The evolution of global trade from 17. Century until today

After the collapse of the Ming Dynasty, the western world experienced the heyday of trade and commerce in the 17th century. Trade and industry flourished above all in England and the United Netherlands. The urban bourgeoisie played a major role in this change and promoted political power as well as military safeguarding of trade. Several setbacks, such as epidemics and various major fires, did not prevent London from growing and becoming the largest city in Europe. In addition, London had a favorable location and was well connected to local transport such as waterways. Furthermore, the rich coal deposits led to a growing city.

First Globalization

The preferable circumstances in London meant that the highest salaries were paid in Europe and the new circumstances created new occupations and fields of work. In addition, the emerging commercial and financial transactions for Europe and the world were carried out in London and throughout England. After the age of discoveries and explorations, the existing colonies were expanded further and further. The English colonies in North America, which were not so productive at first, continued to be settled and began to trade with the English motherland in the form of raw materials and grain in exchange for industrial products. With this beginning trade the English colonies were able to replace the Spanish colonies in terms of yield.

Technical innovations facilitated the transport and thus, also the communication among each other, as well as the productivity. These innovations included above all the mechanized spinning machine and the steam engine, the latter of which was used in many different ways, e.g. in steam ships or steam locomotives.

The 18th century was characterized by major political upheavals. In 1776 the civil war in the United States ended with the declaration of independence and the French Revolution with the Congress of Vienna 1814/15.

Competition was maintained for England, since in the 19th century states such as France, Italy (from 1861), the German Reich (from 1871) and also the United States of America were promoted.

At the same time, agricultural work was still carried out as far as possible in Russia, China, most of the colonies but also in Brazil, which has been independent since 1822. Nevertheless, the new means of transport have improved energy efficiency and made huge areas of land such as North America, Argentina and Russia economically accessible.

The completion of the First Transcontinental Railroad from New York to San Francisco in 1869 and the completion of the Suez Canal in the same year ensured a major advantage in terms of transport and travel speed. This made it possible to travel around the world in 80 days.

This innovation has made it possible to reduce transport costs. The new transport routes opened opportunities for long-distance trade in the last third of the 19th century. Where luxury goods were still transported at the beginning of the 19th century, there was now a specialization in everyday goods such as the transport of grain. These changes had a direct impact on the living conditions of ordinary citizens.

The first signs of globalization emerged in 1870. At that time there were some changes on the European continent. The most important change was the foundation of the German Empire in 1871, which brought additional stability to the European continent. Imperialism played a decisive role in this period of the First Globalization. Imperialism reflected the division of the world (the beginning of the division took place during the 16th century, mainly in Africa) among the major powers, including England, France, Spain, Portugal and the German Empire. England was the country that administered most of the colonies until the end of the imperialist era.

An essential characteristic of globalization was that the place of production and the place of consumption drifted further and further apart. An example: In the southern states of the US, cotton was produced which was then transported unprocessed to England where it was further processed into clothing so that it could be exported to other European states and India. At this time, a tendency towards specialization was established. Characterized by trade labor-intensive industrial production in populous Europe and the colonies produced agricultural goods and raw materials. For this reason, the emigration rate to the USA and other colonies increased many times.

In 1870, the gold standard was introduced in London as a currency system as the center of international financial transactions. In this system, national currencies were linked via a fixed gold parity and made easily tradable.

Europe, especially the three large states England, France and Germany, dominated the "First Globalization". It is estimated that 45 percent of the world economy was European in 1913, whereas the share of the world population was just under 30 percent. In addition, annual growth fell from 4% in 1913 to 1% in the years up to 1950.

Deglobalization

After the First World War, there were signs of a deglobalization of the European Centre, in which Europe lost its dominant position in politics and economy. New York became the most important financial center, replacing London. After the decline of the Russian tsarist empire a new foundation stone was laid for a new world power.

