The Wealth and Poverty of Nations: Why Some Are So Rich and Some So Poor
Page 33
It was almost half a century ago, in 1951, that Alexander Gerschenkron wrote his seminal essay on “Economic Backwardness in Historical Perspective.” In it he posed the question, what does it take for a follower country to undertake industrialization and emulate its predecessors? Or, to put it differently, does it make any difference to come along later?
What does it take? Gerschenkron answered metaphorically: an ability to leap the gap of knowledge and practice separating the backward economy from the advanced. Gerschenkron made no effort to ask why anyone should want to leap the gap. The advantages were obvious. Rather, he saw the gap as an incentive in itself, an invitation to effort—like a gap in potential that, when sufficiently great, is crossed by electrical energy in the form of a spark. (That is my metaphor, but it is not unjustified. Gerschenkron speaks explicitly of “tension” between “potential” and actual.)
In Gerschenkron’s model, then, it pays to be late. Not before the leap, but after. (He makes no effort to estimate the cost of relative poverty before industrialization, but he doesn’t have to. It’s high.) The greater the gap, the greater the gain for those who leap it. Why? Because there’s so much more to learn—including mistakes to be avoided. As a result, follower countries grow faster than their predecessors. Their growth is characterized by what Gerschenkron calls a spurt (or spurts), a period (or periods) of exceptional rates of increase.
Late growth, says Gerschenkron, also tends to be based on “the most modern and efficient techniques,” because they pay the most and nothing less can compete with more advanced nations. These techniques are typically capital-intensive, which would seem to be irrational for countries that abound in cheap labor.* Gerschenkron recognizes the paradox, but explains it by the quality of the workforce. Good, well-disciplined labor is in fact scarce, he says, scarcer than in richer, more advanced countries. So it pays to substitute capital for labor.
That, for Gerschenkron, is half the story. The second half concerns the how: How did backward countries, poor in capital and good labor, manage to create modern, capital-intensive industry? And (although Gerschenkron does little with this part of the story) how did they manage to acquire the knowledge and know-how? Finally, how did they overcome social, cultural, and institutional barriers to industrial enterprise? How did they create appropriate arrangements and institutions? How did they cope with the strains of change?
In his exploration of the conditions and constraints of backwardness, Gerschenkron laid particular stress on the mobilization of capital. He distinguished three levels: (1) a country with lots of private wealth and well-funded merchant banks, able to finance enterprise with family resources, small loans, and reinvestment of profits; (2) a poorer country with fewer and smaller private fortunes, but enough to finance industry if (investment) banks could be created to mobilize these dispersed funds; and (3) a country poorer still, where private wealth was insufficient and only the state could do the job, whether by financing investment banks or by direct subvention. Britain was clearly in the first category; Germany, Austria, and Italy in the second. The United States, Belgium, Switzerland, France came in between. Russia fell in the third group.
Gerschenkron’s work in this area has been criticized because of his heavy reliance on the scholarship of an earlier generation and the refusal of complex historical arrangements to fit neat schemas. Every new series of numerical estimates calls for adjustments in perspective. Even so, Gerschenkron has continued to influence students of development, in large part because of his central points: that latecomers need to make special arrangements to compensate for their backwardness and for changes elsewhere; and that with intelligence and will, they can find ways to do so.13
18
The Wealth of Knowledge
Institutions and culture first; money next; but from the beginning-Land increasingly, the payoff was to knowledge.
