The fantastic power that capital markets seem to wield make it difficult to appreciate that the world could have been anything as developed as it is now. Yet, research shows that number of countries (especially those outside the USA) were more financial developed in 1913 than they were by 1980. For instance, in proportion to GDP (gross domestic product), the market capitalization of the French stock market was nearly twice that of the USA in 1913, but fell to a quarter of it by 1980. Generally speaking, financial market development over the course of the last hundred years reached its nadir in 1980, from which point it has increased towards and beyond the levels of develop-ment seen at the turn of the last century.
However vibrant globalization was at the turn of the century, burgeoning levels of trade, financial and technological advances (in transport and communications) soon led to imbalances in the European, Latin American and American economies, which in many cases, were dealt fatal blows by poor policy making. Openness quickly gave way to protectionism and the application of tariffs. The rise in poverty and unemployment that was brought about by inflation in the price of goods and deflation in asset prices forced an eventual response from governments who had come to feat the greater say that the poor had in politics because of the expanding franchise. Where small governments had previously been in vogue (in 1912 government expenditure in developed countries was about 13% of GDP) governments were now expected to spend and protect their way back to prosperity. Thus, protectionism, economic decline, nationalism and finally war brought down the curtain on the first period of globalization.