2.2 Global Trade in Commodities

What is the Columbian Exchange?

What does history tell us about the relationship between private enterprises and governments, according to Professor Sachs?

In this chapter, I want to talk about the rise of global industry and global production chains. And you might think I’m talking about Apple products or Microsoft or something of our current age, but I want to talk about the globalization of the 16th Century, of the 1500s, because almost as soon as Columbus had made his voyages and Vasco da Gama had circled the Cape of Good Hope, entrepreneurs went to work to construct, remarkably, often with a lot of violence and cruelty attached, often mobilized by a greed that is almost hard to imagine, because the dangers and the obstacles were very high, truly global scale industry, global scale production chains.

Of course, we had had international trade for millennia. But the idea of buying raw materials in one part of the world, partially transforming them, shipping them to another, processing them in another, exporting them to another part of the world and not just within Eurasia or Eurasia and Africa, but now the entire world, this is real globalization as we know it.

And this is in many ways a 16th Century invention. Astounding when one looks at it. And it’s the reason why absolutely wonderful books have been written taking world history from the perspective of cotton, or world history from the perspective of tobacco, or world history from the perspective of coffee, or world history from the perspective of cacao and cocoa and chocolate.

Not only are these among our most favorite and addictive products, but these are really the first global scale industries. And the ingenuity and the rapaciousness, the greed, and yes, the violence that are all packaged together in the birth of the modern world economy are absolutely stunning.

Now it has been a theme of mine that technologies and know-how, including agricultural knowhow diffuse within ecological zones. And especially for the diffusion of agricultural know-how, one has to recognize that crops and animal herds have their ecological niches and therefore diffusion typically has been within latitudes on relatively contiguous areas.

Now we’re going to leap whole oceans, still within ecological zones, but technologies, for example, sugar cane, which originated in south and southeast Asia and then was carried by the Islamic empires into the areas of the Middle East, the Tigris and Euphrates River valleys, into the Nile Valley and the Nile farming region, and then across the islands of the Mediterranean and into Madeira and the islands of the Canary Islands in the Atlantic.

With global scale trade made possible now by ocean-going navigation, crops like sugar suddenly leap whole ocean regions to become true global scale industries.

Now crops like sugar cane could suddenly leap the oceans. And a remarkable process began very quickly that is known to us today as the Columbian Exchange. A great term championed by the wonderful historian Alfred Crosby, who talked about the biological exchange between the Old World and the New World that was quickly occasioned by Columbus’s voyages and by the ocean navigation links now established between Europe and the Americas.

And what ensued was a massive biological exchange of crops and also of pathogens. Crops flowed in both directions. One of the most important crops that flowed from Europeans to planting in the Americas was sugar.

Europe quickly developed an addiction for sugar, as its price fell, as it became more plentiful, as it was possible to grow sugar cane now massively in the Caribbean region and then later both in South and North America in coastal, subtropical regions, sugar production and demand exploded and sugar became one of the truly global industries. Another massive exchange took place when a wonderful bean, absolutely one of my favorites, went from its original home in the highlands of Ethiopia and was carried for planting to the Americas and that was the expansion of coffee growing.

That’s another addiction that quickly swept Europe and sweeps the world till today with a massive expansion of coffee growing. Well the Americas had their own gifts to the world, many of them. Staple crops and other products that established global industries, of staple crops, too, have been a profound global significance, like Adam Smith said, having one region of the world able to help meet the needs and the wants of other regions, one of those crops is maize or what in the United States we call corn.

And that was the staple crop of the Aztec Empire, grown by Amerindian populations in the southwest of the United States and carried back to Europe and from Europe into Africa where Africa became a major maize growing region of the world.

Another crop of world changing significance is the potato, which was developed in Neolithic Revolution of the high Andean region and in the Columbian Exchange carried back to Europe where it became a staple crop across Europe, of course famously in Ireland, but also those wonderful addictive crops crossed the Atlantic from the west to the east, cacao, establishing itself and spread by the Europeans into cocoa growing, cacao growing and cocoa production in many parts of what would become the colonies in Africa.

And of course I would say now, notoriously but one of the most addictive and favoured crops in modern human history, tobacco, which was learned from the Amerindian populations and taken and cultivated around the world.

Industries from sugar cane, chocolate growing, coffee, tobacco became the great global industries of the modern world. They became the great industries of the first early phase of modern capitalism. They established a kind of structure and pattern of global scale finance, insurance, overseas production, global value chains, primary production in certain regions and processing in other regions.

And thus became the real era of global-scale, early capitalism occasioned by these absolutely powerful new industries driven by the intense desires of literally, addictive crops, which remain addictive to us today. And this map is a depiction of the rapidly multiplying sea routes from Europe to the Americas, both north and south, from Europe to Asia, both north and south and from the eastern Pacific in the coasts of North and South America to the western Pacific, right across the Pacific Ocean to the Philippines and what would become colonies of the western imperial powers.

It’s a remarkable story how fast these new global value chains developed. Many of the institutions of modern capitalism were born here. One of the persistent realities of modern capitalism, and that is that private enterprise was always developed in a kind of partnership and symbiotic relationship with powerful patrons of the state.

If nothing more than to be protectors of the sea routes through naval power, but also to provide the military backing for the establishment of plantations, of mining sites, of colonies overseas.

And to my mind, the close relationship of these nascent, global capitalists, not only in the agricultural crops, but of course in the mining sites of the Americas, the gold and the silver mines which fed the bullion to Spain and to the rest of Europe and which was then used to purchase the fine silks and the porcelains from Asia. That close relationship of these giant businessmen of their time to the great financiers who developed to fund these voyages and to insure the fleets as they went on their way, to the government power of the monarchs who both created royal charters for plantations and created new joint stock companies that would be the ones to carry out the exploitation of these new sectors shows hand in hand, state power and private power as a core feature of capitalism from its earliest days.

Often the story is told that capitalism is about the private economy and the government is just there if anything to protect private property rights and adjudicate commercial disputes or at least that’s what it quote, “should” do.

But we can see from the history from the 16th Century onward, that capitalism is investing massive capital, often backed by the state, almost always in some kind of symbiotic relationship with state power to develop global scale activity. Impressive, without question. Exploitative, without doubt. Brutal, yes. And that is the topic of the next chapter.