The first move to acquire the “secrets” of the new British technologies was to send out explorers—trained agents to observe, report, and hire away skilled artisans. Thus in 1718-20, at the instigation of a Scottish expatriate, John Law, France launched a systematic pursuit of British technicians: clock-and watchmakers, woolen workers, metallurgists, glassmakers, shipbuilders—some two or three hundred people. This campaign so troubled the British that they passed a law prohibiting the emigration of certain skilled craftsmen, the first of a series of such measures covering more than a century and a widening array of trades.1
This legislation, however, did not constitute an hermetic barrier. In a world of high protectionism, not everyone was alert as yet to the potential of international competition. Take metalmaking skills—a special treasure because of their tie to armament and machinery. (People will kill to be able to kill better.). In 1764-65, the French monarchy dispatched Gabriel-Jean Jars to visit mining and metallurgical installations in England. So insensible were the British to the value of such intelligence that he was well received at foundries and forges in Sheffield and the Northeast. His memoranda, later published, still make a valuable source of information on the techniques of his time.* The same was true of the British advances in chronometry, the key to superior navigation: in 1769, the Board of Longitude allowed French visitors to open and examine the revolutionary marine clocks of John Harrison on the assumption that these should contribute to all of mankind. (Harrison, when he learned of this, threw a fit.)2
Some places and trades were not so welcoming. In Birmingham, a center of metal trades, every maker had his knacks and tricks. Craftsmen there were rationally paranoiac in their conviction that every stranger was an enemy. Not only foreigners; Englishmen as well. Arthur Young, traveler and observer extraordinary, wrote of his hostile reception in that busy town.
I was no where more disappointed than at Birmingham; where I could not gain any intelligence even of the most common nature, through the excessive jealousy of the manufacturers. It seems the French have carried off several of their fabricks, and thereby injured the town not a little: This makes them so cautious, that they will shew strangers scarce anything….3
All of which did not stop the manufacturers of Birmingham from engaging in their own spying. Britain was not the only country with techniques worth learning or stealing (although by now it had the lion’s share of the potential loot), and British manufacturers had no more scruples than their Continental rivals. Besides, it takes two to tango, and skilled craftsmen, like savants and artists, took all of Europe as their home.4 One of the most valuable secrets of French metalworkers, for example, was the gilding, usually on brass or bronze, known as ormolu (or moulu)—bright, shiny, phony, hence immensely profitable. Matthew Boulton gained fame as James Watt’s partner in the manufacture of steam engines, but he began as master maker of buttons, buckles, watch chains, candlesticks, and all manner of metal objects. Boulton put money and men out in every direction to learn this French technique; also to seduce French craftsmen and artists, with their tools if possible. Eventually he succeeded and thought himself the patriot as well as the smart businessman.5 In the meantime, Boulton himself was the target of numerous attempts at seduction. Sweden was particularly pressing, and he may even have solicited an offer from there.6
One cannot always discern the boundaries between curiosity, exploration, and outright spying. A leading student of the subject writes that “many foreigners…gathered useful intelligence…without ever doing anything underhand.”7 But he also notes that many “visitors” were themselves ironmasters, manufacturers, chemists, inspectors of industry, or some kind of informed observer. They had not come to England to see the monuments and the landscape. Here is Ignace de Wendel, nominally an artillery officer, more pertinently the scion of a dynasty of ironmasters and a chosen instrument of the French government. He thought himself well endowed with nose, eyes, tongue, and guile, and thought all of these necessary:
…we found that there was nothing difficult in getting a good view of English Manufactures, one needs to know the language with facility, not show a
ny curiosity, and wait till the hour when punch is served to instruct oneself and acquire the confidence of the manufacturers and their foremen, one must avoid recommendations from Ministers and Lords which will do little good…young men are little suited to such a mission…to view things usefully it is important to have at least some idea about machines, because one does not take a step without seeing them, which all tends to abridge the process of manufacture.8
Even more important was the flow of technological talent from Britain to the Continent: why take a quick look if you can hire someone with years of firsthand experience? Only people with hands-on knowledge could pass it on. Even in later ages of scientific diffusion and transparency, even with sample products and equipment, even with blueprints and explicit instructions, some know-how can be learned only by experience.* In 1916, in the hot middle of World War I, the French had lost some of their major centers of arms manufacture and desperately needed an additional supply of their 75-mm field guns. This was their key artillery piece, the pride of their arsenal, a machine so exquisitely designed that a glass of water perched on the carriage would not spill when the gun was fired. Violating all their rules of secrecy, they sent the blueprints to the United States—to no avail. Not until a team of workmen went over to show the Americans how, could they get pieces of comparable firepower and stability.)
