the United Kingdom) between 1890 and 1990. These estimates for ten periods over the century 1890–1990 appear in Table 3.6 along with figures for net immigration. In Figure 3.2, I plot the pairs. The negative association between the attractiveness of the Western offshoots and the net immigration rate is plausibly established with this figure. In laying out the logic of the political economy gravity model, I emphasized the importance of the crossover effect that drives a wedge between trade gravitation and migration gravitation. In this section I have shown that there is an empirical basis for a crossover effect formulated in terms of an extremely small number of variables. It is this combination (simplicity of argument and the existence of empirical evidence

8 6 4 2 0 2 4 6 attractiveness of the Western offshoots relative to Sweden, 1890–1990 net migration rates based on migration data, Sweden, 1890–1990

8 10 1890

1900

1910

1920

1930

1940

1950

1960

1970

1980

1990

Figure 3.1 Attractiveness of the Western offshoots relative to Sweden and net immigration rate based upon migration data for Sweden.

1890–1899 1900–1913 1914–1918 1920–1929 1930–1938 1939–1945 1950–1959 1960–1969 1970–1979 1980–1990

Years Attractiveness

Net migration 1.44 2.13 0.50 0.94 0.72 0.11 1.09 0.40 0.76 0.21

Attractiveness

2.02 2.09 2.02 1.89 1.12 2.44 1.59 0.84 0.35 0.05 4.06 4.45 5.12 4.30 2.48 4.04 2.98 1.80 0.91 0.22

Finland

Denmark

Panel A: Denmark, Finland, and the Netherlands

n.e. 8.26 2.20 2.53 2.89 4.41 5.35 7.37 1.27 5.74

Net immigration

1.46 1.87 2.00 1.58 1.19 3.90 1.80 1.05 0.42 0.16

Attractiveness

Netherlands

1.17 0.31 3.72 0.08 0.13 1.83 1.25 0.77 2.43 2.01

Net immigration

Table 3.6 Attractiveness of the Western offshoots [based on relative level of income per capita, the unemployment rate for the United States, and income per capita in the country of interest relative to 1990 $8,000 Geary-Khamis dollars (the crossover level of income)] and net immigration rates based upon migration data, Denmark, Finland, the Netherlands, Norway, Sweden, and the United Kingdom, 1890–1990

Attractiveness 2.40 2.59 2.76 2.75 1.57 2.21 1.48 0.79 0.31 0.04

Net migration 2.51 5.59 0.16 2.73 0.72 n.e. 0.32 0.01 0.66 1.44

Attractiveness

3.37 4.01 3.56 3.44 1.94 3.70 2.37 1.57 0.86 0.07

Sweden

Norway

Sources: See the sources to Table 2.1. For details see Appendix A.1.

1890–1899 1900–1913 1914–1918 1920–1929 1930–1938 1939–1945 1950–1959 1960–1969 1970–1979 1980–1990

Years

Panel B: Norway, Sweden, and the United Kingdom

3.80 2.95 0.36 1.10 0.61 0.97 1.52 2.55 1.54 1.96

Net immigration 1.36 1.29 1.21 1.10 1.01 1.41 1.47 1.01 0.65 0.25

Attractiveness

United Kingdom

2.12 4.06 0.15 2.50 0.39 n.e. 1.29 0.99 0.63 0.03

Net immigration

66 Openness 8 6

Net immigration rate

4 2 0 2 4 6 8 0.5

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

Attractiveness of the Western offshoots

Figure 3.2 Attractiveness of the Western offshoots and net immigration rates for Denmark, Finland, the Netherlands, Norway, Sweden, and the United Kingdom (for eight periods – 1890–1899, 1900–1913, 1920–1929, 1930–1938, 1950–1959, 1960–1969, 1970–1979, and 1980–1990).

supporting the thesis) that, I believe, strongly recommends the analysis of the crossover effect to the reader.

Birds of passage? Emigration in countries of net immigration As a result of crossover, the number of countries receiving immigrants has proliferated. At the same time, however, some countries – Mexico and a number of Latin American countries like Brazil and Argentina spring to mind – have experienced another kind of crossover, switching from being lands of net immigration to being countries of net emigration. One of the key factors driving crossover is reverse immigration. For instance, in the 1930s, most of the immigration into Western European countries like Sweden was due to reverse migration, as former emigrants returned to their homelands. How important is reverse, U-turn, migration? The Swedish data being of high quality, I use the Swedish series captured in Figure 3.3 to demonstrate how reverse immigration works. This depicts data on demographic openness defined solely in terms of immigration, and demographic openness defined solely in terms of emigration. In the period leading up to the crossover of the 1930s, fluctuations in emigration seem to have driven fluctuations in immigration, the latter lagging the former. In this era, the echoing of the emigration series on the immi-

Crossover 67 120

demographic openness, immigration, Sweden, 1880–1993 demographic openness, emigration, Sweden, 1880–1993

100 80 60 40 20

1880

1890

1900

1910

Figure 3.3 Demographic 1880–1993.

1920

1930

openness,

1940

1950

immigration,

1960

and

1970

1980

emigration,

1990

Sweden,

gration series is muted. Fluctuations in emigration openness are far more wide-ranging than are fluctuations in immigration openness. The post-crossover period exhibits a far different pattern. With the switch over to net immigration status, the two components of demographic openness fluctuate in tandem, immigration waves driving emigration waves with a lag. Graphs that I generated for Canada, Australia, and New Zealand (not reproduced here) yield similar results. In both the preand post-World War II periods, but especially in the latter era due to the proliferation of high income countries competing for skilled immigrants, many immigrants have become “birds of passage,” migrating from one high standard of living country to another and so on, perhaps returning to their original homeland, perhaps not. Does this render concepts like “permanent immigration” and “permanent emigration” increasingly obsolete? To reject these concepts completely would be a serious mistake in my opinion. Many immigrants settle in their chosen lands of immigration, not pulling up the roots they have put down in their new homelands. After all, as Figure 3.3 shows, emigration openness tends to fall short of immigration openness, with or without taking into account lags. Still, it would not behoove us to cling too stubbornly to this point. As the incidence of immigration driven emigration increases amongst countries of net immigration, the distinction between permanent and temporary immigration becomes increasingly less important. With this in mind we can ask a simple question: is the demographic openness of a country of net immigration inversely related to its ratio of short-term temporary immigrants to long-term immigrants? Since permanent immigration creates permanent emigration, countries that

68 Openness choose to admit immigrants on a permanent basis should be relatively open; and countries that admit immigrants on a temporary basis should be relatively closed. Using figures from the United Nations covering the period 1979–1988 for a group of countries for which the relevant statistics are available, I computed the two sets of figures that I present in Table 3.7. In order to highlight the possibility of negative rank order correlation between the two series (openness and the propensity to admit immigrants on a temporary basis), capturing the degree to which the rankings in one series are the reverse of those in the other, I have arranged the pairs according to the ratio of short-term immigrants to long-term immigrants. It is clear from a comparison of the two columns that there is little if any association, negative or positive, between rank order in one column and rank order in the other. For this reason, I reject the notion that policies regarding the type of visas issued per se are driving demographic openness. In this chapter my focus has been squarely on the crossover effect. In my opinion, adequately understanding the dynamics of globalization is impossible without taking into account crossover that drives a deep and long-lasting wedge between trade and migration gravitation. In my analysis I have emphasized market variables – income per capita, unemployment rates – as determinants of crossover. In the second part of this book I will analyze a second “wedge” driven between trade and migration, that stemming from resistance to diversity. Taken together, it is the argument of this book that divergence between trade and migration tells us something very important about globalization, namely that it is the resultant of political economy forces working through a combination of national policies and market driven incentives. Table 3.7 Ratio of short-term immigrants to long-term immigrants (100), nine countries, based upon data for years 1979–1988a Country

Ratio of short-term immigrants to long-term immigrants (denominator  100) 1979–1988

Demographic openness (1980–1992)

Netherlands Australia United Kingdom France United States Italy Denmark New Zealand Japan

2.6 9.0 17.7 23.2 48.4 85.2 153.9 1,261.0 2,804.1

103.3 130.6 76.3 340.4 40.3 22.2 127.4 306.0 9.8

Sources: United Nations. Department of Social Affairs (1991): Table 27, pp. 532–52. Note a For some countries figures on short-term and long-term immigrants are not available for all ten years between 1979 and 1988.

4

Emigration and immigration

Emigration and trade I have established a relationship between trade openness and demographic openness suggesting disparate facets of globalization are intertwined. However, in discussing procedures for estimating net immigration, I laid out various methodological propositions that bear on the issue of how demographic openness is estimated: immigration data are superior to emigration data in countries with positive net immigration; emigration data are superior to immigration data in countries experiencing net emigration; emigration generates return immigration; and immigration creates emigration. Is demographic openness best measured with the sum of immigration and emigration per the analysis in Chapter 2? Motivated by this reasoning, I devote this chapter to relating emigration openness to trade openness for the Western European countries and Japan, focusing mainly on the period 1880–1959 before these countries had experienced their decisive post-World War II crossover; and to associating immigration openness with trade openness in the Western offshoots. Am I making a virtue out of necessity? I cannot completely reject this objection to my procedures. As a practical matter, I think contesting the proposition that one should use the best data available in implementing quantitative analysis flies in the face of common sense. One of the virtues of my approach is it permits statistical testing of causality, described in Appendix A.2 by David Giles who employed a variety of sophisticated techniques in probing the relationships between international trade and international migration. I was not comfortable carrying examining potential causal connections with the combined immigration and emigration figures, but provided demographic openness was restricted to either immigration or emigration openness depending on the country involved I felt secure in posing questions concerning causation. Two sets of questions concerning causation are posed in this chapter. Does trade openness cause demographic openness or does demographic openness cause trade openness or do they cause each other through mutual feedback? Does trade growth cause migration growth or does

70 Openness migration growth cause trade growth or do the two growth rates reinforce each other through mutual causal interaction? Posing these questions is vital to interpreting the linkages between the two major components of globalization analyzed in this study. For instance, if we could establish that international trade was driving international migration, this would put primary emphasis on trade expansion as a key linchpin accounting for modern globalization. One story would make trade the driving force for countries of net emigration, and immigration the growth engine for countries of settlement. Constrained by a relative dearth of land for accommodating massive domestic agricultural expansion, European countries experiencing a sustained rise in per capita income – the United Kingdom comes to mind as an obvious candidate – increased their demand for food imports, thereby raising returns to emigration and settlement in frontier nations. In turn immigration to high per capita frontiers increased the demand for manufactures and craft goods generated in and exported from Europe. Another story sees emigration to distant lands increasing the demand for European manufactures, which in turn stimulated trade in the countries of settlement, thereby stimulating the demand for labor and population in frontier nations. To address these questions, I focus on the relationship between emigration openness and trade openness, between growth in emigration and growth in trade. To get a visual image of why this approach is justified, consider Figure 4.1 that traces out emigration openness and trade openness for the United Kingdom between 1857 and 1936. At times a picture is 100 90 80 70 60 50 40 30 20

U.K. emigration rate (emigrants per 10,000 population) ratio of trade (exports plus imports) to national income for the U.K. (%)

10 1860

1870

1880

1890

1900

1910

1920

1930

Figure 4.1 Emigration and trade to national income ratios for the United Kingdom, 1857–1936 (five year moving averages).

Emigration and immigration 71 worth a 1,000 words. This certainly seems to be the case here. Perusal of this graph establishes that upward and downward movements in British trade openness are closely mimicked by corresponding movement in emigration openness. To further probe the relationship between trade openness and emigration openness I related emigration openness to trade openness measured for the eight sub-periods between 1880 and 1959 for the countries of Western Europe and Japan. I report my findings in a scatter diagram of pairs (each pair representing emigration openness and trade openness for a particular country in a particular sub-period), emigration openness measured along the horizontal axis and trade openness along the vertical axis. Figure 4.2 presents my findings. Visual scrutiny of the figure supports the contention that trade openness is positively associated with emigration openness for countries of net emigration. Addressing methodological issues concerning outliers is relegated to Appendix A.2 where the detailed work of David Giles establishes that the finding of a positive relationship between emigration openness and trade openness is robust. What does the causality analysis suggest about the relationships involved? Consider the historical relationship between emigration openness and trade openness in the United Kingdom, captured graphically for the period 1857–1936 in Figure 4.1. As is shown in Appendix A.2, we can say that emigration openness causes trade openness over the period 1952–1996, and trade openness causes emigration openness in the period 1855–1938. Thus, for the period 1857–1936 it appears that trade is in the driver’s seat. 120

Trade openness

100 80 60 40 20

20

40

60

80

100

120

Emigration openness

Figure 4.2 Emigration openness and trade openness, Europe and Japan, 1880–1959.

72 Openness Does the finding that trade is driving emigration, rather than emigration driving trade, hold for growth rates? To probe this important question I looked at series on growth rates of trade and growth rates of emigration for four countries for which I have figures on pre-World War II trade and emigration covering the period between 1880 and the late 1930s. Specifically, I examine series for Denmark, Norway, and Sweden between 1880 and 1938; and series for the United Kingdom between 1880 and 1937. I summarize these findings briefly here, requesting that the interested reader consult Appendix A.2 prepared by David Giles for details. For Denmark and Sweden the formal causality tests show that trade growth causes emigration growth, and emigration growth causes trade growth. Trade growth and emigration growth reinforce one another. For Norway, the analysis shows that trade growth causes emigration growth, but rejects causation running from emigration to trade. Trade is the driving force. For the United Kingdom, the tests show that emigration growth causes trade growth, but the reverse is not true. Emigration is the key causal variable as far as growth rates for the United Kingdom are concerned. To summarize: for countries of net emigration, the causal relationships linking trade and emigration form a complex crazy quilt. In general, it is impossible to conclude that trade growth or trade openness is the dominant force, or that emigration growth or emigration openness is the dominant force.

Immigration and trade Proceeding to the Western offshoots, we pose the same questions for openness and growth rates that we posed for the countries of net emigration: is immigration openness associated with trade openness? Is the growth rate of trade caused by, or a cause of, the growth rate of immigration? That there is an historical relationship linking trade openness to immigration openness for the United States, the main national absorber of immigration flows amongst the Western offshoots, is evident from Figure 4.3 that covers the period 1891 to 1996. As with Figure 4.1, the tendency for the two series to move in tandem, upward and downward motion in immigration openness mimicked by corresponding motion in trade openness with a short lag, is visually evident in the figure. Turning to the four Western offshoots as a group, consider the scatter of pairs for immigration openness and trade openness for sub-periods between 1904 and 1992 (for details on which countries are included for each period, see Appendix A.1). Perusal of Figure 4.4 demonstrates that immigration openness is systematically related to trade openness for these four countries. As with Figure 4.2, details concerning outliers are relegated to Appendix A.2. What does the causality analysis relating trade openness to immigration

Emigration and immigration 73 100 90

immigrants to the U.S. (per 10,000 population) ratio of trade (exports plus imports) to GNP (percentage of GNP)

80 70 60 50 40 30 20 10 1900

1910

1920

1930

1940

1950

1960

1970

1980

1990

Figure 4.3 Trade and immigration rates for the United States, 1891–1996 (five year moving averages). 70

Trade openness

60 50 40 30 20 10

50

100

150

200

250

Immigration openness

Figure 4.4 Immigration openness and trade openness for the four Western offshoots, 1904–1992.

openness tell us? For the United States between 1898 and 1998, immigration openness causes trade openness, but trade openness does not cause immigration openness. For Canada between 1926 and 1989, and for New Zealand between 1918 and 1999, no causal relationship was established. It appears that immigration openness did not cause trade openness, nor did trade openness cause immigration openness. For Australia between 1902

74 Openness and 1938, statistical probing reveals that immigration causes trade, but trade does not cause immigration. In short, as far as levels of openness are concerned, the findings support the view that when there is any causal relationship at all, immigration is the driving force. Turning to the causal relationships between growth rates in immigration and growth rates in trade, the formal results mirror those already reported for emigration and trade. For Australia between 1902 and 1937, trade growth causes immigration growth, and causation does not run in the other direction; however, for the same country over the period 1952–1991, immigration growth causes trade growth, but trade growth does not cause immigration growth; for both periods combined, immigration growth causes trade growth. For New Zealand between 1918 and 1938 immigration causes trade, but trade does not cause immigration; for the same country between 1946 and 1992, trade causes immigration, and causation does not run in the opposite direction; for both periods combined, immigration growth causes trade growth. In the case of Canada between 1926 and 1990, it appears that causation does not run in either direction. For the United States between 1908 and 1993, trade growth causes immigration growth, and immigration growth does not cause trade growth. In short, depending on the country and time period, causation runs from either trade to immigration or immigration to trade or in neither direction. The results are mixed.

Conclusions In Part I of this book I have established theoretical and empirical linkages between international trade and international migration working their way through the market mechanism. Drawing upon the principle that a parsimonious explanation is preferable to an elaborate explanation, I have cast my arguments in terms of an extremely small number of variables – income, population, income per capita, land availability, the probability of securing a job – using these variables in elaborating a small number of propositions concerning openness in trade and demographic openness and the crossover effect. With proxy variables for global participation in international trade and in international migration calibrated at the national level, I have systematically explored the hypothesis flowing from my political economy gravity model that there is a positive association between these two fundamental aspects of globalization. My data set, which includes many countries in Western Europe, the Western offshoots, and Japan over the period 1880–1992, is relatively large, allowing for careful testing and probing of the relationships involved. Quantitative analysis, focusing on demographic openness calculated using both immigration and emigration flows combined, supports the hypothesis that demographic openness and trade openness are positively associated. Refining the analysis to take into

Emigration and immigration 75 account data quality (immigration figures being more accurate than emigration figures in countries of net immigration, and emigration figures being more accurate than immigration figures in countries of net emigration) does not change my conclusions. For the Western offshoots, quantitative analysis shows that the greater is the degree of immigration openness, the greater is the degree of trade openness. For the Western European countries and Japan prior to post-World War II crossover, the greater is the degree of emigration openness, the greater is the degree of trade openness. It should be stressed that these positive relationships between trade and migration are properties of national level data for groups of countries calculated for sub-periods of the era 1880–1992. There are outliers. Some countries are closed in a demographic sense, but open in a trade sense. Some countries yield a large flow of emigrants, but do not take in a sizeable volume of imports and do not export extensively. The analysis undertaken here also supports the notion of synchronization. There are global regimes of relative openness, between 1880 and 1913 and between 1950 and 1992, and regimes of relative closure like the World War I and World War II years or the period between 1920 and 1938. Countries in the data set examined here tend to open up, or close down, in tandem. Again, there are exceptions. Still, the general pattern holds. How important is the globe being relatively closed or relatively open for the operation of international markets? Figures on the volume of trade expansion show that, not surprisingly, the more open is the global trade regime, the more world trade grows. Causal statistical analysis linking trade growth to international migration growth shows that trade growth and migration growth tend to interact, with causation tending to flow in one direction or the other. For all these reasons the conclusion that openness, in both demographic and trade dimensions, matters for globalization measured in terms of volumes of trade and volumes of international migration is clear, and unmistakable. Being open matters: it matters a great deal. Finally, I have employed quantitative tools to construct a measure of the attractiveness of the Western offshoots, applying this variable to the problem of explaining the crossover effect whereby countries switch from being net emigration countries to being net immigration countries. I found that my explanatory variable was very useful in accounting for crossover in the data set for Western Europe and Japan. Crossover is very important because it drives a wedge between the bilateral trade pattern of pairs of countries and the bilateral migration flows moving between the two countries. According to the analysis in Chapter 3, crossover is strongly shaped by market variables. Were crossover the only factor driving a wedge between bilateral trade and bilateral migration movements we could conclude that markets play a dominant influence in explaining the nature of globalization as evidenced in trade and migration flows.

76 Openness However, as we shall see in Part II of this volume, politically driven wedges between migration and trade are an important part of the history of the globalization over the period since 1880. Showing this invites us to move away from a theory based upon a strictly market driven gravity model towards a theory rooted in a political economy gravity model. In the end, both politics and markets matter for globalization.

Part II

Diversity

5

The British connection

Infrastructure driven growth Integrating regional inorganic economy clusters with hinterlands is a key ingredient for achieving successful economic development at the national level. Through this integration, population is drawn from peripheral agricultural zones into the core clusters; through this integration, technologies and organizational forms are diffused from the cluster to the hinterland. How is integration to be achieved? If this were a simple matter, most of the world would have achieved a high level of per capita income. The global proliferation of inorganic economy clusters was part and parcel of the second half of the nineteenth century. Clusters spread because of imperialism, as European countries carved out empires in Africa and Asia; clusters spread as steamships roamed further and further around the globe, demanding coaling stations in far-flung lands; clusters spread as inorganic economy techniques were increasingly embodied in military equipment, which rapidly found itself spreading throughout the world. What differentiates successful integration of clusters with hinterland from unsuccessful integration is the degree to which infrastructure linking periphery to clusters and clusters to one another is developed. Where national governments emerged that managed to systematically develop infrastructure – political, physical, human capital enhancing, and financial – integration occurred, giving a tremendous fillip to per capita income growth. The problem is that thoroughgoing national programs of infrastructure investment did not occur in many corners of the globe. By political infrastructure I am referring to those formal aspects of governance – a fiscal system that collects revenues and allocates resources, an organizational structure that lays out a division of decision-making and spending authority between national bureaucracies and regional governments and local municipal governments, an independent judiciary that settles jurisdictional disputes and defines and protects property rights through a commercial code – that are especially important for putting the other three forms of infrastructure in place throughout the country.

80 Diversity I wish to stress that a variety of models – unitary state, confederation, and federation – are consistent with this requirement. What is important is that political voice is exercised regionally, regional authorities having some say in how much, and what kind of, infrastructure is installed within their jurisdiction, and that violent conflicts between regional authorities are squelched. Human capital enhancing infrastructure refers to infrastructure that bolsters the educational and physical capabilities of the population working in the inorganic economy. Compulsory primary education guaranteeing basic literacy, technical and vocational schooling for those aspiring to higher level blue collar positions in factories, university and college education supplying engineers, accountants, and managers for companies are crucial for meeting the demands of a vigorously growing inorganic economy. Likewise avoiding absenteeism in the labor force is essential to the smooth operation of firms that invest heavily in the training of their workforces. Adequate supplies of hospitals, medical clinics, doctors and nurses, and public sanitation are essential for successful spread of the inorganic economy. When the vast bulk of a national population resides in rural backwaters saddled with contaminated water and inadequate sewage removal, a paucity of medical facilities and personnel, and disorganized schooling, the diffusion of the inorganic economy into hinterlands is seriously hampered.1 By physical infrastructure I mean the network of roads, highways, harbors, dams, irrigation canals, airports, railroad track, and telephone lines that supports transportation and communication within the national territory. In a country with minimum levels of physical infrastructure, or heavy concentration of most physical infrastructure in one or several clusters with hinterlands relatively devoid of these structures and improvements, the costs of shipping goods and people, and the costs of communicating between distant locales, are substantial. High costs deter integrating hinterland with the zones harboring inorganic clusters. Financial infrastructure refers to domestic banking institutions including central reserve banks and foreign exchange institutions, stock and bond markets, a currency that meets domestic economic demands, and regulatory agencies that monitor and punish malfeasance on the part of duly certified private financial agents.2 National government is directly or indirectly involved in supplying infrastructure in all four realms: almost by definition in the case of political organization; and in the case of the other three forms of organization typically in a regulatory capacity, often as a co-investor along with private agents. For instance, basic educational services are often supplied by municipal governments and by private academic institutions regulated by a combination of national and regional governments; hospitals are regulated, and frequently owned, by both regional and national governments that set standards for certification for personnel who work within their wards; physical infrastructure is typically supplied by regional and national

The British connection

81

governments which regulate private agents like the owners of turnpikes and bridges; and central banks are typically creatures of national government, private banks being brought into a government regulated system through reserve requirements, deposit insurance, and access to lender of last resort services at the central bank. In short, the modern nation state, actively involved in supplying and maintaining infrastructure, is essential for achieving national integration with the inorganic economy clusters that develop within its environs. Modern nation states taking a variety of forms in leadership – monarchies, representative democracies with parliaments or congresses, dictatorships – have successfully supplied infrastructure meeting the requirements of rapid diffusion and harnessing of the inorganic economy. But exceptions abound: plenty of nation states have failed to adequately meet the demands of integration. One of the side effects, intended or unintended, of investing in infrastructure that knits together the various regions of a country is that global integration is promoted by the very same investments that enhance national production. Building transcontinental railroads in the United States and Canada gave a strong push to economic development in each of these vast nations; at the same time it dramatically cut the costs of shipping goods to the United Kingdom and Europe, and the costs of bringing emigrants out of Western Europe on their way to the frontier lands in the Western reaches of both countries. It is in the field of infrastructure investment that the British connection was especially crucial to the Western offshoots. In all four realms – political, human capital enhancing, physical, and financial – the United Kingdom provided models; in all four realms the United Kingdom supplied expertise and laborers who constructed and serviced the infrastructure; and in all four realms, private British citizens and/or the national government of the United Kingdom supplied capital that underwrote much of the infrastructure created. As model, the United Kingdom offered up representative government conditioned by a strong and critical press, the common law whose operation depends on an independent judiciary, the English language, a system of layered national and local government, protection for private property rights, the Bank of England as central bank, and the emphasis on mixed state–private sector investment in infrastructure. This made for a very strong British connection. As direct supplier of labor and capital, the British connection was equally strong, especially in the nineteenth and early twentieth centuries. For the three former self-governing Dominions of the British Empire (Canada, Australia, and New Zealand), this is easy to understand. Given the tight political connections between the motherland and the colonies, there was little possibility that the Dominion governments would unilaterally nationalize British investments; and the interests of private British

82 Diversity investors were protected through common law and an appeals system that brought high profile cases in the colonies to London under an evolving body of Imperial Law that was codified in the United Kingdom. Emigrants from the United Kingdom to the colonies were guaranteed preference in migrating to the Dominions under various assisted immigration schemes in which funding came from both the colonial and United Kingdom governments. More interesting is the fact that strong glue cemented together the factor markets of the United States and the United Kingdom even after Britain’s former colonies broke away from the homeland, establishing a wholly independent nation state. Thomas (1954) argues that British capital and labor flowed from the United Kingdom to the United States in profuse quantities, the British being especially active in creating the “population sensitive” capital formation, the transportation infrastructure, that opened up the American frontier to settlers, including emigrants from the homeland. The Thomas (1954) thesis is based on the idea that long swings – twenty to thirty year upward and downward movements in national economic activity driven by capital formation – in the United Kingdom moved inversely to long swings in the United States.3 High and rising real rates of return in the United Kingdom promoted domestic home investment in infrastructure and plant and equipment that drove the swing at home; eventually the rates of return on these investments were dissipated as domestic rates of growth slowed due to the onset of diminishing returns stemming from the plant, equipment, urban infrastructure, and railroads put in place during the boom; looking for alternative opportunities affording a higher rate of return, British investors concentrated on investing in the United States, thereby pushing growth there as British capital flowed in financing railroads, canals, and factories in the new world. British labor stayed at home during domestic capital formation upswings because real wages rose rapidly in response to the feverish pulse of growth, migrating to the economically surging United States during domestic downswings, attracted by sharp upward movements in real wages in the American market due to the accelerating growth, the feverish boom, taking place there. The long swings in each country moved in an inverse rhythm, capital and labor either staying home in the United Kingdom or flowing to the United States depending on whether capital formation was concentrated in the homeland or in the former collection of colonial dependencies now expanding out across the center of North America. The strength of the connection between the United States and the United Kingdom is surely attributable partly to the strong British influence exercised upon the government, language, and law of the United States, and partly to the gravitational pull due to gargantuan trade that blossomed between the two countries. With the spread of cotton through

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83

the American South following upon Eli Whitney’s invention of the cotton gin that made cotton farming economically viable in the early nineteenth century, the United States emerged as a major supplier of raw cotton to the burgeoning textile industries of Britain’s industrial belt. The expansion of the United States into what became the Midwest and plains opened up vast farmlands and pasturelands. As the costs of shipping goods between the two countries (and within the continental United States) fell, the American West naturally became a major supplier of foodstuffs to the United Kingdom (and the European continent). So intertwined are the attraction of sharing a common tradition shaping political infrastructure and the mutually beneficial logic of enhancing welfare in both countries through trade, that it is difficult to separate one from the other. What is clear is that the British connection – as model and as supplier of labor and capital – was of paramount importance to the United States, especially during the period when its frontiers were being settled.

Diversity, nationalism, and infrastructure One of the key points about the four types of infrastructure is that each is either a public or quasi-public good. For this reason the national government tends to be drawn into either regulating it, or directly investing in it. Depending on the system of government (unitary states concentrate fiscal, legal, and administrative authority in national bureaucracies whereas confederations devolve greater power to local governments), the national government may be more active in setting standards and providing general rules for regulating the infrastructure, or more active in directly building and maintaining the infrastructure. In general, however, the modern nation state is an active party in creating and maintaining all four types of infrastructure. Nationalism is ideological cement easing the participation of government in the field of infrastructure. In this sense nationalism can make a positive contribution to the growth in income per capita of a nation. Ironically, by facilitating investment in human capital enhancing, physical, and financial infrastructure, nationalism also greases the wheels of globalization. The better educated is a population in a single language, the more densely a national territory is crisscrossed by roads and serviced by harbors and airports, the more stable is the banking sector and the stock and bond markets of a country, the more easily can the world outside that nation do business with it. When learning one national language suffices to do business in the country, when the communication and transportation costs of getting around the country are low, and when only one currency is needed to carry out transactions, the easier it is to conduct business in all of the districts and backwaters of the land. Nationalism plants the very seeds of global integration that call into question devotion to a single national cause.

84 Diversity Countries of net immigration struggle with the problem of defining a national identity. The more diverse is the inflow of immigrants, the more open the country, the more challenging is the task. Consider language. It is important to keep in mind that the absolute diversity within the immigration stream, measured in terms of the total number of languages spoken by immigrants for instance, is not really the issue. If a modest handful of immigrants out of a huge sea speak a particular language, the impact of that language on the country receiving the migration is minimal. For language proliferation to pose a substantial problem, the number of distinct languages spoken by significant percentages of the migration stream must be increasing. Working with a 5 percent threshold as a reasonable approximation to “significant,” I take 5 percent of the total immigration stream as my criterion for deciding whether a distinct language group is significant or not. My counting of the number of distinct language groups is limited to significant immigrant groups as defined by this admittedly arbitrary cutoff percentage. Arbitrary or not, the point of defining “significant” is valid: the critical point for societies absorbing immigration streams is how large is the product of immigration openness (the ratio of the immigration size to the receiving population stock) and the diversity of that immigration stream. I shall return to this point shortly. In using language diversity to generate a proxy for an index of diversity I concede that I am relying on a relatively crude instrument. Proliferation of languages and associated national cultural identities accompanying language are only one aspect of diversity against which political movements trumpeting the virtues of being a native in countries of immigration express hostility. Consider the waves of English speaking Irish who entered the United States during the late 1840s and 1850s, driven by the imminent threat and actual reality of mass starvation brought on by a combination of demographic and economic forces analyzed by Mokyr (1983). As Gibson (1968) shows, when the Irish, fleeing the ravages of the potato famine that broke out in 1846, poured into New York and Boston and settled into crowded tenement buildings, disorderly conduct and even rioting amongst various Irish immigrant groups broke out. Stemming from the harsh living conditions of metropolitan life in the new world and the tragedy of grim poverty the Irish were fleeing, these disorders garnered increasing public attention and increased public condemnation. A political reaction erupted in response. The Order of the Star-Spangled Banner, dubbed the Know Nothings, achieved enough clout amongst the electorate of New York by the mid-1850s that it was able to successfully place a slate of representatives in the New York State legislature in 1854 bent on passing a program of anti-immigrant policies. As the political rhetoric grew increasingly vitriolic, it even poisoned the affairs of the business community,

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85

spawning a wave of help wanted advertisements that trumpeted the phrase “No Irish need apply.” To be sure, many Americans were very sympathetic to the Irish, and even supportive of the cause of Irish independence – after all the United States had broken free from the United Kingdom less than three quarters of a century before – a fact that clouded Anglo-American diplomacy especially in the mid-nineteenth century and during the American Civil War, when the United Kingdom with its voracious demand for cotton was sorely tempted to come into the war on the side of the Confederacy. In any event, accepted in sympathetic solidarity or condemned as domestic irritant, the massive wave of Irish immigration following the potato famine of the 1840s visited the problems of the old world on the new, spawning domestic political and diplomatic tensions in the United States. This was true despite the Irish speaking English. Other immigrant communities in the United States followed the Irish lead that embroiled the new world in the conflicts of the old. The famed chronicler of immigration to the United States, Handlin (1952: page 207) argues that immigrant groups in the United States often formed political organizations with the aim of promoting nationalist aspirations for the ethnic communities they had left behind in the old world. They raised funds with bond issues, printed currencies, and even recruited soldiers to fight for nationalist causes abroad, a reality that angered many European governments attempting to stifle separatist campaigns. The seeds of President Wilson’s call for “national self determination” in Europe – embodied in the famous fourteen points he brought to Paris in 1919 (see Chapter 7) – lie in the growing national origins diversity of the immigration streams entering the United States after 1850. After all, Wilson was speaking to both domestic and international audiences when he developed his foreign policy. The political implications of diversity should not be forgotten for a moment. Still, while acknowledging them, I choose to focus on language diversity rather than diversity defined in terms of ethnicity. My justification for focusing solely on language diversity is that proliferation of languages within a country increases the difficulty of communication among adults, and potentially complicates educating children in the schools system. It affects human capital enhancing infrastructure. Taking up this approach, I am able to document diversity thus defined for the United States throughout most of the nineteenth century. I compute an index of diversity, Indiv, for the United States between 1820 and 1914 as follows: 1

I divide the number of immigrants by twenty, securing a “cutoff ” population size that defines a significant distinct language group. Using this criterion, I assume that the immigrant stream speaking a distinct language amounting to less than 5 percent of the total

86 Diversity

2

3

4

5

immigration inflow is of limited significance. Note that the maximum number of distinct languages that my approach can accommodate is twenty (5 percent times twenty is 100 percent). Thus the number of distinct language groups varies between zero and twenty. I assume that immigrants from Great Britain, Ireland, Canada, and Australasia speak English. In the case of Canada where French speakers constitute a significant minority, my assumption may underestimate the number of languages involved (depending on whether French speakers are counted as a significant sub-group of immigration streams). The American data on national origin of immigrants gives figures for regions of Europe as well as countries. For instance “Scandinavia,” “Other Central Europe,” “Other Southern Europe (other than Italy)” are categories used in the data. I assume each region constitutes a single distinct language group. Using this method, I compute the number of distinct significant language groups, NL, among the immigration stream. This number is an integer between one and twenty. I multiply this number of distinct significant language groups by the level of immigration openness (Io) defined as the number of immigrants per 10,000 persons. Thus: Indiv  NL * (Io)

(5.1)

Using this method I supplement my estimates of immigration openness for the United States between 1820 and 1914 with an index of diversity, Indiv.4 In making my estimates I do not incorporate distance between the immigrant’s mother tongue and English. Chiswick and Miller (1998) cite evidence on the degree of difficulty that English speakers have learning foreign languages as a proxy for linguistic distance. The common sense notion is that it is much harder for a person whose mother tongue is Chinese, Japanese, or Arabic to learn English than it is for a person whose mother tongue is German or French (English being a language that has roots in the Latin based languages of Europe and in German). I do not complicate my calibration of diversity by including the idea of language distance, plausible as it sounds, because the notion is somewhat controversial: are grammatical differences between tongues, or the task of pronouncing sounds that one never encountered as a child, or differences mastering new alphabets or writing systems the most important factors creating distance? What is required to achieve the “functional literacy” necessary to operate effectively in the market place? In any event, recognizing that calibration of linguistic distance is somewhat arbitrary, I have eschewed its use here.5 My estimates for immigration openness and the index of diversity in

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87

the United States appear in Figure 5.1. Two things should be clear from a perusal of the figure. The index of diversity fluctuates up and down with the level of immigration openness; there is a strong secular tendency at work with the index of diversity rising in response to the increasing diversity of the immigration flow. First heavily dominated by speakers of English and German, the diversity of the American immigration stream was increasingly enriched by Swedes, Italians, Russians, Portuguese, and Chinese especially after mid-century. As domestic and international transportation costs tumbled, the index of diversity of the United States soared. This was true for the diversity of trade of the United States and the other Western offshoots; and it was definitely true for the United States, at least, in the diversity of its immigration.

National infrastructure investment reduces international costs of transportation and communication This brings me to the factors driving down global transportation and communication costs. The purpose of this section is to argue that: (1) a variety of different types of evidence involving prices and costs support the proposition that the real costs of transport and communication have been falling since the early eighteenth century; (2) after the early nineteenth century the decline in transportation costs stems from productivity gains due to technological progress in applying innovations in the inorganic economy to transport and to scale economies flowing from an increase in the size of transport equipment and from increases in the volume of traffic; (3) productivity gains in domestic and international transport have 600 immigration openness, United States, five year moving averages, 1822–1912

500

diversity index, United States, five year moving averages, 1822–1912

400 300 200 100

1820

1830

1840

1850

1860

1870

1880

1890

1900

1910

Figure 5.1 Immigration openness and diversity index for the United States, 1822–1912 (five year moving averages).

88 Diversity complemented one another, long hauls principally associated with international activity benefiting more than short hauls; and (4) the decline in transport costs is inseparable from improvements in national physical infrastructure within countries. In arguing these points, I restrict my attention mainly to the United Kingdom and the four Western offshoots that are my focus in this chapter. In the next chapter I provide further evidence, for Japan, supporting the importance of national infrastructure buildup as a factor driving down international and domestic costs of transport and communication. In the absence of national programs of infrastructure driven growth, transport and communication costs would not have fallen nearly as far as they have. Various strands of evidence on prices and costs support the notion that transport and communication have been becoming cheaper and cheaper relative to other goods and services since the mid-nineteenth century: evidence showing that prices for various goods converged throughout the Atlantic economy, incorporating North America and Western Europe, during the eighteenth and nineteenth centuries; evidence on the ratio of c.i.f. (cost, insurance, and freight) prices to f.o.b. (free on board) prices for the post-1950 period; estimates for price indices for the transport and communications sector that show the price and/or cost of transport and communication declined relative to other prices going into the consumer price index for countries in the twentieth century. Many studies have shown that the differential between English and American prices declined at a steady pace during the eighteenth and nineteenth centuries. For instance in the eighteenth century, Walton and Rockoff (1998: page 100) show that the price of British goods sold in the colonies was over 80 percent higher than the price of these goods in Great Britain during the 1720s, dropping to a ratio of around 50 percent in the early 1770s. Equally dramatic was the convergence in commodity prices achieved between far-flung cities within the expanding continental expanse of the United States during the period 1815–1860, due to improved roads, canals, use of steamboats on inland waterways, and the stagecoach documented by Walton and Rockoff (1998: pages 184 ff.). Combining the falloff in domestic within continental transport cost declines with those pulling down shipping costs on the Atlantic Ocean as steamships took on the grand clipper ships in a competition eventually won by steam, Williamson (2002) argues that commodity prices converged sharply between the two sides of the Atlantic during the second half of the nineteenth century; moreover, they also converged across the vast coastline of Eurasia as steamships began increasingly to make their way from the North Sea through the Mediterranean Sea to the Indian Ocean, the South China Sea, and the Sea of Japan. A second piece of evidence regarding the declining cost that transporting goods imposes on their prices in distant markets is the secular drop in

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the ratio of c.i.f. values (measuring the cost to an importing country taking into account freight and insurance) to f.o.b. values (computed as the goods leave the exporting country, “free on board”). Frankel (1997: pages 40 ff.) cites studies on the c.i.f./f.o.b. ratio demonstrating that the ratio has been plummeting worldwide between 1950 and the mid-1990s. He presents a graph – see Frankel (1997: page 44) – showing the cost of world transportation and insurance has dropped from around 9 percent of product value in 1950 to approximately 5 percent in 1986. He also shows that the c.i.f./f.o.b. ratio is sensitive to the type of good shipped, being very low for pearls (enjoying a high ratio of value to weight) and relatively high for perishables like fruits and nuts, and for salt, earth, and stone that are heavy relative to value. The third type of evidence concerning prices and costs addresses the question: has transport become more or less expensive relative to other goods and services consumed? From Panels A.6 and A.7 of Table 5.1 it is clear that the purchase price of domestic transportation has consistently dropped over the course of the twentieth century relative to the prices for other items upon which consumers expend their resources within the United States and Canada. Panels B.2 and B.3 of the table show that this statement also applies to international transportation emanating from, or arriving in, the United Kingdom and the United States. Panels A.8 and A.9 show that this fall in real cost has not come at the expense of quality as measured by the speed of ground and air transport. Indeed, average speeds have increased considerably. In short, within the national territories of the United Kingdom and the Western offshoots, and over the vast stretches of ocean and land separating them, the transportation tale of the nineteenth century is a compelling story of overcoming the challenges posed by geography. Increasingly, the tyrant of distance – within and between countries – has been brought low, overpowered by dramatic improvements in shipping over water, by ground transport, and by travel through the air. What explains this revolution in moving people and goods? For the period since 1850 the answer is simple: productivity gain in transport flowing from the harnessing of the innovations of the inorganic economy interacting with scale economies won through increasing the volume of activity and the size of individual vehicles. In assessing the considerable bearing that innovation has had on transport costs, it is useful to follow Mokyr (1990) in making a distinction between macroinventions and microinventions. Macroinventions are major breakthroughs that completely restructure the technological landscape, affecting the way energy is generated and harnessed. Examples of macroinventions are the steam engine and tapping the stored up power in coal to generate steam power; electricity, flowing along massive hydroelectric power grids, speeding up communications, and delivering lighting to remote sites; and the internal combustion engine that has revolutionized

1950–1959 1960–1970

Years

4,082 4,915

92.1 90.9

Motor vehicles 3.1 6.9

Aircraft 4.6 1.9

Railroads 7,610 8,425

Ton miles per capita

Miles per capita

Percentage (passenger miles) by:

Freight traffic

Passenger traffic

Panel A.2: Intercity passenger and freight traffic in the United States, 1950–1970

2.8 4.7 5.3 5.3 4.7 4.2 2.6

1910–1921 1922–1938 1946–1959 1960–1979

2.8 4.7 5.3 5.3 4.5 4.0 2.5

51.2 42.9

Railroads

18.1 22.0

Motor vehicles

Percentage (freight miles) by:

9.2 46.4 111.5 273.0

15.6 16.1

Inland water

n.e. 11.7 29.4 72.6

15.1 19.1

Oil pipelines

Per road mile

1848–1859 1860–1879 1880–1899 1900–1913 1922–1939 1940–1959 1960–1979

Per capita

Year

United Kingdom

Year

British Isles

Motor vehicles per capita (per 1,000 population) and per road mile, Gt Britain

Railroad miles per capita (per 10,000 population)

Panel A.1: Railroads and motor vehicles in the United Kingdom, 1848–1979

Panels A.1–A.9: From railroads to motor vehicles and aircraft. The transformation of domestic transportation

Table 5.1 Domestic transportation infrastructure in the United Kingdom and the Western offshoots and international transportation costs

97.2 110.1 102.4 78.1 56.8

1890–1899 1900–1919 1920–1939 1940–1959 1960–1970

n.e. n.e. 101.6 85.0 71.7

n.e. n.e. 113.6 229.3 253.9

1902 1912 1922 1932 1942 1952 1960–1969 1970–1980

Year(s)

47.4 62.1 86.7 100.0 100.7 99.1 93.9 92.5

Index of route kilometers (1932  100)

29.7 47.9 59.5 45.9 66.0 58.0 40.8 27.8

Passenger journeys per capita

Government railroads

59.2 97.7 120.8 100.0 149.1 169.8 239.4 381.6

Index of freight tons carried (1932  100) n.e. n.e. n.e. 0.8 16.9 134.5 223.1 494.2

Passenger kilometers on domestic aircraft per capita n.e. 24.8 46.0 73.4 102.6 150.6 244.3 385.7

Telephones in service per capita (per 1,000 persons)

n.e. 74.5 144.6 272.1 486.1

n.e. n.e. 36.3 59.2 84.7

n.e. 75.7 101.0 89.2 148.2 118.0 60.0 38.5

n.e. n.e. 35.9 123.6 133.3 268.0 485.6 670.4 continued

Motor vehicles per capita (per 1,000 persons)

% of households with a telephone

Passenger journeys on tram trolleybuses per capita

Telephones per 1,000 persons

Mileage per capita

Surfaced mileage per capita

Telephones

Roads

Panel A.4: Railroad, trams, telephone, and aircraft service in Australia, 1902–1980b

Index for railroad track operated per capita (1900  100)

Years

Panel A.3: Railroad track, roads, and telephones in the United States, 1890–1970a

92.0 124.4 152.4 179.6 160.2

1889–1899 1900–1919 1920–1939 1940–1959 1960–1979

5.3 10.0 7.0 n.e. n.e.

Level 79.9 148.8 103.9 n.e. n.e.

Index (1900  100)

Railroad passengers per capita (excluding ticket holders)

1926–1934 1935–1939 1940–1949 1950–1959 1960–1970

Years

n.e. 43.3 51.2 79.1 97.8

(2)

(1)

n.e. 41.9 56.2 81.0 97.8

Transportation

Total

n.e. 103.3 92.0 97.6 100.2

Relative cost of transportation (2)/(1) (3)

Consumer price indices and air fare revenue index (1967  100)

Panel A.6: The relative price of transport in the United States, 1926–1970

Index for railroad train mileage (1900  100)

Years

Panel A.5: Government railroads in New Zealand, 1889–1979

Table 5.1 continued

155.0 96.7 92.6 97.7 106.4

Index for revenue per passenger on domestic aircraft (4)

3.1 4.9 4.6 5.0 4.2

Level

92.0 124.4 152.4 179.6 160.2

n.e. 230.1 169.2 121.0 109.9

Relative cost of domestic airfare (4)/(1) (5)

Index (1900  100)

Goods and livestock shipped per capita, tons

68.0 81.6 113.0

Total (1)

Consumer price indices

66.8 81.6 108.2

Transportation (2) 98.0 100.1 96.1

47.3 51.4 57.8

Cars

Cars and trucks

41.8 45.6 51.8

Trucks

ACFC 36.5 44.4 48.2 51.1 53.8 60.4

Years

1903–1919 1920–1929 1930–1939 1940–1949 1950–1959 1960–1969

n.e. n.e. 34.7 35.7 39.3 41.0

PSSPEED

Panel A.9: Carrying capacity and speed for railroads in the United States, 1903–1919d

1945–1949 1950–1959 1960–1970

Years

165.0 203.9 313.7

n.e. 28.1 26.9 44.8 43.3 47.3

FSSPEED

Domestic airlines

continued

Relative cost of transportation (2)/(1) (3)

Panel A.8: Average speeds (miles per hour) for motor vehicles and domestic airlines in the United Statesc

1950–1959 1960–1969 1970–1979

Years

Panel A.7: The price of transport relative to the consumer price index, Canada

141.3 189.0 209.1 134.7 94.0 n.e. n.e.

n.e. n.e. 226.7 145.3 100.8 n.e. n.e.

