Between 1880 and 1914, the world experienced an era of globalization ("globalization one"), hat was in fact a more extraordinary phenomenon than the current situation ("globalization two"). The most striking difference between now and the last period of globalization was there was so much mobility; with migration at a higher level than today. "Globalization one" was more global, because capital flowed to the whole world, including very poor countries, whereas today most capital flows are actually within the rich world.

There are many similarities between the two ages of globalization, but there are also many important differences. One of them is that there were many fewer people; this was not a world of 6 billion people but of 1 billion. Monetary issues were very different. A hundred years ago most countries, with very few exceptions, were on the gold standard. We today live in a world of paper money and nobody knows from one day to the next how much the dollar is going to be worth.

The Age of Empire

The first stage of globalization was an age of empire. Twenty-five percent of the world’s population was under some kind of British rule; a third of the world was under European rule. Most people, or 80 percent, lived in empires, if you include the Chinese and Ottoman empires. But the most important was the Englishspeaking empire and one reason this empire was so powerful is that it was a capital exporter; it was the world’s banker. London was a channel through which money poured to the rest of the world in the form of portfolio and direct investment, and the British had the power that the lender has.

Now today we live in a different world. The empires have largely gone but there are still shadow empires, and the United States is clearly one. China is another, Russia a third and you might also include Iran as the heir of the Persian empire. But in a way the American empire is weaker than its predecessor, because the American empire is not a creditor but a debtor empire. Billions and billions of dollars have to be borrowed abroad by the United States to finance its current account deficit. We are now in the situation where the United States, which claims to be the big power, is in fact running an overdraft at the People’s Bank of China.

Multiple Futures

It’s important to understand that there is no such thing as the future, there are only futures. The important thing is to be contemplating more than one future. Those who say that China will be equal to the U.S, in GDP in 2027 are really only offering one future and this future is a linear one. It is based on the idea that China will continue to grow at rate of 9 or 10 percent and the U.S. between 2 and 4 percent. The idea is that we will get there as though by drawing lines. That is not how history works. In every Asian economic miracle there has been at least one major financial crisis that has set back the country.

But aside from financial crises, there are other things that can go wrong. The Chinese environmental situation is dire, as a consequence of breakneck industrialization without private property rights. Nobody in China can stop the state or a private enterprise from causing lethal environmental damage because nobody has any private property rights to protect. My sense is that, even before a financial crisis, China may face an ecological crisis of its own making. And they will look back from 30 years hence and laugh that we thought they would overtake the U.S. - remember, we thought that Japan would overtake the U.S. back in the 1970s and 1980s.