Here, however, the eighteenth-century agent-recruiter ran up against a salient characteristic of British industry: the division of labor. No worker knew more than a small part of the production process. One French agent, by name Le Turc, alias Johnson in England, complained:
No worker can explain to you the chain of operations, being perpetually occupied only with a small part; listen to him on anything outside that and you will be burdened with error. However it is this little understood division that results in the cheapness of labor, the perfection of the work and the greater security of the property of the manufacturer.9
Although specialization made the task more difficult and costly, the game was well worth the candle. Some of this emigration was solicited: foreign governments paid people to come and helped them set up in business. But some of the expats moved out of sentiment—like one John Holker, a disaffected Jacobite who was recruited to France by Directeur de Commerce Daniel Trudaine and became a manufacturer of woolens and textile machinery and Inspector-General of Foreign Manufactures. Others had strong personal reasons, like Michael Alcock, who in 1755-56 wanted to take off with his mistress, plus a little embezzled money, leaving wife and partner to face bankruptcy. The wife eventually rejoined him, and maybe she was part of the scheme in the first place. In the event, Alcock and his two women apparently managed to live together in a ménage à trots at La Charite, on the upper reaches of the Loire River, where Alcock made forgings and hardware and tried to teach the French something about fine steel.10
Most expatriates, however, had no urgent reasons to settle abroad. They did it for the money. The best of them became entrepreneurs of international scope. Take the Cockerills. The father William, a machinist, was brought over around 1800 to Verviers (then France, now Belgium), a center of woolen manufacture, by a firm of putters-out seeking to go over to factory industry. Cockerill was to supply them with the machine combinations (assortiments) that would take them from fiber to yarn (doing this by machinery entailed breaking the task into a sequence of processes). William, who had his own ambitions, would have happily supplied the whole industry (remember that we are talking about imperial France), but he was bound by contract to his new employers. No matter. His son-in-law set up as a machine builder, and when in 1807 William’s contract expired, he opened his own shop in Liège, an age-old center of metallurgical crafts.
In 1813, William Cockerill turned the business over to his youngest son John, who diversified into heavy equipment: hydraulic presses, steam engines, pumps. By this time Belgium had been annexed to Holland, whose king looked upon the Cockerill firm as a jewel in his crown: “Continue your grand enterprises without fear and remember that the king of the Netherlands always has money at industry’s service.” With this and other, more material encouragements, John Cockerill went on to wider achievements—iron smelting, construction of steamboats and locomotives, a zinc mine near Aachen (nearby in Germany), woolen mills in Prussia, a cotton mill in Barcelona, a sugar refinery in Surinam, blast furnaces in southern France, shops, factories, and railway projects in far-off Russia. The trouble with this global entrepreneur, though—a Frenchman called him “a Liegeois of English descent better described as a tremendous mind without a country”—was that his eyes were too big for his means. In spite of substantial bank support, he went bust in the crisis of 1839-40 and died soon after. The firm was then reorganized—a monument more enduring than bronze and the lives of its creators.11
Like the Cockerills, but anonymously ordinary, most British expatriates were workmen drawn by wages that ran twice and three times higher than at home. (British wages were ordinarily considerably higher than those across the Channel, but these experienced craftsmen and mechanics were scarce commodities in follower countries.) Some of them had actually been sent on mission by manufacturers and exporters, to accompany engines and keep them working, and then found themselves more cherished abroad than at home. Many more were lured by old shop comrades, come back to recruit.