164.1 361.7 657.8 861.7 865.2 789.9 n.e.

Net

Net

Gross

Steamships

Sailing ships

Average tonnage (tons)

n.e. n.e. 1,166.0 1,420.1 1,468.5 2,460.1 6,641.5

Gross

Index of tramp shipping costs (1)

99.5 84.5 154.7

Years

1880–1899 1901–1914 1924–1936

91.1 94.4 156.7

Cost of living index for the United Kingdom (2)

Panel B.2: Index of tramp shipping freight costs for the United Kingdom (1914  100)

1840–1859 1860–1879 1880–1899 1900–1919 1920–1939 1940–1959 1960–1979

Years

Panel B.1: Ships of the United Kingdom, 1840–1979e

Panels B.1–B.4: Secular changes in international transportation and international communication

Table 5.1 continued

n.e. n.e. 74.7 92.0 97.3 n.e. n.e.

Gross

108.9 89.3 98.1

Relative cost of tramp shipping (1)/(2) (3)

5.7 21.7 60.1 88.4 95.7 n.e. n.e.

Net

% of net and gross tonnage that is steamship tonnage

159.0 122.8 90.7

304.9 167.5 112.7

177.2 240.8 432.6

Miles per hour

Relative to average revenue per passenger mile on domestic flights  100

Relative to the consumer price index (1967  100)

Average speed of aircraft

Average revenue per passenger mile on international flights

107.0 118.2 138.5

Relative to average speed of domestic flights  100

2,390.0 2,914.5 3,706.1 4,416.4 4,432.8 6,040.3 11,057.3

1912 1922 1932 1942 1952 1960–1969 1970–1980

n.e. 3,756.5 3,901.2 2,287.1 2,192.6 6,497.0 25,231.2

Per vessel

Average tonnage of cargo loaded

n.e. 1.0 0.9 0.4 0.5 2.2 10.3

Per capita

Notes a For the road figures, the values for 1920–1939 are actually for 1921–1939. b For the index of route kilometers and passenger journeys on tram trolley-buses per capita, the figures for 1970–1980 are actually for 1970–1979. c For domestic airlines, the figure for 1945–1949 is actually for 1944–1949. d Acronyms are as follows: ACFC  average capacity of freight cars (tons); PSSPEED  passenger-service train miles per train-hour; FSSPEED  freight service car-miles per car-day. For PSSPEED, figures for 1930–1939 are actually for 1936–1939; for FSSPEED, figures for 1920–1929 are actually for 1921–1929. e For net and gross tonnage of sailing ships and the percent of net and gross tonnage that is in sail and steam in 1920–1939, the figures are actually for 1920–1937; for the gross tonnage of steamships in 1880–1899, and for the percentages of gross tonnage that are in sail in steam for the same years, the figures are actually for 1886–1899; for net tonnage of steamships in 1940–1959, the figures are actually for 1940–1948. f For 1940–1949, figures on average speeds are for 1944–1949 only. n.e.  not entered.

Sources: See the sources for Tables 2.1 and 2.2. In addition, I used various tables in Mitchell (1988).

Average net tonnage of vessels departing

Year(s)

Panel B.4: Tonnage of overseas vessels and tonnage of overseas cargo loaded onto overseas vessels, Australia, 1912–1980

1940–1949 1950–1959 1960–1969

Years

Panel B.3: Average revenue per person on international flights, and average speed of international aircraft, United States, 1940–1969f

96 Diversity ground transport – trucks, cars, automobiles – and transport by air – the airplane – and water transport alike. As important as macroinventions are for productivity growth in transport, the host of smaller microinventions that have gradually improved and modified transport technology are equally important over the long run. Indeed microinventions and macroinventions interact in the sense that they stimulate each other. The transformation of oceanic shipping through the use of the diesel engine, electrical lighting, the telegraph and telephone, the computer for monitoring and managing the use of energy, and satellite tracking are a few illustrations of this process. To make this point concrete and hopefully meaningful to the reader, let us consider a few specific examples of how microinventions in tandem with macroinventions have revolutionized transport. Before I give these examples let me emphasize that technical improvements in domestic and international transport often complement one another. For example, in the container revolution in ground and sea transport, ocean shipping complements domestic railroad and truck transport. My first example involves replacing sailing ships with steamships; the second involves containerization and the diversification of transoceanic shipping in the aftermath of World War II. In appreciating the significance of the first example, it is important to keep in mind that switching from sail to steam cut transit times by about two thirds. In addition oceanic travel became more predictable and regular in the sense that it was less hostage to the vagaries of wind and weather. For instance, transatlantic voyages, originally eating up five weeks in the 1840s, were reduced to around twelve days in the late 1860s.6 While the American packet lines – offering regular scheduled sailings regardless of the volumes of mail, cargo, and passengers carried on individual ships – and the owners of clipper ships attempted to keep the Americans competitive in transatlantic traffic, the impact of steam was to drastically cut the costs of oceanic travel. In the process the United Kingdom, the Workshop of the World, emerged as the dominant merchant marine power, supplanting the American and Canadian wooden sailing ship fleets with iron-hulled, screw propeller driven, steamships. As a result between 1870 and 1914, the merchant navy of Great Britain carried half of the world’s oceanic trade.7 Panel B.1 of Table 5.1 documents the swiftness of the switch from sail to steam in the merchant navy of the United Kingdom. The principal macroinventions tapped in the steamship revolution are obvious enough: steam engines; the use of fossil fuels such as coal in place of wind power; and the creation of composite ships, with wood planking and iron hulls and frames. But microinventions were equally important. The development of high-pressure boilers made screw propeller propulsion cost effective, thereby allowing a shift from paddle to screw driven motion. Adding on additional cylinders in the engine helped. Using triple

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expansion engines, compound engines, and reciprocating engines all helped to cut the use of coal, thereby driving down the amount of coal that had to be carried on ships (by ton shipped) and the amount that had to be bunkered in harbors and ports. Restricting ourselves only to steam driven ships (the use of diesel in the twentieth century has permitted further reductions in cost per tonnage moved), the following figures on poundage of coal used per unit of horse power are instructive: paddle (4.5 to 6.25); iron hull (3.5 to 4.5); screw propulsion (2.9 to 3.5); compound engine (2.2 to 2.9); turbine engine (0.683 to 1.3); and geared turbine (0.683).8 Continual tinkering and minute improvements in engineering had a major impact on costs over the long run. As the costs of moving tonnage fell and engines became ever more powerful and monstrous in size, the size of ships soared, thereby allowing the industry to exploit scale economies (Table 5.2).9 Moreover, exploiting scale economies was not the only benefit enjoyed by the owners of larger and more powerful ships. According to a basic principle of marine engineering, a ship’s maximum hull speed is enhanced when the displacement hull is longer, because a longer displacement hull increases the length of the wave created by the boat as it moves through the water.10 Other things being equal, the more stretched out is the length of a ship’s hull at its water length, the more rapidly it is able to travel. Diversification followed on the heels of the trend towards the construction of larger and larger ships. As Keeling (1999) shows, luxury liners began to take over the transatlantic traffic. In their holds below they carried freight and emigrants from Europe bound for the new world or, on the America to Europe leg, emigrants returning to their homelands; in their upper decks (in the first and second class cabins) they transported European tourists headed for the United States and Canada, or Americans and Canadians headed for holidays in England, Italy, Switzerland, or Germany. Carrying tourists in addition to goods and migrants became a hugely profitable expanding business. Specialization and diversification is even more striking in the second half of the twentieth century. Key is the container revolution, which was aimed at exploiting complementarities between water and ground transport, reducing stevedoring costs, and minimizing the loss of cargo that Table 5.2 Length, tonnage, and horse power (H.P.) of some premier ships Name of ship

Launch year

Length ( feet)

Tonnage

H.P.

Britannia Britannia Kaiser Wilhelm der Grosse Majestic Queen Elizabeth

1840 1874 1897 1914 1938

1,207 1,455 1,684 1,954 1,031

1,139 5,004 14,349 56,621 83,773

4,440 4,970 31,000 80,000 200,000

98 Diversity historically passed into the hands of ship and stevedoring crews. Sealed metal containers, the standard is the twenty-foot container unit (abbreviated as a T.E.U., a twenty-foot equivalent unit), are carried in the holds of ships. Cranes load and unload these standardized boxes onto truck beds or onto railroad flatbed cars. Some bulk freight (paper and pulp, chemicals) is carried in this manner. So is freight once transported by breakbulk (not in containers) that was costly in terms of labor and costly in terms of insurance owing to loss en route.11 A massive fleet of container ships equipped with special pallets, their holds broken down in a cellular or modular fashion in order to accommodate the T.E.U.s, has emerged in the post-1950 period. Joining these specialized container ships are fleets of massive bulk ships – basically floating containers – like the huge tankers carrying oil, gas carriers shipping natural gas, and dry bulk carriers loaded with iron ore, coal, bauxite, or various milled grains. Finally, there a plethora of exotic ships like the ro/ro (roll-on/roll-off) ship aimed at carrying trucks and automobiles that can be readily driven on and off the ship’s hold, and the L.A.S.H. (Lighter Aboard Ship) that is a enormous barge loaded up with smaller boats (lighters) that are tugged to, and from, the L.A.S.H. ship when it rests in harbors. The key is that these ships tend to be large (extremely large in the case of bulk carriers) and are designed for minimizing the amount of time spent in the ports where they are loaded and unloaded. In their design are exploited scale economies, the engineering relationship between length and speed, and practicality of loading and unloading. One of the economic consequences of this trend toward specialization and constructing of gigantic ships is the substitution of capital, lumpy capital at that, for labor. Ship and stevedoring crews have shrunk relative to the volume of passengers and freight carried. But the ramp-up of capital has come at a price: downside risk in periods of slack trade like the 1920s and 1930s has increased for investors. Attempting to iron out and ride out downswings in demand has been a major goal of the liner conference system. Liners, like the American packet lines of old, move from port to port on fixed schedules. By contrast, tramp traffic moves flexibly according to demand and supply for services in various ports. Liners tend to be large and specialized: luxury cruise ships; bulk carriers; container; ro/ro and the like. Naturally, protecting companies investing in these ships face massive losses of profit when their holds go unfilled. The liner conference system whereby members of conferences set basic rates for shipping cargo creates a set of managed cartels that attempt to bring supply and demand for the services of their members into some semblance of order.12 To many economists these cartels are anathema: by reaching agreements on the pricing of services, they act in restraint of trade, reducing competition by creating barriers to entry, elevating prices above what they would be under conditions of competition and the like. Seemingly, they deter innovation. But do they? Does their operation not

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encourage competition in quality of services? Can this not act as a spur to introducing new technologies and new organizational models for doing business? It should never be forgotten that transportation heavily depends upon infrastructure, mainly upon canals, harbors (and airports), railroad networks, and roads that constitute the physical backbone of nations. For instance, without harbors dredged deep enough to handle the deep hulled ships of the post-1950 period, without cranes for unloading containers, without land for stacking and storing containers, containerization would never have grown as rapidly as it did. Canals have been of monumental importance throughout the preindustrial era (the Grand Canal linking Beijing to the Chinese coast is a classic example). However, their impact was not limited to the heyday of the inorganic economy: for instance, they played a crucial role in the early industrialization of England. In North America, the Erie Canal helped open up New York City to the Westward moving heartland of North America. Most of these canal networks – like those carved out in France prior to the onset of the inorganic economy, and in England and Wales in the eighteenth century in response to the nascent era of steam and coal – were part and parcel of national programs of infrastructure investment, undertaken for domestic reasons, largely financed domestically. However in the post-1850 period the canal built with global finance and aimed at global traffic has moved to the fore: the Suez Canal (readied for service in 1869) played a massive role in reducing the costs of shipping goods from Western Europe and the United Kingdom to the Indian Ocean and the South China Sea; and completing the Panama Canal in 1914 drastically cut the costs of shipping goods across the Pacific to the Eastern seaboard of North America.13 Even more important have been harbors. Konvitz (1978) provides convincing evidence that systematic harbor planning became a focus of Western European governments in the seventeenth century, just as transatlantic shipping involving European ships became increasingly important. In the post-1950 period harbor construction aimed at accommodating bulk carriers, ro/ro, and container ships has become of growing concern to national governments and international development agencies.14 Ships require harbors and harbors require ships. Improvements in one domain are inextricably linked to improvements in the other. A third type of infrastructure that has been of exceptional importance in the modern period is the network of railroad track laid down globally after the 1840s. While acknowledging that alternatives to the railroad existed at the time and certainly exist now – after all, infrastructures compete with one another through the transport vehicles that employ them, trucks taking business away from trains as an example – it is difficult to underestimate the importance of the railroad for knitting together the far-flung frontiers of the countries of settlement.15 Accessing the

100 Diversity Australian outback, linking Western North America to Eastern North America, tying together the various communities in New Zealand’s two major islands, would have been far different had railroad networks not been built in the late nineteenth and early twentieth century in the United States, Canada, Australia, and New Zealand. Largely built in response to domestic agendas, the laying down of railroad track in the United Kingdom and the Western offshoots, documented in Panels A.1–A.5 in Table 5.1, has been in the forefront in the battle against the tyranny of distance. A fourth form of infrastructure that has played an important role in the modern period is the paved road. Without paved roads, the widespread reliance on cars, trucks, and buses that we have grown accustomed to in the post-1920 period would have been difficult to achieve.16 Still, it is worth noting that the unpaved dirt road, or the roadway covered by gravel, continues to play an important role in the rural areas and backcountries of all countries. In the Canadian Shield and in the Australian outback the unpaved “highway” is ubiquitous. However in densely inhabited districts where the density of automotive transport is high, the paved road is a sine qua non. Infrastructure matters to the analysis of global transportation costs because the construction and maintenance of infrastructure, typically a common pool resource open to the public (railroads are an exception in the sense that railroad companies often own the rail networks that they utilize), often falls into the hands of national governments or is regulated by the nation state. To appreciate this point, consider railroads and air transport. In Australia and New Zealand government traditionally ran, and in the case of Australia, still runs the railroads. In Australia state governments took responsibility. Until privatization occurred and a Crown Corporation was created to manage the railways, the national government in the case of New Zealand shouldered the burden. In general railroads have remained quite viable in Australasia, in part because the taxpayer picks up some of the tab for their operation. In the more private oriented system of the United States, railroads have fared less well. However, it must be kept in mind that Progressive Era legislation, aimed at busting trusts and corralling in the excesses of big business during the late nineteenth century, brought the railroad network under the regulation of the Interstate Commerce Commission (I.C.C.). Martin (1971) argues that the unwillingness of the I.C.C. to countenance rate increases commencing with the Hepburn Act of 1906 discouraged investment funds from flowing into railroads, thereby undermining their profitability after 1911. Whatever the truth of this claim, it is clear that in matters as important for national security and economic performance as railway infrastructure – whether it takes the form of canals, railroads, roads, or airports – leaving its construction and maintenance to the pure unbridled competition of the market is a myth. To a lesser or greater

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degree (depending on the country and time period) it is safe to assume that government regulates and/or directly controls railroads. Again, consider air transport that mainly involves the international flow of passenger travel. To be sure, the use of freight airplanes that carry bulky equipment (military transport planes are a good example), courier planes, and air transport of mail and other freight whose value to weight ratio tends to be high is fairly common. Still, it is the traveler who has benefited the most from the massive explosion in airplane traffic in the post1950 period and the drastic drop in the unit cost of that traffic. It is worth noting that the physics of air transport favors involving international traffic. The longer the distance traveled by an airplane, the higher is the altitude it travels at, where it faces lower resistance to forward motion than it does at lower altitudes. Moreover, the longer the distance traveled, the less time is spent taking off, climbing, and landing relative to total flight time. Since huge amounts of fuel are expended in take-off, the greater is the time spent cruising relative to taking off and landing the lower are total costs per passenger mile traveled. Evidence on this point appears in Panel B.3 of Table 5.1. It is evident that international flights have fallen in price more rapidly than domestic flights (even in the United States whose large geographic extent dictates that domestic flights be a mixture of long haul and short haul flights). It is also evident that the increase in average speeds attained on international flights of American airlines exceeds the improvement in average speeds prevailing in the domestic market. As noted before these differential gains partly reflect the altitudes that planes fly at and the ratio of cruising time to the combined time put into take-off and landing. Does switching to air transport mean that the nation state is playing less of a role in regulating and providing infrastructure for transport than in the past? This is doubtful. International negotiations between national governments concerning use of airports and airspace have been fundamental in expanding volumes of international travel, which in turn have led to cost reductions. The proliferation of airports regulated by government with runways capable of handling larger and more powerful planes has given a fillip to the volume of international air transport. National governments invest in national flag airlines, pouring taxpayer resources into subsidies for airline companies and airports alike. Without the active participation of the nation state in building, regulating, and maintaining infrastructure, global transportation costs would never have fallen as decisively as they have in the period since 1850.

The crisis in human development and the pressures on human capital enhancing infrastructure Equally, nation building concerns and government have been drawn into investing in, and regulating, education and the health, the cornerstones

102 Diversity of human capital enhancing infrastructure. Without schools, hospitals, and clinics and public health programs, the diffusion and elaboration of the inorganic economy would have been seriously hampered, perhaps set back for decades. Creating a literate and numerate population vigorous in body and mind, supporting a high level of human development in a population, rendering it capable of coping with a constantly spreading host of engineering and scientific challenges, is crucial to the national diffusion of the inorganic economy over the long run. In this arena, the countries of the British connection – the United Kingdom and the Western offshoots – manifestly struggled with maintaining and enhancing human development in the face of the urbanization that accompanied the diffusion of the inorganic economy during the late nineteenth and early twentieth centuries. In order to set the stage for the analysis, it is useful to quantify the concept of a literate and healthy populace using the human development index (HDI) of the United Nations Development Programme (2000). Inherently, human development is an amorphous concept, sprawling across human freedom, the standard of living as calibrated by income per person, health and physical prowess and mental capacity, and education attained and skills learned. To move beyond the amorphous to the specific, the notion of human development advanced by the United Nations Development Programme has considerable appeal, partly because it is widely computed and discussed today, allowing us to compare the historical experience of the countries considered here with a wide range of nations in the contemporary world.17 Using the methodology of the United Nations, I measure human development as a composite variable based upon adding together separate components for educational attainment (literacy, schooling attainment), health (life expectancy), and income per capita. Recognizing that life expectancy is an imperfect measure of health (which mainly reflects infant mortality risks), I broadened the United Nations’ definition by bringing in the concept of the biological standard of living as well. The biological standard of living is measured by looking at quantifiable levels and variance for indicators of physical capacity (height, weight, chest girth, cranium size and shape) for populations. In particular, analysis using the biological standard of living has focused upon the tempo of physical growth among children and youths, and the terminal levels of these so-called anthropometric measures of physical attainment attained by young adults in their late teens and early twenties. It is well established in the literature that the better nourished is a population of young persons – the greater is the net nutritional intake of that population, where net nutritional intake is gross nutritional intake (involving calorie, protein, and vitamin intake) minus nutrients burned up in fighting off infection and in physical work – the earlier is physical maturation (earlier in chronological age) for children, and the taller and heavier are young adults. The biological standard of living provides a

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103

summary measure of the well being of populations in terms of the tempo of human growth (the timing of the maturation process) and terminal levels of human physical development. I use it to complement the human development index approach.18 Moreover, because there is impressive documentation on secular trends in the tempo and terminal levels of human growth – as income per capita grows the mean age at maturation drops and the average terminal levels of height and weight improve – the approach using the biological standard of living speaks to the issue of human plasticity, that is to the absence of fixed inherent characteristics for ethnic groups and national populations.19 In understanding how and why human development figures in economic development in the long run it is important to keep one basic point in mind. Human development is both a cause and a consequence of economic development. In general the higher is the level of per capita income, the more robust is human development. The association is not automatic however, a point that has significance as we shall see shortly. If human development improves because of rising income per capita, positive feedback may set in. Improvements in human development promote further improvements in income per capita because the population is better equipped for physical tasks and mental work. In this scenario income growth feeds upon itself. Improvements in income per capita induce parents to invest more heavily in the education of their offspring, or at least some of their offspring. Presumably, the mechanism of household expenditure is the principal thoroughfare by which income growth feeds on itself through the agency of human development. A portion of any increment to family income takes the form of additional spending on the education of children, which in turn enhances the expected standard of living of the children. With these points in mind let us turn to empirical evidence on improvements in human development for the countries of interest to us in this chapter. Let us begin with data for the United Kingdom that appear in Panel A of Table 5.3. One of the points that jumps out from Panel A of the table is that by today’s standards – the human development index for all developing countries in 1998 is 0.642 – the United Kingdom lagged in education and health.20 Why was this the case? English industrialization commenced during an era when the technology of public health and medicine were poorly developed, exploiting an industrial technology and organizational arrangements in its factories favoring the use of child labor. The incentive to invest in education was muted; and industrial cities like Manchester, and counties like Lancashire, where the satanic mills were concentrated were a sorry mess, fetid and dirty places, rife with tuberculosis, typhus, and dysentery. Only after sustained public outcry over the deleterious consequences of densely populated urbanization in a rapidly expanding industrial belt

1801 1806 1811 1816 1821 1826 1831 1836 1841 1846 1851 1856 1861 1866 1870 1871 1871–1880 1881–1890 1901–1910 1913 1920–1922 1930–1932 1950 1950–1952

Year/period

35.9 38.7 37.6 37.9 39.2 39.9 40.8 40.2 40.3 39.6 39.5 40.4 41.2 40.3 n.e 41.3 43.0 45.5 46.0 n.e 57.6 60.8 n.e 69.0

Life expectancy at age 0 56.5 51.0 51.5 52.5 54.0 57.0 58.0 57.0 59.2 59.6 61.9 65.5 70.3 74.2 n.e. 76.9 80.4 88.5 95.5 n.e. 100.0 100.0 n.e. 100.0

Literacy (% literate)

The Floud–Harris human development index

Panel A: The human development index (HDI) for the United Kingdoma

Table 5.3 Human development in the United Kingdom and the Western offshoots

0.38 0.38 0.38 0.39 0.40 0.41 0.43 0.42 0.43 0.44 0.45 0.47 0.50 0.51 n.e. 0.53 0.55 0.60 0.63 n.e. 0.71 0.73 n.e. 0.80

HDI n.e. n.e. n.e. n.e. n.e. n.e. n.e. n.e. n.e. n.e. n.e. n.e. n.e. n.e. n.e. 0.50 n.e. n.e. n.e. 0.64 n.e. n.e. 0.77 n.e.

The Crafts–United Nations HDI

71.1 72.2 n.e 73.5 n.e n.e n.e n.e

100.0 100.0 n.e. 100.0 n.e n.e n.e n.e

165.3

166.1

176.8

174.2

1909

102.1 n.e.

City

Leeds Glasgow

103.1 103.9

1920

Panel C: Heights of males aged 5.5 years in Leeds and Glasgow, 1909–1940 (cm)

Adult student

Adult steel worker

1968

Irish

British

Irish 165.7

Laborers

East India Company army recruits

Circa 1810–1814

Panel B: Heights of adult males in the British Isles, 1810–1814, and 1968 (cm)

1960–1962 1970–1972 1975 1978–1980 1980 1985 1990 1998

105.7 104.1

1930

0.83 0.85 n.e. 0.87 n.e n.e n.e n.e

165.6

British

n.e. n.e. 0.84 n.e. 0.85 0.85 0.87 0.92

108.2 107.1

1940

continued

0.52 0.70 0.78 0.84 0.86 0.87 0.88 0.93

1870 1913 1950 1975 1980 1985 1990 1998

n.e. 0.71 0.80 0.84 0.85 0.86 0.87 0.90

New Zealand

80.6

68.7

83.7

1911

1911–1915 1921–1922 1925–1927 1931 1934–1938

55.2 59.2 63.5 66.1 67.1

1901–1911 1920–1922 1932–1934 1946–1948 1953–1955

58.8 63.3 67.1 70.6 72.8

Year(s)

Males

Year(s)

Females

New Zealand

Australia

61.0 62.8 64.0 65.0 65.5

Males

Panel F: Life expectancy at age 0 for males and females in Australia and New Zealand, 1901–1978

1896

1861

Panel E: New Zealand. Proportion (%) of European population able to read and write, 1861–1911

Australia

Year

Panel D: Human development indices for Australia and New Zealand

Table 5.3 continued

63.5 65.4 66.6 67.9 68.5

Females

67.9 67.6 67.8 69.3 70.2

74.2 74.2 74.5 76.3 77.2

1950–1952 1955–1957 1960–1962 1970–1972 1975–1977

68.3 68.9 69.2 69.1 69.4

114.3 109.2 112.3 112.3

Australia, 1901 New Zealand, 1934 New Zealand, 1954 New Zealand, 1969

141.2 144.8 150.4 151.1

Age 12

72.4 73.9 74.5 75.2 75.9

300 326

6 10

252 270

English immigrant children

British

168.7

Australian

170.4

166.4

Italian

Panel I: Western Australia goldfield workers, 1922: standing height (cm)

Australian born

Age

170.4

Slav continued

Panel H: Adelaide, Australia, 1914–1915. Weights (ounces) of male children aged 6 and 10 born in Australia and born in England

Age 6

Country, date

Panel G: Heights of male children aged 6 and 12, Australia and New Zealand, 1901–1969 (cm)

1960–1962 1965–1967 1970–1972 1976 1978

1800 1810 1820 1830 1840 1850 1860 1870 1880 1890 1900 1910 1913 1920 1930 1940 1950 1960 1970 1975 1980 1985 1990 1998

Year

172.9 173.0 172.9 173.5 172.2 171.1 170.6 171.2 169.5 169.1 170.0 172.1 n.e. 173.1 173.4 176.1 177.1 177.3 177.5 n.e. n.e. n.e. n.e. n.e.

0.72 0.73 0.74 0.75 0.76 0.78 0.80 0.80 0.83 0.87 0.89 0.92 n.e. 0.94 0.96 0.97 0.97 0.98 0.99 n.e. n.e. n.e. n.e. n.e.

0.58 0.59 0.60 0.62 0.62 0.63 0.67 0.70 0.74 0.75 0.80 0.87 n.e. 0.88 0.89 0.94 0.95 0.96 0.96 n.e. n.e. n.e. n.e. n.e.

82.6 83.8 85.9 88.9 87.9 90.0 94.2 100.0 104.7 106.8 114.2 123.2 n.e. n.e. n.e. n.e. n.e. n.e. n.e. n.e. n.e. n.e. n.e. n.e.

(4)

Index for HDI with 1870  100

Index for HDI with 1950  100

n.e. n.e. n.e. n.e. n.e. n.e. n.e. n.e. n.e. n.e. n.e. n.e. n.e. 93.0 94.0 98.4 100.0 100.4 101.2 n.e. n.e. n.e. n.e. n.e.

(5) n.e. n.e. n.e. n.e. n.e. n.e. n.e. 0.51 n.e. n.e. n.e. n.e. 0.64 n.e. n.e. n.e. n.e. n.e. n.e. 0.80 n.e. n.e. n.e. n.e.

(6)

(2)

HDI estimated by Costa and Steckel (3)

Adult male standing heights (cm) (1)

Literacy (%)

Crafts HDI

Costa–Steckel human development index

Panel J: The human development index (HDI) for the United Statesb

Table 5.3 continued

n.e. n.e. n.e. n.e. n.e. n.e. n.e. n.e. n.e. n.e. n.e. n.e. n.e. n.e. n.e. n.e. n.e. n.e. n.e. 0.84 0.85 0.85 0.87 0.92

(7)

United Nations HDI

0.41 0.42 0.44 0.45 0.45 0.46 0.48 0.51 0.53 0.54 0.58 0.62 n.e. 0.75 0.75 0.79 0.80 0.81 0.81 0.84 0.85 0.85 0.87 0.92

(8)

Combined estimated HDI

110.7 115.2

6

140.2 147.8

12 165.5 168.3

18 n.e. 58.1

112.4 115.1

6 149.5 144.7

12

Height (cm) at age:

Height (cm) at age:

Adult weight (kg)

Japanese in California

Japanese in Japan

169.2 168.4

18

29.7 6.5 48.0

Ontario, 1861 Irish Catholic Irish Protestant Non-white/black English Protestant Canadian Protestant Canadian Catholic

Massachusetts Connecticut

n.e. 68.6

Adult weight (kg)

2.9 2.5 3.7

1.0 0.3

Notes a The Floud–Harris HDI is from Floud and Harris (1997); the Crafts–United Nations HDI is from Crafts (up through 1970), and from the United Nations (2000) for the subsequent dates. b The combined estimated HDI index given in column 8 is estimated as follows: (1) I compute the index for the Costa–Steckel HDI with 1870  100 (column 4); I multiply this index by the Crafts HDI estimate for 1870 to secure an estimated combined HDI series for 1800–1910; (2) I compute the index for the Costa–Steckel HDI with 1950  100; I multiply this index by the Crafts HDI estimate for 1950 to secure an estimated combined HDI series for 1920–1970; (3) I use the United Nations HDI for the years 1975–1998 for the estimated combined HDI. c For Japanese males in California in 1976, the figures for 18-year-old standing heights are actually for ages 17 and plus. n.e.  not estimated.

Sources: Australian Bureau of Statistics (various years): various tables; Costa and Steckel (1997): various tables; Crafts (2002): various pages; Cumpston (1989): pp. 100–5; Eveleth and Tanner (1976): pp. 287 and 360–1; Floud and Harris (1997): pp. 116, 119–20; Graff (1979): pp. 57–9; Gruelich (1957): various tables; Mokyr and Ó Gráda (1994): p. 48; Prichard (1970): pp. 77, 226; Soltow and Stevens (1981): p. 159; Statistics New Zealand (various years): various tables; United Nations Development Programme (2000): p. 182.

28.0 6.0

United States, 1840 (%) North Carolina Ohio

Panel L: Illiteracy rates in four states of the United States (adult whites), 1840; and in Ontario, Canada, 1861

1957 1972

Year

Panel K: Heights of Japanese males aged 6, 12, and 18 in Japan and in California, 1957 and 1972 (cm) and weights (kg) of Japanese adult males in Japan and in California, 1972c

110 Diversity were national and local governments brought into the fray. By the same token, only after decades of social unrest did national legislation requiring children attend compulsory education and banning children from working in mines and factories address the unremitting human development crisis that enfolded through mid-century England and Wales. These interventions by government, empowering factory inspectors, cleaning up water supplies, regulating food inspections, and financing a public school system paid off. This payoff is seen in Panels A, B, and C of Table 5.3. Panel B addresses the secular trend in adult height for the United Kingdom; and Panel C addresses the secular trend in the heights for young children in cities of England and Scotland. That early industrialization and urbanization could impair human development in the world’s most advanced inorganic economy, nineteenth century England, raises a natural question: did countries of settlement like the United States and Australia – the former industrializing substantially after the 1860s and the latter heavily urbanized from the late nineteenth century onward – experience downward pressure on human development during the nineteenth century? On this point consider the figures assembled in Panels D–L of Table 5.3. As the reader can see from the figures on the human development index and the biological standard of living the following points hold: (1) Adult heights were substantial in the first half of the nineteenth century in the United States (compare these figures to those for British and Irish army recruits and laborers given in Panel B of Table 5.3). They deteriorated over the course of the second half of the century. Only in the early twentieth century was this regressive tendency reversed. (2) In general the human development index was relatively high in the countries of settlement, partly because health was good, partly because basic education was promoted in these jurisdictions, initially through the common school movement.21 That human development was initially quite advanced in the countries of settlement is surely linked to the fact that gross nutritional intake was considerable in these frontier lands with their vast hitherto untapped forests and rich soils, teeming with wildlife and vegetation for the taking. To be sure, nascent urbanization and industrialization cut into these levels. Nevertheless, human development remained quite high in the countries of settlement. These high levels served as a springboard from which the dramatic improvements in human development associated with the twentieth century could vault. The countries of settlement were all well positioned to cope successfully with the growing technical demands of the evolving inorganic economy. The figures on the physical characteristics of immigrants in countries of settlement in Table 5.3 (Panels H, I, and K) provide us with useful information about human plasticity, the biological standard of living responding positively to improvements in net nutritional intake and other

The British connection

111

features of the standard of living. Consider the Australian figures showing that English immigrant children were substantially lighter than their Australian born counterparts. As the Australians said, “The more Australian the child, the better is the specimen.”22 Note also that adult Japanese immigrants to the United States far exceeded their Japanese counterparts in weight, the differentials in height being significant in 1957, but muted in 1972, as Japan had substantially closed the gap in net nutritional intake between itself and the United States during the period between the late 1950s and the early 1970s. This testifies to the importance of gross nutritional intake, especially generous in the countries of settlement, and to the plasticity of the human species. Despite their manifest advantages as frontier societies, boasting of relatively cheap and abundant foodstuffs, in human development, the Western offshoots failed to avoid the pressures on human capital enhancing infrastructure experienced by England and Wales. Indeed, in the American case, problems of encroaching urbanization that put pressures on water quality, on removal of sewage and fetid discharges in street and stream, were compounded by the acceleration in language diversity documented in Figure 5.1 that occurred in the decades following the Civil War. Rampant urbanization threatened health. The upward surge in language diversity threatened to swamp the capacity of school systems to ground youngsters adequately in an English based curriculum.

The British connection erodes If there was one day that captured the heyday of the United Kingdom wreathed in global splendor – the master of the inorganic economy, the most powerful military power on the planet, the center of a glorious and expanding empire – it was May Day, 1851. On that day Queen Victoria opened the great Crystal Palace Exhibition in Hyde Park, London, meticulously organized by her husband Prince Albert and Joseph Paxton, architect and visionary of a new age of glass and metal.23 In the 10,000 exhibits of the Crystal Palace Exhibition systematically arrayed into thirty categories – raw materials (mining, chemicals, food and animal products), machinery (transport, architectural, agricultural, precision instruments), manufactures (cotton, paper, leather, tapestry, cutlery, ceramics), and the fine arts (mosaics, sculpture) – were assembled every manner of human artifice from the most far-flung reaches of the globe. London, the political and economic center of the world’s most powerful nation, was hosting the world’s first real world fair. The gravitational pull of England’s economy was drawing the world to England’s doorstep. In appealing to a mass audience of British citizens for the exhibit through the sale of cheap tickets on certain designated days, the organizing committee of the exhibit was setting a drumbeat for a flaunting of

112 Diversity national patriotic pride, reaching out to both rich and poor, elite and humble citizen alike. In inviting representatives and exhibiters from the European continent, North America, Australasia, and Asia, the organizers were celebrating the great diversity of arts and manufactures among nations with a backhand gesture, smug and confident in the manifest superiority of England and Wales in mastering the inorganic economy present and future. On display in its great steel frame and glass enclosed precincts were not only steam engines and semi-automated textile machinery, but also electrical apparatuses embodying the ideas of Faraday, Ampère, and Volta pointing towards an age when hydroelectric power would supplant steam. The vision projected at the Exhibition was faith in progress through science and its application to technology, England ushering in the new age. British superiority was being celebrated. Being British was not restricted to the narrow geographic compass of the British Isles. Indeed, on display in Hyde Park was American ingenuity advancing the method of constructing machinery and equipment with interchangeable parts – in Hobb’s locks, Colt’s revolver, and McCormick’s reaper – pointing to the genius of transplanted British artisans and engineers.24 Hyde Park was the ultimate expression of the global importance of the British connection. Ironically, it was the inorganic economy pioneered by England that was about to erode the strength of the British connection. The steamship plying global waters, the steam railroad opening up affordable transport for the teeming masses of Southern and Eastern Europe, paved the way for a massive emigration out of the Eurasian land mass. Harnessing steam power on land and sea was the only innovation of the inorganic economy stimulating the Eurasian efflux. The market driven labor contract binding factory owners and employees through a voluntary exchange of labor services for wages that was sweeping away an earlier age erected upon serfdom, slavery, indentured servant, and advancement through the ranks of guilds through apprenticeship was advancing hand in hand with the new inorganic economy technologies, in England and shortly thereafter on the Continent. Protest as the handloom weavers might, rail as the followers of the imaginary Ned Ludd did, against the evils of the satanic mills and mechanized factory production, the factory system was displacing an earlier age of craft – proto-industrial – based production just as surely as steam was driving out sail on the high seas. As clusters of the inorganic economy sprang up throughout Eurasia, as European power was extended to the farthest reaches of Eurasia through gunboat diplomacy, restrictions on the movement of people attributable to feudalistic practices or to the autarky policies of empires like the Chinese dissolved in ruins. Indeed, what was good for England was good for the world in an era of British dominance on those seas. Abolishing the slave trade is a case in point. The overlay of the new philosophy emphasizing the rights of indi-

The British connection

113

viduals to enter into market contracts for the exchange of goods and service, and domestic political lobbying driven by self-interest is key to an understanding of why the British parliament abolished the slave trade in 1807, following this up with a campaign to encourage the other European powers to abolish their slave trades (after 1814), and, during the 1830s, by the emancipation of slaves in the Empire and the abolition of West Indian Negro Apprenticeship.25 Without the change in politically informed philosophical climate, it is doubtful that slavery and the slave trade would have fallen of their own weight. The economic viability of slavery – the mainstay of large scale plantation agriculture in the production of sugar, tobacco, and cotton – is indicated by the fact that it survived in the United States until it was abolished during the Civil War of the 1860s, surviving in Brazil and Cuba until the 1880s. The fact that the American colonies seceded from Great Britain towards the close of the eighteenth century gave a strong impetus to the anti-slave trade movement. A lobby group – plantation owners in Maryland, Virginia, Georgia, and the Carolinas – mobilized by a strong incentive to oppose abolition of commerce in slaves ceased to play a role in the domestic British debate. The plantation owners of the West Indies were left with fewer allies in their campaign to keep the shipping of slaves across the Atlantic legal. Once the slave trade was largely eliminated, it was rapidly supplanted by new migration streams emanating from Asia mainly directed at the tropics, especially at the Caribbean in the Americas, and Southeast Asia and the island archipelagos near it. Thus, the infamous recruitment of “coolie” workers from China and India (passage of the migrants financed through various forms of indentured servitude) emerged as a substitute for the equally infamous trucking in African slaves that preceded it.26 The plantations of the Caribbean, the Pacific, and Southeast Asia – the rubber producers of the Straits Settlements (now Malaysia), the tea growers in Ceylon (now Sri Lanka), the sugar planters in the British West Indies and in Hawaii, the Dutch spice growers in Borneo – turned to indentured servants recruited in India, China, and Japan for their voracious labor needs. Securing plantation labor from Asia in lieu of African slaves was an important consideration for the European powers, especially the British, and it was one consideration in the drive of the European powers to “open up” Asia more aggressively to trade and commerce. Once the floodgates to Asian emigration were opened, what was to stop the enterprising Chinese or Indian from emigrating to the Western offshoots, drawn across Pacific waters to the American and Canadian West, to the Australian colonies, by the lure of gold, or the opportunity to lay down rail for the steam railroad networks spreading across the vast plains of these lands of settlement? In sum, as the costs, both monetary and institutional, of emigrating declined throughout the vast reaches of the Eurasian continent, the

114 Diversity geographic scope of its exodus widened. Reflecting this emigration as a mirror image in their immigration, the potential diversity of the streams flowing into the Western offshoots was enriched. Consider the United States, which maintained a laissez-faire policy in its immigration policy prior to the 1880s, only required immigration officials to turn back the ill and infirm. As can be seen from Table 5.4, both the regional diversity of American trade and the diversity of its immigration were reshaped by the geographic spread of the inorganic economy. One very important consequence of this growing diversification was a striking decline in the British connection binding together the trade and immigration flows of the United States and the United Kingdom. As Figure 5.2 makes clear, the importance to the United States of the United Kingdom eroded in a very strong secular downward trend, punctuated by fluctuations especially on the migration side. Causality testing, discussed in Appendix A.2, supports a two-pronged interpretation of this erosion: the fall off in bilateral trade causing the fall off in bilateral migration; and the fall off in bilateral migration causing the fall off in bilateral trade. In short, declining transportation costs made the United States less dependent on the United Kingdom, simultaneously in the fields of trade and migration. Comparing the bilateral trade and migration flows between the United States and nations other than the United Kingdom reveals that the comTable 5.4 The diversity of trade and immigration for the United States, 1840–1989 Years

1840–1849 1850–1859 1860–1869 1870–1879 1880–1889 1890–1899 1900–1909 1910–1919 1920–1929 1930–1939 1940–1949 1950–1959 1960–1969 1970–1979 1980–1989

Percentage of all immigrants to U.S. from:

Percentage of all trade (exports plus imports) of U.S. with:

Europe

Asia

Americas

Europe

Asia

Americas

95.5 92.5 91.0 80.0 89.4 96.5 93.2 63.7 57.9 63.0 44.8 56.4 36.0 20.1 10.9

0.01 1.7 3.2 5.7 1.0 2.0 2.9 4.6 2.3 2.8 3.0 5.3 10.5 33.6 43.1

4.0 3.4 5.3 13.8 9.3 1.2 3.3 31.1 39.4 33.4 49.6 36.8 52.0 43.5 42.3

69.7 69.0 63.4 68.2 68.9 66.9 63.2 54.6 41.3 38.0 35.8 28.6 32.2 27.6 25.5

5.1 4.7 4.5 5.3 6.2 6.8 9.6 11.6 19.0 22.3 14.0 17.0 21.0 27.3 34.8

24.8 24.8 29.9 25.1 22.6 23.2 24.1 30.9 35.2 34.8 41.4 48.2 40.1 37.0 33.3

Sources: United States. Department of Commerce. Bureau of the Census (1975): various tables; United States. Department of Commerce. Census Bureau (various years): various tables.

The British connection

115

70 60

percentage of immigration to U.S. from U.K. and Ireland percentage of U.S. trade with U.K.

50 40 30 20 10

1850 1860 1870 1880 1890 1900 1910 1920 1930 1940 1950 1960 1970 1980 1990

Figure 5.2 Trade with, and immigration from, the United Kingdom and Ireland: the United States, 1842–1995 (five year moving averages).

pelling relationships capturing the demise of the British connection do not hold in general. For instance, as Appendix A.2 reveals, there is no causal relationship connecting the two bilateral flows (migration and trade) of United States with Asia, or the two bilateral flows of the United States with Europe taken as entire region. For the Americas, the causality tests do establish relationships running both ways, from trade to migration and migration to trade. However breaking down the relationship between the Americas and the United States into the two most important national relationships (the United States and Canada, and the United States and Mexico) reveals patterns in which trade and migration proportions diverge. For instance in the case of Canada’s presence in United States trade, the proportion rose from around 3 percent in the early 1840s to around 10 percent in the first half of the 1860s (attributable to the Civil War among other factors), then dropped off to around 5 percent in the early 1890s, before beginning a decisive climb to over 25 percent in the early 1960s. Migration from Canada to the United States followed a very different contour, surging during the 1870s and again between World War I and World War II (being consistently above 20 percent of U.S. immigration in that period) before falling off to low proportions, under 3 percent in the post-1970 period. This is what we would expect on the basis of the crossover effect, Canadian per capita income converging towards United States levels during the period 1950–1970. In the case of Mexico, the Mexican presence in American trade remained under 5 percent until the late 1970s, while the immigration proportion surged to over 10 percent during the two decades after the

116 Diversity onset of World War I, falling off until World War II when it once again reached levels of around 15 percent. In the aftermath of World War II, the proportion declined, then picked up again reaching a plateau that oscillates between 10 and 15 percent until the early 1980s, when it spiked upward to over 30 percent during the later 1980s, slipping away from that peak in the early 1990s. Because the level of income per capita in Mexico is far lower than that of the United States, the gravitational model with crossover predicts that the immigration proportion exceeds the trade proportion. This is exactly what the data reveal. The model also predicts that the Canadian trade proportion exceeds the Canadian immigration proportion in recent decades, a pattern that is supported empirically. An even more dramatic divergence of trade and immigration proportions for the United States is revealed by the bilateral flows between Japan and the United States captured in Figure 5.3. Notable is the strong surge in both proportions during the late nineteenth century, and again during the World War I period, followed by a sharp dropping off of the immigration proportion, and a continuing surge in trade until the mid-1930s. The sharp upward increase in Japan’s trade proportion in the post-1955 period, unaccompanied by a corresponding increase in immigration, is especially striking. Explaining this pattern solely in terms of the crossover effect is impossible; political factors must be considered as well. These political factors will be taken up later on in this chapter, in the next section, and in Chapter 7. The diversity of America’s trade and immigration increased dramatically in the decades following the Crystal Palace Exhibition, inexorably pulling the United States out of the British orbit. Ultimately, the diffusion 18 16

percentage of immigration to U.S. from Japan percentage of U.S. trade with Japan

14 12 10 8 6 4 2 1850 1860 1870 1880 1890 1900 1910 1920 1930 1940 1950 1960 1970 1980 1990

Figure 5.3 Trade with, and immigration from, Japan: the United States, 1842–1995 (five year moving averages).

The British connection

117

of the inorganic economy accounts for this erosion of the British connection, the gravitational pulls of both trade and migration coming from a growing number of industrializing nations working to reinforce each other in some cases. For some countries ( Japan being an especially salient case) enhancing bilateral trade occurred in the face of low and diminishing levels of bilateral migration. For the three self-governing Dominions of the British Empire, Canada, Australia, and New Zealand, the erosion of the British connection took longer. After all, these countries were only nominally independent from the United Kingdom until the 1930s, having their legal decisions and their foreign policies carefully overseen and vetted by Whitehall (in 1926, at the Imperial Conference, it was decided that the term “British Commonwealth of Nations” be used to describe the relationship between the selfgoverning Dominions and the mother country, and in 1931, the Statute of Westminster officially ended British parliamentary control over Dominion affairs). However, as with the colonies that eventually formed the United States, the expansion of economic activity and the natural desire to resist taxation or calls to arms without due consultation and representation in London pulled these former colonies of the United Kingdom away from their homeland. As cause and consequence, the colonies became less and less dependent on the United Kingdom in trade, and less and less British in their immigration. This is demonstrated for Canada, Australia, and New Zealand in Table 5.5 and in Appendix A.2 where causality tests probing the relationships between the growing diversity of the colonies in trade, and in immigration, are reported. Of all four Western offshoots, tiny New Zealand was the last to spin away from the British orbit. This is seen in Figures 5.4 and 5.5. Not 100 90 80 70 60 50 40 30 proportion of migrants to New Zealand from the U.K. and Australia proportion of New Zealand’s trade (exports plus imports) with the U.K. and Australia

20 10 1900

1910

1920

1930

1940

Figure 5.4 Proportion of New Zealand’s immigrants from, and trade with, the United Kingdom and Australia, 1897–1939 (five year moving averages).

