The Wealth and Poverty of Nations: Why Some Are So Rich and Some So Poor

by David S. Landes

  [Japan] was as responsible in its policies toward its colonial populations…as was Belgium in the Congo, France in Indo-China, Holland in the East Indies, or Germany, Italy, Spain, or Portugal in Africa. And in all fairness, it can be argued, it is against these other colonial situations, rather than against some theoretical Utopia, that Japan’s colonial efforts should be judged.26

  The world belongs to those with a clear conscience, something Japan has had in near-unanimous abundance.

  Korea and Taiwan would say they succeeded in spite of Japan, which steered them into agriculture and away from industry. Japan subjected them to repeated reminders of their political and social subordination; made them, in the Korean case, change their names and assume a second-class, imitation Japanese identity; assigned them to jobs that Japanese found too dangerous and disagreeable (for example, mining in the home islands). When freedom came, Koreans remembered. But they did not let memory get in the way of material development. “Don’t get angry; get even.”

  Korea and Taiwan are the exception. Most of the new postwar nations remembered too well and took the wrong path. The economic system of their former rulers was anathema: capitalism was seen as inefficiency laced with corruption and injustice. In the light of the Soviet victory in World War II, socialism cum dictatorship was the assurance of production and promise. They couldn’t have been more wrong.

  Looking back, then, on the imperialism experience, one sees a persistent conflict between theory and reality. For most of the past century, the ruling orthodoxy has been not simply anticolonialist. It has incorporated anticolonialism into a larger vision (explanation) of economic history: colonies as pillars of a dying capitalism. In this model, colonies paid, whether by nourishing the growth of imperialist economies or by transferring wealth from poor to rich—empire as vampire. Without colonies, bourgeois domination would come tumbling down. Or to put it differently, Europe could not afford to give up its colonies. Conversely, once the subject peoples free, they would rise swiftly to prosperity.

  Could not afford…Not at all. Over the course of the twentieth century, resistance to imperial masters grew. European ideals of freedom and the rights of man proved contagious, and subject peoples learned from their masters how to resist their masters. Meanwhile public opinion, once blithely supportive of empire, now deplored it. Major scandals—the revelations of torture and mutilation in King Leopold’s Congo and of atrocities (including concentration camps) in the war against the Afrikaners (1899-1902)—gave arguments to anti-imperialist liberal and radical writers and politicians. Empire, pride of the powerful and consolation of the little people, the thing that made small countries big and big countries huge, lost legitimacy.*

  World War II dealt the coup de grâce. Not only did Western nations lose their reputation of invincibility, but their war aims deprecated dominion. Now the burden of mastery grew unbearably heavy. Some countries, prouder than others, held on (France in Indochina and, even more, Algeria). Others (Britain in India and Palestine, Holland in Indonesia) could not wait to let go. They were right. To the disappointment of the anticolonialist doctrinaires, the ex-imperial nations suffered not a whit by the loss of these territories; on the contrary.

  The second thesis also proved to be wrong. In 1961, an Indian economist named Surendra Patel published an essay that demonstrated by irrefutable arithmetic that India, now free of the British Raj, would in some thirty years pass France in income per head, and in another few years, the United States.27 He was not alone; one could find other romantic predictions. They reflected fair hope and tenacious doctrine; also national pride and a kind of virtual revenge.

  It’s Easy to Remember, and So Hard to Forget

  One of the worst legacies of colonialism has been the explosion of ill-will against the former masters and their representatives—not so much on the level of governments, where deals and money are to be made, as of relations between people. A number of colonies, among them some of the most important, became outlets for overseas settlement, lands of opportunity for Westerners seeking to start over or get away. Some of these settlers developed a great love for their new homelands, for the earth, the streams, the landscapes, the towns and markets and soukhs; and yes, for the people, whom they loved for their dependency, or their mystery, or their strangeness, or their innocence. Many of them thought that they had found a new paradise, were founding a new race—not by mixture but by coexistence in newness. Read Albert Camus on his boyhood in Algeria.* He was not the only European to feel this way; he just wrote better.

  It came, then, as a terrible shock to learn that many natives did not return this love and resented the intrusion of these strangers—their appropriation of the best soil, their political and social privileges, their unavoidable, irresistible condescension.

  Not all natives felt this way. But as independence movements simmered and boiled, as consciousness awoke, it was hard to remain neutral (“Which side are you on?”). And so, when independence came, the colonials withdrew. Most could not abide the loss of their privileges and withdrawal of deference, and even those who would have stayed, who wanted to stay, were sped on their way by insults, threats, violence, seizures back of property seized in the first place.