Most of this, remember, violated British law. In an effort to discourage foreign competition, Britain had prohibited the export of most machinery (though not steam engines) and the emigration of skilled artisans. In this, Britain was following an immemorial tradition. In medieval Italy, for example, the glassworkers of Murano and the shipwrights of the Arsenal in Venice emigrated only on pain of death. Such constraints delayed the diffusion of knowledge, but in a world of rudimentary surveillance, could not prevent it. So with Britain: hundreds, even thousands, of craftsmen emigrated during those early decades of the nineteenth century, most of them voluntarily. A few were captured in war.
British expats were not alone. The French imported Germans with metallurgical skills; the Russians brought in Dutch, Germans, and Swedes. The French crabbed about the Germans—their misbehavior, their ingratitude. (To some extent, these were the kinds of people who left home and moved to new jobs.) Here is a manufacturer of scythes griping about his Germans: in spite of all the advantages accorded them, he says, in spite of the better treatment, the absence of the military discipline they knew back home, they work as and when they please, and “just look for ways to get fired.” Not everyone was so negative. One engineer pointed out that the availability of foreign workers had a salutary effect on French craftsmen, curing them totally of “the false principles of independence that too long have led them to regard themselves as masters of those who give them their living.”12 (This is a recurrent theme. Employers dislike being dependent on their workers, and the substitution of capital for labor—thus the original mechanization of cotton spinning and the imposition of the factory—was often motivated by considerations of power as well as of money.)*
But money too. Division of labor made it hard for expatriate workers to spill all the beans, but division of capital moved some employers to sell their product abroad and educate foreigners in its use. In particular, the new specialist machine-building industry sought markets wherever it could find them. British users of these devices understandably preferred to keep them secret; hence the general ban on exporting machinery. (Not steam engines, however, because originally they were not suited to manufacture. And when, in the 1780s, they found use in mills, you could not get an export prohibition past Boulton 8c Watt.) This push to sell made a huge difference when comfortable local producers were not ready to buy but foreign rivals were. The machine builders, then, were implicitly “subversives,” promoting competition abroad and undermining their countrymen in third markets: “technological self-reliance [by machine users] combined with secrecy could be an unspoken suicide pact….”13
So much for diffusion. More important for follower countri
es in the long run were schools of science and technology. Pitched at the secondary or higher level, these aimed to train a higher order of technicians and supervisory personnel and laid the basis of intellectual autonomy. The French led here with the Ecole Polytechnique (originally named the Ecole Central des Travaux Publics) in 1794. This was initially designed as a military school for officers in engineering and artillery—branches where technical knowledge mattered. (Any brave fool could wave a cavalry saber about.) But from the start, the Revolutionary government appointed a faculty of top scientists and mathematicians, and these turned the Ecole in the long run from military lessons and discipline to the inculcation of maths, basic science, and technical capability. The competitive character of the institution—exam for admission, public ranking on entry, ranking on partial completion, ranking on graduation—drew France’s best and brightest; so that although the school continued to furnish officers to the army, these were not the top students. The strongest “X”—as the French call them, after the algebraic unknown—went into business, private and public, and formed the cream of French engineering and technocracy. They led in building and managing the French railways; learned and adapted the latest British metallurgical techniques; directed public works abroad; and by the twentieth century, came to head some of France’s biggest high-tech corporations.
The Polytechnique was if anything too rarefied and theoretical in its training. Those graduates who wanted to go on to industry usually took postgraduate instruction in the Ecole des Mines or the Ponts-et-Chaussées—both founded under the Old Regime. There they learned applied science and technology and did on-the-job training. Meanwhile French business came to feel that another school was needed, like the Polytechnique but more practical in its concerns. This was the Ecole Centrale des Arts et Manufactures, founded privately in 1829, incorporated into the state system in 1856, which served as a training ground for engineers and business managers. Students of Centrale had less prestige than the “X” of Polytechnique: the school was younger and the competition for admission was less keen; but its greater openness meant that its graduates did better than the “X” in newer branches such as motor cars and aviation.