33.3 33.0 46.9 62.4 29.5

British 0.7 2.6 0.9 0.3 1.6

Chinese/ Japanese

Immigrants by ethnicity (%)

1.5 2.7 1.2 0.5 2.3

Asian 1906 1916 1926–1930 1941–1950 1951–1960

Year(s)

48.7 45.8 51.9 55.9 64.9

U.S.

23.7 15.2 8.1

71.4 38.7 27.6

7.1 25.3 44.3

2.3 5.6 8.1

Hong Kong

1900

85 14

% of foreign investment from:

U.K. U.S.

66 30

1916

44 53

1926

1.3 4.8 6.2

India

36 61

1930

11.9 13.5 6.7

U.S.

20 76

1950

64.7 68.9 71.1

10.3 5.0 1.3

U.K.

18 76

1955

3.3 5.2 5.6

Japan

U.S.

Asia

British Isles

Europe

Percentage of trade with:

Immigrants by source country (%)

Panel C: Sources of foreign investment for Canada, 1900–1960

1960–1969 1970–1979 1980–1989

Years

37.9 42.4 23.8 21.0 13.0

U.K.

Percentage of trade with:

Panel B: Major source regions for Canadian immigration, and major trading partners of Canada, 1960–1989

1901–1910 1911–1920 1921–1930 1941–1950 1951–1960

Year(s)

Panel A: Sources of immigration into, and of trade of, Canada, 1901–1960a

Table 5.5 The diversity of trade and immigration in Canada and Australasia

15 75

1960

16.7 11.3 8.9

Europe

42.8 47.0 30.6 31.5 18.1

Commonwealth

70.9 67.4 55.9 52.0

29.2 39.8 37.2 16.5

U.S. 4.7 13.2 12.5 17.9

China/Japan 82.2 86.7 85.4 81.5

% of total immigration from British Isles

% of total trade with British countries

% of non-British trade with:

Immigration

Trade

6.5 10.4 12.5 14.2

U.S.

Europe 24.3 18.0 17.4 57.6 37.5 26.4

Period

Australia’s trade with region (%): 1970–1979 1980–1989 1990–1994

Australia’s immigration from region (%): 1970–1979 1980–1989 1990–1994

9.4 4.0 2.5

18.7 18.4 17.1

North America

18.8 43.0 57.1

46.2 50.5 54.8

Asia

17.3 26.2 16.0 16.3

continued

China/Japan

% of non-British immigration from:

Panel E: The geographic structure of Australia’s trade, and the geographic sources of its immigration, 1970–1994b

1902–1909 1910–1919 1920–1929 1930–1939

Period

Panel D: Geographic sources and destinations for Australia’s trade, and sources for Australia’s immigration, 1902–1939

88.4 86.0 78.4 75.4 74.7

6.0 7.4 12.3 18.1 12.3

94.7 93.1 88.1 85.7 75.6

% of immigrants from United Kingdom and Australia

% of trade with United Kingdom and Australia

% of trade with North America

Immigration

Trade

n.e. n.e. 7.3 4.5 5.1

58.0 42.9 23.0 12.1

8.0 11.7 15.6 16.4

8.9 12.9 13.6 15.0

48.8 42.7 23.7 16.8

United Kingdom

U.S.

United Kingdom

Australia

Immigration, % from:d

Trade, % with:

8.1 14.0 13.8 8.8

Australia

1.4 2.3 2.6 2.4

U.S.

2.4 4.0 4.1 3.5

Notes a Before 1960, figures on immigrants are given in terms of ethnicity and not in terms of country of origin. As a result an unknown proportion of the British immigrants hailed from either the United States or other Commonwealth countries. b For the immigration data, the source regions for immigration are computed by summing the figures for individual countries as given in the Australian statistics. The countries are as follows: Europe: British Isles, Italy, Yugoslavia (former Yugoslavia), Greece, Germany, Netherlands, Poland, and Turkey; North America: the U.S.A.; Asia: Hong Kong, Cambodia, Malaysia, the Philippines, India, China, and Taiwan. c North America  U.S. plus Canada; the figures on percentage of trade for 1887–1899 are actually for 1895–1899; the figures on percentages of immigrants from North America for 1910–1919, are actually for 1915–1919. d North America  U.S. plus Canada. n.e.  not estimated.

Sources: Australian Bureau of Statistics (various years): various tables: Leacy (1983): various tables; Urquhart and Buckley (1965): various tables; Canada. Ministry of Industry, Trade and Commerce (various years): various tables; Statistics New Zealand (various years): various tables; and Willcox (1969) (Volume 1): pp. 947–55.

1951–1959 1960–1969 1970–1979 1980–1983

Period

North America

% of immigrants from North America

Panel G: The geographic structure of New Zealand’s trade, and the geographic structure of its immigration, 1951–1983

1887–1899 1900–1909 1910–1919 1920–1929 1930–1939

Period

Panel F: Geographic sources and destinations for New Zealand’s trade, and sources for New Zealand’s immigration, 1887–1939c

Table 5.5 continued

The British connection

121

60 50 40 30 20 proportion of New Zealand’s immigration which comes from the U.K. proportion of New Zealand’s trade (exports plus imports) with the U.K.

10

1955

1960

1965

1970

1975

1980

Figure 5.5 Proportion of New Zealand’s immigration from, and trade with, the United Kingdom, 1953–1981 (five year moving averages).

surprisingly New Zealand, lacking a large domestic market, is the most open of the four countries, exporting its foodstuffs and tourism to increasingly global markets. The British connection, once the most important cement linking nations economically, once the most potent driver of globalization, has steadily weakened over the century and a half since the Crystal Palace Exhibition of 1851 celebrated its glories in Hyde Park.

The eugenics movement and Asian exclusion in the Western offshoots The opening up of the Eurasian mainland to mass emigration during the second half of the nineteenth century drastically increased the flows of Central, Eastern, and Southern Europeans migrating across the Atlantic to the burgeoning metropolises of the industrial belt of the United States, stretching from the Atlantic seaboard between Boston and Baltimore, reaching across a swath of territory in the Northeast taking in Chicago and Pittsburgh on its Western fringe. At the same time, Asian immigrants, especially Chinese, made their way across the Pacific, mining gold, cutting timber, working in canneries and in fishing, and branching out into farming and a host of service sector industries in the new cities of the West coast of the United States and Canada. Table 5.6 shows how impressive were the inroads made by various Asian national groups on the West coast of the United States and Canada. Asian emigrants also made their way down in Australia and New Zealand during this epoch.

1850 1860 1870 1880 1890 1900 1910 1920 1930 1940 1950 1960 1970 1980

Year J%

n.e. n.e. n.e. n.e. n.e. 154 192 256 368 423 500 633 769 965

n.e. n.e. n.e. n.e. n.e. 24.0 30.0 39.9 57.5 66.0 78.0 98.5 119.6 150.2

n.e. n.e. n.e. n.e. n.e. 16.7 11.3 9.2 n.e. n.e. n.e. 6.8 n.e. n.e.

n.e. n.e. n.e. n.e. n.e. 39.7 41.5 42.7 n.e. n.e. n.e. 28.3 n.e. n.e.

93 380 560 865 1,213 1,485 2,378 3,427 5,677 6,907 10,586 15,717 19,953 23,668

P

C%

P

D

California

Hawaii

Panel A: Hawaii, California, and Oregon

0.6 2.4 3.6 5.5 7.8 9.5 15.3 22.0 36.2 44.1 67.5 100.4 127.6 151.7

D n.e. 9.2 8.8 8.7 6.0 3.1 1.5 0.8 n.e. n.e. n.e. n.e. 0.9 n.e.

C% n.e. n.e. 0.1 0.1 0.7 1.7 2.1 n.e. n.e. n.e. n.e. n.e. n.e. n.e.

J%

12 52 91 175 318 414 673 783 954 1,090 1,521 1,769 2,091 2,633

P

Oregon

n.e. 0.5 1.0 1.8 3.3 4.3 7.0 8.2 9.9 11.3 15.8 18.4 21.7 27.4

D

n.e. n.e 0.8 2.6 5.5 3.0 2.5 1.1 0.4 n.e. n.e. n.e. n.e. n.e.

C%

Table 5.6 Population (in 1,000s), population density (population per square mile), and percentage of population in various Asian ethnicities: States of Hawaii, California, Oregon, and Washington in the U.S.; Province of British Columbia and City of Vancouver in Canada (legal city boundaries)a

1 12 24 75 357 518 1,142 1,357 1,563 1,736 2,379 2,853 3,409 4,132 4,867

n.e. 0.1 0.4 1.1 5.3 7.8 17.1 20.3 23.3 25.9 35.6 42.8 51.2 62.1 73.1

n.e. n.e. 1.0 4.3 0.9 0.7 0.2 0.2 0.1 0.1 0.1 0.2 0.3 0.4 n.e.

n.e. n.e. n.e. 0.001 0.1 1.1 1.1 1.3 1.1 0.8 0.4 0.6 0.6 0.6 n.e.

J% n.e. n.e. n.e. n.e. n.e. n.e. 0.001 0.1 0.2 0.1 0.2 0.3 0.4 0.6 n.e.

F% 55.0 51.5 36.2 49.5 98.2 178.7 392.5 524.6 694.3 817.9 1,165.2 1,629.1 2,184.6 2,836.5 3,379.8

n.e. n.e. 0.10 0.14 0.27 0.50 1.09 1.46 1.93 2.28 3.24 4.53 6.34 n.e. n.e.

D

P

C%

P

D

British Columbia

Washington State

n.e. n.e. n.e. n.e. n.e. n.e. n.e. 4.2 3.9 2.3 1.4 1.5 n.e. n.e. 5.4

C% n.e. n.e. n.e. n.e. n.e. n.e. n.e. 2.9 3.2 2.7 0.6 0.6 n.e. n.e. n.e.

J% n.e. n.e. n.e. n.e. n.e. 10.9 n.e. 7.1 n.e. n.e. n.e. 2.5 n.e. n.e. 8.0

A% n.e. n.e. n.e. n.e. 13.7 27.0 123.9 117.2 246.6 275.4 344.8 384.5 426.3 414.3 471.8

P n.e. n.e. n.e. n.e. n.e. n.e. n.e. 5.0 n.e. n.e. n.e. 4.0 n.e. n.e. 21.8

C%

Vancouver

n.e. n.e. n.e. n.e. n.e. n.e. n.e. 2.5 n.e. n.e. n.e. 0.8 n.e. n.e. n.e.

J%

n.e. n.e. n.e. n.e. 7.8 10.5 n.e. 7.6 n.e. n.e. 5.2 5.2 n.e. n.e. 26.0

A%

Notes a P  population; D  population density; C%  percentage of population Chinese; J%  percentage of population Japanese; F%  percentage of population Filipino; A%  percentage of population Asian. For the Canadian figures the dates are 1851, 1861, etc. n.e.  not estimated (or not available). A “” after a number signifies that the figure exceeds the stipulated numerical value.

Sources: Canada. Ministry of Industry, Trade and Commerce (various years); Coolidge (1968): various tables; Iyenaga and Sato (1921): p. 92; Leacy (1983): various tables; Ong, Fujita, and Chin (1976): various tables; Price (1974): p. 277; Statistics Canada (various years); United States. Department of Commerce. Bureau of the Census (1975): various tables; United States. Department of Commerce. Census Bureau (various years): various tables; Urquhart and Buckely (1965): various tables; and Young and Reid (1938): p. 23.

1850 1860 1870 1880 1890 1900 1910 1920 1930 1940 1950 1960 1970 1980 1990

Year

Panel B: Washington State, British Columbia, and Vancouver

124 Diversity To a greater or lesser extent, the human development crisis of the late nineteenth century was putting pressure on the local and national governments in all of these countries. For this reason, opposition to diversity was gathering force in all four Western offshoots. Immigrants from Asia were especially vulnerable to political backlashes against diversity in the Western offshoots. Not only did most Asian immigrants speak nonEuropean languages. Many were moving around the globe as “coolie” labor.27 As such they shared a stigma that hitherto had been attached to slaves prior to the abolition of the slave trade. Political alliances forged between opponents of indentured servitude reminiscent of slavery with those opponents of diversity (on cultural, linguistic, or religious grounds) emerged. These alliances of convenience created a formidable force to be reckoned with by politicians. The fact that the Asian immigrants were geographically concentrated in a few Western districts of North America, and in select regions of eastern Australia, made their political isolation all the more telling. Chinese in the Western and Pacific states of the United States had few political friends in the powerful industrial belt of the United States. Since the Western states acting as a group exercised considerable political leverage on the outcome of national elections, they were able to push through the Chinese Exclusion Act of 1882 that was mimicked in the other Western offshoots by special rules governing the number of Chinese who could travel on ships and the like. What was pioneered for Chinese immigrants was applied to subsequent waves of immigrants coming out of Asia. When Japanese immigrants began appearing in the continental United States in considerable force around the turn of the century, special agreements were negotiated by the United States restricting their inflow. Japanese immigrants recruited by Hawaiian pineapple and coffee plantation owners in the closing decades of the nineteenth century had become a major presence in the islands as is shown in Panel A of Table 5.6. With the acquisition of Hawaii as a territory by the United States in 1898 – as a result of the Spanish–American war that brought Cuba and the Philippines under American control – Japanese immigration began making inroads on the West coast of North America, Japanese settling down in farming, fishing, lumbering, and cannery work in communities stretching from Southern California north through British Columbia to Alaska. The pattern established for the Chinese was being replicated for immigrants from Japan and India. The various stratagems devised to restrict immigration of Asians into the Western offshoots were manifold. Because the Western offshoots wished to maintain cordial trade relations with the powers of Asia, they attempted to cloak their exclusionism in a variety of guises. As Table 5.7 shows, one of the main instruments was the literacy test. Literacy, after all, was one of the key human development variables under pressure in the late nineteenth century.

Restrictions on eligibility for naturalization; quotas on immigration; special head taxes for residency

Restriction on right to own land

Regulations barring employment in certain fields; regulations restricting subsidies to employers of “colored” persons; restrictions on entry of “coolie” labor

Literacy (Natal) dictation tests; restrictions based on race and/or national origin

Head tax; restrictions on the number of immigrants coming on ships relative to ship tonnage; “continuous journey” requirement for immigrants

Limitations on political participation and entry

Limitations on property rights

Limitations on access to employment opportunities

Limitations related to human development

Limitations on access to transportation

Limitations on number of Chinese coming per ship tonnage (various Australian colonies from 1850s); requirement that immigrants arrive on continuous voyage (Canada, 1906)

Alien Immigration Restriction Act (White Australia policy, 1901) based on literacy test; Immigration Law of 1924 (National Origins Act in U.S. based on race); Barred Zone Exclusion Act of 1917 in U.S. aimed at Asians

Foreign Miners’ Tax in California aimed at Chinese (1850–1870); British Columbia specified jobs; Victoria goldfields licenses required of Chinese (1857); Victoria Act denying subsidies to sugar beet farmers employing Asians

California’s Anti-Alien Land Law of 1913 aimed at Japanese

Exclusion from voting (British Columbia, 1896); ineligibility for naturalization (U.S.); head taxes (Canada, 1903–1923); Chinese Exclusion Act (Canada, 1923); Gentleman’s Agreements with Japan (U.S. in 1907; Canada in 1909); Chinese Exclusion Act, U.S. (1882)

Examples

Sources: Various pages in: Adachi (1976); Andracki (1978); Arnold, Minocha, and Fawcett (1987); Chiu (1967); Coolidge (1968); Ferguson (1975); Gulick (1914); Huttenback (1976); Ichioka (1988); Iyenaga and Sato (1921); McKenzie (1927); Millis (1915); Misrow (1971); Price (1974); Shibata, Matsumoto, Hayashi, and Ida (1977); Sugimoto (1978); Young and Reid (1938); and Zo (1978).

Type of policy

Category

Table 5.7 Selected examples of restrictions on Asian immigration imposed within the Western offshoots

126 Diversity Asian exclusion was the springboard for a broader range of policies aimed at restricting diversity, especially in the United States that was experiencing the full force of diversity during the second half of the nineteenth century. To build a broad movement, however, advocates of limited diversity required an ideology stronger than opposition to “coolie” labor practices. They found this ideology in the nascent science of eugenics. Secure in our data on secular trends in the tempo and terminal levels of human growth, enjoying the advantages of hindsight as it were, it is easy to conclude that concerns about the ethnic mix of immigrant pools, voiced vociferously during the period 1880–1935, were misplaced. It is easy to sit back in one’s armchair, puff on one’s pipe, and express amazement that a substantial portion of the public, joined by policy makers and many members of the scientific community, united behind a banner of eugenics during the late nineteenth and early twentieth centuries. Behind this banner, the science of eugenics, progressive intellectuals expressed views about race that make us blush in embarrassment today. They advocated compulsory sterilization of the feeble-minded and “imbeciles,” restrictions on marriage between certain racial groups, systematic culling out of prospective immigrants on the basis of their fertility (high fertility was bad) and healthfulness. Responding to the resulting public clamor and warming to the kill, politicians pushed through laws based upon these views. California was in the forefront passing a law permitting the involuntary sterilization of the feeble-minded. After other states emulated California’s experiment, appeals went up to the Supreme Court that ruled (in Buck versus Bell in 1927) in favor of the constitutionality of sterilization laws. In Canada the provinces of Alberta and British Columbia passed similar legislation.28 Why? To begin with it was scientific, and increasingly science was linked to innovation in both the inorganic and organic economies. In this regard it is important to emphasize that the American eugenics movement began as an offspring of the American Breeders’ Association which was committed to exploiting scientifically validated techniques of cross-breeding in order to produce more vigorous, fatter, and healthier livestock. In 1906, the Association spun off a committee to investigate “heredity” in the human population with an eye to making clear the “value of superior blood and the menace to society of inferior blood.”29 So science and the application of science to industry was a major part of the story. But science does not exist in a vacuum. So before we explore the science further, it is necessary to consider the background of social and political concerns against which the eugenics movement emerged. In this regard, three factors are paramount: (1) the demographic transition and the fact that fertility declined first among the elite and the best educated; (2) the decline in the biological standard of living experienced in the United States during the second half of the nineteenth century, and in Australia during the late nineteenth and early twentieth centuries; and (3)

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imperialism backed up by gunboat diplomacy that reached a fever pitch during the period 1880–1914. With regard to the first factor, the decline in reproduction – especially amongst the wealthier and educated classes – concerns were expressed on both sides of the Atlantic. In England, the alarm sounded had a strong class tone. Would not the lower classes, the industrial workers and the shop clerks, increase their progeny at the expense of their social betters? What with democracy gaining ground where would it all end? Cast in this light the viewpoint seems elitist and conservative. But progressive intellectuals like George Bernard Shaw joined in the fray and they were hardly sympathetic to the elite. Their concern was to improve things through social planning implemented under socialism. To improve human development effectively under conditions of declining fertility, systematic control over reproduction was advisable. Selection would lead to a better future. In the United States, concerns about differential reproduction along racial lines was more important than concerns about differential reproduction along class lines. This is not surprising since the American labor movement was less strongly motivated by ideology cast in terms of social class than was the British. In addition the ethnic diversity of the United States was considerably greater than the ethnic diversity of the British Isles. Still, within England, invidious distinctions were made between the Celts – the Irish and the Scottish – and the Anglo-Saxons. So differential reproduction with respect to class and ethnicity were issues in both countries, with class playing a greater role in England, and ethnicity and national origin a greater role in the case of the United States. For instance, Francis Walker, President of the Massachusetts Institute of Technology and one time director of the Bureau of the Census for the United States, was vociferous in his concerns over the fact that immigration depressed native fertility through psychological pressure. In effect, population growth through net immigration substituted for natural increase. Walker’s argument took on political salience because of public worries over declining human development and the deteriorating biological standard of living. That a surge in immigrants from southern and eastern Europe swelled the ranks of immigrants who were illiterate in English after 1870 fed concerns over the future of human development in the United States. Implicit in Walker’s argument was the proposition that immigrant populations were inferior to native population stocks, in terms of physical and mental capabilities, and certainly in terms of literacy in English. Imperialism was also important on both sides of the Atlantic. In England, desultory performance by soldiers in the Boer War provoked outrage about the declining “racial efficiency” of the United Kingdom. The fact that 40 percent of the military recruits in the industrial towns were rejected for service in the conflict fanned the flames of those

128 Diversity committed to British imperialism.30 Rudyard Kipling’s glorification of the British Empire and the “white man’s burden” crystallized the view prevalent in England at the end of the nineteenth century that the country had an obligation to bring civilization to its non-self-governing empire. The concerns about declining “racial efficiency” called into question the ability of the British to pull this off. In the United States, imperialist ambitions that had already informed the American concept of Manifest Destiny, taking the form of the invoking of the Monroe Doctrine as a weapon for establishing hegemony in the Americas, were fed by the victory over Spain in the Spanish–American war. In the settlement ending the conflict, the Philippines fell into American hands, and Hawaii became a territory under American suzerainty. The Northern states, into which flowed most of the immigrants, became increasingly apprehensive about a surge in Asian immigration from the new acquisitions. At the same time the constituencies of the Northern states became increasingly jingoist, justifying American colonialism as an extension of Manifest Destiny. Racial superiority was an argument used to rationalize American imperialism. For this reason, the Northern states countenanced Southern imposition of Jim Crow Laws, effectively creating an apartheid regime throughout the American south. Supreme Court decisions, in which judges from the North played a decisive role, permitted the South to effectively disenfranchise Black Americans, forcing them to place their children in separate schools, to sit at the rear of buses and in specially designated coach cars on railroads, and to use separate drinking fountains.31 Bigotry followed the bloody flag of imperialism. Thus imperialism, the demographic transition, faltering levels of human development, and resistance to diversity created a political climate conducive to the acceptance of, and funding of, scientific research aimed at exploring the relationship between race, heredity, and human development and drawing implications for public policy from this research. All of these factors came into play with special salience at the end of the nineteenth century in the Western offshoots and in the mother country. In the context of the times, race became a convenient tag onto which all these concerns were heaped. The science that resulted is known as eugenics, a term coined by Francis Galton, cousin of Charles Darwin, in 1883, drawing upon the Greek word eugenes, meaning “good at birth” or “noble in heredity.”32 As it developed historically the scientific field of eugenics came to encompass three distinct sub-fields: biometrics, a sub-field of the nascent discipline of statistics; genetics, a new field emerging from the rediscovery of Mendel’s Laws concerning dominant and recessive traits in breeding at the turn of the twentieth century; and neo-Darwinism, the study of evolution based upon the rejection of Larmarck’s theory of the inheritance of acquired characteristics.

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Because eugenics was an amalgam of three distinct sub-fields, whose intellectual approaches were remarkably different, and whose research findings often contradicted those emerging from the other subdisciplines, its demise as a respectable line of inquiry during the 1930s was partly due to internal contradictions within the discipline itself, and partly to research findings that undermined the popular views and policies that the field justified. Let us consider two illustrations of this principle: the fate of research concerning intelligence, and the fate of research concerning the degree of fixedness of human characteristics. The study of human intelligence was tied up with biometrics from the beginning. Indeed, Galton pioneered biometrics with his studies of how the mental abilities of men were inherited. Arguing that mental ability was distributed as a normal bell shaped curve, he concluded that the successful were successful precisely because they inherited these gifts. The development by Alfred Binet in the 1890s of intelligence tests for children and the calibration of intelligence, revised and extended by Lewis Terman at Stanford as the Intelligence Quotient (I.Q.), was incorporated into the field of eugenics and in fact was used to designate individuals as feebleminded for purposes of involuntary sterilization.33 Could Galton’s argument be linked to data on I.Q. secured from I.Q. tests to explain why some races were more successful than others? Could it be the case that the mean of the normal distribution varies significantly between one ethnic group and another? Unfortunately for those who wished to demonstrate the superiority of the so-called Caucasian race, I.Q. tests revealed that the Chinese and Japanese had higher I.Q.’s than Caucasians.34 This finding undermined one of the main tenets of eugenics as a political and social movement. After all, politicians in the countries of settlement cited the claims of eugenicists in restricting immigration from Asian countries. A second keystone of eugenics as a theory of racial inheritance was that race could be clearly defined and calibrated with the anthropometric measures, which biometrics was throwing up in increasing abundance. In addition to height and weight, chest girth, circumference of arms and legs, and the size and shape of skulls provided eugenicists with statistics upon which theories of how races differed were based, and why this was important. According to the classification schemes of the time, Northern Europeans were supposed to have more elongated craniums, and Southern Europeans rounder heads. However, in remarkable studies of the various biometrics measures on American immigrants and their descendants, the great Columbia University anthropologist Franz Boas showed that the progeny of immigrants were remarkably different from their ancestors: their skulls tended to be more elongated; they tended to be taller and heavier. In short, race was a meaningless concept. What ultimately mattered was culture, not so-called race. Human plasticity responding to net nutrition and environment far outweighed biological origins.35 While the science of eugenics was certainly running into internal

130 Diversity problems that doomed it as a discipline in the long run, the most important factor leading to its collapse was the adoption by the German Nazi Party of many of the tenets of eugenics as a matter of ideology.36 Successful at the polls, the Nazis immediately introduced a host of laws – in 1933 – designed to promote the goals of eugenicists. Thus the Decree for the Granting of Marriage Loans provided marriage subsidies for young persons of “good stock,” namely non-Jews free of mental or physical deficiencies. The Law against Dangerous Habitual Criminals permitted sterilization and castration of criminals. The Hereditary Homestead Law and the Law for the New Formation of the German Farmerstock provided new homesteads and subsidies for “hereditarily valuable” farmers.37 With the wholesale adoption of a eugenics program by the Nazi Party in the early 1930s, liberal and intellectual circles in the countries of settlement and the United Kingdom quickly abandoned the racist arguments at the core of eugenics. In this sense one can definitively say that the intellectual climate, the historical circumstances, were crucial to the rise and demise of eugenics. Eugenics became one of the two political cornerstones of the Immigration Law of 1924, the so-called National Origins Act, I will discuss in Chapter 7. Under this act, overall quotas were placed on immigration to the United States; in addition a separate set of quotas were placed upon nationalities. Ultimately, the law was aimed at dramatically slowing the growth of diversity in the American population conceived in terms of a coming together of disparate racial groups. Interestingly, Adolf Hitler saw great virtue in the American legislation from an American viewpoint, great loss from a European viewpoint, because the American policy tied the right to immigrate to specific racial requirements.

Diversity and fissures within the British Empire Building nation states that were able to carry out wide ranging programs of infrastructure investment – in political, human capital enhancing, physical, and financial dimensions – was the principal means through which clusters of the inorganic economy spread out into hinterlands, widening vastly the geographical compass of those parts of the globe enjoying relatively high income per capita. Inevitably, modern nationalism has brought asunder modern empires that have trampled upon the nationalist impulse of colonies in the name of forging a larger economic and political union. The British Empire is no exception. It came apart because nationalism spread in its constituent parts. In understanding how this happened – and why the empire appears to some authors to be benign, and to others bestial – it is important to understand that the Empire really consisted of two parts: the United Kingdom and the self-governing Dominions – Canada, Australia, New Zealand, and South Africa (not treated in this

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book) – and colonies like India and large parts of Africa that were accorded far less independence in their economic and political affairs.38 In the case of Canada, Australia, and New Zealand in the former group, British emigrants to the colonies formed the initial backbone for populating vast barely settled frontiers. Eventually, nationalism took hold in these lands, fueled by national infrastructure development programs that owed much to the model provided by the motherland. Not surprisingly they eventually became fully independent nation states, maintaining a very loose relationship to the United Kingdom through the Commonwealth association developed after World War II. Defenders of the British Empire like Ferguson (2002) point to the great success of the British model in shaping nation programs of infrastructure investment in these colonies. Critics of the Empire like Schama (2002) point to the second group of countries, arguing that British racist ideology (associated with eugenics) and “divide and rule” colonialism hindered the flowering of a healthy nationalism in countries like India and much of Africa. Ultimately, critics of the Empire emphasize British intolerance, or mistrust, of diversity as hindering effective infrastructure development in the colonies that were not accorded full right of self-government. It is clear that the British government distrusted unrestrained diversity. While they tolerated the French language and Catholicism in Lower Canada – the area that became the portion of Quebec near the Saint Lawrence River – the Colonial Office allowed Canada, Australia, and New Zealand to impose restrictions on immigration that effectively barred citizens of India and Hong Kong, under British rule, from gaining a foothold in these frontier societies. So we cannot say that the United Kingdom in the nineteenth and early twentieth centuries was a bastion of tolerance for diversity. That would be a bald lie. At the same time, the United Kingdom did countenance a limited form of diversity within its own narrow confines and within its self-governing Dominions. Celtic sub-populations (Welsh and Scottish) were increasingly brought with the nation fold. Creating infrastructure like the railroads and compulsory education helped pull together the various constituent elements of the main island. With the buildup of the industrial belt in the Midlands, Scottish, Welsh, and Irish workers flocked to the industrial core of the British Isles, helping to consolidate a sense of national unity during the course of the nineteenth century. The demography of this process, whereby the outlying districts of the main island of the British Isles lost population that either flowed to the self-governing Dominions or to England and Wales, is captured in Table 5.8.39 In many ways, Great Britain was a tolerant country, albeit strongly Protestant in its outlook.40 For sure, stumbling blocks to British success in cementing unity within even the narrowest geographic confines, the British Isles, are not hard to pinpoint. Ireland is the classic case. Those

132 Diversity Table 5.8 Diversity and migration in the British Isles, 1840–1979a Period

Population

Birth rate

Death rate

(1)

(2)

England and Wales 1840–1859 17,683.3 1860–1879 22,467.2 1880–1899 28,686.4 1900–1914 34,670.2 1920–1939 39,652.2 1946–1959 44,122.9 1960–1979 48,385.0 Scotland 1840–1859 1860–1879 1880–1899 1900–1914 1920–1939 1946–1959 1960–1979

2,844.8 3,335.7 4,016.2 4,632.1 4,897.7 5,130.5 5,200.7

(3)

Natural increase rate (4)

Rate of population increase (5)

33.2 35.3 31.5 26.5 17.2 16.5 15.5

22.4 22.0 18.8 15.2 12.1 11.6 11.8

10.9 13.4 12.7 11.3 5.1 4.9 3.7

12.0 12.8 11.5 9.9 8.0 4.5 4.4

1.1 0.6 1.2 1.4 2.9 0.5 0.7

9.2 4.6 10.4 14.0 36.2 10.0 15.3

33.8 35.0 31.5 27.8 20.2 18.9 16.5

20.4 21.9 19.0 16.4 13.5 12.2 12.2

13.4 13.1 12.6 11.4 6.7 6.7 4.3

5.6 9.4 9.1 5.2 1.9 0.3 0.05

7.8 3.7 3.5 6.2 4.8 7.0 4.3

140.8 39.0 38.6 118.2 251.0 2,098.9 8,560.1

n.e. 5.1 7.8 2.5 1.4 1.0 7.2

n.e. 14.2 13.0 8.3 7.3 10.3 3.0

n.e. 277.2 166.5 328.4 510.7 1,085.5 42.1

n.e. 9.5 8.7 8.1 6.5 3.6 4.2

n.e. 3.1 3.0 2.6 1.2 1.9 0.1

n.e. 34.2 37.0 40.2 15.2 78.5 19.1

Ireland (after 1922 Northern Ireland plus Ireland) 1840–1859 7,113.5 n.e. n.e. n.e. 1860–1879 5,473.6 26.5 17.4 9.1 1880–1899 4,781.5 23.3 18.1 5.2 1900–1914 4,396.5 23.2 17.4 5.8 1920–1939 4,237.3 20.3 14.5 5.8 1946–1959 4,314.4 21.5 12.2 9.3 1960–1979 4,508.6 21.3 11.1 10.3 British Isles 1840–1859 1860–1879 1880–1899 1900–1914 1920–1939 1946–1959 1960–1979

27,641.5 31,276.4 37,484.0 43,698.9 48,787.2 53,567.8 58,094.3

n.e. 33.9 30.4 26.3 17.8 17.2 16.0

n.e. 21.2 18.7 15.5 12.5 11.7 11.8

n.e. 12.7 11.7 10.8 5.3 5.4 4.3

Net migration rate (6)

Openness ratio  (6)/ (5) [%] (7)

Sources: Mitchell (1988): pp. 11 ff. Notes a Great Britain is England and Wales plus Scotland; the United Kingdom is Great Britain plus Ireland (up to 1922), and plus Northern Ireland (after 1922). The British Isles are Great Britain plus Ireland (Northern Ireland plus Ireland after 1922). Rates are rates per 1,000 population except for column (7) which is a percentage. The net migration rate is calculated by subtracting the natural rate of increase from the population growth rate. Figures for Ireland for 1860–1879 are actually for 1864–1879. n.e.  not estimated.

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who despise and hate the British Empire usually start with Whitehall’s failure to work out a viable Home Rule Bill for Ireland, going on to rail about British intolerance in India. So be it. Still for all its failures and blemishes, the British connection, so important for globalization today, has done much good. This is definitely true in the narrow sense for the five nations of the British connection considered here – the United Kingdom, the United States, Canada, Australia, and New Zealand – for they have all struggled towards achieving diversity on a scale never dreamed of a century and a half ago. It is also true in the wider sense that the program of infrastructure development pioneered by the United Kingdom and modified and perfected in the former colonies of the motherland has served as a model for countries in the farthest reaches of the globe. Guilty of mischief to be sure, the British connection is still one of the most important, and one of the most positive, cornerstones of modern globalization.

6

A splendid isolation

Infrastructure investment and autarky in early modern Japan In July 1853, when the American naval officer Commodore Matthew Perry entered Edo Bay in command of two menacing steam frigates, the Black Ships infamous in Japanese history, he set in motion the smashing of a splendid isolation. For nearly two and a half centuries, the land that he disturbed had almost completely sealed itself off from the rest of the globe. That isolation was now about to disintegrate in ruins, bringing down with it the carefully constructed system of feudal confederation that had staved off internal civil war. To understand why Japan’s autarky policy was of paramount importance for Japan’s internal political peace and remarkable economic achievements in the organic economy over the two and half centuries before Perry’s intrusion, the chaotic conditions of the sixteenth century must be appreciated. Although nominally ruled by an emperor, Japan was actually controlled politically by warlords (daimyo¯ ). These warlords relied on the services of part time military retainers, part time farmers (samurai) to exert power. Periodically, through alliances among warlords and victory in decisive battles, a shogun, an especially powerful warlord, managed to establish regional hegemony over major portions of Japan’s four main islands.1 During most of the sixteenth century, warlords contested for power, leading to political fragmentation, power being extended on a regional basis from the castles that rival warlords built at various strategic points throughout the land. At the very local level, the samurai – many of whom engaged in rice farming when they were not called into military service – periodically roamed the countryside intimidating nearby villages with their fearsome swords. This internal chaos and ongoing conflict stymied the efforts of villages to forge regional agreements governing the use of irrigation water flowing out of the main rivers debouching from the mountain chains into the major plains of the country. Internecine conflicts sprung up at the critical

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junctures where tributaries of rivers joined to form larger rivers. Forging regional agreements on the shoring up of riverbanks to prevent flooding and ease up boat traffic was nearly impossible. In a country watered by summer monsoon rains, making paddy rice cultivation possible in most of the plains and valleys of the country, political divisions impeding the creation of wide ranging irrigation ditches seriously hampered the diffusion of rice cultivation. Recognizing the economic and social price Japan paid for its piecemeal division into competing militarized units, several warlords attempted to forge unity during the sixteenth century. First was Ota Nobunaga, coming out of the Nobi plain (the plain containing the great metropolis of Nagoya approximately halfway down the Pacific coastline of the main island Honshu¯).2 Attacking the armed Buddhist monasteries on the mountains north of the imperial capital Kyoto in a reign of terror, Ota forged the platform for unity but was assassinated. More successful was Toyotomi Hideyoshi who became shogun toward the end of the sixteenth century, ruling out of a great castle erected in Osaka, creating a confederation type system of government known as the bakuhan system that constituted a major step forward to solving Japan’s internal political problems. Underlying the logic of the bakuhan system was the principle of “divide and rule.” Each daimyo¯ was granted a fief (han) over which he – the warlords were invariably male – exercised control. The daimyo¯ were ordered to relocate all of their samurai retainers in castle towns surrounding their castles, thereby removing weapons from the countryside, effectively demilitarizing the countryside (non-samurai were forbidden from acquiring weapons). By locating the daimyo¯ strategically around the countryside, Hideyoshi hoped to prevent alliances between warlords from disturbing his demilitarization policy. By concentrating foreign policy making in his “tent government” (bakufu), Hideyoshi hoped to deter warlords from forming alliances with the Spanish, Portuguese, and Dutch who were gradually encroaching in Asian waters and in Asian commerce during the sixteenth century. In short in creating a confederation, an alliance of han – whose power was kept in check by a central government (bakufu) – Hideyoshi’s vision for guaranteeing peace through the amalgamation of baku and han (hence the term “bakuhan”) was based on controlling the warlords and their military retainers through a carefully constructed balance of power. Lured by a vision of conquest on the Asian mainland into a futile war in Korea, Hideyoshi compromised his shogun rule in the closing decade of the sixteenth century, and then died. His heir was unable to stop internal warfare from breaking out once again; as a result of shifting military alliances and the decisive battle of Sekigahara fought at the onset of the seventeenth century in the vicinity of Lake Biwa near Kyoto, a new shogun aggrandized power in his hands, Tokugawa Ieyasu. The Tokugawa daimyo¯ had been granted a fief in the Kanto¯ plain that emptied out in Edo Bay

136 Diversity and the sleepy fishing village of Edo (later known as Tokyo) by Hideyoshi. As a result of the confrontation at Sekigahara, the Tokugawa shogun established its capital, ordering the construction of a menacing castle to evoke fear and awe amongst the warlords, in Edo. The confederation system of government pioneered by Hideyoshi was refined by generation after generation of Tokugawa shogun who ruled the Japanese islands through the bakuhan division of power. In order to guarantee the potentially restive samurai adequate incomes replacing the fruits of farming that they were forced to relinquish, each warlord was allowed to tax his villages, taking a share of the rice produced (a 40 percent share was typical), which he distributed to his retainers. To prevent daimyo¯ from secretly accumulating substantial resources with which a coalition rivaling the Tokugawa shogun – there were several hundred warlords, most fiefs numbered in the hundreds of thousands – could be created, the Tokugawa required each daimyo¯ maintain an expensive estate in Edo, to reside in Edo on a rotating basis attending to court functions (a practice known as sankin ko¯tai), and to leave wife and children in Edo as potential hostages. To ensure that warlords did not form alliances with other powers, an isolationist power known as sakoku was formulated in the midsixteenth century: a Japanese going abroad without shogun authorization who returned was to be executed; trade with, and travel to, China and Korea was severely limited; and amongst the Western powers, only the Dutch were allowed to carry on trade with Japan, a small community of Dutch being allowed to reside on the small island of Dejima in Nagasaki Harbor in southern Kyu¯shu¯. The sealing off of Japan and the forging of internal peace within the countryside of Japan set off a mighty wave of infrastructure investment that propelled forward Japan’s organic economy that was initially centered around rice cultivation but increasingly diversifying into proto-industrial craft products (cotton clothing, processed foodstuffs, metal swords, and elaborate wooden temples).3 Urban infrastructure was given a strong push forward through the proliferation of castle towns and bakufu controlled metropolises like Edo, Osaka, and Nagoya lying along the Pacific coastline of the main island Honshu¯. In order to regulate the travels of warlords and samurai retainers carefully to and from Edo meeting their sankin ko¯tai obligations, the shogun had five major roads constructed, the most important being the To¯kaido¯ that connected together Edo, Nagoya, Kyoto, and Osaka, mainly running down the Pacific coastline of Honshu¯ but veering into the vicinity of Lake Biwa to link Kyoto to the rest of the great urban centers controlled by the bakufu. Local peace being won through demilitarization of the villages, irrigation ditches were pushed through valleys and plains, leading to a massive increase in the number of paddy fields under cultivation, to a huge increase in rice production, and an expansion of population from around 18 million in 1600 to around 26 million circa 1720. Not only was the water

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flow of the rivers channeled into irrigation; by carefully erecting dikes of stone and mud along river embankments, the combined forces of samurai bureaucrats and commoners opened up Japan’s inland waterways to extensive travel on flat-bottomed wooden boats. In short the infrastructure improvements stimulated rice production and population growth and at the same time encouraged the growth of markets, mainly by reducing internal transportation costs. Increasingly merchants took advantage of the specialization and division of labor attendant on expanding market size, moving from trade in rice, to creating industries in cotton textile production that integrated the efforts of farm households into a complex chain of production, some households specializing in spinning, some in weaving, some in dyeing and so forth. Osaka, originally designed by Hideyoshi to be the center of Western Japan’s rice market, became Japan’s “kitchen” during the first century of the Tokugawa period, the merchant houses who collected there gradually diversifying into the silver market, fish and tofu based fertilizers, silk clothing, books, and beautifully crafted scrolls and screens. These merchants were responding to the demand for munificent furnishings for warlord estates in Edo mandated by the sankin ko¯tai system. They were also responding to the demand for clothing and books coming from literate samurai and wealthy farmers. I call the type of economic growth that flowed from this infrastructure investment over the first century or so of the Tokugawa period “extensive growth,” extensive because like growth on the frontiers of the Western offshoots during the eighteenth and nineteenth centuries, the main growth was in total income rather than in income per capita, the expansion in scale stemming from putting more land into cultivation. Eventually, diminishing returns to this type of growth set in. After 1720, the expansion of rice cultivation slowed, and with this slowdown the impetus for population increase lost force. The ending of extensive growth did not stop economic growth from continuing. Rather, the focus of growth now shifted toward intensive growth, by which I mean growth in per capita income stemming from gradual technological progress in the organic economy and from investments in human and physical capital. The organic economy moved forward after 1720 as more and more farm households – bent on avoiding taxes that were largely restricted to rice output – focused increasing effort on raising hemp for rope, cotton for clothing, and mulberry plants devoted to nourishing silkworms. As these by-employments of the proto-industrial or craft economy flourished, farmers and rural merchants became increasingly involved in making careful economic calculations, giving a push to the demand for basic arithmetic skills – using the abacus – and rudimentary literacy. To meet this demand the number of temple (terakoya) schools in rural villages proliferated. In the ranks of the samurai, the demand for schools (managed

138 Diversity by the fiefs as fief academies) also took off during the second half of the Tokugawa period (1720–1868). It was fueled by fief governments attempting to get a handle on revenues and expenditures in an era when rice production, and hence the tax base, was crawling forward at best, declining at worst. Implementing “political reforms” aimed at restructuring finances, the fief governments increasingly pressed their samurai into administrative service as penny pinching bureaucrats, further “demilitarizing” a once fearsome warrior class. Precise estimates of literacy in late Tokugawa Japan are hard to come by and, in any event, are really nothing but informed guesses. Still, it is reasonable to believe that between 30 and 40 percent of the adult population of Japan had the rudiments of literacy by the time Commodore Perry broke the country open. To appreciate the significance of this achievement the difficulties of mastering written Japanese must be acknowledged. Historically, Japanese was created by using Chinese characters imported from the Asian mainland to write a language whose grammar and articulation was radically different from the various dialects of Chinese. Fashioning hiragana and katagana syllables out of the characters, the Japanese managed to create a hybrid writing system employing Chinese characters, and Chinese character compounds making up words and phrases, combining them with their own syllables. With the number of Chinese characters running into the thousands, the task of learning to read and write the language is daunting, even for those who grow up doing it. It is important to keep in mind that Japan’s protracted isolationism sharply limited the ethnic and cultural diversity within the archipelago.4 To be sure, because moving from fief to fief was comparatively infrequent, cultural diversity in the sense of differences between fiefs was encouraged. At the same time among the elite, Edo centric institutions like sankin ko¯tai imparted a strong sense of cultural unity to the country, although not modern nationalism because loyalty to fief was probably more important than loyalty to an abstract concept like Japan. Moreover, the integration of markets for rice and proto-industrial production fueled a kind of solidarity that Japan’s modern nationalism built upon.

