Eric Rauchway's Blessed Among Nations: How the World Made America provides a fresh occasion for these musings. After reading the blurbs on the back cover, "tour de force," "brilliant and convincing," etc., I eagerly started devouring this fairly slim volume. I must say, however, that I found its thesis neither brilliant nor convincing, in large part because it is woven from meager and misunderstood data.
Rauchway, a history professor at the University of California at Davis, argues that the first wave of world globalization between 1865 and 1914 helped to make America exceptional relative to the advanced nations of Europe, particularly with regard to America's stubborn unwillingness to embrace the modern welfare state. The premise suffers first from a critically important problem—there is little empirical evidence that there was any significant move towards "globalization" in this period, at least as it applies to the United States. Rauchway looks at two dimensions of globalization: capital investments of other nations in the United States, and immigration flows into this country. Fair enough, but I would add a third good globalization measure: international trade as a percent of national output.
I looked at all three of these measures of globalization, comparing the antebellum era (say, 1820 to 1860) with the period between 1860 and the beginning of World War I, the era that Rauchway considers the first wave of globalization. First, with respect to international capital investments in the United States, I quote from International Capital Markets and American Economic Growth, 1820-1914, the definitive work of Lance Davis and Robert Cull: "Overall, between 1790 and 1900 the ratio of foreign capital imports to new national capital formation was almost five percent, and, over the last three decades of the century, it was about four-fifths of that amount." In short, foreign investments played a relatively small role in financing U.S. capital formation, and that role was less in the late 19th century than it was earlier. Davis and Cull find, for example, that foreign investment played a far larger role in financing American investment between 1816 and 1840 than at any time in the late 19th century.
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What about immigration? From 1820 to 1860, the proportion of American residents who were immigrants rose from surely less than 5% of the population (the Census did not measure foreign born in 1820) to about 13%, whereas from 1860 to 1910 it rose only very modestly, to somewhat over 14%. The big surge in immigrant presence came before the Civil War. In the peak pre-Civil War year for new immigrants (1854), 17.3 newcomers entered for every 1,000 Americans, far more than the 13.9 figure in the peak year (1907) in the later period.
When people think of "globalization" today, I believe they look at international trade, particularly imports and exports. Was there an upsurge in U.S. international trade relative to overall economic activity in the era Rauchway considers the first wave of globalization? Emphatically, no. I compared imports as a percent of estimated total output in the years 1856 to 1860 (the end of the antebellum era), with 1910 to 1914 (the period that Rauchway emphasizes). As I calculate it, the trade sector is 15.8% of total output in the 1850s, versus 10.6% in the 1910s. International trade declined, and rather sharply, in some relative sense.
In short, the postbellum period in American economic history was one of rapid growth of a vast domestic market with only minimal impact from foreign influences. Indeed, this era of isolationist foreign policy and high tariffs was also one of relative economic isolation, a period in which the international influences, while growing in some absolute sense, were actually stagnant or declining relative to the economy as a whole.
If that were not enough, on the basis of admittedly cursory research I am not even persuaded that America was very exceptional relative to Europe with regard to the welfare state, at least until much later in history. It is true that Bismarck started Germany on the way to a welfare state in the 1880s and 1890s, but its massive manifestation around Europe comes much later. In Britain, the first big moves (e.g., unemployment insurance) come only shortly before World War I, just two decades before similar moves in the U.S. during the New Deal. Central government expenditures were well under 10% of total output in 1910 in such European nations as Germany, France, Britain, and Denmark. While they were only about 3% in the U.S., when state and local spending is taken into account I doubt the European totals are dramatically different from the American ones.
While there are differences with regard to health provision and the nationalization of industry, a pretty good case can be made that the American and European governmental experiences are not radically different before 1970. For example, compare the U.S. and the four largest West European nations (Britain, France, Germany, and Italy). In 1970, taxes as a percent of GDP ranged from 27.9% in Italy to 37.5% in Britain, with the U.S. total (30.1%, counting state and local government, too) being a bit below the European average, but not dramatically. Fast forward to 2003. The four European nations had tax burdens ranging from 39.9 to 45.8% of GDP, rising more than 10 percentage points on average since 1970. The U.S. burden (31.0%) was markedly lower than any of these European countries and had shown little change since 1970. The comprehensive European welfare state comes after 1945 or even 1970, even though its antecedents were earlier (as was the case in the U.S., too). Certainly the differential between Europe and the U.S. sharply expanded after 1970, far more so than in the 1870 to 1914 era.
If I were trying to build a case relating globalization to the differential growth in the welfare state, then, I would do it using the modern period, where both globalization and the welfare state differential grew dramatically, not some 100 years earlier when neither was growing much, at least with reference to the U.S. But frankly, I think the roots of American exceptionalism lie elsewhere.
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Rauchway's book abounds in unsubstantiated hyperbole. Speaking of "constituencies left out of, or lost in, the modern global economy," he claims that "they wanted government to regulate the effects of foreign capital and foreign labor, and little else." Rauchway believes that foreign capital led to a massive westward movement of native born Americans (never mind inconvenient Census data showing that the movement westward was actually slightly greater before the Civil War than in this alleged era of globalization). He further believes tensions between immigrants (a product of globalization) and natives contributed to worker distress in the East, accelerating the westward movement, and that foreign (largely British) capital financed the railroads that made movement westward cheap and convenient. Unfortunately, the evidence supporting these claims is not impressive.
He suggests that the 1920-21 downturn might have been avoided "had the nation retained...some of the regulatory and information-gathering agencies that grew so swiftly during the war...." Again, this is sheer speculation. My own rather more exhaustive research of this downturn (with Lowell Gallaway) suggests that the huge postwar inflation followed by deflation caused resource prices to temporarily get out of equilibrium, and that government inaction allowed markets to rapidly adjust in a way that made the downturn smaller both in severity and duration than it otherwise would have been. Rauchway's lament about the lack of information-gathering after World War I ignores the reality of Secretary of Commerce Hoover's activism in this area, e.g., the creation of the Survey of Current Business.
To me, the traditional story of American exceptionalism, with perhaps a bit of a new twist, is far more satisfying and consistent with the facts. Americans were a hardy breed whose success in life depended on conquering the frontier and creatively adjusting to the realities of a new physical environment. This put a premium on individual, not collective, solutions to problems. The American entrepreneurial spirit grew out of this reality. Books like Harold Evans and colleagues' They Made America (2004) or Carl Schramm's The Entrepreneurial Imperative (2006), along with a reading of Frederick Jackson Turner's original statement of the frontier thesis (or, for that matter, Tocqueville's Democracy in America), will give readers a far better understanding of how America has truly differentiated itself and outshone the world economically than this misleading account of "how the world made America."