The brief revival of the "First Globalization" in the 1920s was driven by US capital and technological innovation. The general use of electricity promoted production, in private households as well as in transport. The car, for instance, was transformed from a luxury product into an affordable mass product. The expansion of the automotive industry created new flexibility and new means of transport.

The setback of the 1920s manifested itself in 1929 in the form of the world economic crisis. There had already been crises that influenced large parts of the western world, but there had not been a crisis that hit on such a global scale and with such intensity, until 1929 and up to today.

The previously laboriously developed economies of the industrialized countries were forced into a whirlpool of falling prices and unemployment. This process was accelerated by negative impulses such as the collapse of banks and companies and was also transferred to other countries.

The collapse of the gold standard and the intervention of individual states in their own economies in the form of military armaments succeeded in halting the fall in prices. Due to the economic crisis and especially the mass unemployment the individual states in Europe had become more and more radical, so that it was impossible to stop this process and Europe was heading for a new war.

The Second World War (1939 - 1945) shifted the political and economic focus of power away from Europe to the USA. The USA wanted a further development of the economy according to the principles of the market, as it was already the case during the "First Globalization". The Soviet Union and China opposed this with the principle of a planned economy. The new world order, which had been drafted during the war, was mainly laid down in the Moscow Declaration of 1943. With the foundation of the United Nations on this Declaration, a global organization was established to secure peace and international law under the leadership of all leading powers.

After the war, however, it became clear that it was not possible to carry out an economic re-integration globally. Thus, two different trade organizations were formed in the West under the leadership of the US and in the East under the leadership of the Soviet Union. In the West, the General Agreement of Tariffs and Trade (GATT) and the Organization for Economic Cooperation and Development (OECD), which emerged from the US reconstruction aid for Europe, emerged. As a counterpart to this, the Council for Mutual Economic Assistance (COMECON) was established in the East in 1949. The West decided to revive the gold standard in an adapted form by creating an international monetary fund and the World Bank. The East practiced the principle of a planned economy with settlement currencies.

The "Golden Age of Growth" of the 1950s was celebrated in Europe as an economic miracle and brought both East and West real growth rates of 4 to 5 % per year until the 1970s.

Second Globalization

The 1970s were marked by the oil crises of 1973 and 1979. Even though the crises were not decisive for this decade, they reinforced the effect of the change in the post-war order. The dissolution of the Bretton Woods system caused the US dollar to lose its peg to the gold value, thus lifting the fixation of the European and US currencies.

The Soviet Union's sphere of influence was marked by signs of a political and economic crisis. The gap between West and East was widening due to economic stagnation and rising commodity prices. Moreover, from the 1970s onwards, the planned economy model was no longer able to withstand the increasing complexity and innovative capacity of the Western market economy.

Similar to the "First Globalization", the "Second Globalization" was also characterized by technological innovations, which were primarily supported by political institutions. The rivalry between the USA and the Soviet Union increased general efforts by producers and dealers to increase efficiency. With the collapse of the Soviet Union in 1989, commercial applications for computers, satellite-supported radio telephones and standardized containers became international. The "container revolution", a simplified loading between rail, ship and truck by standardized containers, led to dramatically decreasing transport prices, comparable to the effects of steam ships and rail. In comparison to customs duties, transport costs affected all goods equally, regardless of their value.

Computers and new communication technologies made it possible to standardize the industrial manufacturing process to such an extent that the industry itself could be globalized. The relocation of parts of production and services to more cost-effective locations, was practiced from the 1970s onwards, but was carried out on a large scale at the end of the 1980s. Non-standardized areas mostly remained at the old industrial sites.

Western Europe benefited from the opening of the East after 1989, while the USA and Japan made substantial investments in China and other parts of Asia as well as in Central and South America. The comparison between the USA, Europe and Japan shows that the USA developed much more dynamically and grew faster than the other two.