From autarky to hybridization Once Japan was forced open in the 1850s and required to sign the same humiliating treaties granting Westerners extra-territorial rights in specially designated treaty ports that the European powers and the Americans had imposed upon China, its delicately fashioned political balance of power collapsed. From the viewpoint of fiefs in Southern Japan who had been enemies of the Tokugawa family prior to and during the battle of Sekigahara 250 years earlier, the shogun system was bankrupt, forced to submit to Westerners. In the 1860s a series of civil wars took place, leading to the

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resignation of the shogun in 1868 and the dismantling of Japanese feudal rule. Reaching back to a form of somewhat imaginary period of imperial rule, the former samurai from the Southern fiefs that rose up in rebellion against the bakufu opted for direct rule by the emperor as a principle, but in fact for a unitary form of government initially giving power over to a small oligarchy, the so-called Meiji oligarchy, that devised a new set of political institutions combining Western European political institutions with those inherited from the Tokugawa period. I refer to this approach as “hybridization”: hybridization because it melded Japanese and Western institutions; hybridization because it eclectically borrowed from a diverse menu of options used in the West, mixing these together in a heady brew never before seen. For instance, the new power brokers drew upon the British navy, the German army, the French police force, the British postal system, the French commercial code, in setting up military, policing, legal, and communications functions for the new government. They created local governments by welding groups of former contiguous fiefs together to make prefectures, dividing each prefecture into two segments, the gun (counties) portion that consolidated the towns and villages of the former fiefs and the shi (cities) portion that consisted of former castle towns or metropolises managed by the bakufu. They almost completely vested fiscal power in ministries that operated out of the former Edo, now known as Tokyo (which means Eastern Capital), the ministries transferring funds to local governments mostly on a projectby-project basis. In short, the new government aimed at creating the political infrastructure of a modern nation state, by rational shopping amongst the various Western countries for ideas, selecting models on the basis of suitability and convenience, keeping those elements of the Tokugawa regime that could be effectively incorporated into the new state.5 Keeping the restive old guard enamored of the Tokugawa past reasonably happy meant hanging on to many remnants of the bakuhan past. Hybridization was not restricted to political infrastructure. Realizing how important creating infrastructure had been for the organic economy of the Tokugawa period, the new government moved quickly to build (working together with the private sector that was encouraged to invest) a new infrastructure harnessing the inorganic economy that was the basis for the awesome military power brandished by the Western nations in the form of cannons and steamships. The national government undertook a program of dredging harbors and building breakwaters to accommodate deep hulled steamships; of laying down key parts of a steam railroad trunk line that was to run along the coastlines of all four major islands, relying on the private sector to fill in gaps; and of putting in place telecommunication facilities for the rapid transmitting of messages. In the field of financial infrastructure the government first experimented with an American style system of national banks, phasing this out

140 Diversity in favor of a central banking system modeled along Belgian lines, with the nascent Ministry of Finance assuming control over the Bank of Japan and the Yokohama Specie Bank, the latter being established to handle foreign exchange. The leaders of the new state put a high priority on creating a single national currency backed up by precious metal, replacing the hodgepodge of fief and bakufu currencies that had circulated during the Tokugawa period. The importance of putting the yen on the internationally accepted gold standard was high up on the list of priorities of the nascent Ministry of Finance. The Meiji oligarchy did not ignore human capital enhancing infrastructure. To the contrary, building upon one of the Tokugawa period’s strengths – its promotion of book learning and the supply of potential teachers that could be recruited for a fresh educational approach – the newly formed Ministry of Education began developing a system of American style compulsory primary schooling for the masses (at first four years, later extended to six years), a system of elite education centered in the University of Tokyo that gave priority to engineering and science, and an intermediate mixture of vocational and academic middle schools aimed at promoting technological progress in both the old organic economy and in the new inorganic economy. In addition, without doing away with Chinese medical practice that had been the backbone of medicine under the bakufu, the new rulers put a priority on systematically developing Western medicine and the germ theory of disease in Japan, producing a dualistic medical and public health system that rested on both Chinese and Western medical theories. Again, the principles of hybridization were being brought to bear. Forging a sense of national unity was both the servant and the goal of the program of infrastructure development and economic expansion initiated in the 1870s. Consider education. Determining the curriculum and content of textbooks was placed completely in the hands of the Ministry of Education in Tokyo that preceded to push veneration of the emperor as a symbol of national unity, and so regimented the system that the Minister of Education could truly say that the content of classroom teaching across the entire country was determined by the tick of the clock. In universities and technical schools the emphasis was on combining “Japanese spirit” with “Western science,” a classic case being the harnessing of Chinese characters to the problem of fashioning words for the Western machines, scientific and engineering concepts for which the Chinese lacked words. Or consider banking. In abandoning the Tokugawa confederation form of government in favor of a unitary state, the new oligarchy had no choice but abolish the class system that showered upon the samurai special rights and privileges. This was dangerous. The ranks of the samurai were substantial: they constituted between 5 and 10 percent of the population. How were they to be compensated for the loss of rice stipends that had been the backbone of fief finances? To stave off samurai rebellion the new

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authorities first tried converting the rice stipends into transfer payments drawing upon the taxes collected by the national government. As convenient as this solution was in the short run, buying political breathing room for the Meiji oligarchy, it resulted in an unbearable burden being placed on the resources of a state determined to invest heavily in infrastructure. As a result the oligarchs scrapped the policy, decreeing that the stipends be converted into bonds, encouraging the samurai to use the bonds as paid in capital for the national and wholly private banks springing up throughout the country. In effect, the government was killing two birds with one stone. When a group of disaffected samurai rebelled, the new draft army brutally suppressed the malcontents in the Western war, driving them into southern Kyu¯shu¯ where they were beaten into submission, thereby completing a program of demilitarization harking back to the time of Hideyoshi. Or consider the agricultural sector that dominated national production in the first four decades of Japan’s forced march modernization. Western machinery – tractors, harvesters, reapers, cream separators – were of no use to the rice farmer working miniscule plots of paddy. With the exception of the Northern island of Hokkaido¯, raising grains and cattle for milk and meat made no economic sense. But adopting a Western system of taxing farmland in terms of money rather than rice, using the assignment of land values based upon the discounted present value of future expected revenue streams, did make economic sense, and changed incentives about how best to use resources. More important, doing away with fief barriers that bottled up experiments generating new seed varieties and more efficient methods for irrigating and draining paddy caused best practice technique to flow from the Southwest (where the relatively benevolent climate encouraged experimentation during the Tokugawa era) to the Northeast. The resulting productivity gains that drove the agricultural sector to growth rates of around 1.4 percent over the period 1875–1915 (the impetus given by diffusion being spent by World War I) were a testimony to the economic payoff that modern nationalism brought. In short, harnessing Western concepts of the modern nation state in developing infrastructure promoting the diffusion of both the organic and inorganic economies throughout the Japanese archipelago yielded rewards as rich as those flowing from harnessing steam power to British power looms, British mules, and British jennies in the integrated spinning and weaving factories that sprang up in the environs of Osaka which now emerged as the Manchester of the Far East. Taking a longer view, over the entire period from the 1870s to the 1990s, it is apparent that Japan’s infrastructure investment and renewal, driven by nationalist concerns in so far as direct government input is concerned, has paid off handsomely in driving down transport and communication costs both domestic and international, and in vastly enhancing the human development of the country.6 Table 6.1 provides some indicators

0.82 0.98 0.99 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 n.e. n.e.

0.07 0.09 0.16 0.21 0.37 0.44 0.61 0.86 0.99 0.99 n.e. n.e. n.e.

0.57 0.69 0.71 0.73 0.79 0.81 0.87 0.95 0.99 1.00 1.00 n.e. n.e.

160.0 160.0 161.2 161.8 163.2 162.6 166.3 166.3 168.6 170.2 170.8 170.8 170.8

155.0 161.2 165.7 124.1 90.0 62.5 33.7 14.2 10.8 7.9 6.0 n.e. n.e.

IMR

shm 18

E2

cenr(t)

eadv(t)

Life expectancy/health variable (L2)

Educational variable (E2)

Human development proxy variable (HDIA)

0.89 0.89 0.89 0.91 0.93 0.94 0.97 0.99 0.99 0.99 1.00 n.e. n.e.

L2

Japan South Korea

Country of residence

116.6 114.2

150.2 143.8

n.e. 117.8

Age 6

Age 6

Age 12

1988

1978

n.e. 148.5

Age 12

n.e. 119.8

Age 6

1998

Panel B: Standing height of Korean males age 6 and 12 in Japan and in South Korea, 1978, 1988, and 1998 (cm)

1900 1910 1920 1930 1940 1950 1960 1970 1975 1980 1985 1990 1998

Year

Panel A: The human development index (HDI) for Japana

Table 6.1 Human and physical infrastructure development in modern Japan

n.e. 153.6

Age 12

0.57 0.61 0.64 0.65 0.70 0.69 0.75 0.83 0.85 0.87 0.89 0.90 0.92

Estimated HDI (HDIE)

3.7 1.6 3.8 3.9

1934–1939 1946–1959 1960–1979 1980–1984

16.7 25.2 58.6 111.7 22.9 49.4 108.1

Postwar period (1980  100) 1955–1959 1960–1979 1980–1985

Total (1)

Consumer price indices

Prewar period (1934–1936  100) 1874–1879 1880–1899 1900–1919 1920–1939

Years

26.7 49.7 106.6

25.4 28.7 70.0 112.5

Transportation (2)

Panel D: The price of transport relative to the consumer price index, Japan, 1874–1985b

1951–1959 1960–1979 1980–1985

Years

Cargo per capitas

Years

116.7 102.4 98.7

154.0 116.5 120.5 101.4

continued

Relative cost of transportation (2)/(1) (3)

2.4 94.9 263.2

Passenger-kilometers per capita

Passenger-kilometers carried on domestically scheduled civil aviation per capita

Cargo transported on coast-wise vessels per capita (tons)

Panel C: Cargo transported on coast-wise ships and passenger service on domestic civil aviation in Japan

0.48 0.22 2.97 4.40

1934–1939 1946–1959 1960–1979 1980–1984

n.e. 0.001 0.04 0.35

TEL

where “shm18 is the standing height of males aged 18 in centimeters, and IMR is the infant mortality rate per 1,000 live births. (4) To compute HDIA, I calculated HDIA  (E2  I2  L2)/3. (5) For 1975 and for subsequent years I use the United Nations Development Programme estimates of HDI. b For prewar Japan, the consumer price index is set at 1934–1936  100; for the postwar period, the index is set at 1980  100. n.e.  not estimated.

L2  0.5 * (shm18/172)  0.5 * [(1000  IMR)/(1000  6)]

and logy(t) is per capita income (Geary-Khamis dollars) for Japan in year t. (3) I computed a life expectancy/health variable L2:

I2  [logy(t)  log100]/[log 40000  log100]

Notes a Calculated by first computing HDIA (human development proxy variable A); then the HDIA index HDIAI  (HDIAt)/(HDIA75) where HDIAt is the value of HDIA in year t, and HDIA75 is the value of HDIA in 1975; then the HDIE  estimated HDI  HDIAI * HDI75 where HDI75 is the value of the United Nations HDI for 1975, with a value of 0.849. To compute HDIA I proceeded as follows: (1) I computed an educational attainment variable E2 where E2  (2/3) * [cenr(t)]  (1/3) * [eadv(t)] for year t, “cenr(t)” being the enrollment rate for compulsory schooling – between 1900 and 1944, this refers to schooling between ages 6 and 14, and after the war to schooling between ages 6 and 15, that is inclusive of elementary and middle school – and “eadv(t)” being the advancement rate for students leaving compulsory education (in the prewar period this is into middle schools and vocational schools for males, and into girls’ high schools for females; in the postwar period this is the advancement rate into high school; the estimates are based on three or four year lags depending on the level of education). (2) I computed an income variable I2 where

Sources: Japan Statistical Association (1987) (Volumes 1, 2, and 4): various tables; Kim (1982); Mosk (1996, 2000): various tables; Ohkawa and Shinohara (1979): various tables; Republic of Korea. National Statistical Office (various years): various tables; United Nations Development Programme (2000): various tables.

OGVT (tons)

Years

Panel E: Tonnage of cargo transported on ocean going vessels per capita (OGVT), and international telephone calls sent and received per capita (TEL), Japan, 1934–1984

Table 6.1 continued

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of Japan’s remarkable success in this area. In my opinion, infrastructure investment involving both private and public sectors has been a driving force behind Japan’s capacity to catch up with the West, steadily closing the gap in income per capita between itself and the major Western countries over the 120 year period after Perry steamed into Edo Bay.

The perils of openness: Japanese imperialism in the Asia-Pacific region promotes Japanese openness One of the most popular nationalistic rallying cries of the Japan newly opened up to the West was fukoku kyo¯hei, a phrase consisting of four Chinese characters that means “Wealthy country, strong army.” Applying the West’s revolutionary advances in the inorganic economy to manufacturing – in cotton textiles, in iron and steel making, in shipbuilding – was designed to advance the economy. At the same time it was designed to bolster Japan’s military security, threatened by the Western powers. The very technology giving leverage to the British, French, Germans, Russians, and Americans in the Far East being harnessed to keep these powers at bay. The government’s first priority was to force the Western powers to rescind the treaties granting them extra-territorial rights in Japan (and constraining the government’s right to impose tariffs above relatively low levels); its second priority was to carve out a buffer zone in Asia keeping the Western powers far away from Japan’s shores. In doing so, Japan assumed the mantle of imperialism increasingly associated with the Western powers after the 1880s, Africa being cynically carved up in an expansionist scramble for territory by Britain, France, Belgium, and Germany. Neutralizing the West along China’s northern Pacific coastline, in Korea, and in Manchuria that bordered on Russia were the keys for a Japanese military strategy bent on carving out a geographic zone free of direct control by the West. In understanding how Western intrusion on China’s coastline threatened Japan, the geographic expansion of the extraterritorial zone – originally consisting of five treaty ports, Shanghai, Ningpo, Fouchow, Amoy, and Canton conceded in the 1840s – had continued apace in the 1860s, when nine additional ports were opened up. In responding to these security needs, Tokyo exploited its freshly equipped army and navy. In 1894 Japan fought a brief war with China, emerging victorious and laying claim to Taiwan, the Pescadores Islands, and the Liaotung Peninsula that jutted out in the North Pacific in Southern Manchuria. A joint Russian–German–French diplomatic intervention in 1895 wrestled the Liaotung Peninsula away from Japan, creating foreign leased zones for the Russians, the Germans, the French, and the British that were formally opened in 1898. From the Russian perspective, acquiring a zone encompassing Port Arthur on the Liaotung increased its leverage in Manchuria proper and gave it access to Asian waters; from the

146 Diversity British, German, and French perspective, gaining chunks of Liaotung increased their burgeoning commercial strength in growing Asian markets; for Japan, losing Liaotung meant giving up a launching pad for a Western campaign wielded against its territory. As a result of a second regional war in Asia, the Russo-Japanese war of 1905, Japan forced the Russians to cede the gains they had made at their expense a decade earlier. At Portsmouth, New Hampshire, the Western powers agreed to respect Japan’s “paramount interests” in Korea; they stripped Manchuria away from Russia, giving it back to the Chinese; and they granted Japan control over Russia’s zone in the Liaotung Peninsula and the use of much of the Russian-built railway in Southern Manchuria. Using the assassination of its representative in Korea to incorporate Korea directly into its Empire, Japan formally took over the hermit kingdom in 1910. By the conclusion of World War I, when Japan, allied with England through the Anglo-Japanese Treaty, claimed Germany’s zone in Liaotung and islands throughout the Pacific that Germany had laid claim to during the late nineteenth century, it had emerged as a major imperial power in the Asia-Pacific, a power that naturally threatened American and British interests in the region. Imperialism has both economic and strategic logic. The gravitational pull of trade managed within an empire complements the gravitational pull towards regional hegemony. After World War I, the economic pull drawing Japan more deeply into its empire gained considerable force.7 The reason lies in the emergence of a dualistic economy in Japan proper. As inorganic economy manufacturing capacity – heavily concentrated in the Pacific coastline industrial belt stretching along the old To¯kaido¯ road between Osaka and Kobe in the South, through Nagoya to the Tokyo–Yokohama conurbation in the North – grew apace, fueled by a huge buildup of hydroelectric power and electric intercity railroad lines in the period 1904–1911, differentials in income per capita between the industrial belt and rural Japan widened.8 The diffusion of Tokugawa best practice technique from the Southwest to the Northeast having been largely spent, economic growth in rural Japan slowed to a crawl in the years leading up to World War I. The powder keg of conflict between rural and urban Japan – and within the rural sector, between landlords and tenant farmers – was ready to be lit. During the war years ( Japan was not a true belligerent in the conflict but it was affected by the embargoes on trade imposed by the European powers on one another), rice prices in Japan shot up. In 1918 riots over escalating rice prices took place throughout Japan. Recognizing the threat to the rapidly expanding urban sector – especially to the populations concentrated in the big six cities of the To¯kaido¯ industrial belt (Tokyo, Yokohama, Nagoya, Osaka, Kyoto, and Kobe) posed by high rice prices – hemmed in by being unable to secure a quick fix for the domestic farming sector due to the lag between creating new seed varieties in government

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managed experimentation stations and their effective application in the paddy fields, Tokyo elected to play the imperial card. It actively became involved in developing agriculture in Korea and Taiwan, creating the Oriental Development Corporation as a vehicle for diffusing Japan’s best practice techniques to its empire. Food prices in Japan proper stabilized as rice and other crops poured in after 1920. Solving the food problem in this way did not address the social unrest that festered throughout rural Japan during the 1920s and 1930s, leading to violent confrontations between landlords and tenants, the latter demanding rent reductions, the former pushing for the right to terminate their tenants’ leases without paying compensation. Addressing the problem in this manner did not resolve the tensions due to worsening income distribution, the industrial belt outstripping the rest of the nation. Integrating Japan more deeply with its empire exposed rural Japan to the perils of trade openness. To help alleviate pressure on rural Japan, the government encouraged Japanese farmers to emigrate to the empire. Emigration from Japan had gone through a sequence of phases prior to 1920. At first the government, aiming at quickly settling Hokkaido¯ in order to keep Russian meddling in the Northern Island in check, discouraged emigration outside of Japan. Having successfully built up a population in Hokkaido¯, the government began to work with Japanese Iimingaisha (Emigration Companies) to develop opportunities for Japanese workers outside the country. This resulted in Japanese emigration to Hawaii, which would have been a stepping stone to emigration into the Western offshoots, especially to the West coast of the United States and Canada, had Asian exclusion not been adopted in these countries. Barred from emigration to North America, the Japanese turned to Brazil and Chile, signing agreements with the governments in these countries that sent Japanese nationals to work on plantations in South America.9 After World War I, the geographic pull from the empire gained precedence over the pull from Latin America, fueled by the imperial government’s interest in developing the empire, especially its agriculture. With Japan’s forceful takeover of Manchuria between 1931 and 1933, leading to the establishment of the puppet state of Manchuko, Japan’s interest in promoting emigration to Asia took another leap. From Table 6.2 it is clear that Japan’s trade and emigration became increasingly concentrated on its blossoming empire in Asia. Integrating itself demographically with its Empire had another side: the immigration of Koreans and Chinese to Japan proper. While Japan’s civil law was not comprehensively extended to its colonies, Koreans and Taiwanese gained citizenship in the Japanese Empire, and through this citizenship they secured access to Japan proper. The result was a sharp increase in the number of Koreans migrating to Japan’s industrial belt and to mining communities scattered throughout the remainder of the

148 Diversity Table 6.2 The diversity of Japan’s emigration and foreign trade, 1875–1939 Panel A: Percentage of Japanese living in the formal Empire and outside the Empire, 1922–1938a Period

1922–1929 1930–1938

Residing outside Empire (%)

Residing in the Empire (% of all Japanese living abroad residing in): Korea

Taiwan

Karafuto

Kanto-shu

Nanyo-gunto

38.2 35.0

25.7 25.1

11.5 11.9

10.9 13.7

13.2 12.6

0.5 1.8

Panel B: Percentage of Japan’s trade (exports plus imports) with various regions of the world, 1875–1939b Period

Asia

Oceania

North America

South America

Europe

Africa

1875–1879 1880–1899 1900–1919 1920–1929 1930–1939

24.1 31.3 44.8 42.8 45.1

0.2 0.8 2.3 4.1 5.5

16.8 23.8 25.9 36.5 30.8

0.01 0.01 0.3 0.7 2.2

56.8 42.1 25.5 13.5 11.7

0.0 0.03 0.9 1.8 4.4

Sources: Japan Statistical Association (1987) (Volumes 1 and 3): various tables. Notes a Japanese living in the informal Empire – that is regions not formally incorporated into the Empire of Japan – are classified as living outside the Empire. The series of Japanese living in the various sub-regions of the Empire given here begin for Korea in 1910; for Taiwan in 1896; for Karafuto in 1921; for Kanto-shu in 1906; and for Nanyo-gunto in 1922. b The underlying figures are five year moving averages. China is included in Asia, and Russia (U.S.S.R.) in Europe.

country.10 In opening up to the empire, Japan’s vaunted cultural homogeneity which was exploited by the nation building efforts of postTokugawa leaders, an homogeneity guaranteed for centuries by the very sakoku isolationism that had been a cornerstone of Tokugawa rule, was being severely tested. As a reaction to these developments – expanding imperialism on the Asian mainland, growing diversity within the homeland – Japanese thinkers developed their own version of eugenics known as Nihonjinron (the theory of the Japanese, or the theory of Japanese uniqueness).11 This body of theory was used to rationalize Japanese takeover of territory in Asia by formulating a ranking of Asian races that placed the Japanese at the top; it was also used to give a genetic cast to Japanese cultural uniqueness. Proponents of the theory have argued that Japanese learn language on the other side of the brain from all other peoples; that Japanese have smaller stomachs that other peoples; and so forth. In testimony to Japan’s lack of demographic openness in the postwar period, this doctrine (unlike

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Western eugenics) has enjoyed considerable popularity in the postwar period. Indeed a Nihonjinron boom occurred in Japan in the post-1970 period. Japan, always quite closed, became somewhat more open during the period between the two World Wars. It did so because it was being increasingly integrated with its empire through flows of migration and trade. Managing these flows created social tensions in Japan, social tensions involving disparities in income per capita between the industrial belt and the hinterland, social tensions between landlords and tenants, and social tensions between Japanese and non-Japanese citizens of the empire. In late 1945, with its empire abandoned and seized from it by the Allied Powers and its territory under occupation by the United States, these social tensions were resolved as Japan once again closed up upon itself.

Achieving consensus in a closed society Achieving social harmony through pork barrel politics is a way of life in Japan. Accomplishing this in a society like Japan’s that promotes a myth of cultural and ethnic homogeneity, an ideology of shared values, is easier than in a society divided along lines of religion, language, and other indices of sub-group identification. The reason is simple: it is easier to negotiate political tradeoffs when all parties concerned share the same values, have similar preferences. Experiencing diversity is enriching but it comes at a cost. Japan, especially postwar Japan stripped of its prewar empire, has avoided most of these costs. One of the most striking aspects of postwar Japan is the remarkably high degree of income equality managed through market incentives, rather than through income transfers arranged by government. Lacking a well developed welfare state – Gao (2001: 114–51) refers to Japan’s “privatized social protection” – Japan still managed to achieve high rates of income growth with equity during the period 1950–1970.12 Indeed, the term “Miracle Growth” which basically means growth with equity, that the World Bank (1993) argues characterizes the most successful economies of East Asia, was pioneered by Japan. The fact that Japan managed to do this is partly due to its being relatively closed in both demographic and trade dimensions. In my opinion Japan’s achievement of high rates of growth with market driven equity is due to three factors: selective protectionism and industrial policy; heavy reliance on a generous infrastructure investment program that has tended to equalize opportunities between locales throughout the country; and “integrated segmentation” in the labor market – for the term “integrated segmentation” see Mosk (1995) – which is dualism that is seen as socially acceptable partly because actual income differentials fall short of productivity differentials. Starting with protectionism, consider agriculture. Under the American

150 Diversity occupation, left leaning bureaucrats in Japanese ministries were able to push through reforms that had been stymied by conservative bureaucrats and politicians during the 1920s and 1930s. A prime example is land reform, which was passed during the late 1940s. With opponents of reform purged in the aftermath of the war, the measures became law, leading to a wholesale transfer of land from landlords to tenants at bargain basement prices. While this solved one of Japan’s prewar social problems, it did not address income distribution between rural and urban Japan. Subsequent legislation did so by creating a rice subsidy program whereby the national government purchases rice from farmer cooperatives at exceptionally high prices, selling it back to the consumer at lower prices through government managed stores (recently, under international pressure, Japan has dismantled this program to some extent). In the early 1960s subsidy prices for rice were set high enough to guarantee the marginal farmer an annual income comparable to that earned by a typical blue-collar worker. In effect, the urban dweller was asked to subsidize the rural dweller. Barring imports of rice was crucial to the viability of the subsidy program. With rice that could be imported from California selling at a fifth or a tenth of what it was selling for on the Japanese market, the domestic purchaser of rice was barred from acquiring cheaper rice from abroad through a deliberate act of protectionism. Informal (as opposed to tariff or quota based) protectionist practices have been systematically wielded by a government intent on responding to the needs of other relatively unproductive – from an international viewpoint – sectors of the economy. Lincoln (1990: 15) gives us a lengthy list. Product standards are set so that Japanese standards deviate from international norms. For instance, using Nihonjinron logic, the Japanese government prohibited the sale of many American pharmaceuticals in Japan, arguing that Japanese stomachs were smaller than American stomachs. Time-consuming testing and certification procedures slow up imports of foreign vehicles, favoring domestic automobile producers and their employees. Intellectual property rights, say on computer software, are not respected, discouraging the entry of foreign manufactured off-theshelf packaged software. Industrial collusion – common in the production of integrated circuits – that favors domestic companies over foreign rivals is routinely countenanced in Japan. And then there is industrial policy. Many scholars believe that the industrial targeting of growth industries by the Ministry of Trade and Industry (now renamed the Ministry for Economy, Trade and Industry) was successful in promoting high speed growth by picking “winners” and “losers” during the 1950s and 1960s. Katz (2003: 40–50), who is very critical of the way industrial policy has protected declining sectors in Japan during the 1980s and 1990s, still believes that industrial policy helped weed out the wheat from the chaff, subsidizing industries with strong

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growth potential during the 1950s and 1960s. But accounts of the way the Ministry of Trade and Industry shored up the declining cotton textile industry during the 1950s and 1960s and after – described in Uriu (1996: 45–95) – through the creation of recession cartels that established market shares for the firms in the industry, suggest that industrial policy was always aimed at protecting the weak, even as it was sometimes being used to bolster the prospects of vigorously growing infant industries.13 In short, selective protectionism and industrial policy have strongly contributed to equity in postwar Japan. As long as a person is willing to work hard, he or she can expect to earn a decent livelihood. The deviation of domestic prices from international prices is the key to this “privatized social protection.” Unlike income transfer in Western Europe, the Japanese approach does not erode work incentives. However, it does create a growing class of unproductive and inefficient firms, thereby eroding technological progress and total factor productivity growth over the long term. Physical infrastructure investment was an important factor behind Japan’s industrial expansion, an argument documented by Mosk (2001). Infrastructure investment has also promoted equity. Consider how city planning works in Japan.14 In order to create a social consensus amongst households in a neighborhood affected by improvements in the city’s infrastructure – as an example, widening a city street at the expense of the land held by each of the property owners in the neighborhood – municipal governments create kukaku seiri kumiai (land improvement committees) from the neighborhood households. Without the consent of countless numbers of these tiny committees, municipal governments find it almost impossible to widen roads, build parks in densely crowded inner cities, or put in senior centers aimed at servicing neighborhoods. It is the tyranny of the locality. Again, one hears a great deal about the Japanese government funding beautiful roads into dying rural villages that are being emptied of their populations by households moving en masse to urban centers where jobs are plentiful. Bestowing public largesse upon every little corner of the country, no matter how remote, no matter how sequestered and inaccessible it once was, is a perfect example of the logic of Japanese pork barrel politics. The point is that working out political tradeoffs between various regions, and various socioeconomic groups, that carry economic clout is a key feature of the way government works in Japan. Were Japan more open, were Japan more diverse, this task would be far more daunting than it has been. A third area in which an absence of diversity has contributed to Japan’s growth is in the way labor markets operate. Befitting the fact that the organic economy in Japan has always tended to be more efficient than the inorganic economy, the growth of the former gradually absorbing labor from the latter, the Japanese economy has been markedly dualistic,

152 Diversity dualism emerging forcibly in the post-1915 period when productivity growth in agriculture slowed to a crawl. The dualism that emerged has become extremely hierarchical, with employment in large and medium sized companies differing strikingly from that in small companies, in selfemployment (like farming), and in government. One might think that this stratification of the labor market would be seen as unfair and corrosive of social consensus. In fact this is not the case. Labor market dualism in Japan is not seen as unfair because it arises from a signaling process whereby achievement in the school system is a major determinant of future job match. As described in Mosk (1995: 109–55), a system of national ranking of schools (above elementary school) based upon the supply and demand for slots, and entry determined by an objective competitive examination that largely measures the amount of information crammed sends out signals to prospective employees. The key point here is that it is a completely standardized national system; schools in other countries do not fit into the neatly established hierarchy. Powerful large companies select their recruits from the highest ranked schools and so on down the ladder. In a society placing a heavy weight on credentials this is seen as an eminently fair way to allocate job slots. Interestingly, outcomes established in terms of income earned are far less than outcomes measured in terms of the prestige of one’s employer. The reason lies in two institutional characteristics of Japan’s dualistic labor market: the strong internalization, indeed Balkanization, of labor in the world of large and medium sized firms; and the dynamic of collective bargaining under the Shunto¯ Spring Offensive system. Because Japan is so homogeneous from a cultural and social viewpoint, it is relatively easy to establish implicit contracts governing the relationships between employers and employees, and the relationships between parent companies and subcontractors. In particular three famous “jewels” of the Japanese employment system – permanent employment, age-seniority wage payments, and enterprise unionism – form a triumvirate embodying an emotionally charged mutual dependency between employer and employee that the Japanese refer to as “wet,” as opposed to the “dry” contract driven relations characteristic of the West. Japan’s three famed “jewels,” well entrenched in large and medium sized companies, have undergone considerable institutional adjustment over the last thirty years, but even so, even with all of the changes, their “wetness” remains. Being “wet” as opposed to being based on written contracts only makes sense in a culturally homogeneous setting. It is usually argued by human capital theorists that the Japanese employment system creates strong incentives to create firm specific human capital, and to design shop-floor environments based upon flexible assignment of tasks to work teams. That Japanese unions are mainly organized along enterprise lines has an important implication for collective bargaining. As Mosk (1995:

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217–41) shows, the union (representing the interests of almost all workers in the firm) is politically hampered in the stance it takes with management. Given the internal politics of the union, it is not possible for the union leaders to bargain for wage increases differentiating white-collar interests from blue-collar interests. Blue-collar rank and file would not hear of a settlement that favored professionals. Thus unions tend to negotiate an “alpha-percent” wage increase for all workers, using a “base-up” rule. The second political problem concerns striking. Since unions are not industry or craft wide, creating worker solidarity across firms is difficult to establish. If the Toyota Motors union goes out on strike, Mazda Motors and the workers at Mazda benefit. Basically, enterprise unionism disarms union leadership snatching the cudgel of the strike out of its hands. Unions have attempted to get around this defect through the organization of a Spring Offensive, the famous Shunto¯. By all agreeing to threaten to strike at the same time, the original organizers of the Spring Offensive (during the early 1950s) hoped to increase the bargaining leverage of workers. In theory they did this; in practice they did no such thing. Inevitably, the unions in the financially most hard-pressed firms tend to settle first; their job security is at stake. These settlements tend to set a wage increase floor, one which better off firms tend to push upon their workers. Small firms and government tend to fall into line as well. A kind of national consensus involving large firms, small firms, and government is established. The result is tremendous compression in wage hikes. Consider the coefficient in variation of wage increases: in 1962, when the Spring Offensive system was getting off the ground, the coefficient of variation was 14.1 for large and medium sized firms, 20.8 for small firms; by 1985, the coefficient of variation for large and medium sized firms had shrunk to 0.09; for small firms to 4.8.15 Japan’s relatively high degree of homogeneity has had an enormous impact on the way the Japanese government operates in protecting the domestic market, in devising industrial policies, in building infrastructure, and in regulating the educational system. Likewise, homogeneity has created a crucible within which implicit contracts binding workers to firms and firms to workers can flourish. How diverse is Japan? There are definitely minority groups in Japan – Ainu who once clustered in Hokkaido¯, burakumin a virtual caste which historically worked with animal hides, descendants of Korean immigrants to Japan (who are still required to register as foreigners even though they have Japanese names and have grown up in Japan), Chinese, and Okinawans – but from a cultural viewpoint most of these groups have been absorbed into the deep sea that is the Japanese ethnic mainstream.16 Recently, persons of Japanese descent who are returning from Brazil to work in Japan have become a visible minority in the Japanese landscape, marked off from the mainstream by their clothing and speaking Portuguese.17 In responding to labor shortages encountered by small and

154 Diversity medium sized companies during the 1980s, the Japanese government naturally turned to encouraging immigration of those who were the least likely to call into question Japanese homogeneity, namely persons of Japanese descent. Ultimately, the main reason why Japan is relatively homogeneous – and therefore can seriously entertain the myth of Nihonjinron at a time when eugenics has been discredited in most nations of the world – is because Japan is relatively closed from a demographic viewpoint. Relatively few Japanese live abroad, most of them living in countries with high incomes per capita comparable with those enjoyed in Japan, and relatively few persons who are not Japanese live in Japan. The figures on Japan’s demographic openness – see Tables 2.3 and Table 3.3 – document the fact that Japan is not open. Figures on the diversity of Japan’s postwar trade and the diversity of the Japanese living abroad, on a temporary and permanent basis, address the question of why the Japanese do not tend to take up permanent residence abroad. These figures appear in Table 6.3. Japan’s trade is heavily concentrated in Asia and most of Asia has income per capita far below that of Japan. Japanese live in these other Asian countries on a temporary basis with some frequency, but infrequently on a permanent basis. They do take up permanent residence in North America and in Europe in proportions that are in excess of the trade that Japan makes with these regions. That tendency reflects the relatively high levels of income per capita enjoyed by persons residing in these regions. Interestingly, the proportions of Japanese permanently living abroad in South America – historically, outside of Japan’s empire that dissolved in the 1940s, the region where overseas Japanese concentrated – have been dropping rapidly as persons of Japanese descent registered as overseas Japanese abandon this region where income growth has stagnated, opting to return to Japan.

The paradoxes of infrastructure driven growth Paradox stalks us in this book. In Part II of this volume we have encountered it at least two junctures. The first is that modern nationalism is intimately tied up with domestic programs of infrastructure driven growth which, by driving down the costs of being open to the world, serves to globalize. Building roads and harbors, telecommunications facilities, airports, schools, hospitals, banks, and financial intermediaries of all sorts weaves together hinterlands and geographic clusters pioneering the inorganic economy within nations. Through this process, national levels of income per capita are pushed forward. At the same time, as a nation’s domestic costs of moving people and goods – of penetrating its interior, of shipping the fruits of agriculture and manufacturing across its geographic expanse – plummet, so do the costs of immigrating to it or emigrating from it, of shipping goods to it

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Table 6.3 The diversity of Japanese emigration both temporary and permanent and the diversity of Japan’s foreign trade, 1945–1994 Panel A: Percentage of Japan’s trade (exports plus imports) by region, 1945–1994a Period

Asia

Oceania

North America

South America

Europe

Africa

1945–1949 1950–1959 1960–1969 1970–1979 1980–1989 1990–1994

44.9 36.4 29.0 38.6 42.5 39.0

2.0 6.1 5.9 6.0 4.9 4.3

44.7 37.5 32.9 30.1 32.2 31.4

1.0 4.4 3.5 3.6 2.4 2.0

4.4 9.3 12.9 15.3 16.5 19.5

2.9 6.4 5.8 6.1 3.2 1.8

Panel B: Percentage of Japanese living abroad by region, 1960–1994b Years

Asia

Oceania

All Japanese living abroad (%) 1960 1.8 0.3 1970 6.3 0.9 1973–1974 9.4 1.0 1975–1979 12.5 1.1 1980–1989 14.4 2.0 1990–1994 15.8 4.0

North America

South America

Europe

Africa

19.8 20.9 30.0 30.9 35.5 42.2

76.6 64.9 49.4 44.1 32.4 18.7

1.2 5.2 8.6 9.5 14.1 18.4

0.04 0.9 1.3 1.7 1.5 0.8

69.1 67.6 60.2 46.3

0.3 0.7 2.8 6.2

0.001 0.002 0.1 0.1

6.4 6.5 3.8 1.7

26.8 23.7 25.7 25.9

Permanent (expatriate) residents of other countries (%) 1973–1974 2.5 0.1 27.5 1975–1979 2.6 0.2 28.9 1980–1989 3.0 1.0 33.2 1990–1994 3.2 4.0 40.2 Temporarily resident in other countries (%) 1973–1974 24.5 3.1 35.5 1975–1979 28.2 2.4 34.1 1980–1989 26.4 3.1 37.6 1990–1994 23.6 4.0 43.4

4.0 4.5 3.1 1.2

Panel C: Growth rate for Japanese populations living abroad, 1975–1979 (average annual rates based on five year moving averages) Period

Total

Asia

Oceania

All Japanese living abroad (growth rates in %) 1975–1979 2.5 8.6 7.8 1980–1984 1.9 1.7 10.6 1985–1989 4.8 5.0 17.0 1990–1994 3.5 9.7 9.5

North America 2.8 4.6 8.2 2.9

South America 0.9 2.3 3.3 2.5

Europe

Africa

7.1 7.3 9.6 3.6

9.6 2.8 5.8 5.1 continued

156 Diversity Table 6.3 continued Period

Total

Asia

Oceania

North America

South America

Permanent (expatriate) residents of other countries (growth rates in %) 1975–1979 0.5 1.3 12.7 0.2 1.1 1980–1984 0.3 0.2 21.4 2.4 2.3 1985–1989 0.1 2.5 31.5 2.5 3.2 1990–1994 1.4 1.0 3.9 3.9 2.6 Temporarily resident in other countries (growth rates in %) 1975–1979 7.3 9.8 7.2 6.5 1980–1984 4.6 1.9 8.7 6.9 1985–1989 8.9 5.3 12.0 12.6 1990–1994 4.6 10.4 6.7 2.4

3.5 2.2 4.4 1.3

Europe

Africa

22.5 17.6 14.1 7.2

42.6 36.7 19.5 10.1

6.4 6.4 9.1 3.0

9.6 3.0 6.2 4.9

Sources: Japan. Prime Minister’s Office (various years): various tables; and Japan Statistical Association (1987) (Volume 1): various tables. Notes a The underlying figures are five year moving averages. China is included in Asia, and Russia is included in Europe. b North America includes the Central American countries; the U.S.S.R. (and the countries of the former U.S.S.R.) are not included in the figures for Europe, but other Eastern European countries are included in Europe.

or of obtaining goods from it. The reason lies in the fact that most forms of infrastructure simultaneously serve domestic and international needs. The second paradox is that diversity flowing from demographic openness within a population raises the costs of investing in new infrastructure, especially human capital enhancing infrastructure. By raising these costs, diversity deters the growth of the very infrastructure that accommodates demographic and trade openness. Over the period when harnessing the inorganic economy is central, some countries like Japan and Germany that have narrowly circumscribed their diversity by defining citizenship in terms of “blood” – even brutally and cruelly stamping out minority groups at home or abroad on occasion – have been able relatively easily to negotiate the politically charged tradeoff process of building the very infrastructure that makes them potentially open. A country that follows Japan’s example, resisting diversity by limiting openness, has the opportunity of rapidly building its infrastructure, enjoying the benefits of high-speed growth, thereby serving well the interests of its own citizens. But it pays a price for this approach. It sacrifices the opportunity to enjoy the fruits of diversity fully over the very long run. Combining what we know about diversity in countries of the British connection and countries like Japan allows us to draw a general conclusion about globalization driven by the diffusion of the inorganic economy. Diffusion of the inorganic economy ultimately depends upon nationalistic programs of infrastructure investment.

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Implementing these programs tends to create a backlash against the very diversity that is spawned by globalization, for one of two reasons. In countries that are relatively open and/or relatively diverse, diversity tends to increase over time – because the inorganic economy continues to spread globally – raising the costs of infrastructure development, thereby promoting the politics of closure. In countries that are relatively closed and/or strongly resist diversity, globalization is promoted through a nationalist infrastructure investment program predicated politically on denying diversity. In both cases, globalization arising from programs aimed at diffusing the inorganic economy within national territories sets in motion a political backlash directed against it. This is the grim conclusion of the second part of this book.

Part III

Politics and markets

7

Into the maelstrom: the political economy that battled diversity and openness

Nationalism, local hegemony, and multilateral architecture Coping with the conflicting demands of domestic political economy and international political economy is the leitmotif of statecraft in the modern era. There are tradeoffs and tensions aplenty between the various facets of a nation state’s foreign affairs; there are various interest groups in the domestic arena whose demands veer off into divergent directions. Arranging compromise on the foreign front often stirs up domestic divisions, and vice versa. Within the cauldron of political economy bubbles a witch’s brew of contending pressures, contending voices, and contending doctrines. Reciprocity and security are the antipodes of modern international political economy. Under the principle of reciprocity sovereign states set up multilateral architecture – bilateral and multilateral treaties, multilateral organizations for discussing and resolving international tensions – with the aim of making all states better off. A country rarely enters into a bilateral agreement reducing tariffs imposed on the goods imported from another country without getting something in return, typically a parallel slashing of tariffs imposed on its exports to that country. The premise of governments participating in bilateral and multilateral reciprocity – in agreements governing the slashing of tariffs, the establishment of an international monetary regime like the gold standard, the creation of rules governing the flow of the post and telecommunications transmissions between countries – is that the economies of all participants are improved. Security works in the opposite direction. As captured in the logic of equations 1.11 to 1.16 of Chapter 1, states attempt to maximize security by expanding their latent and actual power within the context of an international architecture. Other things equal, states are better off in a security sense when their economies and their actual power are larger relative to the economies and power of contending countries. Larger states attempt to become hegemonic, at least within the geographic regions where they have a strong vested economic or security interest, because they maximize their security by doing so. The logic of hegemony conflicts with the logic of reciprocity.

162 Politics and markets Advocates of reciprocity have faith in global market integration as a vehicle for assuring peace. Richard Cobden and the Manchester School in England in the early nineteenth century argued for repeal of the Corn Laws (abolished in 1846) and the Navigation Acts (ended in 1849) because they were supposed to usher in an age of world peace. The victory of the Manchester philosophy, celebrated in the Crystal Palace Exhibition of 1851, made England a bastion of free trade in the second half of the nineteenth century. Today, this philosophy is the basis for the liberal approach to international political economy. Believers in the pursuit of hegemony and security as the defining characteristic of the foreign policy of the modern nation state dismiss the liberal views coming down from the Manchester School as naïve. Known as neo-realists, they tend to be wary of international architecture, believing that nation states operate in a Hobbes type world of global anarchy, a world in which governments lie, pursue strategic advantage at the expense of their rivals, and arm for the next war.1 Resolving conflicts between the demands of the organic economy and the inorganic economy is the central domestic political economy problem for nations undergoing diffusion of the inorganic economy from localized clusters to the nation as a whole. Protecting one sector – say, manufacturing under the principle of “infant industry” protectionism advocated by Alexander Hamilton in the United States and Friedrich List in Germany – may fly in the face of the interests of the rural sector, or at least a major sub-sector of that sector.2 Farmers exporting foodstuffs and other products of the organic economy – for example American plantation owners in the nineteenth century exporting cotton to meet the voracious demand of the burgeoning spinning and weaving factories in England’s Midlands or the Junker estates in Prussia shipping grain to other districts of Europe – have an interest in low tariffs because of reciprocity. They fear protectionism from the countries to which they ship their products. Establishing priorities for infrastructure investment constitute another contested, controversial, political issue. Is the army corps of engineers to be dispatched to dredge rivers and harbors connecting together the metropolises of industrial belts or are they to be sent to bolster the waterways and coastlines fronting plantations and farms? Finally, there is the very meaning of the nationalistic ideology that binds together the modern nation states. In nineteenth century America there was a basic conflict between Jefferson’s theory of a republic based upon self-sufficient independent farmers, and Hamilton’s notion of creating a great inorganic economy that might one day flex its muscle as the hegemonic power of the Americas. In Germany there was the long running contest between an “Agrarstaat” vision and an “Industriestaat” basis for a unified and powerful Germany in Central Europe.3 Ultimately, the very meaning of the nation state itself was being contested. In thinking about the potential conflict between domestic and inter-

Battling diversity and openness 163 national political tradeoffs several points must be kept in mind. First, integration is far deeper within national states than it is between nation states. Integration achieved through multilateral architecture is ultimately trumped by integration achieved within nations for two reasons. Integration at the national level is deep because the number of layers over which integration is achieved is much larger than it is at the multilateral level. At the national level, domestic political voice is channeled into creating a unified military policy, a unified fiscal policy, a unified legal system, a definition of citizenship, national coordination of infrastructure investment governing all aspect of infrastructures and – within limits – an economic union minimizing or completely abolishing all constraints on trade between lower level political units of the country. Multilateral architecture – including that achieved within the European Union – is far less deep than national integration.4 Moreover, depth of integration refers to more than the number of layers. It also refers to the nature of integration achieved within layers. Consider agreements concerning tariff reduction and standardizing infrastructure for communications and transportation reached in nineteenth century Europe. In the field of trade negotiations, the famous AngloFrench treaty of 1860 (known as the Cobden–Chevalier Treaty after its principal negotiators) marked a major advance in promoting the reciprocity principle as the basis for reducing the costs of international trade, putting forward the “most favored nation” principle whereby both signatories agreed to grant to each other any additional reductions in tariffs made to third countries. In the field of regulating infrastructure, the Universal Postal Union (whose volume of mail jumped over seventeen-fold between 1875 and 1913), the international convention of submarine cables reached in 1863 and extended to all cables in 1884, and the agreements reached at the Berlin conference committing the major powers to a Radiotelegraphic Union marked momentous advances in creating multilateral architecture.5 As important as this new multilateral architecture was, it pales in comparison to agreements on trade and infrastructure hammered out as part of the nation building process. Germany is the classic case. The cornerstone of political unification of Germany under Prussian hegemony – finally completed in 1871 after a series of wars that neutralized Austria as a contender and France as a potential opponent of consolidating a mighty Germany on its borders – was pioneered by the creation of the German Customs Union, the Zollverein. First established in 1834, the German Customs Union (which abolished all duties on trade within the union) was built up by more and more German states joining the tariff structure on Prussia and entering its customs administration.6 Soon integration deepened. In 1838 agreements were hammered out fixing the exchange rates between the various coinages used in the Union; in 1847 a code was adopted for handling bills of exchange and for establishing a German

164 Politics and markets Railway Administration; and in 1850 the German postal convention was adopted making it possible for prepaid letters to be sent throughout Germany and Austria by the shortest means possible. By 1841, List, in his famous volume, The National System of Political Economy, was calling for further economic unification achieved by raising protectionist walls behind which infant industries within the customs union could flourish and by building railways that tightly linked together all of the disparate districts of the union. The second point about managing the tradeoffs between domestic and international political economy that needs to be stressed concerns hegemony. Hegemony is Janus-faced: on the one hand the drive to hegemony is based upon a distrust of the honesty of states when they participate in building and using multilateral architecture; on the other hand, without some degree of hegemony it is difficult to forge agreements. The smaller the number of regional or local states (local referring to regions that are not geographically contiguous like the British Empire), the easier it is for one or two countries to agree upon which country is to take leadership, and how that leadership is to be exercised. But are the relevant big powers willing to take up the leadership role? Underlying the willingness of a big power to undertake its leadership role is its own perceived self-interest. Since that self-interest is necessarily defined in terms of the economic and political interests of its own domestic communities (for instance importers or exporters or international investors or organized labor), taking up leadership, an integral feature of the way hegemony is exercised in practice, is a function of both domestic political economy and the international distribution of power amongst local and regional hegemonic powers. It must be kept in mind that hegemony is not absolute. Politicians representing major powers expend their political capital sparingly, recognizing that you cannot appear to bully and push around the nations dependent on you, or at least not too often. Exercising power nakedly is not diplomatic and diplomacy greases the wheels of multilateral architecture.

