A new paper (Gaston Nievas, Thomas Piketty) reveals how the world's wealth was built on a rigged system. And how it could have been different.
Two economists just dropped a paper detailing the 200-year history of the global economy that proves… you might be right. This isn't just history. It's the story of why our world looks the way it does.
Before WWI, Europe owned a staggering 34% of the entire world's wealth in foreign assets. Britain alone had a foreign fortune worth 180% of its own economy. They were the world's ultimate landlord.
Here’s the wild part: they built this fortune without ever running trade surpluses. In fact, European powers consistently bought more goods than they sold, running a huge deficit in raw materials.
First, a 'startup fund' from their colonies. Think of the massive debt France forced on Haiti after its independence, or tax revenues siphoned directly from British India and Dutch Indonesia.
Second, they earned way more interest on their foreign investments than they paid on their debts. The system was literally paying them to be rich, financing their trade deficits and letting them buy even more assets.
Today, the map of wealth has flipped. East Asia and oil-rich nations are the new creditors. The U.S., the world's leading power, is now a massive debtor.
But unlike old Europe, today's creditors like China and Japan built their wealth the 'standard' way. They simply sold way more stuff to the world than they bought.
The core pattern remains: powerful economies import cheaper primary commodities from the Global South and export more expensive manufactured goods. A story as old as globalization itself.
Whether it was Europe in 1900 or East Asia today, both ran enormous trade deficits in raw materials sourced from places like South Asia, Latin America, and Africa. The flow of physical resources has been relentlessly one-way.
The economists ran simulations to see what would happen in a fairer world. The results are mind-bending.
Without the forced wealth transfers, Europe wouldn't have been a creditor in 1914. It would have been a debtor. Countries like India and Indonesia would have owned large parts of Britain and the Netherlands.
Now, imagine if raw material prices were just 20% higher back then. Europe’s massive wealth would have vanished. Instead of owning the world, it would have owed a debt equal to 60% of global GDP.
Combine both: no colonial transfers AND 20% fairer prices. Europe's debt would have been an unimaginable -100% of world GDP. South Asia and Latin America would have become the world's dominant creditors.
The same logic applies today. A 20% price bump for commodities now would transform Sub-Saharan Africa from a major debtor to a significant creditor, holding more foreign wealth than East Asia.
The study shows that investing the gains from fairer trade into education and infrastructure in the Global South would lead to dramatic convergence. Global inequality would shrink, and average world income would be much higher.
The story of the global economy isn't about natural, self-correcting markets. It's a story of power, rules, and institutions. History could have been radically different. The future still can be.