The negative view of the Italian bourgeoisie, unable and unwilling to perform what was supposed to be its historic task – the task of modernization and industrialization – ran like a leitmotif in Italian political thought, from Gramsci and Giolitti to Fascist thinkers such as Nello Quilici, who wrote in 1930 that, unlike in France and Great Britain, in Italy the bourgeoisie lives in fear of change and modernity, which is why it surrendered without resistance to Fascism: ‘it thought only of its wallet’.78
There were, of course, genuine obstacles to industrialization: Italy was long and thin, mountainous, with limited natural resources and a restricted home market. It was only around 1890, when the international economic situation began to improve and a new style of economic management emerged under the influence of Giovanni Giolitti, the dominant political personality of the pre-war years, that a period of innovation and industrialization ensued, thanks to state intervention. The state regulated the railways, guaranteeing their profitability, and entrusted the management to private groups for a period of twenty years. Soon even the iron and steel industries, regarded by entrepreneurs as a highly speculative and risky venture, came to be guaranteed by the state.79
The state busied itself with the most varied tasks throughout Europe. A pre-existing centralist tradition had enabled Napoleon III and his prefect, Baron Haussmann, to increase the sewage system fivefold in Paris, resulting in virtually every street in Paris being connected to it while, above ground, there was a regular system of street cleaning and refuse collection: ‘Paris soon became the envy of the civilized world’ with more street cleaners than those of London and Berlin.80
French liberals were occasionally pragmatic. Even Paul Leroy-Beaulieu, the ultra-liberal French economist (albeit pro-colonialist), faced with the chronically low rate of birth of the French, suggested, in his pro-natalist La question de la population (1913), that those with larger families (i.e. those with three or four children) should be given priority when applying for public-sector jobs.81
Nevertheless, the real advocates of laissez-faire in the nineteenth century were French rather than British, people like Jean-Baptiste Say, one of the few economists who was also an entrepreneur, Frédéric Bastiat, and Léon Walras, who elaborated a general equilibrium theory (the doctrine that markets collectively will tend to equilibrium). The tone of these French intellectuals (unlike that of French politicians) was far more ideological than that of British economists. The British were writing in a society that was breaking all previous economic boundaries and pragmatism tempered their liberalism. The French, on the other hand, regarded themselves as economic laggards burdened by the weight of over two centuries of centralism – a red line of continuity that linked Jean-Baptiste Colbert, Louis XIV’s Finance Minister, to the Jacobin revolution and beyond.
Frédéric Bastiat was later referred to by Karl Marx, writing in his incandescent mode, as ‘the most superficial … representative of the apologetic of vulgar economy’, a ‘modern bagman of free trade’, and ‘a dwarf economist … truly comical’.82 Keynes called him ‘the most extravagant and rhapsodical expression of the political economist’s religion’.83 Around 1848, Bastiat founded an association modelled on the Anti-Corn Law League of Richard Cobden and John Bright, but he far surpassed them in his distaste for the state. In his Harmonies économiques, published in 1850 (the year of his death), he complained that private services were being converted into public ones, that the government was ‘confiscating’ (i.e. taxing) over one-third of the income of its citizens, making the law an instrument of spoliation. He observed, with dismay, that the government had proclaimed itself to be a universal force – today we would say totalitarian. It is surprising, he added, that revolutions were not more frequent.84 What should governments do? For Bastiat, not much: defence, public security (‘defending our freedom’), and administering common property (such as forests and roads). Beyond this every government intervention was an injustice.85 Nor, he added, could one ever say that the state provides a ‘free’ service, such as education (neither free nor compulsory in mid-nineteenth-century France). Someone, somewhere pays, he explained, pre-empting contemporary ultra-libertarians by more than 150 years, many of whom, such as the ‘anarcho-capitalist’ Murray Rothbard, worshipped him. In bypassing the market, Bastiat wrote, the state gives everyone the same product whether they want it or not, regardless of individual preferences.86 He defended himself against critics who, he wrote, accused him of being heartless, since he praised the market while ‘before our eyes there is suffering, misery, the proletariat, pauperism, children being abandoned, malnutrition, crime, inequalities’, only stating when faced with a sick society, ‘Laissez-faire, laissez-passer; tout est pour le mieux dans le meilleur des mondes possibles.’ His defensive riposte (invoking Leibniz and Voltaire) was ‘We see evil just as our opponents do but have a different solution.’87 The solution was the minimalist state.