Regional hegemony has trumped British Empire hegemony With the global diffusion of the inorganic economy and its integration into national economies in selected nations, Britain found herself pressed upon in the late nineteenth century. Britain’s problem was both global and regional. The emergence of the powerful contending economic powers – the United States in the Americas, Germany in Europe, and Japan – threatened Britain’s trade. It also threatened Britain’s power, for two reasons: as Britain’s share of world income and of world industrial production shrank, Britain’s relative level of latent power declined.7 As the latent power of the three regional contenders to Britain increased, they began building up their military prowess in tandem with

Battling diversity and openness 165 their economic success. Each – the United States in the Americas, Germany on the European continent, and Japan in the Far East – strove for regional hegemony within their natural geographic spheres of influence. This created a special security problem for the British Empire in which Britain was hegemonic: the stopping power of water entered with a vengeance. How could Britain defend its far-flung interests in the Americas (in the Caribbean and Canada) and in Asia (India, Hong Kong, the Chinese treaty ports, and the Liaotung Peninsula holdings) in the face of the growing military might of the emergent regional contenders, especially when it had to build up its North Sea naval resources and its army for a possible conflict in Europe on land and sea? Britain’s hegemony lay in its empire, and this was now being sorely contested on all fronts. Not surprisingly, Britain settled long festering disputes with the United States (involving American and Canadian claims to the Alexander Archipelago on the coastline of the Yukon territory and the province of British Columbia), and signed a treaty – in 1902 – with Japan thereby trying to bring the Japanese into the British camp.8 How serious was Britain’s decline? Using figures from Maddison (2000) I have calculated the United Kingdom’s share of world trade in 1870 and 1913. Between the two years it fell from 21.6 to 16.7 percent. Meanwhile, Germany’s share rose from 12 to 16 percent. The United States’ share rose from 4.4 to 8.1 percent. Finally Japan, still a small player in global markets, saw its share rise from 0.09 to 0.7 percent. But Japan – especially during World War I and its aftermath – was rapidly expanding its exports of cotton textiles, helped during the long war by blockades imposed by the belligerent powers.9 Again, consider the size of the British Empire in terms of real income relative to the three regional contenders and relative to the rest of the Western European continent. Defining the British Empire as the sum of the United Kingdom, Australia, Canada, New Zealand, South Africa, and India – the countries for which I could get income estimates from Maddison (2000) – I have computed the ratio of the total income of the three regional contenders (Germany, the United States, and Japan) to the sum total of the income of the British Empire. Setting the base (the British Empire) at 100, the ratio of the combined income of the three contenders in 1870 was 73.9; by 1913, that ratio had climbed to 160.6. Western Europe other than Germany was also catching up with the British Empire. Summing together the income figures for Belgium, Denmark, France, Italy, the Netherlands, Norway, Sweden, Switzerland, Portugal, and Spain I arrived at a Western European Continental Total (excluding Germany). Its ratio to the total income of the British Empire in 1870 (the base of the ratio set at 100) was 79.6; by 1913 it had climbed to 87.1. Combining the three regional contenders (Germany, the United States, and Japan) with the Western Continental Total, I calculated the ratio of the total real income of this group relative to that of the British

166 Politics and markets Empire (the base set at 100): in 1870 the ratio was 153.6; by 1913 it had jumped to 247.7. Particularly noteworthy is the rapid expansion of the three contenders; in general, however, the European continent was catching up the United Kingdom and its empire. Pressed upon in foreign markets, pressed upon in security affairs, Britain began to reassess its commitment to free trade. In understanding Britain’s drift away from free trade towards the setting up of a system of preferential trade arrangements, the position of the other countries must be considered.10 As can be seen from Table 7.1, tariff rates in a select group of countries – in Western Europe and the United States – varied greatly during the late 1870s, and in 1913. Small countries in Europe, necessarily open since their economies were small and they could only specialize in a small number of goods as a result, had relatively low tariff rates. This is true for Denmark, the Netherlands (to a degree an entrepôt economy), Norway, and Sweden. Germany prior to 1879 was a low tariff country due to the commitment of the Prussian landowners, the Junkers, to free trade. However, as grain from the United States and Canada began flooding European markets in the 1870s (due to falling transportation costs) the agricultural interests abandoned their opposition to the tariff walls advocated by List and Germany began ratcheting up its duties on imports.11 The United States had been protectionist for decades, its duties coming down somewhat since the Civil War that had been partly caused by differences between the North and South over the tariff. Japan, freed of constraints on its ability to impose high tariffs under terms of the extraterritoriality treaties, was becoming increasingly protectionist after 1900 as well. At the end of the nineteenth century there was only one major country committed to free trade: the United Kingdom. In the other major exporting countries that were rapidly expanding their shares of global income and trade, and especially in the three regional contenders, the doctrine was either honored in the breach or was absolutely dead. The weight of world production and trade in countries committed to policies of trade openness was declining, inexorably giving way to a world order weighted towards autarky. Britain’s drift toward establishing a preferential trade area that integrated itself more closely with its empire was born out of the sense that as the sole principal beacon of free trade, it was giving away the store. Committed to almost no duties under free trade, it was unable to engage in negotiations with the other emergent trading giants on the basis of reciprocity. What duty could the United Kingdom offer to reduce when it had nothing to reduce? Moreover, having learned a painful lesson from the loss of its thirteen American colonies – that had rebelled partly in opposition to British tariffs and the way the Navigation Acts were applied in the Atlantic trade of the mid-eighteenth century – Britain had allowed

15–20 n.a. 4–6 3–5 2–4 3–5 0 40–50

46 n.a. 33 n.a. 38 42 54 n.a.

6 12 8 under 1 11 9 6 n.a.

n.a. 35 17 n.a. n.a. 28 0 n.a.

Indices for all products (%)c

Notes a Tariff rate refers to average level of duties on manufactures, circa 1875. Trade openness is for 1880–1889. b Import duties as a percentage of special total imports (1909–1913). c Liepmann’s indices for duties on all products and on manufactures, circa 1913. d Tariff rate refers to average tariff rates for manufactured products, circa 1913. n.a.  not available.

n.a. 28 13 n.a. n.a. 25 0 n.a.

Indices for manufactures (%)c

Import duties (%)b

Tariff rate

Trade openness

Circa 1913 (1900–1913 average for trade openness)

Circa 1880a

Sources: Bairoch (1993): pp. 24, 26, 35, and 40, and sources for Tables 2.1 and 2.2.

Denmark Finland Germany Netherlands Norway Sweden United Kingdom United States

Country

Table 7.1 Tariff rates (%s) and trade openness for selected countries, circa 1880 and circa 1913

14 n.a. 13 4 n.a. 20 0 44

Tariff rates for manufactures (%)d

56.2 49.5 34.4 226.0 46.6 39.6 53.4 10.0

Trade openness

168 Politics and markets the self-governing dominions to impose some duties in order to encourage the growth of infant industries. So in seeking imperial preference Britain was hoping to ward off further protectionism aimed against it by parts of its own empire. The notion of imperial preference slowly but surely took off in the United Kingdom in the early twentieth century, culminating in the Ottawa conference of 1932 that took place under the dark shade of a global drift towards autarky that made the drift apparent at the end of the nineteenth century pale in comparison. To simplify from a vast and complex host of details involving elaborate formulas governing tariffs specific to individual commodities, the main issue was whether the imperial preference agreement would create a preferential trade area or a full or partial customs union.12 If tariffs were to be erected, would the colonies and former colonies be able to protect their nascent manufacturing sectors against both British and non-British manufactures? Better to make the empire into a free trade area, with empire members charging low – or zero – tariffs on the products of other members of the empire. Then each country could impose tariffs on goods shipped in from non-empire nations. This was the logic seen from London, where free trade was fully consistent with the long run comparative advantage of England. By the same token, the colonies like Canada and Australia wanted a partial customs union, namely a union of countries that were allowed to protect themselves against each other and against countries outside the union. The trick was to offer a schedule of differential tariffs – lower tariffs for countries in the imperial preference scheme, higher tariffs for countries outside the scheme – that made the arrangement advantageous for the United Kingdom while still allowing the dominions to protect themselves against lower cost British manufactures. In other words, the dominions wanted to protect their infant industries within the institutional confines of imperial preference. The resulting agreements favored the colonies and dominions at the expense of the mother country to a degree. But in a world increasingly drifting towards autarky, imperial preference had its attractions for London as well as for Ottawa and Canberra. Protecting access to markets, albeit markets partially protected against its own manufacturing firms, was preferable to watching these markets drift away, drawn by the gravitational pull of countries like the United States, Germany, and Japan. As Britain abandoned free trade openness in favor of erecting an imperial fortress to protect itself, it abandoned its leadership role. Sadly, it clung to its hegemonic status within its empire as a lifeline while it watched its global leadership role slip away as a group of emerging nation states created inorganic economies that rivaled that of Britain and her empire combined. The British Empire Exhibition of 1924, that assembled thousands in the Wembley Stadium was officially committed to the proposition that:13

Battling diversity and openness 169 in the development and utilization of the raw materials of the Empire, new sources of imperial wealth [are to be found]. To foster interImperial trade and open fresh world markets for Dominion and home products. To make the different races of the British Empire better known to each other, and to demonstrate to the people of Britain the almost illimitable possibilities of the Dominions, Colonies and Dependencies together. Compare this event, which despite a subsidy of 2.2 million pounds made a loss of over 1.5 million pounds, with the Crystal Palace Exhibition of 1851 almost three quarters of a century before. In 1851 Britain basked in her glory as workshop of the world, bastion of a doctrine of free trade – that, it was argued, would usher in an era of world peace and prosperity – and imperial hegemonic power combined. Britain was a world leader confident in her prowess. Now, no longer the workshop of the world, increasingly disillusioned with free trade which had failed to gain global credence and had surely failed to prevent World War I, Britain clung to her empire, an empire that would, in good time, slip away from it through the ravages of yet another protracted and bloody global conflict.

The impact of World War I on the international political architecture World War I ushered in a chaotic period in international political economy; the international economic order drifted, drawing the world into a second global conflagration that commenced during the 1930s. After the nightmare of four years of collective suicide for the European powers ground to a halt with an armistice, diplomats gathered in Paris in January 1919 to hammer out agreements bringing World War I to a close.14 The resulting negotiations descended into a morass of contradictions and cynical side deals, betraying the idealism of national leaders bent on creating a new multilateral architecture, the League of Nations, which ideally would be given sufficient muscle and support to avert a future global conflict. The most destabilizing contradictions erupted over diversity, nationalism, and regional hegemony. As the modern European nation state system evolved out of the murky and secretive politics of arrangements arrived at between kings and czars, the principle of a balance of power that held potential rivals seeking European wide hegemony gathered force in Europe. But this system had failed to prevent Europe from tottering over into the abyss of 1914. Now Woodrow Wilson, President of the United States, appeared in Paris with his famed fourteen points, designed to sweep aside the balance of power in favor of a new liberal vision, a multilateral doctrine that included the following key principles: (1) ending secrecy in diplomacy through open covenants, openly arrived at; (2) guarantees of freedom on

170 Politics and markets the seas, outside territorial waters, in war and in peace; (3) removal of tariffs and other barriers to trade; (4) reduction in armaments to the lowest possible levels; and (5) the founding of a League of Nations that would guarantee territorial integrity to all states large and small, thus obviating the drive to hegemony. Key to the Wilsonian vision was the principle of “self determination” whereby peoples who had lived under various empires would be allowed to carve out nation states, large and small, whose existence was to be protected by the new multilateral architecture.15 Wilson’s forceful vision is classical liberalism, calling for a regime of maximum market openness within and between nations protected from one another’s aggressive designs through a muscular multilateral architecture. But what constituted a nation state? Was it to be organized around a single language, a homogeneous culture, or a single religious group? Representatives of France, the United Kingdom, Italy, and the United States struggled at the Paris peace conference over these definitions, creating a host of new nations out of the remnants of the Austro-Hungarian and Ottoman Empires, by drawing arbitrary lines over the cultural crazy quilt of Europe in a vain attempt to create nation states each of which was not diverse. In this effort, they failed. They failed because the cultural map of Europe was too complex; they failed because many of the powers wanted to restore the balance of power and remained concerned about new hegemonic powers emerging; they failed because countries did not really want to give up national sovereignty to a super-national state like the new League. Indeed, Wilson opposed the effort of the Japanese delegation to have the preamble to the League of Nations contain a “racial equality clause” precisely because the United States had already imposed restrictions on immigration from Asia and did not want to surrender the right to keep a discriminatory immigration policy in place. The United Kingdom, concerned about emigration to the Western offshoots, backed up the United States on this point.16 It should be kept in mind that the successful unification of Germany and Italy in the nineteenth century, the creation of powerful modern nation states that promoted unification through infrastructure investment and used protectionism to achieve national development, inspired people throughout the continent. But on what principles were nation states to be created? Who was to prevent the fledgling states from throwing up tariff barriers keeping out imports in the name of infant industry protectionism (after all, the United States had done this in the nineteenth century)? And who was to prevent new regional hegemonic powers from threatening the smaller nation states in Europe? As it was to turn out during the 1930s, the newly formed League of Nations was unable to stop Germany, Italy, Japan, and the U.S.S.R. from carving up smaller states during the 1930s. No state was willing to surrender its sovereignty to the point where the League could act as a guarantor of collective security.

Battling diversity and openness 171 Coping with diversity and defining and protecting nationality was not the only unresolved issue that came out of Paris in 1919. World War I had been unprecedented in its carnage, in its duration, and in its implications for civilians and combatants alike. Shared sacrifice became the order of the day. Ideologies that addressed inequality of income – Fascism in Italy and Germany, Communism and Stalinism in Russia – arose in opposition to the liberal vision of minimalist government and reliance on free unfettered markets. Whether ideologies of the right or of the left, whether National Socialism in Germany or Socialism in One Country in the U.S.S.R., nationalism was being yoked to doctrines aimed at creating social solidarity through the cult of the personality and the rejection of individualistic market principles. Hitching nation building or rebuilding to ideologies claiming to offer a universal panacea to the world’s ills is hardly novel during the modern period: after all, the United States was founded on principles of liberalism and republicanism; France after 1789 on republicanism; and Japan after 1868 on the cult of the emperor. The division of the world into competing ideologies complicated the search for a stable international economic order after 1919. Shared sacrifice had another important spin-off: the growing government dependence on income tax as a revenue generator. This had two important corollaries. In principle, tariffs became less important for budgetary purposes, thereby giving a fillip to tariff reduction. In addition, paying for an enriched program of social programs became feasible. Huberman and Lewchuk (2003) argue that one reaction of nation states to trade openness in the 1850–1913 period was a bolstering of labor market regulations (setting minimum working age, limiting night work, restricting hours of working a day, monitoring work conditions in factories) and social insurance entitlements (old age insurance, unemployment insurance, accident compensation) that helped protect workers when imports captured domestic markets, when downturns in industrial production took place. Whether one accepts their conclusion that openness – as opposed to nationalism – was driving the enhanced role of the state in protecting workers, it is clear that the nation state had been beefing up its commitment to the social compact prior to World War I.17 Shared sacrifice during the war accelerated this push. A third factor complicating the establishment of an international economic order that could effectively stand as a substitute for that centered around the United Kingdom, now in economic decline, was the proliferation of regional hegemonic powers. The United States and Japan emerged as the key economic winners in the aftermath of the conflict, both having grabbed markets from the Europeans who also bore the main consequences in terms of loss of life and destruction of property. In particular, the United States that entered the war late had lent heavily to the European powers during the war, and now expected to be paid back. This gave authorities in the United States an incentive to support the

172 Politics and markets resumption of the gold standard that had kept the pre-1914 financial world relatively stable, so that the value of the debt repayments to American lenders would not be debased.18 After World War I the number of potential regional or local hegemonic powers included the United States, the United Kingdom, Germany, France, the U.S.S.R., and Japan. To make matters worse, some of these – Germany after 1933 and Japan after 1938, the U.S.S.R. after 1917 – were ideologically opposed to market principles taking precedence over national aggrandizement.

Assuming leadership for an open market regime Of all the regional or local hegemonic powers only two were willing and able to assume leadership for a multilateral drive aimed at global tariff reduction and the creation of a stable monetary system with a single currency – either tied to gold or accepted by most other countries engaging in trade – as the international reserve currency upon which other countries could draw in settling their international trade accounts: the United Kingdom and the United States. Only these two countries were able because – amongst the victors in World War I – they alone had economies large enough to support an international system of financial flows based upon their national currency shored up by a broad financial infrastructure; and only these two were willing to take on the role because only they had a sufficiently large share of the world’s export trade to have a strong commitment to promoting rounds and rounds of tariff reduction based upon the principle of reciprocity.19 Consider the percentages of world export trade.20 In 1870, Britain’s share was around 22 percent, Germany’s around 12 percent, and the United States’ share was about 4 percent. By 1913, the United Kingdom’s share had fallen to approximately 17 percent, while Germany’s share had risen to a comparable level, and the American share was third at 8 percent. But in the aftermath of World War I, the German and British shares declined, falling to around 10 percent in 1929, which was approximately the level reached by the United States in that year. Between 1929 and 1950, international export trade shares moved even more strongly in favor of the United States: in 1950, Britain’s share was around 10.5 percent, Germany’s had shrunk to 3.5 percent, and the American share was now the largest, at 11.5 percent. In terms of growth rates of real export trade, American volumes consistently grew in all three periods – 1870/1913, 1913/1929, and 1929/1950 – while Britain’s volumes fell in the second period and Germany’s fell in both the second and third periods. By the 1930s, the United States had more to gain from reciprocity than did the United Kingdom or Germany. What about the relative size of the American and British economies? Taking the ratio of the American real GDP to the British GDP – the British being the base of the ratio set at 100 – the following ratios trace the

Battling diversity and openness 173 relative rise of the United States and the relative decline of the United Kingdom: 35.7 in 1820; 70.2 in 1850; 102.9 in 1870; 177.3 in 1900; 241.5 in 1913; 292.2 in 1920; 330.5 in 1925; 322.8 in 1930; and 269.7 in 1935. World War I was a substantial setback for the United Kingdom, a setback from which only a modest recovery in closing the gap with the United States proved possible during the 1920s. But after 1900, the United Kingdom was completely outstripped by the American behemoth, and the world conflagration between 1914 and 1918 only made matters worse. Given its long history of blatant protectionism, the United States had a long way to go if it were to take up Wilson’s mantle of international liberalism, assuming leadership for a world of open markets. Protectionism ran deep in American party politics. Indeed, in the aftermath of the World Economic Conference of 1927 (called by the League of Nations frightened by a steady drift towards protectionism everywhere – in the vain hope of arranging a tariff truce) President Hoover, in June 1930, signed the Smoot-Hawley Tariff Act, infamous for its steep protectionist rates. But in the late 1930s, its growing self-interest in promoting global openness overcame the isolationist impulse of domestic politics ingrained in a United States that was content to be the hegemonic giant of the Americas. The executive branch and Congress of the United States reversed course, the President becoming the most active defender of the open door principle in China (thereby laying down the gauntlet to the Japanese government that was posed to invade China proper in the late 1930s). Congress chimed in too, empowering the President to negotiate reciprocal lowering of tariffs with the Reciprocal Trade Act of 1934. Moreover, the President actively promoted stabilization of currency exchange rates by participating in the 1936 Tripartite Agreement between the United States, the United Kingdom, and France that reduced conflict between the various currency zones.21 During the late 1930s, the United States, at first reluctantly and by 1936 actively, began to assume a leadership role in international trade and financial affairs, supporting a multilateral approach that echoed Wilson’s vision of a liberal world order. In doing so it turned its back on the isolationism of the 1920s, set in motion by Congressional rejection of the treaty that would have brought the United States into the League of Nations. The American Congress, chary of surrendering American sovereignty to a multilateral body that might look darkly upon American declaration of hegemony over the Americas with the Monroe Doctrine, had rejected American participation in the League of Nations in the aftermath of the Paris peace conference of 1919. But in attempting to roll back the drift away from an open world the United States was acting too late. Armies were on the march. Between 1931 and 1933, the Imperial Japanese Army took over Manchuria; Germany tried out its new aerial weaponry in the Spanish Civil War during the middle of the decade; as the decade came to a close, German troops

174 Politics and markets entered Austria and Czechoslovakia, Japan invaded China proper, and in a cynical secret deal the U.S.S.R. and Germany agreed to divide Poland and to share information useful for each other’s security at home. Wilson’s grand vision of a world of open covenants, security for national integrity guaranteed by a multilateral League, open markets and open seas, seemed to be receding further into the past day by day. The new order – ultra-nationalist states bent on securing regional hegemony in the name of ideologies that specifically denounced liberalism – was on the march throughout the Eurasian landmass, and the liberal democracies seemed to be powerless to stop it.

The United States creates a draconian immigration policy Not that the United States was being very liberal during the 1920s. Following up on the logic of the 1911 Report of the United States Immigration Commission – the Commission had been appointed in 1907 by President Theodore Roosevelt – the American Congresses of the post-World War I period considered a variety of different options for constraining and shaping immigration flows.22 Options considered included: (1) excluding those unable to read or write in some language; (2) limitation on the basis of “race,” a certain percentage of immigration being allocated to each designated “racial” group; (3) the exclusion of unskilled workers unaccompanied by wives or families; (4) a total limit on the number of immigrants arriving annually at any port; (5) an increase in the amount of money that each immigrant was supposed to bring in upon immigration; and (6) an increase in the head tax imposed on immigrants. What underlay the logic of the Immigration Commission? In Chapter 5, I have demonstrated that concerns about accelerating diversity in the late nineteenth century provided a platform for the eugenics movement that emphasized the importance of racial characteristics in determining an individual’s capacity to learn and work. Not surprisingly, concepts of race found their way into the Report of the Commission. In advocating allocation of slots according to “race” or “national origin,” the authors of the Report reflected the ideology and political potency of the eugenics movement. Equally, the surge in immigration volumes in the closing decades of the nineteenth century and the beginning of the twentieth century fueled fear upon the part of the American labor movement in particular, and in the American population as a whole, that through unchecked immigration, American wages would be driven down to the levels obtaining in the countries of origin, or the American standard of living would be driven down to the levels in those lands. Lewis (1978: 192) argues that workers in the Western offshoots bridled at unrestrained immigration from India and China on the grounds that it would ultimately bring their own real wage levels down to those prevailing in India and China. According to this view concerns over the equalization of the standard of living between the coun-

Battling diversity and openness 175 tries of settlement and the countries supplying emigrants engendered a movement putting limits on the total volume of immigration.23 Equalization of relative standards of living is key to the crossover effect discussed in Chapter 3. Evident from the actual set of recommendations laid out by the Immigration Commission – some of which advocated restricting the total volume of immigration, some of which advocated allocating slots according to “national origin” – are concerns about crossover and the politics of eugenics were on the minds of the Commission. This being the case, is it surprising that the drive to pass a radical new Immigration Act gained force in the early 1920s, when war related economic downturns in Europe caused the attractiveness of the Western offshoots to escalate substantially? Consider the actual numerical quotas for different national groups that were built in the 1924 Immigration Act passed by Congress. These were computed from the stock of foreign-born persons falling into various national origin groups according to the 1910 Census of the United States (biasing the quotas in favor of nationalities like the British that had dominated in the nineteenth century immigration flow), the flow of persons of a particular nationality being set equal to 3 percent of the stock computed in the 1910 Census.24 Using the quotas that were computed (Congress gave officials until the end of June 1927 to actually make the computations), I computed population size weighted averages for per capita income circa 1925 in six groups of countries established on the basis of the ranges in the number of immigrants allowed (a total of 150,000 immigrants were permitted under the legislation). My estimates appear in Table 7.2. As the reader can see, the groups with the lowest quotas were those that: (1) constituted a large potential source of immigrants, because they had a large total population base; and (2) had a low per capita income relative to that of the United States. The groups with the largest quotas consisted of nationality groups with a relatively small total population base, and a relatively high per capita income. In short, the legislation was designed to give the largest quotas to the national groups least likely to immigrate to the United States (due to the crossover effect). In fact, as Briggs (1984) points out, some countries – like Great Britain that was granted 42 percent of the slots – had many unused slots, while other countries – like Greece and Italy – accumulated large backlogs of applicants.25 The Congress that passed the final legislation was not naïve about the way markets work. They fashioned a system of quotas designed to roll back America’s demographic openness in the most draconian manner possible, exploiting the crossover effect to keep actual immigration volumes below those imposed by the law. Wilsonian openness was hardly alive and well in the halls of the Congress that drafted the National Origins Immigration Law.26

United Kingdom Germany, Irish Free State Austria, Belgium, Czechoslovakia, Denmark, France, Italy, the Netherlands, Poland, Russia, Sweden, Switzerland Finland, Hungary, Yugoslavia Greece, Portugal, Romania, Spain Australia, Bulgaria, China, Egypt, India, Japan, the Philippines, South Africa

1 (over 50,000 persons) 2 (10,001–50,000 persons) 3 (1,001–10,000 persons)

Note a The only countries listed in the groups are the ones listed in both sources.

Sources: Davie (1949), p. 378; and various tables in Maddison (2000).

4 (501–1,000 persons) 5 (101–500 persons) 6 (100 persons or less)

Countriesa

Group number and quota range (persons)

24,981 47,665 846,352

45,059 42,593 316,574

Total population of countries in group (1,000s)

24.6 30.4 12.4

71.0 53.4 34.0

Average per capita income for countries in group relative to U.S.  100

Table 7.2 Calculus of crossover or calculus of eugenics? Properties of “National Origins” quota groups established in 1927 for the 1924 Immigration Law of the United States

Battling diversity and openness 177

An international economic order adrift Why did a world that was becoming increasingly open after 1850 usher in a closed era punctuated by global war on a scale never witnessed before in human history? The answer lies in the tension between economic gravitation and political gravitation. The inorganic economy spawned new clusters across the globe as transportation costs opened up new markets. This was the market at work. The inorganic economy also spawned new clusters as the latent and actual military power of the countries harnessing the new forms of production and transportation grew apace, allowing these countries to forcibly open up through the agency of gunboat diplomacy lands like Japan that had pursued policies of autarky for centuries. This was politics (war being politics practiced by other, less savory, means) at work. As a result the diversity of trade and migration flows expanded immeasurably between 1850 and the early twentieth century. Integrating inorganic clusters into national economies was another matter. To accomplish this successfully, nationalism and national programs of infrastructure investment became a sine qua non. But nationalism is not necessarily a friend of the openness and diversity – of openness in trade, diversity in migration – that results from the spread of inorganic economy clusters on a global scale. By the last two decades of the nineteenth century, barriers to imports and barriers to immigration began to spread. Political gravitation in emergent modern nation states was opposing economic gravitation. Political gravitation was not restricted to nations. Drives to regional hegemony by nation states bent on shoring up their security further confounded the interplay of market gravitation and political gravitation. By the early twentieth century the world was gradually being sliced up into geographic regions, with nationalist hegemonic powers vying for geopolitical power in each zone. Eurasia was being contested in both its Western and Eastern reaches. The most important economic and political power of the nineteenth century, the only power enjoying imperial control over a vast sprawling empire separated by oceans and seas, was being challenged in Western Europe by Germany, in Asia by Japan, and in the Americas by the United States. These regional struggles formed the backdrop to the problem of reestablishing a stable set of multilateral institutions governing trade and migration. The international economic order of the late nineteenth century depended heavily on the United Kingdom supplying a global currency under the gold standard and on the United Kingdom absorbing goods from the rest of the world through its liberal trade policies. Finding itself under increasing pressure from regional contenders, the United Kingdom started to narrow the scope of its global responsibility and global leadership, focusing more and more on its own empire at the expense of the rest of the world. After World War I marked a serious setup for the economies of all of the Western European countries, the British abandonment of its

178 Politics and markets leadership role in promoting a liberal market oriented regime became absolute as it pursued an agenda of imperial preference. Had a multilateral architecture offering a viable alternative to British leadership emerged to bring a world closed down due to World War I back to openness, the world might not have decisively moved away from openness. Unfortunately, the League of Nations, torn apart by ideological and geopolitical divisions in Eurasia, was not up to the task. The United States might have stepped in to provide leadership for a world drifting into autarkic trading blocs, but to do so would have been difficult. How could it reach agreement with Japan, Germany, Italy, the U.S.S.R., and the United Kingdom all pursuing programs of regional hegemony? Even if the United States had been willing to shoulder the burden of leadership, the task of actually putting together a viable international economic order was at risk of falling foul of the sheer number of regional competing powers. Merely striking a deal with the United Kingdom was hard enough. How much harder would it be to get six or seven powers – divided by ideology – to come together, hammering out a mutually satisfactory compromise? In any event, throughout Eurasia armies were on the march. In 1939, the division of Poland triggered a series of war declarations that ushered in the gravest wartime carnage the world has witnessed. Darkness descended for a full six years. But out of the ashes of this conflagration was to fly the phoenix of openness, ushering in an era of globalization that has at last come to terms with diversity.

8

An open world being born

The Cold War and American support for multilateral architecture According to the old adage, politics make strange bedfellows. So does war. The Axis and Allied alliances that emerged between 1939 and 1941 brought together on the Axis side countries with diverging theories of racial supremacy – Aryanism and Nihonjinron – and on the Allied side countries with wildly different views about the role of the market and democratic institutions, liberal democracies like the United States and the United Kingdom and the Soviet Union commanded by a Communist dictator. Ultimately these geopolitical alliances of convenience emerged out of the shifting and strategically driven winds of warfare. The geographical pivot area of Eurasia – the massive U.S.S.R. stretching from the Sea of Okhotsk across the steppes of Asia to the Caspian Sea at the edge of the Middle East and to the Baltic Sea in Northwestern Europe – was drawn into an alliance with the bastion of liberal capitalism, the United Kingdom, after Hitler tore up his treaty with the U.S.S.R. in mounting a massive onslaught against the Soviets. Japan, neutralizing the U.S.S.R. with a non-aggression treaty and anticipating a successful German drive to hegemony over Western Europe and the United Kingdom, saw the opportunity to sweep away European colonialism in Asia, replacing it with the New Order under Tokyo’s leadership. In order to accomplish this, Japan’s military dominated government required American acquiescence that it believed it could force on the Americans by decimating the United States navy in the Pacific. With this in mind, Japan attacked the United States at Pearl Harbor in late 1941, bringing the United States into both the European and Pacific conflicts, and cemented the unlikely alliance of the United States, the United Kingdom, and the U.S.S.R. In order that the partners in this grand alliance did not succumb to the temptations of separately arranging peace with the Axis powers, the Allied Powers came up with the doctrine of unconditional surrender as a vehicle for bringing the various conflicts to an end on terms that all victorious powers could live with.

180 Politics and markets Unconditional surrender did not solve the problem of redesigning Eurasia in the aftermath of World War II. Germany was permanently divided; Eastern Europe became a buffer zone, protecting the Western flank of the Soviet Union; China, politically and militarily divided between Japanese dominated warlords, Nationalists, and nationalist Communists during the 1930s and the Pacific war, was consolidated under Communist rule in 1949. Regimes allied with the U.S.S.R. stretched from the Iron Curtain in Eastern Europe across the Eurasian landmass to the Pacific Ocean coastline of China. Reacting to the threat of a Russian dominated Eurasia stretching all the way to the English Channel, the United States developed the doctrine of containment, drawing lines in the sand – in Berlin, in the Korean peninsula, in Greece and Turkey, in South-East Asia – to hem in the Russian bear and its allies. In the calculus of Cold War that broke out in the late 1940s, the United States actively encouraged the economic revivalry of Japan and Western Europe (including West Germany), as a mechanism for creating a network of allies that would help it keep the region dominated by Communist hegemony from gaining further ground. Separated from the United Kingdom and Western Europe by the vast Atlantic Ocean, and from Japan, Taiwan (ruled by Chinese nationalists who fled the mainland), and South Korea by the mighty Pacific Ocean, the United States set out to forge a network of political and military alliances committed to containing Eurasian Communism. In doing this, the United States assertively took up the mantle of leadership for the market-oriented economies of the non-Communist world, promoting the creation of multilateral architecture that would reestablish a pro-trade international economic order amongst countries committed to markets. The United States was instrumental in creating the United Nations, the U.S. dollar based gold standard through the famed Bretton Woods Accord, the International Monetary Fund and the World Bank as global banks, and the General Agreement on Tariffs and Trade (the precursor to the World Trade Organization) as substitutes for the League of Nations and its constituent institutions. The tight fit between the geopolitical and ideological goals of the United States in pushing multilateral architecture made this approach all the more appealing to politicians of all stripes in the United States, disarming the isolationist tendencies that led to rejection of Wilson’s brainchild, the League of Nations. It is important to keep in mind that the United States was the sole power capable of, and enjoying sufficient self-interest to, assume the role of leadership for the market oriented economies. The United Kingdom was the only possible alternative, but – humiliated by the surge to regional hegemony in the Far East – its empire dissolved in a fit of independent nation state building after the war, the United Kingdom had neither the resources nor the stomach for the task that lay ahead. For instance in 1948, the share of global income in the United States

An open world being born 181 exceeded 25 percent; the United Kingdom’s share was below 7.5 percent.1 The American share of world exports in 1950 was 11.5 percent, exceeding the British share standing at 10.5 percent. Moreover, the American share grew rapidly between 1950 and 1973, as a result of the economic reemergence of its trading partners, including its former enemies Germany and Japan. World trade jumped from an index of 100 to 378.3 between 1950 and 1973; during that period America’s index of export trade rose from 100 to 305, Germany’s index soared from 100 to 1373, and Japan’s index outpaced both, leaping from 100 to 2588. While America’s partners Germany and Japan benefited from the multilateral architecture promoting trade expansion more than it did (Germany’s share of world exports in 1973 was 10.8 percent and Japan’s 5.3 percent), the United States was a major beneficiary of the leadership mantle that it assumed. The United Kingdom was neither able nor willing to take on the role; the United States, uncontested for leadership, was able and willing. The British slide into a position of global weakness and the American drive to ascendancy finally and decisively guaranteed the transition from a British dominated international economic order to an American dominated one.2 The role of both markets and politics in shaping the new pax Americana must not be ignored. In the international political arena the military threat to Western Europe posed by the Soviet army should not be underestimated. Although the economy of the United States was far larger than that of the U.S.S.R. – using estimates for G.D.P. for both countries given by Maddison (2000) I compute a ratio of Soviet to American national income, with United States income equaling 100 as the base, of 27.7 – the Soviets had a very persuasive geographic advantage over the Americans, because they could move their troops by land across the plains of Europe. To reinforce troops that the United States maintained in Europe at considerable cost to itself, the American military had to move forces and equipment across the Atlantic. So the great latent power of the United States was effectively neutralized by geography – the “stopping power of water” – in yielding a roughly balanced calculus of actual power that each country could marshal in the European theater.3 Another political factor that should not be underestimated is the sharp reduction in the number of regional hegemonic powers amongst whom the United States had to forge agreement in exercising leadership: Germany and Japan were no longer serious contenders. Finally, the division of the world into two competing ideological camps, Communism and capitalism, took the place of the tripartite ideological divisions that poisoned the interwar period. Reducing the number of competing worldviews from three to two vastly simplified the problem of forging international political alliances. But as we have seen markets were also important in launching an open world. The United States had a strong interest in promoting multilateral

182 Politics and markets architecture governing trade because it had emerged out of the shadows, originally being a small player on the world trade scene, to become the major global exporter due to the sheer size of its massive economy. Moreover, in the late 1940s and early 1950s, no other country had the economic capacity to back up the international monetary system, letting its currency serve as a reserve currency used to settle international trade accounts. So the sheer market size of the United States was crucial to the creation of the new trade and financial regime.4

Catch-up growth in Western Europe and Japan, the formation of regional trade blocs, and multilateral architecture Between 1950 and 1970 per capita income in most of the Western European countries, in Australia and New Zealand, and in Japan converged towards the levels enjoyed by the United States. This took place under the auspices of American leadership committed to multilateral architecture, and it is known as catch-up growth because it closed the gap between these countries and the country that enjoyed the highest per capita income, the United States. Catch-up growth occurred because trade expanded rapidly under the new multilateral architecture; it occurred because inorganic economy technology and organizational innovations flowed across borders more freely than they had done at any time prior to 1914; and it occurred because multinational corporations – at first American, later European and Japanese – increasingly internationalized their operations, thereby transferring know how and competitive drive across the Atlantic and the Pacific. The relatively narrow geographic spread of catch-up growth must not be forgotten. In discussing catch-up growth the emphasis is on national economies, not clusters of the inorganic economy. The only countries that managed catch-up growth during the 1950s and 1960s were countries that had developed their national infrastructure (political, human capital enhancing, financial, and physical) to a relatively advanced level prior to 1950, and were able to reconstruct physical infrastructure damaged in the war relatively quickly.5 One consequence of convergence was crossover. This has been documented in Chapter 3. As a result of crossover, emigration from Western Europe and Japan lost steam, and these regions became regions of net immigration. Markets were reshaping the logic of international migration; inevitably immigration into the Western offshoots was profoundly affected. At the same time, the huge expansion of national incomes in Western Europe and in Japan created huge vortexes of market gravitation, pulling in imports and spewing out exports. The principal national engines of European growth – Germany, France, the United Kingdom, and Italy –

An open world being born 183 vastly increased their trade with one another as would be expected under the logic of market gravitation as captured by equations 1.3 and 1.4 of Chapter 1. Moreover, their growth provided a hefty pull for smaller countries in Western Europe, creating markets for the products of Switzerland, Belgium, Sweden, Denmark, Spain, Portugal, and the Netherlands and creating jobs for immigrants coming from these countries into the sparkplugs of Europe. In North-East Asia, Japanese economic expansion created a ripple effect in South Korea, Taiwan, Hong Kong, and eventually China (once it began to open up and abandon central planning in favor of a more market oriented approach during the 1980s). European integration was profoundly market driven. However, political gravitation was also important. Indeed, catch-up growth in Western Europe and expansion of exports would have taken place more slowly had political moves not been taken to integrate the Western European countries between 1948 and 1969. Responding to American pressure to create a Western European wide series of agreements that would tie together those countries with which it was creating the North Atlantic Treaty Organization to counter the Soviet threat, Western European nations formed the Organization for European Economic Cooperation (O.E.E.C.) in 1948.6 Emerging out of this initiative was the European Payments Union that created various payment schemes to contend with American dollar shortages that cropped up. More important was a European initiative in 1951 to create the European Coal and Steel Community at the Treaty of Paris. Six countries – France, Western Germany, Italy, Belgium, the Netherlands, and Luxembourg – banded together with the aim of abolishing all protection on trade in coal and iron and steel between each other. Building up important clusters of the inorganic economy around coal fields – like those lying along the Ruhr river in Western Germany near the Netherlands and Belgium – created regional gravitation that naturally spread across national boundaries and created potential political and even military tensions between nations. Establishing the European Coal and Steel Community was aimed at reducing political tensions as well as improving economic performance. Building on the political integration achieved through the European Coal and Steel Community, the six participants went on to higher and higher forms of political and economic integration, starting with the establishment of the European Economic Community (E.E.C.) in 1957. Like a butterfly breaking out of its chrysalis, so did the Common Market, a customs union imposing uniform tariff walls on all outsiders while granting free trade to all its members, emerge from the European Economic Community. As integration deepened, the geographic spread of the union spread, more and more countries in Europe joining this burgeoning market. The topic of European regional integration and recent political moves

184 Politics and markets will be discussed at greater length in the next chapter. The point I wish to emphasize here is that the drive to create multilateral architecture was not restricted to bringing into existence and using global architecture like the United Nations, the International Monetary Fund, and the General Agreement on Tariffs and Trade. This drive was paralleled by politically and market driven pushes toward integration that encouraged flows of trade and migration at the regional level. Most of these initiatives took place with the blessing, but not the active participation, of the United States. Building multilateral architecture with both political and economic aims in the market oriented economies was undoubtedly initially fueled by American Cold War aims and self-interest in expanding trade, but it soon gathered a momentum of its own, independent of America’s self-interest and encouragement. Testimony to the momentum acquired by European integration is the fact that it continued unabated even after the Cold War division of Europe dissolved after 1989, and the Soviet threat vanished with the breakup of the U.S.S.R. By the 1980s, the benefits of integrating Europe in order to exploit economies of scale in production and scope in marketing, of creating a powerful counterweight to the influence exercised by nations like the United States and Japan in forums debating international negotiations over trade, and staving off intra-European war through fostering of economic integration were irresistible. Indeed, the European Union is now engaging in incorporating many of the former Iron Curtain nations within it, extending its embrace further and further across the Eurasian mainland. In sum, as multilateral architecture blossomed in the aftermath of World War II, at both the global and regional levels, the market economies became increasingly open. Because they became increasingly open in terms of trade, they became increasingly open in terms of international migration. This point has been established in Part I of this book and requires no further comment. But the global spread of the inorganic economy has increased the global diversity of trade and migration, and diversity in migration has created political problems and political opportunities for countries of net immigration. How has diversity in international migration been handled in the post-World War II period?

The political economy of immigration policy in the postwar Western offshoots Let us commence our discussion of post-World War II international migration with the Western offshoots, turning to the countries that experienced crossover in the next section. Before we consider the policies of individual countries, something must be said about the multilateral setting within which international migration has taken place after World War II. A world community gathering to create the United Nations – sickened by the

An open world being born 185 excesses of eugenics, particularly the Nazi directed Holocaust that cost the lives of six million Jews in Central Europe and the rape of Nanking in China carried out by the Japanese army – was in no mood to turn its back on the demand for a “racial equality clause” which had proven so contentious at Paris in 1919 that it died a natural death there. In 1948, the nations assembled passed one of the most moving documents of the twentieth century, a century blooded by two global wars and many regional conflicts, the Universal Declaration of Human Rights. Article 15 of this Declaration states:7 [1] Everyone has the right to a nationality. [2] No one shall be arbitrarily deprived of his nationality nor denied the right to change his nationality. Article 13 states: [1] Everyone has the right to freedom of movement and residence within the borders of each state. [2] Everyone has the right to leave any country, including his own, and to return to his country. In short, the declaration makes evident the universality of the right to be a national of a country, to change that nationality, and to migrate within and between nations. Perhaps honored more in the breach than in the actual observance, this ringing declaration has nonetheless become an important touchstone for countries, and for individuals within countries, ever since.8 Within countries it has been used as a political lever to advance the human rights of groups against which discrimination has been practiced, like black people in the United States and first nations peoples in Canada, Australia, and New Zealand. With this background sketched out, I consider the situation governing the Western offshoots as a combined group; then I look at the United States; and finally I take up the three former Dominions, Canada, Australia, and New Zealand. I consider all four countries together for two reasons: all four Western offshoots faced the same changing market realities and policies adopted in any country affected the others through migration from one to the other. Persons enjoying citizenship rights in any one of the countries could attempt to become an immigrant in any of the others. That the countries were “mutual hostages” of each other’s policies was especially true for the three former Dominions cemented to one another through the British Commonwealth. Finally, I emphasize the logic of changes in the United States because it was the leader of the market oriented economies during the Cold War, and as ideological leader was unusually vulnerable to criticism from the Soviet Union and

186 Politics and markets the Communist bloc directed at any American policies smacking of discrimination against particular ethnic groups.9 All four Western offshoots faced a common set of wrenching changes in their markets in the post-1950 era. First, their economic growth rates accelerated in the aftermath of World War II, causing their demand for labor to expand, at the same time that their domestic supplies of labor faltered owing to their reaching low natural rates of increase during the 1930s. By the interwar period all four countries had completed the demographic transition moving to a regime of long life expectancy and low fertility.10 The pressure to increase immigration flows that had tapered off to very low levels during the 1930s was felt in all four nations. All four countries were affected by the fact that crossover was occurring in the countries from which they had historically drawn immigrants. During the early 1960s, the four Western offshoots faced the common reality that emigration from Western Europe was going to fall off sharply; it was going to fall off because the engines of European expansion – France, Germany, Italy, and the United Kingdom – were catching up rapidly with the United States, closing the gap in per capita income between themselves and the Western offshoots, thereby deterring emigration from these traditional source countries; and it was falling off from the peripheral zones of Europe – from Spain, Portugal, and Greece for instance – because emigrants from these nations were opting for short distance emigration to France, Germany, Italy, and the United Kingdom rather than long distance emigration to the Western offshoots. The gravitational pulls of international migration were undergoing a seismic shift. At the same time, a number of economies in the Asia-Pacific, especially Japan, were growing at rates that even the most dynamic European country (Germany) could not emulate. Because all four Western offshoots are washed by the Pacific Ocean, the expansion of Asia gave a strong gravitational pull to their trade, increasing their vested economic interest in improving diplomatic and political relations with the countries of Asia that were outside the Communist bloc. The combined impact of crossover and the enhanced gravitational pull of Asian trade naturally encouraged all four Western offshoots to revamp their immigration policies, which in the United States meant doing away with the National Origins quota system, and in Australia meant abandoning the White Australia policy. Gradually, step-by-step, each country dismantled their restrictions on immigration from countries outside of Europe, so that by the early 1970s, immigration into the Western offshoots had become remarkably diverse in terms of ethnicity and cultural background. In the United States the breakthrough, the major watershed, was marked in the mid-1960s with the passage of the 1965 Immigration and Nationality Act that set an immigration ceiling of 300,000, with 130,000 slots allocated to the Western hemisphere, and Eastern (Asian) hemi-

An open world being born 187 sphere applicants being admitted in increasing numbers under a preference system that accorded visas on the basis of nationality of origin. While the resulting regime was far more open than that characterizing the United States after 1924 (and for Asian applicants after 1882), it still set overall limits on the number of immigrants admitted and it still allocated slots on the basis of country. In the other Western offshoots, “points” based systems that allocated a determinate number of slots on the basis of suitability for the domestic job market, language ability and education, and family ties, were developed during the same period that the United States finally turned its back on the 1924 law. It is important to keep in mind that none of the Western offshoots returned to the unregulated immigration regime that characterized their population inflows in the pre-1880 period. Rather, in one guise or another, all four countries put into place regimes that did away with, or downgraded, their European bias. That all four countries faced similar market conditions, and all four countries were linked politically by being “mutual hostages” of one another due to international migration flowing from one to the other, does not mean that the political dynamic was identical in all four nations. The United States, with its large black population that had suffered under slavery and under Jim Crow discrimination from the 1890s until the 1960s, was the battleground for unprecedented civil dissent and domestic unrest in the post-World War II era. That the festering fuse of resentment against racial discrimination finally ignited a fully fledged political campaign against Jim Crow and all it entailed lies in two realities: the sense of shared sacrifice during World War I, the acknowledgment of the sacrifices made by the black community toward the war effort; and the movement of black people out of the South to the North and the West coast beginning in World War I. As a result of the closing off of immigration, first due to the World War I conflict, and after 1924 to the new immigration law combined with deteriorating domestic economic circumstances during the 1930s, black people began to leave the South in droves, moving to New York, Philadelphia, Chicago, Kansas City, San Francisco, Los Angeles, and Seattle, especially during the 1920s and during World War II when the West coast boomed under the demand for war material to fight the Pacific war against Japan. Black people might not be able to vote in the South, but they could vote in the North and West. The political calculus that gave the South a stranglehold over human rights policy in the United States began to crumble. Black voters were being wooed, giving them voice on the national political stage. In the United States the domestic battle for civil rights went hand in hand with the battle to reverse racism and the taint of eugenics in American immigration policy. Once the battle was joined on the domestic front, once black people demanded their birthright to “life, liberty and

188 Politics and markets the pursuit of happiness” in the United States and backed up this demand with marches and riots in inner city ghettos, how could the United States government sell its ideology of anti-Communism to governments in Asia, Africa, and Latin America with a straight face? Hypocrisy, posturing, and cynicism may be rife in international and domestic political affairs, but there are limits.

