286 Williamson rich.It follows that trade can be a substitute for labor and capital mobility in generating wage or labor productivity convergence. Heckscher and Ohlin were writing just after the spectacular late nineteenth-century Scandinavian catch-up,and they were motivated by the commodity price convergence that they thought had taken place in the Atlantic economy.Their economic metaphor was driven by primary foodstuffs:the New World grain invasion,carried by the sharp decline in transport costs,served to lower the relative price of grains in Europe and to raise it in North America.Liverpool was the major port handling Britain's grain trade,whereas Chicago was the city closest to America's grain producers,so it is the Liverpool-Chicago price gap that mattered most.Liverpool prices exceeded Chicago prices by about 60 percent in the three years centered on 1870,while they exceeded Chicago prices by less than 15 percent in the three years centered on 1912.The price convergence was also manifested by beef,pork,bacon,mutton,butter,bar iron,cotton textiles,coal,copper,hides,wool,tin,cotton,and many other tradables.0 Had there been no other force at work,the terms of trade between manufactures and foodstuffs would have changed dramatically in both countries.If Britain had absorbed all of the transport-induced price shock, its terms of trade would have almost doubled.If the United States had absorbed all of the transport-induced price shock,its terms of trade would have more than doubled.These were very big price shocks,exactly the kind that are supposed to set factor price convergence in motion,and a computable general equilibrium(CGE)model is precisely the tool to use to assess that alleged impact. CGE models are certainly not new to economists,as they are common in development,trade,and public finance.Nor are they new to economic history.12 Indeed,I suppose I must take some responsibility for their use in economic history:I started applying them to historical problems in the early 1970s,after exploring their use on Third World development questions with Alan Kelley.3 They are perfect for this trade convergence problem,as Peter Passell and Wright,Clayne Pope,and John James suggested in the 1970s when assessing the antebellum debates on tariff and land policy,or even earlier in the 1960s when Peter Temin and Robert Fogel collided on the American labor scarcity debate.14 Kevin O'Rourke and I have used them in the 1990s to show that commodity price convergence had a significant impact on Anglo-American factor price 1O'Rourke and Williamson,"Were Heckscher and Ohlin Right?"table 2,panel B. Shoven and Whalley,Applying General Equilibrium. 12 James,,“Use;and Thomas,“General Equilibrium Models.” 13 Kelley and Williamson,"Writing History,""Modelling,"and Lessons;and Kelley,Williamson, and Cheetham,Dualistic Economic Development.My application of these models to historical problems was guided by the influence of Ron Jones,with whom I jointly ran a summer workshop in 1972 at the University of Wisconsin. 14Passell and Wright,"Effects";Pope,"Ante Bellum Tariff;and James,"Welfare Effects."See Temin,“Labor Scarcity'';and Fogel,,“Specification Problem
286 Williamson rich. It follows that trade can be a substitute for labor and capital mobility in generating wage or labor productivity convergence. Heckscher and Ohlin were writing just after the spectacular late nineteenth-century Scandinavian catch-up, and they were motivated by the commodity price convergence that they thought had taken place in the Atlantic economy. Their economic metaphor was driven by primary foodstuffs: the New World grain invasion, carried by the sharp decline in transport costs, served to lower the relative price of grains in Europe and to raise it in North America. Liverpool was the major port handling Britain's grain trade, whereas Chicago was the city closest to America's grain producers, so it is the Liverpool-Chicago price gap that mattered most. Liverpool prices exceeded Chicago prices by about 60 percent in the three years centered on 1870, while they exceeded Chicago prices by less than 15 percent in the three years centered on 1912. The price convergence was also manifested by beef, pork, bacon, mutton, butter, bar iron, cotton textiles, coal, copper, hides, wool, tin, cotton, and many other tradables.10 Had there been no other force at work, the terms of trade between manufactures and foodstuffs would have changed dramatically in both countries. If Britain had absorbed all of the transport-induced price shock, its terms of trade would have almost doubled. If the United States had absorbed all of the transport-induced price shock, its terms of trade would have more than doubled. These were very big price shocks, exactly the kind that are supposed to set factor price convergence in motion, and a computable general equilibrium (CGE) model is precisely the tool to use to assess that alleged impact. CGE models are certainly not new to economists, as they are common in development, trade, and public finance." Nor are they new to economic history.'2 Indeed, I suppose I must take some responsibility for their use in economic history: I started applying them to historical problems in the early 1970s, after exploring their use on Third World development questions with Alan Kelley.'3 They are perfect for this trade convergence problem, as Peter Passell and Wright, Clayne Pope, and John James suggested in the 1970s when assessing the antebellum debates on tariff and land policy, or even earlier in the 1960s when Peter Temin and Robert Fogel collided on the American labor scarcity debate.'4 Kevin O'Rourke and I have used them in the 1990s to show that commodity price convergence had a significant impact on Anglo-American factor price 10 O'Rourke and Williamson, "Were Heckscher and Ohlin Right?" table 2, panel B. " Shoven and Whalley, Applying General Equilibrium. 12 James, "Use"; and Thomas, "General Equilibrium Models." 13 Kelley and Williamson, "Writing History," "Modelling," and Lessons; and Kelley, Williamson, and Cheetham, Dualistic Economic Development. My application of these models to historical problems was guided by the influence of Ron Jones, with whom I jointly ran a summer workshop in 1972 at the University of Wisconsin. 14 Passell and Wright, "Effects"; Pope, "Ante Bellum Tariff"; and James, "Welfare Effects." See Temin, "Labor Scarcity"; and Fogel, "Specification Problem." This content downloaded from 211.80.95.69 on Sun, 20 Oct 2013 19:57:15 PM All use subject to JSTOR Terms and Conditions
