In 1870, Britain was the unquestioned workshop of the world. Britain was also among the early developers and adopters of the new, steel-based technologies that were leading the latest wave of industrial growth. But steel and related industries grew even faster in several other countries, notably the US, Germany, and Belgium. By the 1860s, the US and Germany were already overtaking Britain’s erstwhile rival, France, in important areas of industrial production; although the term was not then in use, they were the NICs (newly industrialized countries) of the day (Figure 5.1).
The age of steel was also the end of a period of free trade in Europe – this at a time when most of the world’s industrial output was in Europe, and European powers ruled much of the rest of the world. In the 1850s and 1860s, a veritable contagion of bilateral treaties reduced tariV levels and stimulated trade. Then, policies changed, and tariVs moved up: France raised tariVs in 1872 and 1875, Italy in 1878, and Germany in 1879.
Higher tariVs were not the only new protectionist measures at the time. An inter-national treaty governing patents was adopted in Paris in 1883, and one governing copyrights in Berne in 1886. These remain the basis of international intellectual property law to this day, the foundation upon which the World Trade Organization’s (WTO) Trade Related Intellectual Property (TRIPs) agreement was erected in 1995.
TRIPs is generally regarded as part of a program of trade liberalization, but in the late 1800s, international protection of intellectual property rights was seen in the opposite light: it was protectionist, an obstacle to the free Xow of ideas and technology. As such, it
was opposed by prominent advocates of free trade such as – then, like now – The Economist magazine (Sell and May 2001).
As barriers to trade between national markets were rising, the national markets them-selves were being enlarged. The US consolidated its control of the western half of what were to become the forty-nine continental states; in Germany a free trade area known as the Zollverein was consolidated, under Prussian leadership, to form the modern German state;
similarly, in the period from 1860 to 1870, Italy was uniWed to form a single state for the Wrst time since it formed part of the Roman Empire. In these and other states, national markets were integrated through the development of rail networks. Until the railway, water transport had always had both cost and time advantages over land transport, and for many cities this had meant that access to foreign markets was easier than access to domestic ones.
With the railway, land transport became faster.
At the same time, the industrialized and industrializing countries went on a new binge of empire building. The earlier phase of empire building, in the sixteenth and seventeenth centuries, had sought gold, spices, places to grow crops such as cocoa and sugar, and natural resources such as timber and Wsh. Most of the early colonies in the Americas had since gained independence, and the two earliest colonial powers – Spain and Portugal – showed little sign of joining the ranks of industrial countries.
The new imperialism focused on Asia and Africa. European power had continued to grow, for some time, on both continents. Throughout the early nineteenth century, Britain had been consolidating control of India (an area which included not only today’s
1100 1800 3000 5000
GDP per capita (1990 $)
1820 1850 1880 1910
Year
UK US
Germany
Figure 5.1. Catching up with Britain
Source: Maddison (2007).
54 THE GLOBAL ENVIRONMENT OF BUSINESS
India, but Pakistan, Bangladesh, and Sri Lanka as well). From 1842, when Britain defeated China in the First Opium War (part of a saga of imperial drug-pushing that is unfortunately outside the scope of this book) Western powers gained, among other things, rights to trade in China, and the control of many coastal cities (treaty ports).
After some American gunboats visited Japan in 1854, the US gained trade rights and numerous other concessions, including foreign control of Japanese tariV levels. Russia rounded out its eastward expansion in Siberia and Central Asia.
In the age of steel, however, this new imperialism kicked into high gear. In 1884–5, at the Conference in Berlin, a group of European countries carved up the map of Africa, Portugal, and, Spain, the once-great empires, were allowed to keep some of their claims of earlier centuries; the rest was divided up between the industrial powers, with the exceptions of Ethiopia, and the colonies of repatriated slaves – Liberia and Sierra Leone – which maintained their independence. In 1898, the US took over Hawaii, and also attacked, and acquired, most of Spain’s remaining colonies, including Cuba, Puerto Rico and, far larger and more populous, the Philippines (Cuba was soon granted independence, but under a treaty which, among other indignities, allowed the US to invade whenever it saw Wt, which turned out to be often; the US also kept a small part of Cuba called Guantanamo Bay).
The proliferation of treaty ports in China picked up pace during this Xurry of imperialism, and extended inland up the major rivers. Japan, however, changed roles, from colonized to conqueror. It grabbed Taiwan and a bit of Manchuria from China in 1894–5, following which it managed to repudiate most of its unequal treaties with the West; it did not regain full control of its own tariVs, however, until 1911. In 1904–5 it fought and won a war with Russia, winning eVective control of both Korea and Manchuria; it formally annexed Korea in 1910.
Yet, despite the higher tariVs and the carving out of larger markets under national control, the international economy continued to grow: trade as a proportion of output was fairly steady between the late 1870s and 1900, and then rose up until the outbreak of World War I in 1914. Overseas investment rose sharply during the same period. But the great powers of Europe went to war in 1914, producing a great continental cataclysm, and eventually drawing in the US; after that war, trade and foreign investment did not return to prewar levels. Economic instability was the rule, and many countries suVered high unemployment, inXation, and low growth. Then, more war, this time engulWng Asia as well as Europe, in the 1930s and 1940s. After 1945, international Wnancialstabilitywas restoredinwaysthat will be discussed in Chapter 9; by many measures, however, the level of international economic integration – trade, investment – did not return to its 1910 levels until the late 1980s.
Why did it happen? There’s more than one question there, really. Why did free trade Xower, in the Wrst place, between the late 1840s and late 1870s? Why did it then give way to protected national markets and empire? Why did these national systems which, despite tariVs, were bound together in a thriving international economy, descend into
war and revolution, totalitarian dictatorships and mass unemployment, and in some cases into mass starvation or the systematic slaughter of civilians?
One would be ill-advised to seek simple or complete answers to such complex historical questions but, as with international production today, we can make a good case for the role played by changes in production, transport and communication technologies and the organization of industry. And, in working through this case, we can understand how economic forces can work against international integration as well as for it.