Multiculturalism, nationalism, and diversity in the Western offshoots and the countries that experienced crossover In the Western offshoots, reforming immigration policy went hand in hand with instituting multiculturalism as an officially sanctioned ideology on the domestic front. Multiculturalism has many different forms – in Canada, it predates the opening up of immigration to non-Europeans, taking the form of bilingualism, most of Quebec and significant pockets of Nova Scotia and New Brunswick speaking French in a country dominated by English speakers – but its hearthstone is embracing diversity. How this is actually realized, and justified legally and politically in practice, varies widely. Ultimately the notion is that the state, representing the democratically expressed collective voice of a diverse population, has an interest in promoting diversity through preferential treatment of certain groups, so that all segments of society enjoy representation in the corridors of political power, in the hallways of powerful corporations, in the faculties of universities and colleges. According to this logic, without this representation in elite institutions, social unrest and rebellion might break out. Feeling permanently marginalized and disadvantaged causes resentment and divisiveness to fester, undermining political and social harmony in its wake. By its very nature, declaring a collective social interest in diversity raises tensions with the honoring of individual rights and responsibilities crucial to the natural rights philosophy of Locke that profoundly informs political and legal discourse in the United Kingdom and the four Western offshoots that are its children. Not surprisingly, striking a balance between the rights of individuals and the collective interest in diversity is controversial. Rousseau’s social solidarity and Locke’s individualism offer very different prescriptions and philosophies for policy. Both views are entrenched in the Western offshoots; advocating one approach at the expense of the other is bound to create resentment amongst groups committed to the other approach. Interestingly enough, some black advocates of affirmative action as a program redressing historical wrongs against black people in the United States reject the embrace of diversity per se; others, rejecting affirmative action because they feel it creates stigmas (individual achievement of minorities being potentially denigrated in a population that believes they have been afforded preferential treatment in education and employment), also reject multiculturalism as a proactive social policy.

An open world being born 189 Redress for historic wrongs as the basis for multiculturalism is itself controversial. Wielding history as a political tool invites selective reading of the historical record. Where do we draw the line in assigning moral blame for particular events? Consider the relocation of Japanese-Americans and Japanese-Canadians to camps during World War II. Is the treatment of American and Canadian prisoners of war in the Far East by the Japanese military (often brutal) to be factored into the ethical equation? After all, it can be argued that Japanese-Americans and Japanese-Canadians were being protected from their neighbors when they were forcibly relocated, being taken from the west coast where they were concentrated into the interiors of these countries. To point this out is not to deny that wrongs were done to them. In many instances their property, their farms and fields, were stripped away from them. But is it fair to require the sons to pay recompense for the sins of the fathers? Are the politics of victimization healthy? The problem is where to draw a line in the historical record, whom to hold accountable, and how to address historical injustices without poisoning the politics of the future. Writing the story of the past means being selective, establishing boundaries for discourse. Strive as they do to be objective, historians are strongly influenced by their own times, by their own perception of how societies should function, and on whom they heap blame for ethically offensive behavior. Will future generations view us as self-righteous? Are we so supremely confident of the moral superiority of the present that we can simply dismiss the behavior of our ancestors as the acts of a benighted past? Ultimately, whether grounded in the politics of redress for wrongs done in the past or rooted in a belief in the importance of all social groups finding representation in elite positions of influence and power, multiculturalism has emerged out of fear over the consequences of social disruption for the integrity of the nation. Promoting social toleration and understanding through a system of preferences that encourages all subcultures to use the national language of the country of settlement, making full use of the national political and educational institutions, is supposed to create a sense of diversity within national identity.11 In theory this approach encourages a diversity that bolsters nationalism. In practice, because of the conflict between individualism and the interests of the state in seeing diversity is honored in practice as well as in theory, the political upshot of multiculturalism is mixed. It cannot be denied that debating its merits has been politically divisive at times. It cannot be denied that its aims and objectives have sometimes been selfcontradictory. To see how potentially contradictory the aims of multiculturalism can be, consider the following officially stipulated aim of Canadian multiculturalism, as laid out in the 1988 Multiculturalism Act of Canada:12 “preserve and enhance the use of languages other than English and French,

190 Politics and markets while strengthening the status and use of the official languages of Canada . . .” Does an increase in the speaking of German, Mandarin, Cantonese, Japanese, and Hindi-Urdu within Canada “strengthen” the status of Canada’s official tongues, English and French? What does an objective of multiculturalism that simultaneously encourages and discourages the use of Canada’s two official national languages mean? The point of these remarks is not to denigrate the multicultural agenda in Canada or elsewhere. Indeed, there is little doubt that multiculturalism is a politically useful vehicle for coping with the realities of openness in the contemporary world. Rather, it is important to point out that formulating a particular multicultural agenda is inherently political. It may enhance national solidarity and national economic self-interest. Or it may impede nationalism and economic performance. A society that does not honestly address these concerns through reasoned dialogue and debate about the precise meaning and implications of policy risks rending the very social cohesiveness that multicultural policy is designed to preserve.13 The reader might ask: why multiculturalism now? Why not in the late nineteenth century? I have several responses to this query. National infrastructure promoting the diffusion of the inorganic economy has been built up in all four Western offshoots so its creation and consolidation is no longer at issue. Governments in the Western offshoots had no choice but to change their immigration policies, given the market realities they faced in the post-1950 period, so their governments have decided to make a virtue out of necessity. The switch over from exclusion to inclusion in immigration policy took place within the lifespan of two generations, thereby inviting demands for redress of historical wrongs because the wrongs suffered are part and parcel of the collective active memory of ethnic communities that once faced wholesale discrimination in the immigration and settlement policies of the Western offshoots. Most importantly, diversity today is not as great as one might think given the politically charged dialogue surrounding it. The reason is simple. In the post-1950 period all of the Western offshoots operate with limits on their immigration flows, on their immigration openness, thereby effectively constraining their diversity. This was not the case during the mid- and late nineteenth century when immigration to these lands was virtually unregulated. Consider the United States in the 1900–1914 and the 1990–1999 periods. Using the methodology that I employed in Chapter 5, I compute the following indices of diversity: 95 for 1990–1999; 528 for 1900–1914.14 Basically, in the post-World War II environment, diversity poses less of a challenge for the Western offshoots than it did in the late nineteenth century. Allocating resources to deal with immigration issues involving diversity is easier to do when diversity levels are relatively low. How have the other countries – namely those that experienced

An open world being born 191 crossover – of net immigration fared? Castles and Miller (1993) note that during the decades of convergence the Western European countries experienced the same kind of supply and demand problems in their labor markets that the Western offshoots experienced. The reason was identical: the demographic transition. They responded by promoting limited immigration aimed at resolving labor supply/demand imbalances, using “guest worker” programs aimed at bringing in persons from the European periphery first and foremost, and citizens of the countries that they controlled as colonies during the pre-World War II period second. In coping with the challenge of becoming a country of net immigration, Great Britain enjoyed special advantages, and had to cope with special challenges.15 Through the experience of its former Dominions, it was made well aware of multiculturalism, which it had begun practicing itself on a limited scale as early as the late eighteenth century when it assumed political control over a large Catholic and French speaking population in Lower Canada. Through its desire to convert its former empire into a Commonwealth of nominally equal nations, it had a delicate diplomatic task in formulating an immigration policy that would not alienate members of the Commonwealth. Not surprisingly, Great Britain veered towards multiculturalism. A far different model of accommodating immigrants has developed in postwar France. Ignoring race as a category, the French approach emphasizes the overriding importance of being French in a political and cultural sense. Being French means being committed to the French language and to the concepts of republicanism developed during the French Revolution and after. The emphasis is on fostering homogeneity, not diversity. Even more extreme would be Japan, which at least until recently has attempted to act as if diversity did not exist within its borders. French authorities are proactive in suppressing a diversity that they recognize lies just under the surface of everyday life. The Japanese have tended to operate with an overwhelming sense of their uniqueness, and therefore have not been overly preoccupied with countering it. Behind these divergent responses is the fact that France is far more open from a demographic viewpoint than is Japan. The opening up of trade in the postwar period brought with it an opening up of international migration. Given the growing diversity of trade due to the global spread of the inorganic economy, it is not surprising that the nature of immigration flows also changed. The combined impact of changes in the market (the crossover effect due to income convergence, the slowing down of the natural rate of increase due to the demographic transition, the change in global trade flows associated with the spread of the inorganic economy to Asia and elsewhere) and political changes, especially within the United States that took on a role of leadership for the market oriented economies during the Cold War, produced a veritable revolution in the immigration policies of the countries

192 Politics and markets of Western settlement, which during the 1960s and 1970s abandoned their pro-European bias in favor of Asia and Latin America. As a result the Western offshoots adopted multiculturalism as a way of coping with the changes in immigration that resulted from the abandonment of their restrictive and discriminatory stances to letting in immigrants. To some people promoting multiculturalism may seem to be an inevitable outcome of the new immigration dynamic, or the inexorable triumph of “modern” progressive thinking over the Neanderthal traditions and prejudices of past generations. To be sure, multiculturalism was strongly conditioned by the new reality concerning immigration and by the struggle for equal rights for black people in the United States. However, it was not foreordained. That a country like France has taken a very different approach to incorporating immigrants testifies to the viability of other options. Being nationalistic is inherently exclusionary. Being multicultural is to embrace inclusion. Is it any wonder that the two impulses conflict one with the other? Is it any wonder that some societies put a greater emphasis on the agenda of nationalism, while other societies value more heavily multicultural inclusion? The fact that the Western offshoots had been struggling with the implications of diversity for a century and a half, either rejecting or embracing it, but in any event creating a history of dealing with it, has almost certainly made them receptive to multiculturalism as a contemporary political movement. In this sense the past has informed, and continues to inform, the present.

9

Conclusions

The argument summarized What are the principal characteristics of modern globalization as an historical process? It is the burden of this book that modern globalization is best thought of as a process whereby the inorganic economy is spread globally, its diffusion and spread governed by market and political gravitation. Market gravitation profoundly influences international trade and international migration flows. But it is not the only form of gravitation: often it comes in conflict with political gravitation. Modern political gravitation revolves around nation states, how they shape domestic affairs and the how they interact in the international arena. Nation states either favor the harnessing of the inorganic economy through the building of infrastructure – political, physical, human capital enhancing, and financial – through which the inorganic economy is diffused from a few isolated clusters to countries as a whole, or hinder the harnessing of the inorganic economy by failing to invest adequately in the requisite infrastructure. An important consequence of building infrastructure is the reducing of transportation and communication costs. Potentially, national infrastructure investment programs promote global trade and global migration. Moreover, through the impact of decisions of the nation state regarding infrastructure investment, political gravitation affects the speed at which individual countries experience growth in income. Expanding the size of national income enhances market gravitational pull, thereby giving an additional fillip to global activity. Political gravitation also governs the relationships between sovereign nation states seeking security and economic betterment. States strive for security and prosperity either by pursuing hegemony, or by promoting multilateral architecture governing the relations between nation states, or by exploiting their hegemonic positions to exert leadership without which the fostering of multilateral architecture would languish and fade into obscurity. Why states choose one option over the other options depends upon their own perceived self-interest and on the relationship between themselves and other contenders for hegemonic power. Since the market

194 Conclusions interaction of states is affected by, and affects, the degree to which multilateral architecture exists and is utilized, political gravitation taking the form of hegemony is intertwined with market gravitation at the global level. In this volume I use two quantitative measures to capture the degree to which countries participate in, and are affected by, globalization: openness and diversity. By openness I mean trade and demographic openness. I measure the first with the ratio of total trade – imports plus exports – to national income; the second with the ratio of immigrants and/or emigrants to population stock. By diversity, I mean the composition of the bilateral trade and migration flows experienced by countries. Are these distributed richly and globally, or are they sharply circumscribed, operating with a narrow geographic compass, one or two bilateral relations dominating over all others? Using national data for the period 1880–1992, I measure openness and diversity, and explain why their levels have changed in response to the evolving economic and political gravitation informing the globe. Computing these measures for a variety of countries for which acceptable data are available for at least some (approximately) decade length periods between 1880 and 1992 – the sample of countries is mainly restricted to countries in Western Europe, the four Western offshoots, and Japan – reveals the following: between 1880 and 1914 the world was relatively open; between 1914 and 1950 it was relatively closed; between 1950 and 1992 it has become open again, and generally there is a positive trend toward openness. The data also support the assertion that diversity in trade and migration increased during the second half of the nineteenth century and in the first decade of the twentieth century, that trend being partially reversed in terms of the composition of migration flows in the 1880s, and decisively reversed in the 1920s. After 1950, and especially after the late 1960s, the trend toward diversity resumed, gathering force in the 1970s and after. This is the general pattern, or at least the pattern that we can discern from the sample of countries for which we have data. How are market and political gravitation to be invoked in explaining this historical process? In Chapter 1, I developed a political economy gravity model – resting on the twin pillars of size and geographic distance – using it to advance a set of hypotheses concerning market gravitation and political gravitation that can be used to account for the phenomenon under consideration. Stated briefly there are three theses involving market gravitation. They are: 1

2

3

Diversification in trade tends to be positively associated with diversification in migration. The tendency for the two patterns to overlap or fail to overlap is affected by: The crossover effect – whereby a country of net emigration becomes a country of net immigration as its per capita income rises – which works to drive a wedge between trade diversity and migration diversity. Trade openness is positively associated with demographic openness.

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In a world in which political gravitation is not interacting with market gravitation, these hypotheses should hold. My next set of hypotheses concerns diversity and national infrastructure investment in countries of net immigration. They are: 4

5

Diversity in immigration raises the costs of developing infrastructure, especially political and human capital enhancing infrastructure. Resistance to diversity intensifies as these costs rise. The resulting resistance drives a political wedge between trade diversification and migration diversification.

These two hypotheses concern national political economy. Armed with these hypotheses, I advance two hypotheses concerning international political economy. They are: 6

7

National policies concerning trade and migration are sub-branches of foreign policy, and are influenced both by domestic politics and by the structure of relationships between nations, including the strength or weakness of multilateral architecture governing the way foreign policy is carried out. Synchronization between countries tends to link the openness of any one country to the openness of other countries. Whether the globe – or at least a substantial group of countries – is either open or closed depends upon whether one country is willing and able to take up leadership in establishing multilateral architecture that ensures and enhances openness.

I use these two propositions as the touchstone for my theory of how international relations governing trade and migration develop over time. The bulk of the book is devoted to advancing empirical evidence in support of these seven propositions. In the first part of this book, using quantitative data for a considerable number of countries on trade openness and demographic openness, on net immigration, and on a variable I call the “relative attractiveness of the Western offshoots”, I provide support for the first three propositions. Demonstrating these points supports the proposition that market forces play a profound role in shaping globalization in the modern era, the era dominated by the inorganic economy. In the second part of the volume, I use historical evidence for six countries – the four Western offshoots (the United States, Canada, Australia, and New Zealand), the United Kingdom, and Japan – to show that diversity acts as a barrier to developing certain kinds of infrastructure, and for this reason political opposition to diversity exists and increases as diversity expands. Five of these countries (the United Kingdom and the four Western offshoots) share a deep connection with one another, the British

196 Conclusions connection. This connection has shaped the nature of the infrastructure that they have developed, and the way they have responded to increasing diversity. In the post-World War II period, all five of these countries have developed political variants of multiculturalism. This British model – relatively open, relatively receptive of diversity – is hardly universal. Comparing Japan – relatively closed, relatively homogeneous – to these five countries reveals that other options, other responses, to globalization are not only possible, but have occurred. Indeed, during the period of building infrastructure necessary to promote the diffusion of the inorganic economy throughout a nation, coping with diversity raises the costs of successfully realizing the program. Thus there are a considerable number of countries like Japan that have exploited their low levels of diversity to achieve rapid growth. Not surprisingly, these countries resist diversity today, and tend to be suspicious of a multicultural agenda. The third part of this book concerns the evolution of the international economic order: how and why the globe as a whole – or at least the portion of the globe with the countries most advanced in harnessing the inorganic economy – first embraced openness and diversity in the midnineteenth century, then rejected them, and finally came to accept them once again. At the global level, the story involves the sapping away of multilateral architecture centering on the United Kingdom, and the gradual emergence of new multilateral architecture centering on the United States. At the regional level, the story involves the rise and fall of countries contending for regional hegemony, and the emergence of regional multilateral architecture as a result of international political confrontations that created and then destroyed regional hegemonic powers. In short, both market gravitation and political gravitation matter in shaping the course globalization has taken in the modern world when the inorganic economy has spread from a small industrial belt in the Midlands of England and Wales to whole countries stretching from the Americas to Asia, from the northern reaches of Russia and Japan to the southern tip of New Zealand. Particularly important are: market gravitation binding together the districts of nation states and geographic regions in which groups of contiguous nations are located; political gravitation binding together districts of nations in nationalistic programs of infrastructure development; and political gravitation binding together groups of nations through the emergence of powerful regional hegemonic powers and/or through the web of global and regional multilateral architecture. This brings me to the point with which I would like to conclude this book: the importance of regional multilateral architecture for dealing with the global backlash; the importance of regional multilateral architecture for keeping the world relatively open and receptive to diversity.

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Globalization, regionalism, and the nation state I present two propositions: keeping the world relatively open is a good thing; reducing tensions producing global backlash is a good thing. While these propositions may be self-evident to some readers, it would be presumptuous for me to assume that they are self-evident to every reader. So I will justify them. Keeping the world open is important for economic growth and for global political stability. The historical record is proof. During the period 1914–1950, openness collapsed, the resistance to openness building throughout the decades leading up to World War I. Two global wars horrendous in their carnage occurring between 1914 and 1945 were deeply intertwined with resistance to openness and diversity, as both cause and consequence. To be sure, since 1945 the world community has witnessed many regional wars: the Korean and Vietnam wars were fought to contain Communism in Eurasia; India and Pakistan have engaged in three bloody conflicts; post-Iron Curtain Yugoslavia has come apart in a series of internecine bloodbaths. So it would be naïve to say that openness prevents war. However, in these regional wars when major industrial powers have become belligerents, they have not entered into direct conflict with other major industrial powers. War bringing two major industrial powers into military confrontation with one another – war between the industrial giants of Western Europe for instance – has been checked. A world that learns to cope with openness and diversity is hardly perfect or conflict free, but it is certainly better than the alternative. Unfortunately, being open and diverse comes at a cost: the global backlash. The global backlash arises from three features of the economic and political gravitation that I have argued is driving modern globalization: nationalism, multilateral architecture, and hegemony. Nationalists resist globalization because they are concerned with nation building through infrastructure investment, because they perceive threats to national security arising from dual loyalties of immigrants, and because they wish to maintain an internal political consensus that is endangered by disputes between domestic groups that perceive themselves endangered by openness and diversity and groups that perceive themselves beneficiaries of openness and diversity. Opponents of hegemony resist globalization because they perceive multilateral architecture as unduly influenced by the leadership role taken by self-interested hegemonic powers; because they believe that the domestic affairs of nations should be left to the peoples of these nations to shape; or because they view hegemony as the cause of international inequalities of wealth and income. In short, they tend to be either nationalists or critics of flawed multilateral architecture that they feel promotes the economic interests of rich, powerful, nations at the expense of smaller, poorer, countries. Opponents of multilateral

198 Conclusions architecture argue that institutions like the World Bank, the International Monetary Fund, and the World Trade Organization, promote global market activity – the multinational corporation and trade openness – at the expense of national interests. They tend to see openness per se as the enemy; or they tend to be nationalists; or they tend to see multilateral architecture as the outcome of hegemony that they bitterly despise. While imperfect, multilateral architecture seems to offer a ray of hope to those who believe supporting openness and diversity and tempering the global backlash are worthy goals. In discussing regional multilateral architecture I focus on regional trading blocs, spanning a huge range of deepness of integration, ranging from Preferential Trade Arrangements through Free Trade Areas and Custom Unions to Economic Unions. Writing in the late 1990s, Frankel (1997) provides a list that shows how far regionalism in trade has gone during the post-World War II period.1 Regional integration has proceeded the furthest in Europe, mostly notably through the growth and deepening of integration within the European Union (consisting of fifteen countries at the time Frankel was writing, in May of 2004 to be expanded to include twenty-five countries). Other trade blocs within Europe – some of which formed to provide political and economic leverage to countries that did not join the European Union, gaining leverage in the face of other blocs being a reason for the proliferation of blocs – include the European Economic Area, the Central European Free Trade Area, and the Commonwealth of Independent States that emerged out of the Soviet Union when it dissolved into constituent republics. Reflecting the deep integration of Europe, intraregional trade (as a percentage of total trade of the countries included in the region or bloc) jumped from 60 percent in 1962 to 75 percent in 1994 for Europe. The Americas are dominated by three regional blocs, the North American Free Trade Agreement (N.A.F.T.A.) linking Canada, the United States, and Mexico, the Central American Common Market, and the Mercado Comùn del Sur (Mercosur) linking together Argentina, Brazil, Paraguay, and Uruguay.2 Perhaps reflecting the greater range in variation in national levels of income per capita characterizing the Western hemisphere in comparison to the range of variation in Europe, regional trade integration is slightly lower in the Americas, being around 50 percent in both 1962 and 1992. A third set of regional trade agreements has emerged in the AsiaPacific, the most important being Asia Pacific Economic Cooperation (A.P.E.C.), the Association of Southeast Asian Nations (A.S.E.A.N.) Free Trade Area and the Australia–New Zealand Closer Economic Relations agreement.3 Regional integration with A.P.E.C. is not inconsiderable, being 56 percent in 1962 and 76 percent in 1994. Even so, as Ravenhill (2001) argues at great length, the pace of integration within A.P.E.C. has been far slower and far less focused than in Europe. Reasons for this state

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of affairs are not hard to find: geography plays a big role, countries separated by vast distances on oceans and seas being less easily brought together than countries situated near each other on a common landmass. Still, governments in East Asia are talking about forming an East Asian Economic Community starting with an “A.S.E.A.N. plus three” concept linking the A.S.E.A.N. group with the three most important Asian economic powerhouses, Japan, China, and South Korea. Regional agreements linking countries in Sub-Saharan Africa, and in North Africa and the Middle East are detailed in Frankel (1997). These will not be discussed in this account, as they seem to have far less success in solving regional political and economic problems. For instance, regional trade integration within Africa is almost non-existent, being a mere 1 percent in 1962 and 2 percent in 1994. Still, the drive to forge regionalism everywhere must be acknowledged. Why is building regional multilateral architecture important for keeping the world open, and for helping to temper the global backlash? Based upon the reasoning developed in this volume, I would point to two virtues to regionalism. First, by integrating markets between contiguous nations it blunts the drive to regional hegemony that has plagued regions like Europe and Asia in modern times. Preventing another war between Germany and France was an important political consideration underlying the formation of the European Coal and Steel Community that eventually became the European Economic Community and, finally, the European Union. Second, recognizing that some countries have more economic and military muscle than other countries, due in part to the sheer size of their economies, regionalism offers a tremendous advantage to small countries. By joining a regional trade pact that negotiates on behalf of the entire bloc, the small nation gains leverage that it might otherwise forgo. To be sure, its voice may be submerged by more powerful voices within its bloc. Still, the bloc gains leverage that is exercised on behalf of all parties adhering to it. Most countries of Western Europe have gained immeasurably relative to the United States by forming the Economic Union that can speak with one voice in many forums, providing political balance in global multilateral organizations like the World Trade Organization. In so far as fear of regional hegemonic powers like the United States drives the global backlash, forming regional agreements may well work to temper the behavior of the United States, thereby taking some of the sting out of opposition to globalization. This having been said, it would not be judicious to ignore some realities that may undercut the capacity of deepening regionalism – through the creation and prospering of regional multilateral architecture – to deal with the global backlash. Four realities that I have touched on in this book seem especially apposite: (1) the problem of trade diversion; (2) the wedge driven between regional diversity in trade and regional diversity in migration by the crossover effect; (3) managing nationalism and diversity within regional blocs; and (4) the special

200 Conclusions position of the United States and its leadership in the post-World War II period. Let me take up each of these points. Many critics of regional trade blocs argue that creating regional agreements blunts the global drive to reduce tariffs and other impediments to trade through negotiations at multilateral organizations like the World Trade Organization. They argue that regional preferential arrangements allowed under the rules adopted by the World Trade Organization divert trade, concentrating imports and exports for member countries of a bloc within the bloc, effectively making it harder for non-bloc countries to get access to the markets of countries within the bloc.4 This is true. However, as Kreinin (2000) makes clear, managing and mastering trade negotiations is a learning process. Conceptual breakthroughs made in regional agreements may be carried over to global negotiations and vice versa. A second problem concerns reaching regional trade agreements that facilitate migration between the constituent parties. Under the legal rules of the European Union, migration from one member country to another is almost as easy as migration from one region of a member country to another region of that country. But in a union where income per capita is relatively equal everywhere, what is gained? Who will migrate? True, as the European Union expands to include lower income per capita nations from the former Communist bloc, migration from East to West will be buttressed under rules of integration. What about the far greater attraction that Europe has for peoples in Africa, the Middle East, and Asia? The wedge driven between trade diversity and migration diversity matters for the following reason: trade and migration are intertwined aspects of foreign policy. Unbundling them, due to crossover, spawns asymmetries in international relations, making the fashioning of political tradeoffs and compromises all the more contentious. A third issue concerns nationalistic divisions and coping with diversity within regions. Hammering out a Constitution for a European Union so that it might operate in a unified political fashion, balancing the massive American behemoth on the world stage has proven contentious at best, deeply flawed at worst. Resistance to giving up national sovereignty is rampant across member states of the European Union; there is even resistance to using a single currency, the euro, in some quarters. Is a common foreign policy, a common military policy realistic? What about all the cultural traditions and languages involved? Can a linguistically and culturally diverse Europe seriously contemplate becoming an American style “melting pot”? Indeed as the massive tome by Davies (1996) demonstrates, defining Europe – is it a geographic concept? A concept based upon historic roots in Greece and Rome? Is it limited to areas that became Christian or does in include predominantly Moslem countries like Turkey? – is itself a huge and politically charged task. Regional integration has constraints, and contemporary Europe may be rapidly reaching these constraints. As the model for developing regional multilateral architecture,

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the European experience today may be showing us the limits of the enterprise. Finally, there is the United States, the only legitimate superpower that – in the aftermath of the end of the Cold War and the dismemberment of the U.S.S.R. – enjoys an exceptional position upon the international stage, with its latent power fully translated into a military power that has no global rival. The presence of a muscular United States poses various problems for regional multilateral architecture: it has an informal empire; its British connection is potent; and its market and political integration strides across two major regions, the Americas and the Pacific. Talk of an American Empire to replace the British Empire of the past has gained considerable popularity in the last several years.5 True, the United States has no serious global military rival at the moment. However, Russia still has considerable military might on the Eurasian landmass, and China, Iran, India, and Pakistan are emerging as serious regional military powers. Given the number of potential theaters to which the United States might wish to send troops, the fact that its resources are limited is worth pondering. There is no doubt that some of the global backlash is actually opposition to the American military presence, especially in East Asia and the Persian Gulf. In so far as this backlash ties up America’s military muscle in one region or the other, the capacity of the United States to respond in other theaters is compromised. In truth the United States is not a global hegemonic power. Another issue concerning the global position of the United States concerns the impact of American culture on other countries. Being based upon English, taking advantage of the British connection as it were, the cultural influence of the United States is naturally linked to the importance of English as an international language. Consider the following fact: because the four Western offshoots and the United Kingdom all enjoy high per capita income levels, the share of world income generated by these five countries in 1992 is approximately 26 percent. Moreover, because all five of these countries enjoy highly developed telecommunications infrastructure, their share of world motion picture and television production, computer adoption, and Internet usage is far greater than their share of world income. No wonder the Internet is heavily oriented toward use of English; no wonder that people the world over try to learn English as either a first or a second language. Still, other languages appear on the Internet with growing frequency; non-English language films win awards and accolades at international film festivals; non-English language programming is gaining as a share of world television viewing, and even of television viewing in the United States and the other Western offshoots. Finally, the United States is hegemonic in the Americas and has strong influence in the Asia-Pacific because it has a strong market and military presence in both regions. The United States is the only large economic power that is truly regionally balanced in both the Americas and the

202 Conclusions Asia-Pacific region. This can be seen from Table 5.4 presented in Chapter 5. By dint of its sheer size, it strides as a colossus across two of the three most regionally integrated zones of the world. Getting American cooperation is key to putting together a free trade agreement for all of the Americas – putting together a Free Trade Area of the Americas that is much discussed – and for generating momentum in A.P.E.C.6 In the global regionalism of the future, the United States will certainly play a key role. This cannot be said of any other nation. It is a reality that should not be forgotten. Still, important regional alliances – those in Europe, the A.S.E.A.N. group – that explicitly exclude the United States have been and are being formed. Discussions of integrating the Eurasian landmass through railroad linkages stretching from the coastline of South Korea to the coastline of Western Europe are well underway. In my opinion, given the realities of both political and market gravitation, regional multilateral architecture offers the best hope of keeping the world open and diverse; the best hope of staving off the worst excesses of the global backlash. The din and clamor of that global backlash presses upon us. It is the price we pay for an open and diverse world. But is there another viable option to being open? It is the conclusion of this book that an open and diverse world is well worth defending. The alternative is bleak, period and full stop. But – as we know from the experience of the globe between 1914 and 1950 – keeping the world open and diverse requires constant ongoing political energy and dedication. Openness is not a birthright. It can be lost. Sustaining it requires constant vigilance and goodwill in quarters near and far. To paraphrase the great American poet, songwriter, and master of paraphrase unexpected and extraordinary, Bob Dylan, an open world not busy being born is busy dying.

Appendix A.1 The data

More art than science, empirical economic history is a constant struggle between the ideal of careful measurement of phenomena, and the grubby reality involving ongoing compromise with actual data sources. Only those scholars who get their hands dirty in the fields of quantitative analysis can truly appreciate why the researcher must heap assumption upon assumption in approximating numbers, akin to the tiller of soil who heaps mounds of dirt willy-nilly in preparing acreage for cropping. Inevitably, beauty is in the eye of the beholder: who can say whether the convoluted leaps one is taking are the best? Being humble about one’s labor in the fields – and maintaining a sense of humor in the face of inconsistencies between officially sanctioned sources that claim validity for wildly different estimates – is, or should be, taught to every aspiring scholar in economic and demographic history. In selecting the nineteen countries for analysis in this study, I found myself rejecting many nations for which the requirements to measure both trade and demographic openness were not met in some small or major dimension, or whose numbers jumped around with changing definitions so comically as to render serious treatment impossible. Thus I was not able to include a single African country here; in Latin America I was only able to bring Mexico into the analysis. In the vast densely populated reaches of Asia, I resigned myself to focusing on Japan, jettisoning India and China, that is letting a substantial portion of the globe’s population slip through my fingers. But what was to be done? As I show in the remainder of this appendix, even amongst the countries selected, the numbers on which I rely are flawed, though ultimately plausible, as approximations to a reality forever lost to us. Given my emphasis on the role of the nation state in shaping human capital enhancing infrastructure, especially education, I think it is appropriate to point out that all of the figures used here were published by national governments generating numbers for a literate and informed public. Indeed, virtually without exception – Mexico, Spain, and Greece are exceptions – all of the countries that I analyze appear on the list of “17 advanced capitalist countries” assembled by Maddison (2000). As I argue

204 Appendix A.1 in Part II of this volume, developing infrastructure under state guidance is a major characteristic of successful growth in income per capita over the long run. Thus it is no accident that the most usable historical data are for the very countries that have managed to achieve sustained productivity growth decade after decade. Generating usable data is a symptom of the very process through which economic development unfolds. What did I require of my sample? To calculate trade openness, I needed figures on exports and imports, along with estimates of national output – gross domestic product was my preferred measure but I learned to live with net national product or gross national product – so that I could calculate the ratio of imports plus exports to total output. To my surprise a large number of countries failed to meet this simple requirement. But once I honed in the countries for which figures were forthcoming – I was fortunate to be able to work from numbers generated by the prodigious labors of Mitchell (1982, 1993, 1998) and Maddison (2000) – I encountered little difficulty in computing the desired ratio. Still, I frankly acknowledge that smuggling and deficient government registration of imports or exports undercuts the validity of my estimates to some unknown degree. My biggest headaches involved computing demographic openness. To calculate demographic openness I required figures on: (1), population (P); (2), immigrants, ideally permanent immigrants as opposed to immigrants admitted on a temporary basis as students or guest workers; and (3), emigrants, ideally emigrants leaving for good. What became apparent upon working through the comprehensive data sources assembled by Mitchell (1982, 1993, 1998) was that countries enjoying net positive immigration are better at counting immigrants (IM), and countries of net emigration are better at counting emigrants (EM). I suppose I should not have found this surprising. Governments have scarce resources; they concentrate these resources on documenting the social issues of most issue to their polities. For this reason I had to estimate either streams of immigrants or streams of emigrants for a number of the countries in my database. For the countries for which either immigration or emigration figures were simply unavailable, or for which the estimates seemed flawed, I decided to estimate IM or EM from data on births, deaths, and population increase. Using the following definitions – b is the birth rate (per 1,000 population), d is the death rate (per 1,000 population), and GP is the growth of population (per 1,000 population) – I calculated the natural rate of increase, nri, as: nri  b  d and the net immigration rate for the population, nimr1, as: nimr1  GP  nri.

Appendix A.1 205 Note I could estimate net immigration (NI) in terms of total numbers of persons from nimr1 with the following formula: NI  (nimr1) * P * (1,000) But NI  IM  EM, and thus in countries with comprehensive figures on both immigration and emigration, I was able to compute a second estimate of the net immigration rate, nimr2, with the formula: nimr2  [(IM  EM)/P] * (1,000). For countries enjoying figures on both IM and EM, I estimated both nimr1 and nimr2 and compared the two estimates, thereby securing an indicator of the inherent quality of the underlying data. For countries with figures on either IM or EM, but not both, I estimated NI from the nimr1 figures, and then I computed either IM or EM with my computed value of NI. It can be seen that my method provides a check for some countries, and the sole means of securing estimates for total demographic openness dO  [(IM  EM)/P] * (1,000) for other nations. For some countries, I had estimates of IM and EM for some periods, and estimates of either IM or EM (but not both) for other periods. In these cases I used my method as a check for some years, employing my method to generate estimates for other years. Armed with this methodology, I placed the countries into three groups: countries with excellent data (Netherlands, Sweden); countries with good data (Australia, Denmark, Italy, New Zealand, Norway, Spain, and the United Kingdom); and countries with acceptable data (Austria, Belgium, Canada, Finland, France, Germany, Greece, Japan, Mexico, and the United States). My reasoning in assigning countries to groups was simple: I placed countries having both IM and EM series for a long period, and with estimates for nimr1 and nimr2 that were close to one another period after period, into the “excellent” category; I placed countries falling short of being excellent by dint of data availability or by dint of modest lack of consistency between the nimr1 and nimr2 series into the “good” category; I placed the remaining countries into the “acceptable category.” In short, in assigning countries to categories I considered data quantity (were series on both IM and EM available?), quality and, most important, consistency (between nimr1 and nimr2). My perception of quality for countries lacking either IM or EM rested heavily upon whether I had to “fudge” numbers in some years. Using the approach outlined above for estimating either IM or EM from nimr1, I arrived at negative numbers for either IM or EM on occasion. I “fixed” these negative numbers by changing them to zeros. Fortunately, I did not have to resort to this subterfuge often.

206 Appendix A.1 For countries enjoying independent estimates of IM and EM, it may be asked: why might nimr1 and nimr2 differ from one another? There are several probable explanations: IM and EM are often underestimated due to illegal movements of persons; or the numbers are exaggerated because they include temporary immigrants with permanent immigrants or temporary emigrants with permanent emigrants. These flaws undermine many of the figures given in Willcox (1969), a frequently cited authority for historical international migration data. Finally the estimates for nimr1 and nimr2 may differ because the nimr1 figure is calculated with GP and P may not be accurately calculated. One problem with estimating P is obvious: immigrants in a nation on a temporary basis are duly counted in censuses, but not necessarily counted in the immigration (or emigration) flows. Indeed, since my aim is to compute permanent immigration and emigration, I have adopted a procedure that tends to widen the gap between the estimates for nimr1 and nimr2 that I calculate. Another problem has to do with the way countries defined and measured IM or EM. For instance, in the historical series for many of the European countries, only intercontinental movements were enumerated. To some extent these definitional issues account for discrepancies between nimr1 and nimr2. Recognizing that different authorities often produced different estimates for IM, EM, and P for the same nation, I attempted to stick to a consistent set of sources. In keeping with this plan, I derived my estimates from two authors, Mitchell (1982, 1993, 1998) and Maddison (2000). Mitchell (1993) and Maddison (2000) are the only sources I consulted in estimating demographic openness for the following countries: Austria, Belgium, Denmark, Finland, France, Germany, Greece, Italy, Netherlands, New Norway, Spain, and the United Kingdom. In addition, for Mexico I relied on Mitchell (1993) and Maddison (2000). For the remaining countries I consulted a variety of sources that are listed in the discussion for the countries classified into categories that follows. For my estimates of real trade – used in calculating growth rates for trade that enter into the causality analysis involving growth rates in trade and growth rates in immigration or growth rates in emigration (depending on whether a country is/was a country of net immigration or net emigration) – I consistently relied on Maddison (2000), applying ratios of total trade to national output to the real GDP figures given by Mitchell (1982, 1993, 1998). Excellent Two countries qualified for “excellent” status: the Netherlands and Sweden. In both cases, separate figures on immigration and emigration existed. Moreover, in comparing estimates of nimr1 and nimr2 for the eleven periods delineated in my study – 1880–1889, 1890–1899,

Appendix A.1 207 1900–1913, 1914–1918, 1920–1929, 1930–1938, 1939–1945, 1950–1959, 1960–1969, 1970–1979, and 1980–1992 – I generated pairs that were relatively close for most periods. Consider the Netherlands, for which I have data from 1900–1992, hence pairs of estimates for nine periods (nimr1 is the first number, and nimr2 is the second for all pairs considered here and for other countries): (0.8, 0.3); (3.6, 3.7); (0.3, 0.1); (0.1, 0.1); (0.8, 1.8); (1.6, 1.3); (0.7, 0.8); (2.1, 2.4); and (1.8, 2.3). For Sweden, whose series runs continuously from 1880 to 1992, I computed the following pairs: (7.7, 7.3); (4.0, 3.8); (3.4, 3.0); (0.7, 0.3); (1.9, 1.1); (0.8, 0.6); (0.8, 0.6); (1.8, 1.0); (1.1, 1.5); (2.7, 2.6); (1.1, 1.5); and (2.4, 2.1). I was especially impressed with the quality of the figures for Sweden. Accordingly, I make use of Sweden’s record at various junctures in this book, displaying graphs based on the Swedish record in Figures 2.1, 3.1, and 3.3. Good I placed seven countries in the “good” category. Let me consider them in alphabetical order, beginning with Australia that is not covered in any of the Mitchell (1982, 1993, 1998) volumes. For Australia, I relied on the following sources: Australia Bureau of Statistics (various years); Shu, Khoo, Struik, and McKenzie (1994); United Nations. Department of Social Affairs (various years); United Nations. Department of Social Affairs. Population Division (1953); and Willcox (1969). From these sources I was able to cobble together independent estimates for IM and EM for the period 1904–1992. For the years 1904–1924, I estimated permanent emigration (EM) from figures on total departures (DEP), by assuming EM  (0.112854) * (DEP), the figure 0.112854  EM/DEP for the year 1924 which gives figures on both permanent emigration and departures (i.e. permanent emigrants equaled 11.3 percent of total departures). My estimates for the nimr1 and nimr2 pairs for Australia are as follows: (6.5, 19.2); (3.1, 10.4); (5.1, 14.4); (0.1, 6.2); (0.02, 2.8); (9.5, 9.8); (9.1, 9.8); (9.1, 6.8); (5.9, 1.2); and (5.6, 0.3). I secured separate estimates of IM and EM for Denmark over the period 1927–1992 and for Italy over the period 1921–1992. In the case of Denmark, I was able to estimate IM for the years 1880–1926 from nimr1. I give the pairs for nimr1 and nimr2 for the six periods between 1930 and 1992: (0.9, 0.8); (0.5, 0.1); (1.2, 1.1); (0.3, 0.4); (0.4, 0.4); (0.4, 0.7); and (1.1, 0.1). For Italy, for which I was able to secure estimates for 1921–1942 and 1946–1993, I computed the following pairs of estimates: (2.7, 3.0); (1.7, 0.9); (2.0, 3.2); (1.9, 1.9); (0.1, 0.1); and (1.5, 0.1). I would judge the consistency of the Danish and Italian estimates for nimr1 and nimr2 to be reasonably high. Like Australia, New Zealand is not covered in any of the international

208 Appendix A.1 historical statistical compilations of Mitchell (1982, 1993, 1998). Using Statistics New Zealand (various years), separate estimates for IM and EM were generated for the years 1918–1939 and 1946–1992. For the years 1918–1921, figures on permanent emigrants were generated from multiplying figures on total emigrants, permanent and temporary, by the average ratio of permanent to total emigrants for the years 1921–1924 (after 1925 figures on permanent emigration were available). The nimr1/nimr2 pairs for New Zealand are as follows: (6.5, 7.6); (0.8, 0.3); (5.8, 6.8); (2.0, 4.2); (1.3, 0.9); and (1.0, 3.5). In contrast with the estimates for Australia, these pairs seem to be roughly consistent. Norway has figures on emigration only: fortunately these are available for the entire period 1880–1992. For Spain, data availability jumps around: series for both IM and EM are available for 1920–1935, 1939–1971, and 1979–1982; between 1972 and 1978 only EM figures exist; and for 1983–1992 immigration alone is recorded. The pairs for the five periods between 1920 and 1969 are as follows: (0.3, 1.2); (1.3, 0.7); (2.1, 0.1); (1.7, 1.3); and (2.0, 0.2). For the United Kingdom – whose data runs from 1880 to 1938 and from 1946 to 1992 – the problem of changing definitions for migration were acute: between 1876 and 1919, figures on migration were restricted to counting intercontinental citizen passengers going to and from the ports of the United Kingdom (including Irish ports); between 1920 and 1963, migration was computed on the basis of intercontinental migration of United Kingdom and Commonwealth citizens’ movements aimed at establishing permanent residence; finally, after 1964, all migrations, of both United Kingdom and Commonwealth citizens, other than to and from Ireland, were counted. As a result of the 1964 definitional change, the number of immigrants and emigrants jumps considerably. Hence, estimates of nimr2 for the period 1960–1969 must be taken with a grain of salt. In any event the pairs for nimr1 and nimr2 are refreshingly close for most periods: (4.5, 5.4); (2.0, 2.1); (2.4, 4.0); (4.0, 0.2); (1.9, 2.2); (1.6, 0.4); (0.5, 1.3); (0.1, 1.0); (0.5, 0.6); and (1.0, 0.1). As noted earlier, shifting definitions of immigration and emigration is a problem for a number of countries in the sample covered here: it is especially acute in the case of the United Kingdom due to the breakup of the British Isles into an Irish Free State and the remainder of the United Kingdom during the early 1920s. Acceptable For Austria (1950–1984) and Belgium (1950–1992) I located separate series for IM and EM, and found the estimates of nimr1 and nimr2 that I computed to be fairly consistent with each other. Nevertheless, I placed both countries into the “acceptable” category instead of the “good” cat-

Appendix A.1 209 egory because their figures were only available for the post-1950 period. For Austria, I computed the following pairs: (1.9, 0.3); (0.7, 0.2); and (1.0, 0.6); for Belgium, I generated the following pairs: (0.9, 1.1); (1.2, 2.6); (1.0, 2.0); and (0.4, 1.5). For Finland and Greece I secured EM estimates, but could not secure figures on immigration. My Finnish series runs from 1900 to 1992; the Greek series is shorter, running from 1950 to 1977. I was able to generate a French series for both IM and EM between 1954 and 1988, creating estimates for IM between 1950 and 1953 from my estimates of nimr1 for France (no understanding of the expansion in French demographic openness after World War I would be complete without appreciating the special status of Algerians who carried French citizenship until the early 1960s – Algeria being a department of France until its separation from the motherland – and who continued to enjoy special status within France for many years thereafter). I give the nimr1/nimr2 pairs for France: (2.2, 0.7); (4.1, 2.1); (1.2, 0.4); and (1.1, 0.4). Including Germany in my data set forced me to make difficult choices: given its importance in international migration and trade, excluding it seemed perverse; but including it after its breakup into East and West Germany in 1946 seemed equally troubling to the integrity of my data series. I opted for cutting the baby in two along historical lines, including Germany in my data set for the period 1880–1939, but excluding it for the post-1945 epoch. For pre-1939 Germany, I had to work with two subperiods: for 1880–1919, I was restricted to a series on emigration, creating the immigration estimates from my nimr1 series; for 1920–1934, and for 1937–1939, I had both IM and EM estimates, and for 1935–1936 I manufactured immigration from nimr1. The German nimr1/nimr2 pairs for 1920–1929 – (1.5, 0.6) – are the only comparisons I take away from the German series. For Japan, the series is tortured, reflecting the national government’s tendency to report figures on total (temporary plus permanent) immigration in some years and in some publications, and figures on permanent immigration for other years and other publications. As is shown in Chapter 3, temporary and permanent immigration to Japan differ markedly. Finding Mitchell’s (1982) compilation for Asia unhelpful for Japanese migration, I put together a series for post-1954 Japan, relying on the following sources: Japan. Prime Minister’s Office (various years) for the years prior to 1979; and United Nations. Department of Social Affairs (various years) for 1979 and later years. The figures on IM after 1979 seemed reliable, being consistent year to year; however the official tabulated estimates for IM for the pre-1979 period varied wildly from year to year, period after period, growing rapidly in the 1960s and 1970s (and dropping precipitously in 1979 with the United Nations estimates). In order to bring the excessively high figures given in the official

210 Appendix A.1 Yearbook of Japan published by the Prime Minister’s Office in line with those submitted to the United Nations after 1978, I assumed that the immigration figures for pre-1979 Japan included substantial numbers of temporary immigrants, the ratio rising over time: thus letting IMof stand for the officially reported figures on immigrants for 1950–1978, and IM for the numbers that I estimated from these official data, I computed IM as follows: IM  (0.2) * (IMof), for 1954–1959 IM  (0.15) * (IMof), for 1960–1969 IM  (0.10) * (IMof), for 1970–1972 IM  (0.05) * (IMof), for 1973–1976 IM  (0.03) * (IMof), for 1977–1978. I give the post-1954 nimr1/mimr2 pairs for Japan: (1.1, 0.01); (0.1, 0.02); (1.2, 0.02); and (0.2, 0.15). I find the strong rejection of demographic openness that I emphasize in the Japanese case jumps out from both pairs of estimates, especially from the nimr2 estimates given as the second entry in the ordered pairs. For the prewar period, I secured estimates for both IM and EM for Japan from United Nations. Department of Social Affairs. Population Division (1953) for the years 1921–1933. As is evident from the following pairs – (0.1, 0.001) for the 1920s, and (0.3, 0.1) for the 1930s – the closed nature of Japan evident for the postwar period is also apparent for the interwar period. I conclude my list of “acceptable” countries with the three North American nations: Mexico, Canada, and the United States. For Mexico, I obtained estimates for both immigration and emigration covering the period 1925–1984 from Mitchell (1993). My scrutiny of the data made me suspicious of the emigration estimates. The figures seemed too low. Undocumented emigration of Mexican citizens to the United States is well known. For the record I report the following nimr1/nimr2 pairs for Mexico: (8.4, 1.0); (10.6, 2.0); (7.8, 0.1); (0.3, 0.3); (1.2, 0.5); (0.9, 1.8); and (5.1, 1.7). The fact that beginning with the third pair – for the period 1939–1945 – the nimr1 estimate is consistently negative and the nimr2 estimate is consistently positive, strikes me as interesting. I find it hard to escape the conclusion that growing undocumented and officially unsanctioned emigration to the United States after 1939 accounts for this pattern. The Canadian data fail to record permanent emigration until recent years, until official estimates for Canada appear in United Nations. Department of Social Affairs (various years) beginning with 1979. Beginning with 1979 I was able to compute an adjustment ratio (permanent emigrants/total emigrants) with which I adjusted figures on total emigrants reported by the Canadian government in Canada. Ministry of Industry, Trade and Commerce (various years) and in Mitchell (1993).