Globalization,Convergence,and History 287 convergence.5 Commodity price convergence explains more than a third of the decline in the Anglo-American real wage gap over the quarter century ending in 1895.Because of powerful offsetting forces,Anglo- American convergence stopped after the early 1890s,even though the factor price convergence effect of commodity trade persisted.Commodity price convergence played a significant role in fostering real wage conver- gence up to 1895-just as Heckscher and Ohlin predicted-and in muting the powerful divergence forces set in motion by a much-debated industrial failure"in Britain and by industrial success in North America based on a large market size and a rich mineral resource base.6 What about Sweden,the classic European catch-up case that motivated Heckscher and Ohlin in the first place?How much of the impressive Anglo-Swedish and American-Swedish convergence can be explained by commodity price convergence,trade creation,and those Heckscher-Ohlin forces?To the extent that Sweden retreated behind tariff walls in the 1880s,perhaps the price convergence set in motion by the global collapse in international transport costs was muted or even offset.O'Rourke and I have recently shown that there was price convergence between Sweden and Britain over the late nineteenth century,as the former integrated into the global commodity market with the latter at its center.7 It turns out,however,that Anglo-Swedish price convergence was modest,suggesting that the Heckscher-Ohlin factor price convergence effects must also have been modest.Once again we use a CGE model to assess those effects,exactly the kind of model first proposed by Ohlin and now so commonly used in trade theory.The CGE model estimates that the price convergence with Britain served to raise urban wages in Sweden by only 2 percent above what would have been true in its absence,and thus it explains only 4 percent of the impressive erosion in the Anglo-Swedish wage gap.Adding the large Anglo-American Heckscher-Ohlin effect to the small Anglo-Swedish effect yields an American-Swedish figure of perhaps a tenth. So far,Heckscher and Ohlin get mixed reviews:commodity price convergence accounts for about three-tenths of real wage convergence between the United States and Britain during the 25 years after 1870,and about a tenth of the convergence between the United States and Sweden over the four decades after 1870.However,Anglo-American commodity price convergence effects were swamped by other forces after 1895,and they made only a modest contribution to Anglo-Swedish real wage convergence over the four decades as a whole.O'Rourke,Alan Taylor,and I turned to econometric analysis of wage-rental trends in seven countries (including Britain and Sweden)to search for the modal case.The study 15 O'Rourke and Williamson,"Were Heckscher and Ohlin Right?" I6 Chandler,“Visible Hand";Wright,.“Origins'"and Abramovitz and David,“Convergence.” 17O'Rourke and Williamson,"Open Economy Forces
Globalization, Convergence, and History 287 convergence.15 Commodity price convergence explains more than a third of the decline in the Anglo-American real wage gap over the quarter century ending in 1895. Because of powerful offsetting forces, AngloAmerican convergence stopped after the early 1890s, even though the factor price convergence effect of commodity trade persisted. Commodity price convergence played a significant role in fostering real wage convergence up to 1895-just as Heckscher and Ohlin predicted-and in muting the powerful divergence forces set in motion by a much-debated industrial "failure" in Britain and by industrial success in North America based on a large market size and a rich mineral resource base.16 What about Sweden, the classic European catch-up case that motivated Heckscher and Ohlin in the first place? How much of the impressive Anglo-Swedish and American-Swedish convergence can be explained by commodity price convergence, trade creation, and those Heckscher-Ohlin forces? To the extent that Sweden retreated behind tariff walls in the 1880s, perhaps the price convergence set in motion by the global collapse in international transport costs was muted or even offset. O'Rourke and I have recently shown that there was price convergence between Sweden and Britain over the late nineteenth century, as the former integrated into the global commodity market with the latter at its center.17 It turns out, however, that Anglo-Swedish price convergence was modest, suggesting that the Heckscher-Ohlin factor price convergence effects must also have been modest. Once again we use a CGE model to assess those effects, exactly the kind of model first proposed by Ohlin and now so commonly used in trade theory. The CGE model estimates that the price convergence with Britain served to raise urban wages in Sweden by only 2 percent above what would have been true in its absence, and thus it explains only 4 percent of the impressive erosion in the Anglo-Swedish wage gap. Adding the large Anglo-American Heckscher-Ohlin effect to the small Anglo-Swedish effect yields an American-Swedish figure of perhaps a tenth. So far, Heckscher and Ohlin get mixed reviews: commodity price convergence accounts for about three-tenths of real wage convergence between the United States and Britain during the 25 years after 1870, and about a tenth of the convergence between the United States and Sweden over the four decades after 1870. However, Anglo-American commodity price convergence effects were swamped by other forces after 1895, and they made only a modest contribution to Anglo-Swedish real wage convergence over the four decades as a whole. O'Rourke, Alan Taylor, and I turned to econometric analysis of wage-rental trends in seven countries (including Britain and Sweden) to search for the modal case. The study 15 O'Rourke and Williamson, "Were Heckscher and Ohlin Right?" 16 Chandler, "Visible Hand"; Wright, "Origins"; and Abramovitz and David, "Convergence." 17 O'Rourke and Williamson, "Open Economy Forces." This content downloaded from 211.80.95.69 on Sun, 20 Oct 2013 19:57:15 PM All use subject to JSTOR Terms and Conditions