  Algeria was paradigmatic: over a million Europeans among ten times as many natives. These colons did not want independence. They wanted France to stay; indeed, many were ready to fight to keep Algeria French. (The French themselves almost had a civil war over the issue.) The new government of Charles de Gaulle was ready at first to make concessions to persuade the Algerian independence movement to remain united with France; to no avail. And once the French government decided the game was not worth the candle, that was it. The colons were told they were on their own, that France would recognize Algerian independence. Some die-hards would have fought on, but who was going to help them in a world pledged to the demise of colonialism? Within a couple of years, all the pieds-noirs pulled out.† Not all these Europeans were rich; they had come there poor and often stayed poor. But the successful ones owned the best land, grew the wine and wheat that were the great exports, handled the shipping, managed the banks, made the economy go.

  Their departure did not leave the Algerians bereft. They had their land back; the Christians (and Jews) were gone. (They also kept the oil in the Sahara.) Yet the loss of these human resources was a crushing blow. Over the years, the Algerian economy slowed, and even oil and gas could not stem the tide. Algeria started exporting people to France, where economic growth increased the demand for labor. So much for the alleged capitalist need for empire.

  26

  Loss of Leadership

  The market is supposed to be a level place of combat, often (usually) peaceful. Not that the players would have it so: if they had their way, they would be given every advantage and keep what they have from those who come after. The same for groups and industries and national economies: all want to get and keep. Fortunately, the presence of competitors imposes a duty to strive; in the long run, nothing for nothing.

  So with international economic rivalries. Cities and nations have come to the fore, have yielded to newcomers, been passed in turn by other newcomers. The process is not a pleasant one for the losers, although the pain is much eased by willful myopia; also by the fact that these losses of place do not usually entail absolute decline.* On the contrary, earlier advances will have been converted into a stock of wealth that comforts those who have it; and into human and material capital that continues to yield income and growth. Still, leadership is habit-and pride-forming. No one likes to lose place.

  Jealousy signals ambition. When English “political arithmeticians” of the latter seventeenth century pointed to Holland as exemplar and adversary; when French writers of the eighteenth century noticed and deplored English commercial and financial achievements—they were venting their envy, hopes, and dissatisfaction in an age of state building and intense national rivalry. That was the nature of Europe, very different here from ecumenical Ch
ina or anarchical India and Islam. Europe consisted of states big and small, each steered by the pride and interest of the ruler, but increasingly by self-aware nationalism. All vied. All knew the significance of money for standing and power.

  The primacy of money in the service of power found expression in economic thought. Mercantilism was not a doctrine, nor a set of rules. It was a general recipe for political-economic management: whatever enhanced the state was right. Even Adam Smith had his mercantilist moments: the navigation acts, he noted, may have cost the British consumer, but they worked wonderfully to put down Dutch seapower.

  By Smith’s day, the era of Dutch primacy was over. It had been a hundred-year wonder: this small country dominating the oceans; moving goods, bulky and rare, in thousands of vessels; standing up to and defeating more populous nations; setting an example to all of rationality and purpose. Nothing shows this better than the conquest of England by William of Orange, Stadholder of the United Provinces, in 1688. This was the last successful invasion of England, and the first since another William, him of Normandy, in 1066. To be sure, the British do not remember it that way. The Whig interpretation of the overthrow of James II as the “Glorious Revolution” has obscured the character of the event. Yet invasion it was, and it was intended to take over the English crown to prevent it from joining with France against the Netherlands. The Dutch fleet assembled that September was four times the size of the Spanish Armada and carried the best troops in the Dutch army, plus foreign volunteers, animals, equipment, and a huge artillery train. “When all dimensions are considered—military, naval, financial, logistical, diplomatic, domestic…it was arguably one of the most impressive feats of organization any early modern regime ever achieved.”1

  As late as 1776, Adam Smith still thought of Holland as richer than England. How did he know? He compared interest rates in the two countries and found that the Dutch government could borrow at 2 percent, private parties at 3. English rates, he wrote, ran about a point higher; Scottish rates, maybe two points. This implied, he said, that capital was more abundant in Holland and profits lower. To be sure, Dutch entrepreneurs complained that business was poor; but for Smith, low profits were “the natural effect of prosperity,” and Dutch merchants were suffering in effect from what Marxists would later call false consciousness.2

  Smith also noted that “the wages of labour are said to be higher in Holland than in England,” and this too showed that Holland was richer. Well, it might mean that, but it might also imply that Holland was growing faster than England, and that was simply not true.* Recall that Smith had already made such a link between high wages and growth in comparing the American colonies with the mother country. “[T]hough North America,” he wrote, “is not yet so rich as England, it is much more thriving, and advancing with much greater rapidity to the further acquisition of riches.”3