Appendix A.1 211 Using my nimr1 based estimates for total emigrants for pre-1979, I estimated a permanent emigrant series for Canada for the pre-1979 period by applying the ratio for 1979 to earlier years. Taking care to do this in the Canadian case seemed crucial, since Canadians have moved back and forth across the Canada/United States border on temporary work permits or for short stays throughout the twentieth century. With this approach, I arrived at estimates for Canada for both IM and EM covering the years 1926–1992. As can be seen from the following nimr1/nimr2 pairs – (0.6, 1.3); (7.4, 6.3); (3.3, 3.3); (5.9, 3.3); and (4.8, 3.4) – the two sets of estimates for net immigration are fairly close, and do not seem to be marred by the problems apparent for Mexico. This brings me by way of conclusion to the most important country of permanent immigrant settlement, the United States. Failing to find usable tables in Mitchell (1993), I relied on United Nations. Department of Social Affairs. Population Division (1953), United States. Department of Commerce, Economics and Statistics (various years), and United States. Department of Commerce, Bureau of the Census (1975). Given the long record of the United States in reporting immigration – back to 1820 as is discussed in Chapter 5 – the relatively short period for which I report estimates on American demographic openness is worthy of comment. The period for which I could derive estimates for both immigration and emigration for the United States is 1908–1992. Why was I limited to the post1907 period? The major constraint is the lack of estimates for national birth and death rates prior to 1908: without these figures, I could not generate figures for nimr1 with which I could coax out estimates of emigration from the figures on immigration. To be specific I adopted the following procedures: for the period 1918–1948 I was able to secure estimates for the net immigration of alien immigrants which I subtracted from the figures on immigration to arrive at estimates of emigration of alien residents. To these estimates I added, for the years 1918–1932, data on the emigration of United States citizens given in United Nations. Department of Social Affairs. Population Division (1953). For the years after 1948, I employed figures on net immigration (in principle, permanent immigration) given in United States. Department of Commerce, Economics and Statistics (various years). In theory, this procedure is superior to that using nimr1 since it works with net permanent immigration figures, rather than on the net total immigration estimates implicit in using the nimr1 procedure. Beginning with the official data reported for immigration in 1977, I found that the figures on net immigration are not consistent with the figures on immigration (in some years, using the figures implies a negative number of persons emigrated). Thus, in putting together estimates for the post-1977 years, I took the ratio of net immigration to immigration for 1977, and applied this to figures on immigration for all years thereafter, generating estimates for net immigration in the post-1977 period.

212 Appendix A.1 My pairs of nimr1/nimr2 estimates for the United States are as follows: (2.8, 7.1); (2.5, 2.8); (1.5, 2.3); (1.4, 0.1); (1.0, 0.3); (2.3, 1.3); (1.8, 1.5); (4.1, 1.7); and (2.3, 2.7). It is reassuring that in most periods – but not all – the figures are fairly close. I began this appendix by bewailing the crudeness and deficiencies of the underlying empirical evidence that I work with in this book. I also pointed out that there is nothing unique about the problems that I encountered in my efforts. Most empirical data – whether contemporary, or historical – are plagued with problems. In particular, any project attempting to analyze long-run change must grapple with major problems involving definitions of variables, and the manner in which data are collected and reported. Still, I feel that the estimates arrived at here are plausible. Ultimately, the proof of the pudding is in the eating. I do believe that my statistical analysis is robust, albeit subject to the kinds of criticism concerning arbitrary procedures for adjusting reported numbers that I have fully acknowledged in this appendix. Let me summarize my findings: 1

2

3

Estimating net immigration from birth and death rates is a business fraught with peril: the differences between my estimates of nimr1 and nimr2 testify to this. Scholars working on immigration and emigration should be aware of this, and should attempt to measure the components of international migration using both methods employed here. Countries of permanent settlement – Australia, Canada, New Zealand, and the United States – are better at reporting immigration than emigration. Countries of net emigration – the European countries and Japan prior to the mid-1960s, for example – are better at reporting emigration. Once the countries within this latter group have experienced crossover from net emigration to net immigration, they become increasingly attentive to measuring immigration, but this attentiveness varies from country to country. Because some countries tend to measure immigration more accurately, and others to measure emigration more accurately, the logic of relating trade openness to immigration openness for countries of settlement, and the logic of relating trade openness to emigration in countries of net emigration, becomes compelling. Thus, the estimates in Chapter 4 relating trade openness to demographic openness are preferable to those given in Chapter 2. The number of countries with reasonably reliable estimates of trade and demographic openness that go back to the 1880s is limited. This should not be forgotten. Hopefully, quantitative historians will generate estimates for trade, national income, and emigration and immigration in the future for an ever widening number of countries, permitting analysis of a far larger and more geographically diverse set of countries than are studied here.

Appendix A.2 The statistical analysis David Giles

The purpose of this appendix is to provide the details of the methodology and the statistical techniques that have been used to test for causality between trade and migration for various countries, and to estimate robust relationships between trade openness and demographic openness. In the case of the former analysis we are working with annual time-series data for a number of countries, and it is particularly important to take proper account of the non-stationarity of the data, and the possibility of cointegration, when conducting formal causality tests. In contrast, the relationships between trade openness and demographic openness are estimated using cross-section data, and one of the characteristics of these data that we have to treat carefully is the presence of “outlier” in the sample.

Testing for causality between trade and migration Granger (1969) proposed a data-based method for testing if two variables are causally related. Essentially, Granger causality is defined in the following way. Suppose that we have two economic variables, X and Y, each measured period by period, over time. Now, consider our ability to predict future values of Y, using only the past history of information available for that one variable – that is, the past values of the time-series itself. Then consider our ability to predict future values of Y if we use not only its own past history, but also the past history of information available for the other variable, X, as well. If the inclusion of the past information about X improves our ability to forecast Y, then we say that X “Granger-causes” (or, more simply, we will say “causes”) Y. Causality from Y to X is defined in a corresponding manner, of course, and Granger causality may exist in one direction, both directions, or neither direction between the two variables in question. This definition of “causality” is quite specific, and clearly it has an explicitly conditional foundation – our predictive capacity is measured conditional upon the past variables or events that are taken into account. However, this definition has to be made operational. What sort of empirical model should be used as the framework for considering whether or

214 Appendix A.2 not Granger causality is present, and what is the appropriate testing procedure? Granger causality has been studied very widely in the empirical economics literature since it was first popularized by Sims (1972) – in his case in relation to the causal relationship between money and income – but obviously it has its limitations. It is worth observing from the outset that the notion of Granger causality is applicable only when time-series (rather than cross-section) data are available, and this in itself raises some technical issues. In particular, the likely non-stationarity of such data complicates the problem of actually testing to see whether or not causality is present, and this point is taken up in more detail later in this appendix. Taking these caveats into account, however, we have undertaken some formal econometric testing for the presence of Granger causality between trade and migration. More specifically, we consider the possibility of causality between the migration/population ratio and the trade/output ratio, on the one hand; and between the rate of growth of migration and that of trade, on the other, for the countries that are of interest to us in this book. In each case this testing has been undertaken between different pairs of these countries, using long-term historical time-series data. Although we have limited our attention to rather simple bivariate relationships, this is not unusual in such studies and it does not appear to have a major bearing on our results. In broad terms, the steps that are involved in our econometric analysis are as follows. First, we examine the essential characteristics of the two time-series of data, between which we wish to test for Granger causality. In particular, we check to see if there are any major structural breaks in the data, as these can affect the subsequent causality test results. In some cases the causality testing is undertaken over different sample periods to see if the conclusions are affected by any breaks in the data. At this stage we also test to see if the data are “stationary” – a point that requires some further explanation. Essentially, a stationary time-series of data is one that is generated by a process whose features are constant over time. For example, this underlying process will have a constant mean and constant variance. Testing if the data are stationary is important for a number of reasons if these data are going to be used in an econometric model of any sort. For instance, if a regression model involving non-stationary data is estimated by least squares, or some similar method, then in some cases the parameter estimates will not be meaningful (regardless of how large the sample is), and any tests relating to these parameters will be equally useless. Models of this type are often referred to as “spurious regressions.”1 So, if we are intending to test for possible causality between two series, and if one or both of these series are non-stationary, this has to be taken into account in an appropriate way when the statistical tests for Granger causality are formulated and applied. A common way in which many macroeconomic time-series are nonstationary is if they are “integrated,” or possess a “unit root.” A time-series

Appendix A.2 215 is said to be “integrated of order one” – which is usually denoted by saying that it is “I(1)” – if it needs to be differenced once to make it stationary. That is, if Yt denotes the value of the time-series at time t, and if Yt  (Yt  Yt1) is stationary, we say that Yt itself is I(1). A stationary series can be expressed as being I(0). That is, the number of times that it needs to be differenced to make it stationary is zero. More generally, if Yt has to be differenced d times to make it I(0), then we say that Yt is I(d), or “integrated of order d.” On the face of it, then it would seem that if we are going to use non-stationary, integrated, data in a regression model then first we should transform the time-series by differencing them an appropriate number of times. Of course, to do this we would have to know the order of integration of each of the series, and there are statistical tests to assist us in this respect. However, unfortunately this is not quite the full story. If we have (say) two time-series, {Xt} and {Yt}, each of which has a unit root (i.e. each of them is I(1)), it may be the case that there exists a linear combination of X and Y that is I(0), and hence is stationary.2 If this is so, then X and Y are said to be “cointegrated,” and it turns out that we can use the original (non-stationary) data for these series in a regression model. Indeed, in this case the least squares estimator has even better properties than usual if the sample size is large enough. A regression model that relates two cointegrated (and I(1)) time-series represents the long-run equilibrium relationship between them.3 Indeed, such series have a tendency to return to this relationship if short-run shocks impact on them. They cannot drift too far apart over time without reverting to their long-run path. On the other hand, a regression model that attempts to relate two non-stationary time-series that are not cointegrated is utterly useless and misleading. This is the type of “spurious regression” that was mentioned above, and it certainly does not provide any sort of basis for testing for Granger causality. The second step in our analysis is motivated by an extremely important connection between cointegration and Granger causality. Specifically, if X and Y are cointegrated, then it can be shown that there must be Granger causality either from X to Y, or from Y to X, or both ways. It is important to note, however, that the absence of cointegration does not imply the absence of Granger causality. So, when we have a pair of time-series that are I(1), we can test for the presence of cointegration to get a partial indication of whether causality is present. The indication is incomplete for three reasons. First, as was just noted, we can have causality even if the data are not cointegrated. Second, the presence of cointegration does not tell us the direction of the causality. Finally, the econometric tests for nonstationarity in the form of unit roots, and for cointegration, tend to have relatively low “power,” even in quite large samples, so the outcomes of these tests may be quite unreliable.4 In the third step of our analysis we construct and estimate a twoequation “Vector Autoregression” (VAR) model.5 The VAR model is made

216 Appendix A.2 up of a pair of regression equations. One of these “explains” the current value of the trade ratio (say) in terms of past values of this ratio, as well as past values of the immigration ratio (say). The second equation “explains” the current value of the immigration ratio in terms of past values of itself and past values of the trade ratio. There are some practical considerations that have to be addressed, of course. For example, how many lagged values of the variables should be incorporated in each equation? Once this is decided, the model may have to be modified slightly (as is explained more fully below) to allow for the presence of any unit roots in the data. The VAR model is then estimated as a joint system of two equations. The final stage of our analysis involves conducting two tests. The first is to see if the coefficients of the lagged values of the immigration ratio in the first equation are significantly different from zero; and the other is to see if the coefficients of the lagged values of the trade ratio in the second equation are significantly different from zero. In the first case, significance implies that immigration “Granger-causes” trade; and in the second case, significance implies that trade “Granger-causes” immigration. Each of the four steps that have been described here also apply when we test for Granger causality between the rate of growth of trade, and the rate of growth of immigration. There are several technical econometric issues that must be taken into account when this modeling and testing is undertaken. Since Sims (1972) tested for causality between income and money in the United States, the empirical literature associated with Granger causality testing has become substantial and extremely varied. Not only have such tests been conducted in the context of a staggeringly broad range of economic relationships, but the particular way in which the tests have been formulated has also changed over the years. Not surprisingly, the earliest empirical studies took no account of the possibility that the time-series data being used might be non-stationary or cointegrated. This simply reflected the historical development of time-series econometrics. So, the levels (or perhaps the logarithms) of the time-series were used in the VAR model, and the implications of non-stationarity for the properties of estimator and causality test properties were simply ignored. Similarly, many of these early studies ignored the presence of lagged dependent variables in the equations of the VAR model when testing to determine the maximum lag length to be used for the regressors, and when interpreting the tests for Granger causality. As will be apparent from our earlier discussion, the latter tests are actually tests of non-causality. In a particular equation, a variable Y is regressed on lags of Y, and lags of X. The null hypothesis that is then tested is that all of the coefficients of the lagged values of X are zero. Rejection of this hypothesis implies Granger causality, from X to Y. Originally, in the earlier econometric literature, a conventional F-test was used to test the null hypothesis of non-causality,

Appendix A.2 217 and t-tests were used to determine the maximum lag lengths for the explanatory variables. Under standard conditions for the equation’s error term, and in the absence of lagged endogenous regressors, these tests would be appropriate (if the data were stationary). However, even with stationary data the usual F-statistic (and hence t-statistics) for testing linear restrictions on the parameters is not F-distributed (t-distributed) when the null hypothesis is true if lagged values of the dependent variable are used as explanatory variables. All that can be said in this case is that “m” times the F-statistic, and the square of the t-statistic, are Chi-square distributed if the null hypothesis is true, as long as the sample is infinitely large.6 Indeed, asymptotically this F-test is equivalent to the Wald, Lagrange Multiplier, and Likelihood Ratio tests. Sims (1980) recognized this point and suggested a finite-sample correction for the non-causality test. As far as the lag-length selection problem was concerned, the use of sequential t-tests was soon dropped in favor of using the various information criteria, such as those of Akaike (1974) and Schwartz (1978). In time, the emergence and vigorous growth of the literature associated with unit roots and cointegration led some authors to formulate their VAR models in terms of the first-differences of the data, though it took some time before the appropriate options for model formulation were clarified and adopted. Essentially, the choices are as follows. First, if the data are stationary, then the VAR model may be estimated using the levels of the data. Second, if one of the variables is stationary and the other has a unit root, then the latter variable should be first-differenced, the former should be left in its levels, and then the VAR model will involve relationships which comprise “balanced regressions.” Third, if both series are I(1) but not cointegrated, both of them should be first-differenced. Finally if both series are I(1) and they are also cointegrated then there are two specifications of the model that are both valid and interesting for different reasons. One option is that in spite of their non-stationarity, the timeseries may be used in their levels. In this case the equations represent long-run equilibrating relationships, or “cointegrating regressions.” The other option is to use first-differenced data and to include errorcorrection terms in the equations of the VAR model. In this case an allowance is being made for the short-term dynamics of the relationships. By way of illustration, one of the earliest Granger-causality studies to take full account of these time-series issues in the context of testing the exportled growth hypothesis is that of Giles, Giles, and McCann (1992). However, once the implications that unit roots and cointegration have for the way in which the VAR model should be formulated were sorted out satisfactorily, there was still a remaining problem. It was still not appreciated fully that the usual Wald (or equivalent) test statistic, that is used to test for Granger non-causality, has a completely non-standard null distribution, even asymptotically. In particular, it does not follow the usual largesample Chi-square distribution. Once this vital point was recognized,

218 Appendix A.2 various solutions emerged. One of the earliest of these solutions, and in many ways the easiest to implement in the case of bivariate VAR models, is that proposed by Toda and Yamamoto (1995). They show that the standard asymptotic theory for causality testing holds if we proceed as follows. First we determine the lags in the VAR equations in the usual way by using information criteria, but then we add extra lags of the variables, equal in number to the maximum order of integration of the data series in question. So, if one or both of the variables is I(1) we would add one more lag of the variables to each of the VAR model’s equations. It is important to note that the data are not differenced to make them stationary when the VAR model is constructed and estimated. We then estimate the system by joint maximum likelihood, and we can apply the usual Wald test to see if the coefficients of the lagged trade variables (excluding the extra ones) are jointly zero in the immigration equation. In the same way, we can test if the coefficients of the lagged immigration variables (excluding the extra ones) are jointly zero in the trade equation. If we proceed in this way, then under the null hypothesis the Wald test statistic will be asymptotically Chi-square, with degrees of freedom equal to the number of “zero restrictions,” even though the trade and immigration time-series are non-stationary. Whether or not the series are cointegrated is not important as far as the formulation of the models, or the application of the non-causality tests, are concerned. So, the application of the Toda and Yamamoto methodology for testing for Granger causality requires that we first determine the orders of integration of each of the various immigration and trade series. To do this we have used both the KPSS test and the “augmented” Dickey-Fuller (ADF) test. With respect to the choices that have to be made over the inclusion of drift and/or trend terms in the ADF regression, we have followed the sequential strategy of Dolado, Jenkinson, and Sosvilla-Rivero (1990).7 The number of augmentation terms for the ADF test, and the bandwidth parameter for the KPSS test, were chosen using the Schwarz (1978) criterion. All of our modeling and testing was undertaken with the EViews econometric package.8 Some economic time-series are known to be I(2), so for each of our series we have tested the null hypothesis of I(3) against I(2); then, if we reject I(3), we test I(2) against I(1); and finally we test I(1) against I(0), if necessary.9 The unit root testing has been conducted over various natural sub-samples of the data and, if necessary, we have used modified tests that take any remaining structural breaks into account.10 As unit root tests are known to have relatively low power, we have used a 10 percent significance level when conducting them. Most of the series were found to be I(1), and the rest are I(0). Accordingly, one extra lag of the variables has to be included in the VAR models when testing for Granger non-causality by the method suggested by Toda and Yamamoto.11 With regard to the latter, the usual Wald test was used, with an implicit

Appendix A.2 219 10 percent significance level. However, none of the test outcomes were particularly sensitive to the choice of significance level, as can be seen from the p-values that are presented in Table A.2.4. The two-step procedure of Engle and Granger (1987) was used to test for cointegration between the immigration and trade series. In each case, the cointegrating regressions were fitted both with and without linear trends, and the analysis was duplicated by estimating these regressions both with the immigration series as the dependent variable, and with the trade series as the dependent variable. The results of the cointegration tests were not sensitive to these choices when a 10 percent significance level was used. As was noted earlier, the existence of cointegration implies that there is either uni-directional, or bi-directional Granger causality between the time-series in question. As can be seen in Tables A.2.1 and A.2.2, there is only one minor conflict between the implications of the cointegration tests, and the results of the Wald tests for Granger causality.12 Our first set of causality tests relates to the aggregate trade/GDP ratio and the aggregate migration/population ratio for five of the countries that are considered in this book – namely, the U.S.A., U.K., Canada, Australia, and New Zealand. By “aggregate” ratios we mean trade with all countries as a ratio of GDP, and migration relating to all other countries as a ratio of the population. In the case of the U.K., the migration flows under consideration are outflows – i.e. emigration to other countries. In all other cases they are immigration flows. As can be seen from the summary in Table A.2.1, we find evidence that trade (Granger-) causes migration during the period prior to World War II, in the case of both Australia and the U.K.13 On the other hand, migration causes trade to

Table A.2.1 Summary of Granger causality test results: aggregate trade and migration ratiosa Country

Sample

Migration causes trade

Trade causes migration

Cointegrationb

United States Canada New Zealand Australia

1898–1998 1926–1989 1918–1999 1902–1938

Yes No No No

No No No Yes

Yes No n.a. No

United Kingdom

1952–1996 1855–1938 1946–1998

Yes No No

No Yes No

Yes Yes Yes

Notes a Migration is emigration in the case of the United Kingdom, and immigration in all other cases. b n.a.  not applicable (the concept of cointegration is defined only if both time-series are integrated of the same order).

220 Appendix A.2 occur in the case of Australia in the post-World War II period, and for the U.S.A. over the last 100 years. The summary results in Table A.2.1 are also interesting for what they do not show – in no cases do we find evidence of bi-directional causality between trade and migration. Table A.2.1 also summarizes the outcomes of the tests for cointegration between the aggregate trade and migration ratios.14 These are presented merely as a rather informal cross-check on the outcomes of the causality tests. It will be recalled from the discussion earlier in this chapter that the existence of cointegration implies that there is Granger causality between the variables, at least in one direction, though the converse is not true. As can be seen in the last column of Table A.2.1, this condition is satisfied in all of the cases where cointegration is detected, except for the U.K. data for 1946–1998. Accordingly, this lends substantial support to the outcomes of the causality tests in that table. We can now explore these broad results in more detail by considering the regional locations of the various trading and migration partners, so in this case the trade ratio and the migration ratio relate to the “home” country and either one other country, or one regional group of countries. The associated causality test results are presented in Table A.2.2. First, let us consider the finding that migration causes trade for the U.S.A., and for Australia over part of our historical sample. Considering the results for the U.S.A. in Table A.2.2, we see that this finding applies more specifically to trade and migration flows between that country and Europe, the U.K., and the rest of the Americas. Moreover, we also see that once the data relating to Asia are removed from the picture, there is in fact evidence of bi-directional causality with respect to the trade and migration ratios. So, in a sense, the summary result for the U.S.A. in Table A.2.1 is somewhat incomplete, and it is distorted by the inclusion of the data relating to the U.S.A.’s interaction with Asian countries. As is indicated in Table A.2.2, there is actually no evidence of causality with respect to the latter partners. Second, let us look more closely at the evidence relating to Australia in Table A.2.2. It indicates that the causality from migration to trade in the period after World War II arises from the interactions between Australia and Asia, Europe, and the Americas. In the case of Australia’s dealings with Europe during that same period, apparently trade also caused migration – the causal effects operated in both directions. Now, what about the summary evidence in Table A.2.1 relating to situations in which trade caused migration? In the case of Australia in that part of the twentieth century prior to World War II, the results in Table A.2.2 in fact show that the situation was rather ambiguous. Causality apparently ran in this direction when we focus on Australia and China, but in the opposite direction in the case of Australia and British countries. Finally, when we consider the trade and migration flows between the U.K. and other countries, it is apparent that the causality from trade to migration, in the period from the mid-nineteenth century to the outset of World War II, is a con-

Appendix A.2 221 Table A.2.2 Summary of Granger causality test results: country breakdown of trade and migration ratiosa Panel A: Primary country United States (U.S.A. and . . .) United States and . . .

Sample

Migration causes trade

Trade causes migration

Cointegrationb

Europe

1840–1990

Yes

Yes

n.a.

Asia

1840–1987 1950–1987

No No

No No

No No

Americas

1840–1990

Yes

Yesc

n.a.

United Kingdom

1840–1996

Yes

Yes

Yes

Panel B: Primary country Canada (Canada and . . .) Canada and . . .

Sample

Migration causes trade

Trade causes migration

Cointegrationb

Non-U.S.A., non-U.K., Europe

1956–1983

No

Yes

Yes

Non-U.S.A., U.K.

1956–1983

No

Yesc

Yes

Non-U.S.A., Europe

1956–1989

No

Yes

Yes

Non-U.S.A., Japan

1956–1989

No

Yes

No

U.S.A.

1956–1989

Yes

Yes

No

Non-U.S.A. trade with U.K. and British ethnicity migration

1926–1960

No

No

No

Panel C: Primary country New Zealand (New Zealand and . . .) New Zealand and . . .

Sample

Migration causes trade

Trade causes migration

Cointegrationb

U.K.

1951–1983

Yes

No

Yes

Australia

1951–1983

No

No

No

U.S.A.

1951–1983

No

Yes

Yes

U.K. and Australia

1895–1941

No

Yes

Yes

North America

1922–1941

No

Yes

n.a. continued

222 Appendix A.2 Table A.2.2 continued Panel D: Primary country Australia (Australia and . . .) Australia and . . .

Sample

Migration causes trade

Trade causes migration

Cointegrationb

British countries

1902–1938

Yes

No

Yes

Non-British, U.S.A.

1902–1938

No

No

No

Non-British, China and Japan

1902–1938

No

Yes

Yes

Asia

1970–1994

Yes

No

Yes

Europe

1970–1994

Yes

Yes

Yes

Americas

1970–1994

Yes

No

Yes

Panel E: Primary country United Kingdom (U.K. and . . .) United Kingdom and . . .

Sample

Migration causes trade

Trade causes migration

Cointegrationb

U.S.A.

1854–1938 1946–1998

No Yes

No No

No n.a.

Canada

1854–1938 1946–1980

No No

Yes Yes

Yes n.a.

Australasia

1854–1938 1946–1980

No No

No Yes

n.a Yes

European Economic Community

1964–1998

No

Yes

No

Notes a Migration is emigration in the case of the United Kingdom and immigration in all other cases. b n.a.  not applicable (the concept of cointegration is defined only if both time-series are integrated of the same order). c This result is supported only weakly by the outcome of the causality test.

sequence of the bilateral dealings between the U.K. and Canada. What is also particularly interesting is the evidence that in the post-World War II period, trade caused migration from the U.K. to all regions other than the U.S.A. This result does not show up in the summary in Table A.2.1 because of the reverse causality – from U.K. emigration to trade with the U.S.A. – in this period. One effect dominates and masks the other when the results are looked at in the aggregate. Looking at these more detailed results in Table A.2.2, and the results of the cointegration tests that are given there, it is now apparent that the aggregate results for the U.K. are sadly inadequate. These more detailed results also shed some light on the apparent conflict between the cointegration and causality test results for

Appendix A.2 223 the U.K., over the period 1946–1998, in Table A.2.1. Breaking down the data on a regional basis reveals the presence of both cointegration and causality from trade to migration. Again, it is not until the data are analyzed at a more detailed level that “clean” results emerge. In some cases, aggregating the data leads to “net” results that hide the fact that there are two or more opposing forces at work. As for trade and migration between Canada and the other regions on the one hand, and New Zealand her international partner on the other, the previous summary evidence in Table A.2.1 is again seen to be rather incomplete. In the first of these cases – Canada – we can see from Table A.2.2 that there is, in fact, very strong evidence that trade caused migration. There is also an indication that the causal effects worked both from trade to migration, and from migration to trade, between Canada and the U.S.A. Of course, this is consistent with the other results in Table A.2.2 relating to the U.S.A.’s trade and migration links with the Americas in general over an even longer time-span. Turning to the case of New Zealand, the overriding impression that one gets is that trade caused migration. The exception is with regard to trade with, and immigration from, the U.K. during the postWorld War II period up to the beginning of the New Zealand economic reforms in the early to mid-1980s. Of course, the relationship that New Zealand had with the U.K. during this historical period was a very special one, as is discussed in detail elsewhere in this book. Finally, the result in Table A.2.2 that suggests an absence of causality between trade and migration – in either direction – in the case of New Zealand and Australia is a little surprising, though not at odds with the absence of cointegration in the data. In part, this finding may reflect the fact that the data for migration flows between Australia and New Zealand are complicated by the flows of people back and forth, as a result of the long-standing arrangements that pose no barriers to entry and work. Moreover, there have been special bilateral trading relationships between these two countries since the mid-1960s. These were fostered first by the rather limited New Zealand–Australia Free Trade Agreement (“NAFTA,” but not to be confused with the much more recent North America Free Trade Agreement between the U.S.A., Canada, and Mexico) between 1966 and 1983. This was subsequently followed by the more significant, and broader, Closer Economic Relations (“CER”) free trade area agreement. The phasing in of the latter began in 1983 and was completed by 1990. An excellent recent account concerning these matters is in Evans and Richardson (2002). It will be recalled that the results of the tests for possible cointegration between the trade and migration data are being presented as a crosscheck on the results of the Granger causality tests. In particular, if cointegration is present, then there should be Granger causality – in one direction or both – between migration and trade. One exception to this expected result was obtained with the results based on the aggregate data in

224 Appendix A.2 Table A.2.1, but in Table A.2.2 – where the data have been used in a more refined manner – there are no such exceptions. This feature of the results in the latter table is most comforting, as it reinforces the weight that we can place on the outcomes of the causality tests. Certainly, the results that we have presented are somewhat mixed overall, as we have detailed already, but it does seem that on balance our analysis favors the hypothesis that trade Granger-causes migration, more than it favours the converse hypothesis that migration causes trade. Although our empirical analysis has been based primarily on the trade/GDP and migration/population ratios, we have also undertaken some empirical testing with data of a different form. In particular, as an alternative to using the ratio data we have also tested for the presence of Granger causality between the annual growth rate of trade, and the annual growth rate of migration. Again, the latter relates to emigration in the case of the U.K., but immigration in the case of each of the other countries that we are studying. In this case we have pursued the analysis only with aggregate trade and migration data – we have not considered a more detailed study of the growth rates broken down on a regional basis. Our results are summarized in Table A.2.3, and the details are given in part (b) of Table A.2.4. As is clear, these results lend a significant degree of support to the hypothesis that expansion in trade causes an expansion in migration in the cases of the U.S.A., Denmark, Norway, Sweden, and Table A.2.3 Summary of Granger causality test results: aggregate trade and migration growth ratesa Country

Sample

Migration causes trade

Trade causes migration

Cointegrationb

United States Canada

1908–1993 1926–1990

No No

Yes No

n.a. n.a.

New Zealand

1918–1938 1946–1992 1918–1992

Yes No Yes

No Yes No

n.a n.a n.a

Australia

1902–1937 1952–1991 1902–1991

No Yes No

Yes No Yes

n.a n.a n.a

United Kingdom Denmark Norway Sweden

1880–1937 1880–1938 1880–1938 1880–1938

Yes Yes No Yes

No Yes Yes Yes

n.a. n.a n.a n.a

Notes a Migration is emigration in the case of the United Kingdom, Denmark, Norway, and Sweden, and immigration in the case of United States, Canada, New Zealand, and Australia. b n.a.  not applicable. All series are found to be stationary, based on the ADF and KPSS tests.

Appendix A.2 225 Table A.2.4 Wald test results for Granger non-causality Panels A.1–A.5: Migration and trade ratios Panel A.1: Primary country United States (migration and trade ratios) Country

Other region

United States Europe Asia Americas United Kingdom

Lags

9 2 1 3 7

Migration equation

Trade equation

Wald test

P-value

Wald test

P-value

10.800 19.921 0.430 5.824 21.201

0.290 0.000 0.512 0.121 0.004

17.962 14.192 0.012 8.891 21.385

0.036 0.001 0.913 0.030 0.030

Panel A.2: Primary country Canada (migration and trade ratios) Country Other region

Lags Migration equation Trade equation Wald test P-value Wald test P-value

Canada Non-U.S.A. with Non-U.K. Europe Non-U.S.A. with U.K. Non-U.S.A. with Europe Non-U.S.A. with Japan United States Non-U.S.A. trade with U.K. and British ethnicity migration

2 7

2.770 65.452

0.250 0.000

1.097 2.688

0.578 0.912

4 2 8 2 3

7.311 12.058 38.596 6.392 4.677

0.120 0.002 0.000 0.041 0.197

4.285 1.186 3.095 11.644 0.499

0.369 0.553 0.928 0.000 0.919

Panel A.3: Primary country New Zealand (migration and trade ratios) Country

Other region

New Zealand U.K. Australia U.S.A. U.K. and Australia North America

Lags

3 1 3 8 2 3

Migration equation

Trade equation

Wald test

P-value

Wald test

P-value

0.752 0.155 0.386 3.933 1.176 6.281

0.861 0.693 0.943 0.863 0.555 0.099

3.704 4.351 1.959 20.176 4.944 0.252

0.295 0.037 0.581 0.010 0.423 0.969 continued

226 Appendix A.2 Table A.2.4 continued Panel A.4: Primary country Australia (migration and trade ratios) Country

Other region/period

Lags Migration equation Trade equation Wald test P-value Wald test P-value

Australia 1902–1938 1952–1996 British countries Non-British, U.S.A. Non-British, China and Japan Asia Europe Americas

4 1 8 1 1 6 6 6

24.110 0.346 12.583 0.067 6.695 3.499 213.002 8.720

0.000 0.556 0.127 0.795 0.010 0.744 0.000 0.190

1.145 14.803 16.498 0.160 0.114 13.556 11.077 15.445

0.887 0.000 0.036 0.689 0.736 0.035 0.086 0.017

Panel A.5: Primary country United Kingdom (migration and trade ratios) Country

Other region/period

Lags Migration equation Trade equation Wald test P-value Wald test P-value

United Kingdom 1855–1938 1946–1998 U.S.A., 1854–1938 U.S.A., 1946–1998 Canada, 1854–1938 Canada, 1946–1980 Australasia, 1854–1938 Australasia, 1946–1980 European Economic Community

5 2 2 1 6 5 1 1 1

22.178 2.597 1.356 0.242 13.530 10.471 0.244 5.567 4.359

0.001 0.273 0.508 0.623 0.035 0.063 0.621 0.018 0.037

8.035 2.129 2.873 3.192 17.735 7.319 1.337 0.302 1.734

0.154 0.345 0.238 0.074 0.007 0.198 0.248 0.583 0.188

Panel B: Migration and trade growth rates Country

U.S.A. Canada New Zealand

Australia

U.K. Denmark Norway Sweden

Period

1908–1993 1926–1990 1918–1938 1946–1992 1918–1992 1902–1937 1952–1991 1902–1991 1952–1996 1880–1937 1880–1938 1880–1938 1880–1938

Lags

5 1 1 2 1 1 1 1 1 7 3 5 3

Migration equation

Trade equation

Wald test

P-value

Wald test

P-value

11.762 2.116 0.859 5.029 0.607 22.765 0.499 27.296 37.249 3.801 23.587 11.762 15.846

0.038 0.146 0.354 0.081 0.436 0.000 0.779 0.000 0.000 0.802 0.000 0.038 0.001

4.384 0.542 4.204 0.363 5.928 0.009 7.352 1.232 3.496 171.183 10.072 4.384 7.443

0.496 0.462 0.040 0.834 0.015 0.924 0.025 0.267 0.836 0.000 0.018 0.496 0.059

Appendix A.2 227 moderate support in the case of Australia. The same form of causality is also found for New Zealand in the period after World War II. Taking account of note (a) to Table A.2.3, it is clear that this result does not depend on the direction of the migration flows. In contrast, we see that migration causes trade, but not vice versa in the case of the U.K., and no evidence of causality in either direction is found for Canada. Denmark and Sweden provide the only two instances of two-way causality among the countries and time-periods that we have considered.

Trade openness and demographic openness – robust estimation Here, we provide some information about the robust regression analysis based on the data discussed in Chapter 2 of this book. It will be recalled that these data are cross-sectional in nature, and they relate to demographic and trade openness on the part of a number of countries. With cross-section data we do not have to be concerned with the non-stationarity and cointegration issues that were so crucial to the discussion in the previous section. Neither does the concept of Granger causality intrude upon the analysis here. Indeed, as it is not clear whether any regression analysis between the two openness variables should adopt trade openness as the dependent variable or demographic openness in this capacity, we have estimated the models both ways, as can be seen in Table A.2.5. When working with cross-section data, the possibility of heteroskedastic errors in our regression models is always a concern, as the presence of this phenomenon will result in inconsistent estimation of the covariance matrix for the errors, and hence in standard errors that are also inconsistent. Accordingly, when applying OLS estimation we have calculated White’s (1980) “heteroskedasticity-consistent” standard errors as these are robust to any form of heteroskedasticity. In Table A.2.5 we see that the estimated slope coefficients are positive, as anticipated from the discussion and charts in Chapter 2. More importantly, though, we see that the OLS “t-ratios” for both the intercept and slope coefficients are generally quite significant, and with one exception the slope “t-ratios” are larger when trade openness is “explained” as a function of demographic openness, rather than vice versa. Very small R2 values are quite common in the case of cross-section data. The other important feature of our data that needs to be taken into account is the fact that there are “outliers” in the sample. This is discussed in Chapter 2. This feature of the data raises some questions about the quality of the OLS results, as this estimator is sensitive to extreme values in the sample as a result of its use of a “squared error” penalty function. To deal with this we have re-estimated the various relationships between trade and demographic openness using various “robust” regression estimators, using some of the options in the SHAZAM econometrics package.15 In Table A.2.5 we report results based on Tukey’s (1977) version of quantile

228 Appendix A.2 Table A.2.5 Least squares and quantile regression results: trade openness and demographic opennessa Panel A: Dependent variable is trade openness Sample

N

Estimator

Intercept

Slope

R2

1914–1945

32 32

OLS Tukey

27.718 (9.209) 26.781 (1.774)

0.106 (1.952) 0.094 (3.100)

0.088 0.088

Post-war

71 71

OLS Tukey

32.509 (8.759) 30.761 (19.480)

0.087 (2.683) 0.079 (5.739)

0.094 0.094

Pooled

136 136

OLS Tukey

31.208 (16.150) 30.697 (27.120)

0.090 (4.387) 0.075 (6.517)

0.095 0.095

Emigration

59 59

OLS Tukey

31.463 (10.940) 30.915 (18.130)

0.241 (3.276) 0.255 (5.681)

0.120 0.120

Immigration

30 30

OLS Tukey

17.154 (3.916) 12.205 (5.024)

0.151 (3.925) 0.171 (6.812)

0.288 0.288

Slope

R2

Panel B: Dependent variable is demographic openness Sample

N

Estimator

Intercept

1914–1945

32 32

OLS Tukey

22.334 (2.567) 15.121 (1.774)

0.831 (3.856) 0.706 (3.100)

0.088 0.088

Post-war

71 71

OLS Tukey

41.374 (2.250) 29.160 (2.775)

1.086 (2.683) 1.033 (4.467)

0.094 0.094

Pooled

136 136

OLS Tukey

32.037 (3.800) 14.501 (2.011)

1.054 (5.034) 1.105 (6.511)

0.095 0.095

Emigration

59 59

OLS Tukey

10.198 (1.590) 3.699 (0.649)

0.501 (3.107) 0.580 (4.284)

0.120 0.120

Immigration

30 30

OLS Tukey

24.156 (1.725) 1.159 (0.196)

1.901 (3.447) 2.688 (15.04)

0.288 0.288

Note a t-Values appear in parenthesis. In the case of OLS estimation, these are based on White’s (1980) heteroskedasticity-consistent standard errors.

regression estimation, and once again we have positive and statistically significant results. In the case of these robust (and therefore more appropriate) estimates, the reported “t-ratios” for the slope coefficients generally are larger when demographic openness is “explained” as a function of trade openness, than vice versa. This corresponds to the case where the causal relationship is being assumed to run from trade openness, to demographic openness.16 So, in a very loose sense, although we cannot reject two-way causality, these quantile regression results lend modest support to the hypothesis that trade causes migration, more than the converse. In any case, the significant positive nature of the relationship between demographic and trade openness is amply illustrated.

Notes

1 Globalization, trade, and migration 1 For a detailed discussion of the transformation wrought in eighteenth and nineteenth century England and Wales through the switch from an economy centered around organic energy sources to one focused on inorganic energy sources, see Wrigley (1988). 2 For contemporary examples illustrating how squabbles between ethnic or cultural sub-groups within nations detract from infrastructure investment promoting economic development, see Easterly (2001), Easterly and Levine (1997) and Gilbert and Vines (2000). 3 For gravity models of international trade see Anderson (1979), Bergstrand (1989, 1990), and Frankel (1997). Salvatore (1998) provides a general introduction to the technical issues in international trade theory, a knowledge of which is presumed by the authors cited above. Dunlevy and Hutchinson (1999) advance a theory of Atlantic trade in the nineteenth century that links migration across the Atlantic to trade across the Atlantic. In their model, migration causes trade: immigrant groups demand products from their countries of origin, fueling American demand for goods from Europe. My model linking trade and migration is far more general than their model; moreover, as I show in Chapter 4, in a number of bilateral settings trade causes migration (in some cases, migration causes trade and in some cases the causation runs in both directions). 4 For the importance of infrastructure investment for economic development, see World Bank (1993, 1994) and Mosk (2001). 5 I draw heavily upon Mearsheimer (2001) for the analysis of international relations developed here and for the concept of the “stopping power of water” that I use at various points in my account. However, I do not fully accept his neorealist position that downgrades the importance of global integration through trade and foreign investment. Other works on international political economy that I have consulted in developing my analysis include Berger and Dore (1996), Gilpin (1987), Krasner (1987), and Webb and Krasner (1989). The Webb and Krasner article makes an important distinction between achieving economic hegemony and achieving military (security) hegemony. It is a distinction I agree with: in my model states may or may not choose to convert their potent power into actual military power. For instance, in the post-1990 world the relative military power of the United States is far greater than its relative economic power, since countries like Japan and Germany have chosen to suppress military spending as a percentage of national income. For details and further references to the literature, see Chapters 7 and 8.

230 Notes 2 Demographic openness and trade openness 1 For a critical analysis of the current philosophy of the International Monetary Fund that views many of its approaches as flawed and misguided, coupled with a discussion of opposition to International Monetary Fund policies within the developing world, see Stiglitz (2003). 2 I have drawn most of this sentence’s content from Bearden (2003). 3 The figures for growth rates of trade and migration that appear in Table 2.1 (and also in Tables 2.2 and 2.3) are estimates of annual growth rates for the various (in most cases, decade) periods given at the left of the table. They were estimated by averaging annual growth rates over each particular period. They were computed directly from figures on “real” trade – calculated by multiplying my openness estimates by the real income figures given in Maddison (2000) – and from figures for the number of immigrants and emigrants combined. Computations for groups of countries (e.g. Western Europe as a whole region) were made by weighting individual country growth rates for trade, and individual country levels of trade openness, by the relative size of the real national incomes of the countries involved; and by weighting individual country growth rates for total migration (immigrants plus emigrants), and individual country figures on demographic openness, by the relative population size of the countries involved. 3 Crossover 1 How correlated are the net immigration rates computed using the two methods? Doing a country by country correlation of nimr1 (computed from population growth rates and the natural rate of increase) and nimr2 (computed from figures on migration flows) reveals that the degree of correlation varies tremendously by country. The correlations are generally high for the Scandinavian countries and are lower elsewhere. For Australia between 1902 and 1992 the correlation is 0.212; for Austria between 1950 and 1984, 0.447; for Belgium between 1950 and 1993, 0.542; for Canada between 1926 and 1991, 0.573; for Denmark between 1880 and 1993, 0.738; for Finland between 1900 and 1993, 0.898; for France between 1950 and 1988, 0.601; for Germany and Greece the correlations are perfect by construction; for Italy, between 1921 and 1942, 0.703; for Italy between 1946 and 1993, 0.737; for Japan between 1954 and 1995, 0.039; for Mexico between 1922 and 1985, 0.017; for the Netherlands between 1900 and 1993, 0.734; for Norway between 1880 and 1940, 0.995; for Norway between 1946 and 1993, 0.992; for Spain between 1920 and 1935, 0.725; for Spain between 1939 and 1993, 0.320; for Sweden between 1880 and 1993, 0.891; for the United Kingdom between 1880 and 1938, 0.568; for the United Kingdom between 1946 and 1993, 0.571; and for the United States between 1908 and 1994, 0.146. 2 For the use of the term “property relations and property rights” see Adelman (1994), especially page 91 ff. Morris (1992) also provides a useful discussion of the commonalities in the property relations and property rights governing land alienation and development in the United States, Canada, Australia, and New Zealand. 3 See Allen (1992, 1999) and Grigg (1989). 4 On the importance of crown land in the Canadian case (most of the Canadian land area takes the form of crown land managed by provincial or territorial governments) see Canadian Council of Resource and Environment Ministers (1972) and Lambrecht (1991). Harris (1968) discusses the seigneurial system employed by the French colonists in the their settlements along the Saint Lawrence River.