In Belgium, liberals of the same ilk, huddling together around journals such as L’Économiste belge and its editor Gustave de Molinari, also claimed that it was not the business of the state to ensure that virtue should reign on earth, that social inequalities were indispensable. For such inequalities enabled the accumulation of wealth whereas social equality would generate social misery.88 De Molinari even went as far as suggesting that law and order could be privatized and subject to the laws of the market.89 By 1880, fifty years after the creation of the Belgian state, its self-satisfied bourgeoisie was completely in charge.90 Led by Walthère Frère-Orban, the Belgian liberals were distinguished by an unremitting economic liberalism, a strong anticlericalism, a reluctance to aid the colonial policies of the king, and a profound distaste for the expansion of the suffrage. It was, however, the beginning of the end for Belgian Liberals. In 1884 the surprising victory of the Catholic Party, coupled with the advance of the socialists, put paid to their hegemony. The expansion of the suffrage further strengthened the Catholics (as well as the socialists). All the while, Belgium continued its industrial economic growth, prosperity reaching wider groups in the population and the ultra-liberalism of its first decades giving way to social legislation, while capitalism became more and more concentrated. In other words, the country became both more capitalist and more ‘collectivist’.91
The other great national bastion of economic liberalism was in a country even more laggard than France: Austria. The so-called ‘Austrian School’ (a term then used pejoratively by German academics) was led by Carl Menger, whose Principles of Economics (1871) inspired some of the most important free-market champions of the twentieth century: Eugene von Böhm-Baker, Ludwig von Mises and, above all, Friedrich Hayek. But even Carl Menger was not quite as much against state interference as some of his followers made him out to be.
As is often the case, the more intransigent advocates of ultra-liberalism were not cautious academics but popular writers and journalists, people such as James Wilson (the first editor of The Economist, 1843–59) and Harriet Martineau (who, however, accepted numerous exceptions to laissez-faire).92 They preached a simplistic version of economic liberalism – one that John Stuart Mill, writing on Martineau, thought was a little over the top, though it ‘possesses considerable merit’.93
Unlike journalists, academic economists knew that life was complicated and were keeping their distance from authentic laissez-faire. As John Maynard Keynes explained later, revisiting these debates in his essay ‘The End of Laissez-Faire’, most leading economists, far from upholding the doctrine of laissez-faire, directed their attention ‘to the elucidation of the leading cases in which private interest and social interest were not harmonious’, while still retaining the traditional assumption that:
the ideal distribution of productive resources can be brought about through individuals acting independently by the method of trial and error in such a way that those individuals who move in the right direction will destroy by competition those who move in the wrong direction.94
As for politicians and state functio
naries, even the liberals tended to be interventionists, for it was (and is) difficult for them to declare that ‘nothing can be done’ without talking themselves out of a job. Pro-interventionism was especially prominent in France where the liberal Republicans who controlled the National Assembly after 1880 systematically strengthened the economic powers of the state. State interventionism had already began in earnest earlier, with the launch in 1878 of the Freycinet Plan (Charles de Freycinet was then Minister for Public Works; later he became Prime Minister) to ensure the development of the railways either by directly subsidizing private enterprise or by the state investing directly in railroad construction.95
In the United States too the federal government was a key factor in the original impetus for railways, providing capital as well as a protective legal environment that shielded the companies from the consequences of poor judgement and corruption. As William G. Roy explained: ‘It is difficult to imagine that the railroad companies could have been built as extensively or as quickly without vast government support.’96
This was also the case in Russia. The key role in Russian economic growth was played by the state with the significant help of foreign banks.97 In the 1860s and 1870s private rail companies had been state subsidized with negative consequences: rampant speculation and abuse by private companies increased debt and general incompetence. This led even those deeply committed to private initiative, like Nikolai Bunge, later Minister of Finance and then Prime Minister under Alexander III, to advocate nationalization and state management of the railways.98