In contrast to the "First Globalization", where specialization was at the forefront, the fragmentation of the value chains is the core of the "Second Globalization". These trends were already apparent earlier, but this assessment gave companies a boost. This is because companies could now break away from their countries of origin and become global players whose mobility made it difficult for political institutions to control them. Changes in information and communication technology have led to an appreciation of beacons and financial markets.

However, the trading venues remained the same as the original ones, such as New York, London or Frankfurt. Although trade is not automatic, it is also a trigger for economic development. Trade can facilitate the transfer of technology.

In the 21st century, virtual commerce gained more and more importance. So, anyone, private and business, can order anything from the other end of the world. Securities and foreign exchange often changed hands without the previous owner physically holding the securities.

What will the future hold next? As a next step of this development, it is expected that the future will offer a further extension of the existing trading methods. This could mean that the mere thought of something is driving the purchase of this product without having to lift a finger.

After the collapse of the Ming Dynasty, the western world experienced the heyday of trade and commerce in the 17th century. Trade and industry flourished above all in England and the United Netherlands. The urban bourgeoisie played a major role in this change and promoted political power as well as military safeguarding of trade. Several setbacks, such as epidemics and various major fires, did not prevent London from growing and becoming the largest city in Europe. In addition, London had a favorable location and was well connected to local transport such as waterways. Furthermore, the rich coal deposits led to a growing city.

First Globalization

The preferable circumstances in London meant that the highest salaries were paid in Europe and the new circumstances created new occupations and fields of work. In addition, the emerging commercial and financial transactions for Europe and the world were carried out in London and throughout England. After the age of discoveries and explorations, the existing colonies were expanded further and further. The English colonies in North America, which were not so productive at first, continued to be settled and began to trade with the English motherland in the form of raw materials and grain in exchange for industrial products. With this beginning trade the English colonies were able to replace the Spanish colonies in terms of yield.

Technical innovations facilitated the transport and thus, also the communication among each other, as well as the productivity. These innovations included above all the mechanized spinning machine and the steam engine, the latter of which was used in many different ways, e.g. in steam ships or steam locomotives.

The 18th century was characterized by major political upheavals. In 1776 the civil war in the United States ended with the declaration of independence and the French Revolution with the Congress of Vienna 1814/15.

Competition was maintained for England, since in the 19th century states such as France, Italy (from 1861), the German Reich (from 1871) and also the United States of America were promoted.

At the same time, agricultural work was still carried out as far as possible in Russia, China, most of the colonies but also in Brazil, which has been independent since 1822. Nevertheless, the new means of transport have improved energy efficiency and made huge areas of land such as North America, Argentina and Russia economically accessible.

The completion of the First Transcontinental Railroad from New York to San Francisco in 1869 and the completion of the Suez Canal in the same year ensured a major advantage in terms of transport and travel speed. This made it possible to travel around the world in 80 days.

This innovation has made it possible to reduce transport costs. The new transport routes opened opportunities for long-distance trade in the last third of the 19th century. Where luxury goods were still transported at the beginning of the 19th century, there was now a specialization in everyday goods such as the transport of grain. These changes had a direct impact on the living conditions of ordinary citizens.

The first signs of globalization emerged in 1870. At that time there were some changes on the European continent. The most important change was the foundation of the German Empire in 1871, which brought additional stability to the European continent. Imperialism played a decisive role in this period of the First Globalization. Imperialism reflected the division of the world (the beginning of the division took place during the 16th century, mainly in Africa) among the major powers, including England, France, Spain, Portugal and the German Empire. England was the country that administered most of the colonies until the end of the imperialist era.

Marcell Vollmer is chief digital officer of SAP’s Cloud Business Group and Intelligent Spend Management and the former chief procurement officer of SAP.

Kathrin Weng is a history master student and currently supporting the CDO of SAP Ariba.

SAP is the market leader in business applications; and SAP Ariba is the world’s largest business network, linking together buyers and suppliers from more than 3 million companies in 190 countries.

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#DigitalTransformation #History #Procurement #supplychain #future #SupplyChainManagement #globalization