Notes

231

5 In Australia a similar process whereby sugar plantation owners along the Queensland coast and owners of large cattle and sheep stations lost political power was accomplished without resort to internecine warfare. In part, establishing the White Australia policy (thereby preventing large landowners importing cheap labor from nearby Asian lands and Pacific islands) weakened the hand of the large landowner class. However, it should be kept in mind that migratory aboriginals “walking about” the Australian outback served as a component of the labor force on large Australian cattle and sheep stations. I am grateful to David Giles for this point. Comparing the development of the pampas of Argentina with the Canadian prairies over the period 1888–1914, Adelman (1994) argues that Argentina offered the opportunity to earn high wages as employees on large estates but not the opportunity to acquire land, while Canada offered the chance to secure land for homesteading at a cheap price with the possibility of realizing capital gains on its sale in the future. Adelman (1994) maintains that because of the different incentives faced by large estate owners and small scale farmers, small farmers were more likely to mechanize than owners of large estates who favored labor intensive methods of production. As a result, Canadian agriculture rapidly mechanized, while Argentina woefully lagged behind Canada in this regard. An exception is the wholesale adoption of harvesters and reapers employed to maximize the amount of land a single family could farm in Argentina. 6 For similar practices in Japan see Chapter 5 of Mosk (2001). 7 In his comparison of Argentina and Canada over the period 1888–1914, Adelman (1994) makes a convincing case that the Hayami and Ruttan (1971, 1985) argument is incomplete in the sense that it fails to take account of property relations and property rights. For instance, as is discussed in note 5 above, the conditions of relative factor availability were remarkably similar in both countries during the time period analyzed by Adelman. But mechanization was thoroughgoing in the case of Canada, while it lagged far behind in the case of Argentina. 8 On the development of the Los Angeles Water Basin and water distribution in that region, see Kahrl (1982) and Ostrom (1953). 9 In studying the land usage percentages given in Table 3.4 (e.g. in Panel A.1) please keep in mind that land is used for purposes (e.g. for residential housing, for factories, for office buildings, for retail and wholesale) other than farmland and grazing land. For this reason the percentages given for land use do not add up to 100 percent. It should also be noted that grazing land is not a subcategory of farmland. 10 For the definition of Geary-Khamis dollars, and the use of the Geary-Khamis converter used by Maddison to compute real incomes in constant U.S. dollars, see pages 161–9 in Maddison (2000). 5 The British connection 1 An important consequence of investing in human capital enhancing infrastructure is that it promotes the demographic transition – the secular decline in birth and death rates – discussed in Chapter 3. For arguments and evidence concerning the importance of infrastructure improvements for declining mortality and morbidity, see Johannson and Mosk (1987), Mosk and Johannson (1986), Preston (1976), and Preston and Haines (1991). Declining mortality – especially plummeting infant mortality – encourages lower fertility, as does increased investment in the education of children. In the case of frontiers being opened up to homesteading, availability of land seems to encourage high fertility, because children are a valuable source of labor services, and

232 Notes because children can be readily settled on new farms being opened up. As frontiers disappear so does the incentive to have exceptionally high fertility. The literature on this topic is vast: the interested reader is asked to consult David and Sanderson (1986), Easterlin (1968), Easterlin and Crimmins (1985), Mosk (1983), Teitelbaum (1984), and Yasuba (1962). The demographic transition is relevant to the improvement of income per capita for two reasons: as the probability of an infant perishing and/or the birth rate drops, parents are encouraged to invest even greater resources in each of their children; and proceeding through the demographic transition reduces the natural rate of increase in a population, potentially leading to a slower rate of population growth. Expanding interest in investing in each child fosters the demand for education. Later on in this chapter I will discuss the human development index and associated measures of physical well-being, such as the biological standard of living. What I am suggesting here is that as a society passes through the demographic transition, a drift towards improvement in the human development index and the biological standard of living is set in motion. As for a drop in the rate of population growth – see Tables 3.1, 3.2, and 3.3 for evidence that this actually happened – the suggestion that I am making here is that slower rates of population increase due to falling fertility and infant mortality contributed to a rise in per capita income. To argue this is not to claim that population growth always deters income per capita from growing – after all population grew rapidly in the Western offshoots throughout the nineteenth and early twentieth centuries – only that a slow down in population increase due to fertility decline within a society reduces some of the demands placed upon infrastructure investment in that society stemming from having large cohorts of young children, an argument explored theoretically and empirically by Coale and Hoover (1958). In this context it is noteworthy that British and Western European emigration to the Western offshoots reduced population growth rates in the former group of countries. It should be noted that my categorization of infrastructure, breaking it down into four types, is not meant to preclude “synergies” between the various kinds of infrastructure. Indeed, it is my view that synergy, feedback running from improvements in one kind of infrastructure to enhancement of other kinds of infrastructure is very important. The recent literature in economic history supports this position: for instance, Goldin (1998) emphasizes the positive contribution that transportation improvements made to schooling in America (school buses playing an important role especially in rural areas), and Fogel (2004) stresses the positive interaction of public health and medical technologies with nutritional intake, metabolism, and food production. 2 Developing financial infrastructure is important because it tends to increase the domestic private savings rate by offering households a relatively reliable vehicle for earning interest on their liquid assets. For the impact that banking makes to industrialization, see the various chapters in Cameron (1967). 3 Long swings – also known as Kuznets swings or Kuznets cycles – are discussed in Kuznets (1966, 1971), Lewis (1978), Mosk (2001), and Solomou (1990). 4 The alert reader of this text may wonder why I do not analyze demographic openness and trade openness for the United States from 1820 until the early twentieth century. The reasons are: (1) estimates of gross national product or gross domestic product for the United States are not available prior to the late nineteenth century, therefore making it impossible to estimate trade openness before that year; and (2) figures on birth and death rates with which I could approximate emigration from figures on population increase and immigration are not available for the United States as a whole prior to the early twentieth century.

Notes

233

5 In a memorandum kindly sent to me by L. Hart-González, Hart-González and Lindemann (2003) criticize the way Chiswick and Miller use the data that HartGonzález and Lindemann generated (Hart-González and Lindermann are linguistic specialists who prepared measures of the difficulty of learning foreign languages relied upon by Chiswick and Miller in constructing proxies for distance between languages). Hart-González and Lindemann (2003) point out that their own figures arose from measuring the length of time it took a select group of educated Americans to master foreign languages (more difficult languages taking longer so that the “mastery level” is negatively associated with the difficulty of learning the language), not the length of time involved in a nonEnglish speaker learning English. They also raise issues concerning the validity of the classification scheme used to calibrate the degree of mastery acquired in learning a foreign language and the reliability of the reported scores measuring the degree of mastery. It should be pointed out that their paper does more than criticize: they provide estimates of the difficulty of learning foreign languages that they feel are superior to those used by Chiswick and Miller (1998). 6 See Keeling (1999: 44). 7 The United States and Canada had a comparative advantage in producing wooden sailing ships for transatlantic voyages because of their rich endowments in forests. For the American packet lines and clipper ships see Bauer (1988) and Palmer (1971). On the rise and fall of British dominance in shipping, see Burley (1968), Platt (1993), and Sturmey (1962). 8 Figures are taken from Palmer (1971: 56). 9 These data are drawn from page Palmer (1971: 54). 10 Technically, if the displacement hull of a boat has waterline with length L (calibrated in feet), the hull has hull speed K (L)1/2 where K is a number lying between 1.2 and 1.4. I am grateful to David Giles for bringing this formula to my attention. It should be noted that the hull speed can be thought of loosely as the speed at which the boat has to power up if it is to overcome its bow wave in order to accelerate its velocity on the water. 11 For statistics on the growth of container traffic on the various oceanic routes, see Pearson and Fossey (1983). Palmer (1971) provides useful information on speciality ships developed in the post-1950 period including ro/ro, L.A.S.H., etc. 12 For discussion of liner conferences see Herman (1983), Jannson and Shneerson (1987), and Marx (1953). 13 On the Suez Canal see Wilson (1977); on the Panama Canal and the implications of completing the canal for the diversion of international shipping, see Bennett (1915) and Hutchinson (1915). 14 See International Energy Agency. Coal Industry Advisory Board (1984), Nettle (1988), and Taylor (1974). Matson (1945) discusses the political economy of the prewar development of the port of Los Angeles in southern California. The combined ports of Los Angeles and Long Beach constitute one of the most important modern port complexes, rivaling the ports in Rotterdam, Singapore, and Hong Kong. 15 On the development of railroads in North America see Fishlow (1965) and Wilgus (1937). For general discussion of transport systems that emphasize competition between various forms of transport over the long run, see Bray (1968), Fullerton (1975), Hultgren (1948), Steinberg and Hopkins (1936), Ville (1990), and Walton and Rockoff (1998). 16 Barker and Gerhold (1993) discuss the buildup of roads in the United Kingdom. 17 For discussion of the United Nations human development index and estimation of levels of human development for countries in the nineteenth and

234 Notes

18

19

20

21

22 23 24

25

26 27

twentieth centuries, see Costa and Steckel (1997), Crafts (2002), Floud and Harris (1997), and Whitehall, de Souza, and Nicholas (1997). On the biological standard of living see Mosk (1996, 2000, 2001). The measure of the human development index developed for the United States by Costa and Steckel (1997) and reported on in Table 5.3, incorporates a proxy for the biological standard of living rather than life expectancy. In Table 5.3 discussed below, the estimate of the human development index for Japan that I calculate also incorporates a proxy for the biological standard of living. The significance of plasticity of physical characteristics will be made evident later on in this chapter, in the discussion of eugenics. It is important to keep in mind that the work of Francis Galton and Karl Pearson establishing biometrics – the statistical measurement of physical characteristics – was one of the foundation stones of the science of eugenics and, at the same time, the basis for much of the recent work in anthropometry. For a history of anthropometry that discusses the contributions of Galton and Pearson, see Tanner (1981). The estimate of the HDI for 1998 is from United Nations Development Programme (2000: 160). On education in the United Kingdom see Mitch (1992) and Schofield (1973). No attempt is made to render the estimates of the HDI reported here fully compatible with those generated by the United Nations Development Programme (the United Nations figures are partially based upon estimates of income per capita that are not always available, and comprehensive life expectancy estimates covering the various decades of the nineteenth century are not available for the United States). The approach here is to rely on estimates that other scholars working in the field find satisfactory. On the common school movement in the United States and its impact on American education, see Soltow and Stevens (1981). For the early development of education in the other countries of settlement, see Graff (1979) and Prichard (1970). Quote taken from Cumpston (1989: 100). For a detailed account of the Crystal Palace Exhibition, see Auerbach (1999). For the well known “Habakkuk” hypothesis concerning the influence of American factor proportions (labor being relatively expensive compared to land and capital) upon the development of the “American system of manufactures” that tended to substitute assembly of machinery with standardized interchangeable parts (and later on, assembly line techniques) for assembly of idiosyncratic equipment that required skilled engineers, see Habakkuk (1967). For the slave trade and its abolition, see Anstey (1975), Bailey (1992), Beckles (1998), Drescher (1986), Eltis (2000), Klein (1999), Porter (1970), and Williams (1961). Williams (1961) provides the classic statement of the selfinterested political lobbying theory of the abolition of the slave trade. He argues that the capitalist community of the eighteenth century sufficiently benefited from the sugar production of the West Indies to resist its abolition, only to turn against it in the early nineteenth century when their focus had shifted decisively towards domestic manufacturing. Most writers, including this author, reject the simple equating of economic self-interest with the success or failure of the campaign to do away with the slave trade, and with slavery in the Empire. On the “coolie” trade responding to the demand of plantation owners for indentured servitude workers, see Cohen (1995), Latham (1986), Ong (1995), and Shimpo (1995). On Chinese immigration to the United States see Coolidge (1968). The labor boss system characterizing the contracting out of “coolie” labor – the boss or the tong organization signed the contracts for the work gangs and distributed the earnings to the individual workers – was hardly unique to China. Similar systems were used in Japan – see Chapter 2 of Mosk (1995) – and the padrone

Notes

28 29

30 31

32 33 34 35 36

37 38 39

40

235

system that was basically used by Italian labor bosses supplied Italian workers to employers in the countries of settlement. On the padrone system, see pages 133 ff. in Parmet (1981). On the legislative process in the United States and Canada and on court decisions supporting the legislation, see Degler (1991), Haller (1963), and McLaren (1990). Quote taken from page 43 of Degler (1991). For my discussion of eugenics and the background to the eugenics movement I draw upon Barkan (1992), Barzun (2000), Degler (1991), Haller (1963), Kühl (1994), McLaren (1990), Soloway (1990), Stepan (1991), Stocking Jr. (1974), Woodward (1974), and Young (1995). See Soloway (1990: 41 ff.). Woodward (1974) provides an excellent account of how American imperialism shaped Northern attitudes toward Southern imposition of apartheid. Young (1995) discusses the relationship between the ideologies of racism and imperialism at a general level. See Soloway (1990: 21). On Binet tests and Terman’s revisions, see page 99 ff. in Haller (1963). On this point, see McLaren (1990: 62). For the views of Boas see Stocking, Jr. (1974). For the importance of the work of Boas in undermining the views of eugenicists, see Barkan (1992) and Degler (1991). Kühl (1994) discusses the connection between Nazi racist views and the field of eugenics in the United States. Barkan (1992) and Degler (1991) emphasize the role of Nazism in undermining the credibility of eugenics in the United Kingdom and the United States. For these laws, see Kühl (1994: 29). For another interpretation of the British Empire, see Davis and Huttenback (1986). On internal migration within the United Kingdom, and the relationship of this migration to emigration from the United Kingdom, see Baines (1985). Note that the openness ratio appearing in the far right column of Table 5.8 is not the same as the demographic openness ratio that is used elsewhere in this study. For another interpretation of the rise of a distinctive British nationalism, see Colley (1992).

6 A splendid isolation 1 The four main islands are Honshu ¯ (by far the largest), Hokkaido¯ (the northern island that was relatively sparsely populated prior to 1880 due to its relatively long winter and abundant snowfall), Shikoku, and Kyu¯ shu ¯ . There are hundreds of other smaller islands in the Japanese archipelago, the most important being the Ryu¯ kyu ¯ (Okinawa) chain that Japan declared sovereignty over in the later nineteenth century. For a general introduction to Japan’s geography and history, see Fairbank, Reischaeur, and Craig (1965). 2 In this chapter I give personal names in the order used by Chinese, Japanese, and Koreans, the surname coming first, the given name second. 3 The remainder of this section and the next section rely heavily on the account in Mosk (2001). 4 See Hudson (1999: 243). In making this statement I am not ignoring the importance of minority groups in Japan nor am I accepting the idea of a unique “Japanese race” (indeed I do not find the category of race helpful in social analysis) that the Nihonjin (theory of the Japanese) theorists make such a fuss about. I will address these issues later on in this chapter.

236 Notes 5 For further details on Meiji political institutions, see Chapter 3 of Mosk (2001) and the sources cited there. 6 Detailed evidence supporting this assertion is given in Mosk (1995, 1996, 2000, 2001). Mosk (2001) emphasizes the importance of profit oriented private investment in developing Japan’s physical and financial infrastructure, and Mosk (1995) discusses the importance of private schools in expanding the Japanese educational system, both at the intermediate and higher levels. 7 For details concerning Japan’s economic imperialism in Asia, see Duus, Myers, and Peattie (1996). 8 For details concerning income distribution in Japan between World War I and World War II, see Mosk (2000). 9 For Japanese emigration to Brazil, see Suzuki (1969). For the return migration of Japanese-Brazilians to Japan that took off in the 1980s, see Tsuda (2003). 10 On the immigration of Koreans and other non-Japanese citizens of the empire to Japan proper, see Weiner (1989, 1994). Weiner discusses the riots that broke out against Koreans living in the Tokyo area after the great Kanto ¯ earthquake of 1923 that devastated many districts of Tokyo and Yokohama. 11 For a discussion of postwar Nihonjinron, see Befu (2001). For an analysis of Japanese nationalism and its relationship to ideologies about ethnic uniqueness like Nihonjinron, see McVeigh (2004). 12 According to the data for high income countries circa 1980 given on page 221 of World Bank (1994), Japan’s income/consumption distribution is one of the most equal among the advanced nations. This conclusion is based upon the percentage share of income/consumption accruing to the lowest 20 percent of the population (ranked in terms of household income or consumption), and upon the percentage of income/consumption enjoyed by the top 10 percent of the population. Gao (2001: 235–40) argues that inequality has been on the rise in Japan since the early 1970s. Even so, income is evenly distributed in contemporary Japan, at least in comparison to most other countries. 13 On pages 194–6 of Mosk (2001), there is a discussion of the “rationalization” industrial policies of the Japanese government that were used to help stabilize and streamline cotton textile production in the 1920s and 1930s. Mosk (2001) emphasizes the importance of a precedent pioneered by the large integrated spinning and weaving concerns to the subsequent development of industrial policy: the forging of a voluntary cartel prior to the twentieth century. The steam power using, cotton textile manufacturers agreed to pool information they gathered on foreign technology utilized in the industry, and also established a formula for cutting back production in tandem when gluts occurred. Each firm agreed to tie up a certain specified percentage of its spindles. They also agreed on a common price for output. In many ways this voluntary cartel paved the way for the “rationalization” policy of the 1920s and 1930s, and for industrial policy aimed at declining sectors in the postwar period. In effect, governmental officials – rather than members of a committee representing the various firms participating in the cartel – monitor the behavior of the firms, making sure all firms comply with the arrangements agreed upon by the cartel. 14 For a discussion of city planning in Japan, see Chapter 7 of Mosk (2001). 15 Figures taken from pages 219–22 of Mosk (1995). For a more detailed account of the way collective bargaining worked in Japan up to the late 1980s, and for references to the relevant literature, see Chapter 6 of Mosk (1995). 16 On minority groups in Japan, see Weiner (1997). 17 On the experiences of Japanese-Brazilians immigrating to Japan see Tsuda (2003).

Notes

237

7 Into the maelstrom: the political economy that battled diversity and openness 1 In providing a comprehensive account of international political economy, Gilpin (1987) discusses three competing theories or ideologies: neo-realist theory stressing nationalism and the nation state; liberal theory rooted in a belief in individualism, free market, and minimal state interference that Locke gave voice to; and Marxism that stresses inequality in economic outcomes. My account in this chapter emphasizes the international competition between these three different ideologies during the interwar period, and also draws upon theories of nation state hegemony in Krasner (1987) and Mearsheimer (2001). The theories of Krasner and Mearsheimer are variants of the nationalist or neo-realist theory of political economy. The methodological approach taken throughout this book emphasizes the importance of markets (behaving according to classical liberal principles) and of nation state policies, thereby bridging the gap between liberalism and neo-realism. Because I believe ideology shapes the policies of nation states and the very concept of nationalism adopted by particular states – a view by and large rejected by Mearsheimer (2001) who argues that protecting national security always trumps ideology – my use of the concepts of nationalism differs from that typically given by neorealists. 2 During the 1790s, Alexander Hamilton, First Secretary of the Treasury in the United States, advocated protection for infant industries, advancing a theory that was taken up later by Friedrich List in the Germany of the 1840s. 3 For the German debate, see Pollard (1981: 44). 4 For a further discussion of the European Union and other regional alliances bound together through multilateral agreements, see Chapter 9. 5 See Pollard (1981: 50). 6 I draw upon Pollard (1981: 33–41) for the discussion here and in the remainder of this paragraph. 7 Mearscheimer (2001) uses national indices based on GDP, and/or a composite index based upon iron and steel production and energy consumption, to measure latent power for nation states. Note that iron and steel production and energy consumption are measures of the strength of the inorganic economy. Mearscheimer (2001) also creates measures of actual power mainly relying upon figures for manpower in armies, giving less importance to other indicators of military strength like naval and aerial war making capacity. On the buildup of naval forces, creation of the great white fleet, and shipbuilding capacity in the United States see pages 3–6 and 474 in Zimmermann (2002); for the expansion of the Imperial Japanese Navy, see Evans and Peattie (1997); and for German shipbuilding and naval capacity see Henderson (1975: 198–201). For theories of international geopolitics that emphasize naval forces, see Modelski and Thompson (1988). 8 For Britain’s favoring of the United States in settling competing territorial claims to the coastline of Alaska/British Columbia made by the United States and Britain’s Dominion, Canada, see Zimmerman (2002: 450–1). In 1915, with the presence of the European powers severely curtailed due to World War I, Japan presented in secret to the Chinese government its infamous twenty-one demands that would have given Japan effective control over the Chinese government through a network of advisors and control over the police. The publicity given to Japan’s demands when they were leaked to China’s populace forced the Japanese government to back off, and also increased American concerns about Japan’s aggressive intentions on the Asian mainland. At the Washington Conference in the early 1920s – which set limits on the number of

238 Notes

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10

11 12

13 14 15 16 17

capital ships that the navies of Japan, the United States and the United Kingdom were allowed, limits agreed to in the form of a renewable treaty – opposition to British renewal of the Anglo-Japanese treaty by the United States and some of the Dominion governments led to British abandonment of the alliance with Japan. Japanese bitterness over this move by two of the biggest powers of the Asia-Pacific contributed to its own sense of isolation, a feeling further exacerbated by the passage of the Immigration Law of 1924 in the United States that effectively barred Japanese emigration to the United States. Britain’s growing alarm with the growth of Japanese exports, especially in China, South-East Asia and the Pacific, is evidenced by its contribution to an inquiry of the Institute of Pacific Affairs concerning social and political problems in the Pacific during the period after World War I. Britain selected to fund the research originally published in 1935 – reprinted as Hubbard (1979) – entitled Eastern Industrialization and Its Effect on the West. Frankel (1997: 12–16) differentiates between five types of trading blocs: preferential trade arrangements (P.T.A.s) in which the partners give partial preferences to one another; free trade areas (F.T.A.s) in which the partners eliminate all duties and tariffs on each other’s goods and services; custom unions in which the parties practice free trade with each other and set up a common tariff on all goods coming in from outside the union; a common market which is a custom union that abolishes constraints on the movements of labor and capital within the union; and finally, the deepest form of integration, an economic union, which involves harmonizing economic policies, for instance monetary policy, through a single central bank. Note that I have listed these in ascending order of degree of integration, with the P.T.A. the weakest, and the economic union the strongest. Integration within a nation state is stronger than integration within the most integrated of these forms of multilateral architecture. See page 212 ff. in Henderson (1975). For details about imperial preference and the negotiations leading up to, and at, the Ottawa conference, see Arnold (1967) and Drummand (1974). Sage (1929) provides a useful perspective on the evolution of the British Empire in the years leading up the Ottawa conference. Quoted in Ferguson (2002), page 313. For the Paris peace conference, see Macmillan (2001). For a statement of Wilson’s fourteen points, see Macmillan (2001: 494–5). See Macmillan (2001: 317–20). Huberman and Lewchuk (2003) do not take into account demographic openness in their analysis, focusing solely upon trade openness. This is a problem. We know from Part I of this volume that countries more open in trade tend to be more open demographically. In the second half of the nineteenth century, Western European countries competed with the Western offshoots to hold onto their own nationals, encouraging them to stay at home rather than leave for these lands, and they competed with one another to recruit workers from other nearby lands. Bolstering the national labor compact was one way to compete. Another problem with using the Huberman and Lewchuk (2003) argument to build a theory of how governments refashion institutions in response to being closed or open concerns its generality. It was during the 1930s when the United States was very closed that landmark social security legislation was passed, and collective bargaining was fully incorporated into the legal and administrative code of the country. Again, the Japanese Diet under the American Occupation and in its immediate aftermath passed Labor Standards laws, formally legalized unions and collective bargaining, and outlawed “feudalistic” practices involving the recruitment of work gangs by labor bosses.

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19

20 21

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This happened between 1945 and 1960, when Japan was very closed. Perhaps the passage of sweeping social legislation in the smaller countries of Europe, very open in both economic and demographic dimensions, was different from its passage in the larger more closed countries, including Germany, the United Kingdom, France, the United States, and Japan, because governments in the smaller countries of Europe were forced to be fiercely competitive in the way they regulated labor markets. On the importance of debt repayment, see Kindleberger (1973); Bordo, Edelstein, and Rockoff (1999) discuss the importance of maintaining the gold standard for debt repayment. Eichengreen (2003) provides a useful overview of twentieth century debt crises. In an interesting confirmation of my thesis concerning the indispensability of the inorganic economy for the development of modern globalization, Redish (1990) argues that introducing steam powered coining presses was a precondition for the creation of the gold standard. In arguing the United States began to assume leadership for open trade as its share in world export markets rose to high levels because it had the greatest national capacity to undertake the task, I follow arguments laid out by Cohen (1987), Gilpin (1987), Kindleberger (1973), Krasner (1987), and Lake (1987). Kindleberger and Lake analyze the problem in game theoretical terms. Lake’s account is the most sophisticated, taking into account the relationship between hegemonic leaders, spoilers, free riders, and supporters. The figures in this paragraph and the next paragraph are drawn from various tables in Maddison (2000). For the open door policy and tension between the United States and Japan during the late 1930s, see Herzog (1973). For details concerning the collapse of the gold standard and the creation of separate currency zones – the United States dollar in the Americas, the Japanese yen in its Empire, the pound sterling in the British Empire, and a gold standard group in Western Europe – see Cohen (1987), Gilpin (1987), and Kindleberger (1973). For this section, I draw upon page 57 ff. in Briggs (1984) and page 373 ff. in Davie (1949). Concluding its work in 1911, the United States Immigration Commission issued its findings and the various reports and background papers commissioned by it in the Dillingham Report consisted of forty volumes. On the bias in the Dillingham Report in favor of eugenics theories, see page 82 ff. in Barkan (1992). Hatton and Williamson (1998) provide evidence that migration from Europe to the United States tended to raise real wages in the countries of origin, and reduce real wages in the United States, thereby contributing to a convergence in wages between countries of origin and countries of settlement. In this book, I emphasize the crossover effect, rather than the wage convergence effect, because I think that migrants were more concerned about the general standard of living rather than about wages per se. In general, I reject the view that changes in relative prices stemming from globalization driven by declining transportation costs – for commodities, for labor of various types, for land relative to labor – explain the global backlash, a view put forward by Hatton and Williamson (1998) and Williamson (2002). See Davie (1949: 375). See Briggs (1984: 98). Japan treated the date that the United States passed the 1924 Immigration Law as a national day of mourning, Japanese diplomats sending strongly worded communications protesting the passage of the law to the administration in Washington.

240 Notes 8 An open world being born 1 Based upon figures given in Maddison (2000). This source is used for all the numbers cited in this paragraph. 2 In giving an admittedly cursory account of the evolution of multilateral institutions governing trade, financial flows, and migration in the post-World War II period, I draw upon a considerable body of scholarship. In reaching my own conclusions, I have relied particularly upon Block (1977), Gilpin (1987), Keohane (1984), Krasner (1987), Lake (1987), and Mearsheimer (2001). 3 On this point I closely follow Mearsheimer (2001), who considers aerial power, naval power, and nuclear weapons at length. 4 The convergence in income per capita that brought the Western European countries and Japan up to levels comparable to that of the United States created massive regional economies – in Western Europe and in Northeast Asia – thereby reducing the American share in world income, making it increasingly difficult for the United States to continue to underwrite international trade through a United States dollar based gold standard. In 1971 the United States took the dollar off gold, initiating an era of exchange rates more flexible than that established with the Bretton Woods agreement. For details, see Block (1977) and Keohane (1984). 5 On infrastructure renewal and reconstruction in Japan during the 1950s and 1960s, see Chapter 8 of Mosk (2001). 6 For this discussion of pre-1970 European economic integration I rely upon page 84 ff. in Pollard (1981). 7 The full text of the Universal Declaration of Human Rights appears in United Nations Development Programme (2000: 14–15). 8 In 1951, the United Nations issued a Convention relating to the Status of Refugees that defined a refugee as a legal category, putting political pressure on countries accepting immigrants to allocate a certain number of slots to refugees. 9 My approach emphasizes commonalities, not differences, between the experiences of each of the Western offshoots. For an alternative approach that emphasizes the uniqueness of particular national experiences (taking up country by country separately), see the exhaustive accounts of post-World War II immigration policy formulation in various countries given in Cohen (1995), Meissner, Hormats, Walker, and Ogata (1993), and Papademetriou (1998). For details about American immigration policy, see Bean and Fix (1992), Borjas (1999), and Muller and Esphenshade (1985); for undocumented migration of Mexicans to the United States, see Borjas, Freeman, and Lang (1991). For details about changes in Canada’s immigration policies, see Kubat (1979). A useful comparison of the American and Australian experiences is given in Freeman and Jupp (1992). 10 All four of the countries experienced some form of “baby boom” in the 1950s – the surge in fertility was especially pronounced in the United States during the late 1950s – which affected the growth rates of their domestic labor supplies in the 1970s. However, fertility did not return to the high levels characteristic of the nineteenth century in any of the four countries; moreover, baby busts tended to follow upon the baby booms. Another consequence of passing through the demographic transition is an increase in the proportion of the population who are over the age of 65. For a discussion of global population aging due to country after country passing through the demographic transition, see Rostow (1998). 11 In Australia – where diversity in terms of languages spoken by large subpopulations increased dramatically during the 1950s and 1960s – coping with

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language diversity became a major focus of multiculturalism. See de Lacey and Poole (1979) and Jupp (1989). Quoted passage appears in Garcea (2003: 61). For a thoroughgoing critique of multiculturalism and immigration policy in Canada, see Stoffman (2002), which argues that Canadian multicultural policy and poorly conceived immigration policy undermines the use of English and/or French, weakening rather than strengthening national identity in the country. That the Canadian media is encouraging a vigorous debate about the merits and demerits of multiculturalism and immigration policy in the country is a healthy sign in my opinion. In making the calculation for 1900–1999, I based my estimate on a count of three significant language groups. Adding a fourth language group – for Chinese (the percentage of Chinese immigrants during the relevant period falls slightly short of 5 percent) – raises the index of diversity for the United States in 1990–1999 to 126.7, still far below the level obtaining in 1900–1914. The fact is that people speaking Spanish dominate the non-English speaking immigration flow to the United States in the post-1965 period. An additional reason why coping with diversity in immigration may be less costly for countries of net immigration today than it was in the past stems from the improvement in educational attainment experienced by most countries worldwide, a trend confirmed by the United Nations Development Programme (2000). As a general proposition, individuals who are better educated master second languages more easily than do persons with less education (there are some well educated individuals who suffer from a “block” that prevents them from learning a second language). An interesting question (that I do not explore in this book) is how educational attainment of immigrants interacts with language distance properly measured in shaping the length of time it takes immigrants to assimilate economically (see note 5 in the notes for Chapter 5 for a discussion of measuring language distance). On immigration to the United Kingdom, see Holmes (1982). Favell (2001) and Freeman (1979) contrast British and French immigration, and the policies developed in the two countries to deal with the tensions surrounding that immigration.

9 Conclusions 1 For the list see Frankel (1997: 249–80). I use page 281 in Frankel (1997) to provide estimates of regional trade integration, namely intra-regional trade shares (for 63 countries) as a percentage of total trade of the geographic region or the regional trade bloc. For another list of regional trade blocs, and discussion of the role of regional trade agreements in promoting or hindering global multilateral architecture promoting trade openness, see World Trade Organization (1995). For a recent economic analysis that points to the importance of regional trade integration for growth in world trade over the last several decades, see Redding and Venables (2004). 2 The N.A.F.T.A. agreement linking Mexico, Canada, and the United States grew out of an earlier agreement signed in 1988, the Canada–United States Free Trade Agreement. For details that shed much light on the political and economic forces promoting regional trade agreements, see Kreinin (2000). For the implications of the N.A.F.T.A. agreement for trade and migration between the three North American partners, see Chambers and Smith (2002). 3 For background on A.P.E.C. and other Asia-Pacific associations and alliances, see Ravenhill (2001) and Segal (1990). 4 See Bhagwati, Krishna, and Panagariya (1999).

242 Notes 5 See Ferguson (2003), Ignatieff (2003), and Johnson (2000). 6 For other views about the impact that the United States has on regionalism, see Fishlow and Haggard (1992). Appendix A.2 The statistical analysis 1 A spurious regression model is one in which the dependent and independent variables are non-stationary, but are not “cointegrated” (as defined below), and the data are not transformed to make them stationary before the model is estimated. It is well known (e.g. Granger and Newbold (1974), and Phillips (1986)) that in this case the properties of the least squares parameter estimates, their “t-ratios,” the Durbin-Watson statistic, and the R2, are all nonstandard, even in large samples. In particular, the parameter estimates and R2 converge weakly to functionals of standard Brownian motions; the “t-ratios” diverge in distribution; and the Durbin-Watson statistic converges in probability to zero. In addition, Giles (2002) shows that standard tests of the normality and homoskedasticity of the error term will always reject the associated null hypotheses, as the sample size is increased. 2 More generally, if a set of time-series are all I(d) and there exists a linear combination of these series that is I(d  k), for k  0, then the original series are said to be cointegrated. In the case of just two cointegrated time-series, the associated stationary linear combination has to be unique. This is no longer the case when three or more series are cointegrated. 3 Many readers will also be aware that we can also formulate a different type of regression equation involving non-stationary time-series data that are cointegrated. An “error-correction model” uses the differenced data as well as a lagged adjustment term to capture the short-run dynamic relationship between the variables. We will not be concerned any further with such models in our discussion here. 4 The power of a test is the probability that it will reject the hypothesis being tested, when that hypothesis is false. As we will see, our tests will be for nonstationarity and for the absence of cointegration, so in the latter case the test may have a tendency to suggest that the series are not cointegrated. 5 A VAR model is made up of several regression equations. Each one explains one variable in terms of its own previous (lagged) values, and the lagged values of all of the other variables that are explained by the other equations. That is, all of the explanatory variables in the model are lagged. This is the type of model proposed and used by Sims (1972) as the framework for testing for Granger causality. See also Sims (1980). 6 Here, “m” denotes the number of restrictions on the parameters that are being tested. 7 See Dickey and Fuller (1979, 1981), and Said and Dickey (1984), for details of the ADF test, and Kwiatowski, Phillips, Schmidt, and Shi (1992) for details of the KPSS test. 8 The EViews package is released by Quantitative Micro Software (2002). 9 This order of testing follows the suggestions of Dickey and Pantula (1987). 10 For example, in a few instances we used the modified forms of the augmented Dickey-Fuller tests suggested by Perron (1989) for the case of an exogenous structural break in the level and/or trend of the time-series. 11 That is, one more than the number suggested by using Akaike’s (1974) information criterion or Schwarz’s (1978) criterion. We used the latter information measure for choosing the lag lengths, given its known consistency in this context. 12 It will be recalled that cointegration implies Granger causality, but not vice

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versa. The single conflict in the results of the two sets of tests is in the case of the U.K. for the period 1946–1948, in Table A.2.1. The full numerical details of the summary results for the causality tests that appear in Tables A.2.1 to A.2.3 are given in Table A.2.4. For the sake of brevity, the full details of our unit root and cointegration test results are not provided here. However, they are available in spreadsheet format on request. The SHAZAM econometrics is released by Northwest Econometrics (2001). It must be emphasized that at this point we are not talking about Granger causality. Rather, we have in mind the type of structural causality that distinguishes the dependent variable from the independent variables in econometric modeling. Jacobs, Leamer, and Ward (1979), Hoover (2001, 151–3), and others have provided examples to show that Granger causality between economic variables is not necessary for structural causality, and only in the case of linear relationships is Granger causality sufficient to ensure structural causality.

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Index

Algeria 209 American Breeder’s Association 126 Ampere 112 Anglo-Japanese Treaty 146 Argentina 8, 66, 198 Aryanism 179 Asia Pacific Economic Cooperation (A.P.E.C.) 198, 202 Association of Southeast Asian Nations (A.S.E.A.N.) 198–9, 202 attractiveness of the Western offshoots 30, 61–3 Australia 8–9, 16, 30, 50, 54, 67, 74, 81, 100, 110–11, 117, 124, 131, 133, 165, 168, 182, 186, 195, 198, 207, 219–20, 223, 227 Austria 205, 208–9 bakufu (tent government) 135 bakuhan system 135–6, 139 balance of power 19, 169 balanced regression 217 Bank of Japan 140 Belgium 165, 183, 205, 208 Binet 129 biological standard of living 102–3, 110, 126–7; see also human development index biometrics 128–9 birds of passage 67 Boas 129 Boer War 127 Brazil 66, 113, 147, 198 Bretton Woods accord 180 Briggs 175 British Empire Exhibition 168 British Isles see United Kingdom canal 7, 99

Canada 9, 16, 30, 35–7, 40, 50–4, 61, 67, 73–4, 81, 86, 89, 97, 100, 115–17, 126, 130–1, 133, 147, 165, 168, 185, 188–91, 195, 198, 205, 210–12, 222–3, 227 catch-up growth 182–3 causality analysis 71–3, 75, 114; see also Granger causality Chile 147 China 5, 8, 14–15, 18, 113, 136, 138, 145, 173–4, 180, 199, 201, 203, 220 Chinese Exclusion Act 124 Chiswick 86 Civil War (U.S.) 51, 85, 111, 113, 166 clipper ship 5, 96 cluster 4–5, 7–11, 79, 193 Cobden 162; Cobden–Chevalier Treaty 163 cointegration 215, 217, 222 Cold War 180 Colt 112 common law 50 Commonwealth see Australia; Canada; India; New Zealand; South Africa; and United Kingdom container 98 Corn Laws 50, 162 cost, insurance and freight (c.i.f.) 88–9 creative destruction 5 crossover 11–12, 62, 66, 75, 116, 182, 186; effect 12, 24, 30, 63, 175; level of income 11, 62 Crystal Palace Exhibition 111–12, 116, 121, 162, 169 Czechoslovakia 174 Cuba 113, 124 daimy¯o (warlord) 134–6 Darwin 128

258 Index Davies 200 Decree for the Granting of Marriage Loans 130 demographic openness see openness demographic transition 46–7, 126, 128 Denmark 40, 63, 72, 165, 183, 207, 227 Dickey-Fuller test 218 diversity 15–17, 25, 30, 131, 149–54, 156, 178, 191, 195, 202; demographic 25, 156; immigration 25; index of 25; linguistic 25, 84–7; resistance to 25, 30, 195; trade 17 Dylan 202 emigrant see emigration emigration 32, 35, 45, 70, 72, 147, 204–6; net 32, 63, 67, 72, 204–6 enclosure 50 England see United Kingdom eugenics 128–30, 174, 185 European Coal and Steel Community 183, 199 European Economic Community (E.E.C.) 183, 199 European Union 163, 198–200 expansionism 49, 53–4, 60–1 extensive growth 137 Faraday 112 Ferguson 131 Finland 63, 205, 209 France 165, 170, 182, 186, 191, 205, 209 Frankel 89, 199 free on board (f.o.b.) 88–9 frontier 9, 50, 52, 111 fukoku ky¯ohei (wealthy country, strong army) 145 Gao 149 Galton 128–9 Geary-Khamis dollars 61 General Agreement on Tariffs and Trade (G.A.T.T.) 27–8, 180, 184 Germany 20, 97, 130, 146, 162–6, 171–2, 174, 178, 180, 182–3, 186, 205–6, 209; see also Western Germany Gibson 84 Giles 71–2, 213 global backlash 3, 197, 202 globalization 4, 31, 68, 70, 76, 156–7, 193, 197 gold standard 20, 172, 177, 180 Granger causality 213–20, 223–7 gravitational pull 8–9, 11

gravity model 21, 43, 63, 194 Great Britain see United Kingdom Greece 175, 186, 203, 205, 209 growth pole 8–9 gunboat diplomacy 34, 177 Hamilton 162 Handlin 85 Harris 50 Hayami 52–3 hegemony 18–20, 26, 161, 165, 169, 173, 180, 196, 201 Hepburn Act 100 Hereditary Homestead Law 130 Hideyoshi (Toyotomi Hideyoshi) 135, 137 hiragana 138 Hitler 130 Hobb 112 Hobbes 14, 18, 162 Home Rule bill 133 homestead 51 Hoover (U.S. President) 173 Huberman 171 human development index (HDI) 102, 110 hybridization 5, 139 imitation 7 immigrant see immigration immigrant openness ratio 15 immigration 35, 43, 45–6, 66–8, 70, 72, 114, 116, 124, 174, 177, 186–7; net 48, 63, 204–5; policy 114, 186–7; rate 204–5 Immigration Commission 174; see also National Origins Act imperial preference 168 imperialism 127–8, 146, 148 India 113, 131, 165, 203 infrastructure 14–16, 30, 51, 53, 79–83, 99–101, 137, 139–41, 153, 156–7, 170, 177, 193, 195 innovation 5, 7 inorganic economy 4–6, 11, 20, 110, 112, 126, 141, 156, 162, 177, 193 intensive growth 137 International Monetary Fund 34, 180, 184, 198 Interstate Commerce Commission (I.C.C.) 100 Intelligence Coefficient (I.Q.) 129 Ireland 133 Italy 97, 170, 175, 178, 182, 186, 206–7

Index 259 Japan 8, 16–17, 19, 28, 30, 52–3, 71, 74–5, 113, 134–8, 141, 145–7, 149–54, 156, 164–6, 168, 171–2, 178–81, 196, 205, 209–10 Jefferson (U.S. President) 51, 162 Jim Crow laws 128, 187 Junker 162, 166 katagana 138 Katz 150 Keeling 97 Kipling 128 Konvitz 99 Korea 146–7; see also South Korea Lamarck 128 language 15, 83–4, 86; distance 86 Law against Dangerous Habitual Criminals 130 Law for the New Formation of the German Farmerstock 130 League of Nations 169–70, 173–4, 178, 180 Lewchuk 171 Lewis 174 Lighter Aboard Ship (L.A.S.H.) 98 Lincoln 150 liner 98; liner conference 98 List 162, 164 literacy 124, 127, 138 Locke 14, 18, 188 Luxembourg 183 McCormick 112 macroinvention 89, 96 Maddison 61, 203–4, 206 Manchester School 162 Manifest Destiny 61, 128 Marshall Plan 28 Martin 100 Mendel 128 Mercosur 198 Mexico 61, 66, 115–16, 198, 206, 210 microinvention 96 migration see emigration; immigration; immigrant openness ratio; and openness Miller 86 Miracle Growth 149 Mitchell 204, 206, 210 Mokyr 84, 89 Monroe Doctrine 19, 61, 128, 173 Mosk 149, 152 multiculturalism 188–92

Multiculturalism Act 189 multilateral architecture 18, 20, 26–8, 161, 163, 169, 178, 184, 196, 198, 202 nation state 13, 16, 170 National Origins Act (Immigration Law of 1924) 130, 174–5, 186 National Socialism 171 natural rate of increase 204 Navigational Acts 162, 166 Ned Ludd 112 net emigration see emigration net immigration see immigration Netherlands (Holland) 63, 166, 183, 206–7 New Zealand 8–9, 16, 30, 40, 61, 74, 117, 121, 130, 165, 205, 207–8, 219, 223, 227 Nihonjinron (theory of the Japanese) 148, 150, 154 Nobunaga (Ota Nobunaga) 135 North American Free Trade Agreement (N.A.F.T.A.) 198 North Atlantic Treaty Organization (N.A.T.O.) 18, 183 Norway 40, 46, 63, 72, 165, 205, 208 openness: demographic 23, 29–32, 37, 42, 69–71, 73, 195, 203–4, 227–8; trade 23, 29–32, 41–2, 69–71, 73, 195, 203–4, 227–8 organic economy 4, 137, 139 Organization for European Economic Cooperation (O.E.E.C.) 183 Oriental Development Corporation 147 Ottawa conference 168; see also imperial preference Pakistan 34, 197 Paraguay 198 Perry 134 Philippines 124 plantation 49–50 Poland 7, 178 Portugal 165, 183, 186 power: actual 19, 26–7; latent 19, 26 Progressive Era 100 property rights 50 proto-industry 136 quantile method 42 Radiotelegraphic Union 163 Ransom 51

260 Index Reciprocal Trade Act 173 reciprocity 172 Rockoff 172 roll-on, roll-off (ro/ro) 98 Roosevelt (U.S. President) 174 Rousseau 14, 18 Russia 7, 145, 171, 196; see also Soviet Union Russo-Japanese war 146 Ruttan 52–3 sakoku (closed country) 136 samurai (warrior) 134–5, 138 sankin k¯otai (rotating compulsory attendance) 136–7 Schaama 131 security: national 18, 25–6, 161, 165 seiri kumiai (land improvement committee) 151 shogun 134, 136, 138–9 Shunt¯o (Spring Offensive) 152–3 Sims 216–17 slave trade 113 Smoot-Hawley tariff 173 Socialism in One Country 171 South Africa 130, 165 South Korea 180, 183, 199 Soviet Union (U.S.S.R.) 28, 170, 172, 174, 178–81, 184–5 Spain 165, 183, 186, 203, 205, 208 Spanish-American war 124 spurious regression 214 stationary time-series 214 steam engine 5, 89 steam ship 96 stopping power of water 19, 181 Sweden 37, 46, 72, 166, 205–7, 227 Switzerland 97 synchronization 29–30, 40, 75, 195 Taiwan 145, 180, 183 terakoya (temple schools) 137 Terman 129 Thomas 82 Toda 218 Tokugawa (Tokugawa Ieyasu) 135 trade openness see openness transportation costs 9, 17, 22, 87–9, 101, 112 Tripartite Agreement 173 Tukey 42, 227 Turkey 200

unemployment 61–3; unemployment rate 61–2 unit root 214–15 U.K. see United Kingdom United Kingdom (U.K.) 5, 19–20, 30, 40, 50, 63, 72, 81–3, 88–9, 103, 111–12, 117, 127, 131, 133, 164–6, 168–70, 172, 177–82, 191, 195, 205, 208, 219–20, 222–4, 227 United Nations 18, 28, 68, 102, 180, 184; Development Programme 102; see also human development index United States (U.S.A.) 7, 9, 16, 30, 34–7, 40, 50–4, 60–1, 72–3, 81–5, 87, 89, 97, 100, 111, 113–17, 121, 124, 127–8, 130, 133, 147, 165–6, 169, 172–4, 179–82, 184–7, 198, 201–2, 205, 211–12, 219–20, 222–4 Universal Declaration of Human Rights 185 Universal Postal Union 163 Uriu 151 Uruguay 198 U.S.A. see United States U.S.S.R. see Soviet Union Vector Autoregression (VAR) 215–18 Vietnam 197 Volta 112 Wald test 217–18 Walker 127 Walton 88 water district 53–4 Western Germany 180, 183, 209 White 227 Williamson 88 Wilson (U.S. President) 85, 169–70 Whitney 83 World Bank 28, 149, 180, 198 World Economic Conference 173 World Trade Organization 3, 198 World War I 20, 36, 42, 75, 146, 169, 172, 178, 187, 197 World War II 28, 36, 42, 75, 184, 189, 200, 227 Yamamoto 218 Yokohama Specie Bank 140 Yugoslavia 197 Zollverein (German Customs Union) 163