Investment Monitor | 6 April 2021
A brief history of globalisation
By Richard Gardham
In 2021, globalisation is a word associated with large countries or companies attempting to extend their reach, their influence, over as much of the rest of the world as possible. A bogeyman for protectionists such as Donald Trump and Jair Bolsonaro, the concept has been criticised of late as much for taking away jobs in Western countries as it is for exploiting low-paid labour in the developing world. But how did globalisation take its current form? Here begins the Investment Monitor history-lesson-in-a-two-minute-read. No talking at the back.
For centuries, a colonial power would turn up with gunboats and a vast army and seize whatever it wanted from a foreign land. The methods used over the past century have become much more subtle, but the relationship between the rich and the poor remains lopsided.
Investment treaties largely replaced the gunboats as a way to continue to exploit the resources of foreign countries, and after the Second World War the likes of the International Monetary Fund, the World Bank and the International Trade Organisation were created around a new global architecture for capitalism with the US at its epicentre. Meanwhile, the UN replaced the impotent League of Nations. This led to a shift in power from the West within these institutions (see chart).
The US continued to use aid and gunboats as a way to extend its influence around the world, largely to good effect, although it saw its sway in Cuba fall away. Meanwhile, events such as the Suez crisis of 1956 meant that French and British investors had become increasingly aware of their governments’ inability to reliably defend their assets from expropriation. Enter investor-state dispute settlements, or ISDS.
Taking on the work done by the International Chamber of Commerce and running with it, Hermann Josef Abs introduced the “Magna Carta for capitalism” in 1957, which meant investors would be able to sue states at an international tribunal. A huge charm offensive was then embarked upon, which saw many low-income countries sign up to the World Bank’s International Centre for the Settlement of Investment Disputes, which came into being in 1965.
Since then, the ISDS has become all-consuming, with early European opposition soon quelled. In the 1990s, after the fall of the Berlin Wall and with the US posing as the victor of the Cold War, ISDS treaties saw a huge upsurge as a new world order took shape. It is only in recent years that a backlash has started in earnest. However, the end-of-lesson bell is about to ring, so that will have to wait for another day. Now please don’t run in the corridor.