French state functionaries (and politicians) had studied their economics at the feet of liberal academics but, once in charge of the state machine, they used it – sometimes energetically, sometimes reluctantly. Convinced that, theoretically, state intervention was wrong, even when the result seemed advantageous to all – as with the railways – they resolved the conundrum by granting the monopoly to a private company.99 Of course, when the economy was in trouble, as it was during the Long Depression, liberal principles were further downplayed and French public subsidies to the private sector were, in the period 1873 to 1895, four times greater than in the years 1850 to 1873.100
Capitalism had become the economic form of organization of the nation state, regardless of what theorists claimed. Any improvement in consumption, in France as elsewhere, was attributed to the economic policies of the state, even when the state was only indirectly responsible. When things did not go well, it was the state and politicians who were blamed, even if they had little to do with it (for instance if international prices changed). The destinies of politics (the state) and capitalism were (and continue to be) irrevocably bound up together.
The interconnectedness between state and economy – between ‘our’ state and ‘our’ economy – had by then become quite evident. Even today when the word ‘globalization’ is on every opinion-maker’s lips, there is not a single government in the world that does not regard one of its main duties – probably its main duty – to be that of managing ‘its’ economy. No international organization, not even the European Union, has come near to establishing the kind of control and rules that the nation state still deploys. Our world is one of nation states, advancing not towards a global state but towards a global system of states.
Strengthening the state inevitably involved expanding the bureaucracy and hence the number of state functionaries whose commitment towards the state was due not only to loyalty but also to personal self-interest in the security of their jobs. Of course state-dependent personnel have existed for a long time: soldiers, officers, tax collectors, scribes, monks, and priests are ancient figures, but they were never either so numerous or so closely dependent. China, at the beginning of the Christian era, already had over 130,000 bureaucrats (in a population of roughly 60 million), most of whom had been selected by competitive examination.101 But this was only 0.21 per cent of the population; the OECD average is today 15 per cent. In the West, bureaucracy was highly undeveloped at least until the nineteenth century. The growth of bureaucracies is a twentieth-century phenomenon that originated in the nineteenth century. Large states for obvious reasons require bureaucracies, particularly when their diversity involves a policy of cooptation of groups (a form of glorified bribery). Thus when the Ausgleich or Compromise of 1867 established Hungary as a nation within the Austrian Empire (which changed its name to the Austro-Hungarian Empire), and Francis Joseph became King of Hungary, as well as Emperor of Austria, and when Hungary became virtually self-administered, a bureaucratic class of significant proportion arose, doubling in size between 1890 and 1910. By 1914 the Hungarian public sector employed 3.5 per cent of the labour force, three times the number of Britain’s civil servants and more than twice the number in Germany. The economy remained backward, and the more backward it was the more public-sector jobs were created to appease the job-seeking sons of the middle and lower middle classes.102 Of course, these figures pale into insignificance when compared with those of today’s advanced states. In the years 2000 to 2008 the public sector (government plus public corporations) employed almost 30 per cent of the labour force in Norway and Denmark, over 20 per cent in Sweden, Finland, France, and most of the other main OECD countries, around 15 per cent in the UK and the USA, while Greece, Japan, and Korea had less than 10 per cent.103
The wider problem with terms such as ‘state’ and ‘nation state’ (the latter being a state pretending to enclose within its boundaries all the members of a nation) is that they subsume entities exhibiting vast differences in size, in population, and in organizational efficiency. Luxembourg, Japan, the United States, and Thailand are all, technically, ‘sovereign’ states, though the way in which they are ‘sovereign’ is very different.
Yet each state is modern in at least one sense: it has ‘the people’ at its heart. Its purpose or ‘project’, at least formally, even in a dictatorship, is to ensure an improvement in the conditions of life of ‘its’ people. Its rulers may think mainly about their own power, their own wealth, and their own families, but the ideological rhetoric of the modern state is essentially ‘democratic’; its rulers must claim to act on behalf of the ‘people’. This is not to say that the rhetoric had not been deployed in earlier times, but only with the modern state did it become universalized. The ‘people’ came to exist as a political force, real or potential, mainly at the end of the nineteenth century, along with industrial capitalism. This is when the people needed to be placated, cajoled, or coerced. They could not be ignored. Improving their conditions became an imperative alongside the older imperative of defending the country. Here too economic considerations prevailed, for rich countries could defend themselves better than poor ones. Thus capitalism became a matter of state policy – far too important to be left to the whims of entrepreneurs or the vagaries of the market. Capitalism was never a purely private process.
Some social theorists saw this clearly, particularly in Germany – obsessed with catching up with Britain – and where a solid body of academic opinion urged the state to encourage the development of a dynamic capitalism.104 The rejection of capitalism, once de rigueur in many intellectual and conservative circles, became less and less common after 1900.105 Max Weber in his inaugural lecture at Freiburg University in May 1895, a lecture imbued with what one might call ‘national capitalist’ ideology, declared that the goal of the economic policies of the state should be to defend the German people as a whole and not as individuals because ‘our state is a nation state [National-staat]’. And he added that the ‘economic policy of a German state, and, equally, the criterion of value used by a German economic theorist, can therefore only be a German policy or criterion’.106 In other words, capitalism was a collective enterprise aimed at improving the conditions of the members of the national community, not a social system that would enable individuals to get richer.107 Production for production’s sake was not all-important. What really mattered was the production of German values.108 In Weber’s later writings, including T
he Protestant Ethic and the Spirit of Capitalism (1904–5), while perturbed by the growing bureaucracy, the stifling of the individual, and the replacement of the personal relationships of traditional society with impersonal class conflict, he recognized that politics was necessarily becoming increasingly dominated by economic and materialist concerns.109
The British had known this for a while, and without any help from Weber. Since the end of the eighteenth century it was commonly accepted in British government circles that policy, including foreign policy, would have to take into account economic requirements. Its trade expanded into ‘an international vacuum … cleared by the activities of the British navy’.110 In July 1757, Lord Holderness, a government minister, explained that:
we must be Merchants while we are Soldiers, that our Trade depends upon a proper exertion of our Maritime Strength; that Trade and Maritime force depend upon each other, and that the Riches which are true Resources of this Country depends upon its Commerce.111
The country might appear as if its policy was always in the hands of haughty aristocrats inexperienced in the vulgar business of commerce, but no British Prime Minister ever ignored the fact that the country was dependent on overseas trade. William Pitt the Younger, the youngest ever Prime Minister and one of the best (becoming PM for the first time at the age of twenty-four in 1783), remarked that ‘British policy is British trade’. Lord Palmerston, Foreign Secretary in the 1840s and Prime Minister in the 1850s, told the House of Commons that to be accused of being indifferent to commercial interests was like being accused of lacking common sense. Finally Lord Clarendon, who came from an old aristocratic family of courtiers, diplomats, and politicians, and who never dealt in anything as sordid as trade and commerce, once he became Foreign Secretary in 1853 explained that he regarded commerce as one of his leading priorities, adding that ‘the magnitude of our commercial relations has created an interest that did not exist before’.112 It was not aristocrats who were running the country, but, overwhelmingly, businessmen who had gone into politics either as Liberals or as Conservatives.113
The Anxious Triumph Page 24