  Smith should have applied the standards of his Britain-North America comparison to that between Britain and Holland; that is, distinguished between wealth and growth, between being rich and thriving. They would have prepared him for signs of Dutch slowdown.† Instead, he focused on a Holland overflowing with capital and seeking outlets for investment abroad, which was true enough. Already in the early eighteenth century, the Dutch were placing large sums in the British and French funds, as well as in Bank of England, East India, and South Sea stock. They were doing this, of course, because British and French placements paid more; but the point is, they paid more because domestic demand was greater and supply shorter, and all this because, in England at least, economic growth was more rapid.**

  Meanwhile Dutch industry had fallen on hard times. (This is one instance when Smith would have gained by visiting.) Output of Leiden fine cloth had fallen from 25,000 rolls a year in 1700 to 8,000 by the late 1730s; of Leiden camlets from 37,000 pieces in 1700 to 12,600 in 1750, 3,600 by 1770. Haarlem linen bleaching shriveled in the 1730s and ’40s. The famous windmill-driven complex on the Zaan (timber, sail-canvas, ropemaking, shipbuilding) went into free fall by the 1750s, many of the mills still and silent. Cotton printing and to bacco processing in Amsterdam were declining even before midcentury. An index of industrial production setting 1584 at 100 shows a peak of 545 in 1664, dropping to 108 in 1795.4 Among the toughest competitors: the rapidly growing cottage industries of Flanders, Rhenish Germany, Saxony, and Silesia.5 Nor was commerce spared: the “rich trades” to the Levant and Spanish America dwindled, along with bulk carrying of herring, salt, and wine in European waters. A few sectors held up, notably the import, processing, and re-export of such colonial wares as sugar, coffee, tobacco, tea, and cocoa. Yet even there, Holland lost relatively, to Britain and France in particular.6

  Economic contraction pulled at the social fabric. The major cities shrank as skilled craftsmen and small entrepreneurs sought better opportunities in other lands. The decline, though moderate, contrasted significantly with steady and even rapid urbanization elsewhere.7 That Dutch towns did not shrink more was because rents and food prices fell and some poor relief was available; this was a matter of public order if not of charity. Besides, Dutch wages still topped those in surrounding lands, in large part owing to the resistance of craft guilds, and this gap drew cheap labor from abroad to compete with the newly unemployed. Increasing hostility and conflict found an outlet in strikes, until nothing was left to strike about.

  Some of this may remind readers of conditions in the United States in the last quarter of the twentieth century. As branches of manufacture have shrunk before foreign competition, enterprises have discharged redundant labor or moved to lower-wage areas. New workers cost less than old, as the airlines know only too well. Poor immigrants have kept coming. Unions have struck, sometimes only hastening plant closings or transfer of orders to cheaper suppliers. (Mutatis mutandis, one finds similar developments today in western Europe.)

  So in Holland two centuries ago. The United Provinces pared and trimmed to meet the competition, but the best they could do was run in place. Many businessmen gave up the fight and retired to the country and to a life of passive investment. Incomes polarized between the rich few and the poor many, with a diminishing middle in between. Tax returns show that by the late 1700s, most wealthy Dutch were big landowners, high state officials, or rentiers. Gone the prosperous enterprisers of the “golden age”: employers were now confined to the middle and lower ranks.

  In the process, the United Provinces abdicated as world leader in trade and manufacture and went into a postindustrial mode. Italy had gone that way before. In Venice, for example, the wool craft had sunk under the burden of taxes, key industries had migrated to cheaper lands, and businessmen had reinvested their fortunes in agriculture on the mainland.8 In Genoa, active merchants had become bankers to Habsburg Spain. Both Venice and Florence were already taking on the new role of tourist magnets, living on the wealth of erstwhile competitors. In the aggregate, Holland was still wealthy, as Adam Smith’s impressions show, but estimates of income or product per head 1750-1870 have it going nowhere. Other, more active nations were passing it by.9 No absolute decline, then, but a long pause and a mutation.

  Why this should have been so is a difficult but important historical question. Some scholars cite mistakes of strategy: the Dutch stayed with Indonesia and spices while the British and then the French bet on India and textiles; or the Dutch mishandled their commercial ties with China and thus lost out on the lucrative tea trade; or the Dutch, for this and other reasons, lost ground in inter-Asian commerce. More persuasive is the argument from catch-up and convergence: other centers, advantaged by lower wages, learned to make the textiles and other manufactures that had been a mainstay of Dutch exports and shipping, and having learned, shut their doors against imports. In a world of mercantilist rivalry, navigation acts and protectionism were killing the old workshop and chief middleman. No wonder the Dutch exported capital: they could get more for it abroad than at home.

  In the nineteenth century, the example of more successful industrializers
, Britain above all, but also the southern Netherlands (from 1815 actually part of the Kingdom of the Netherlands, then from 1831 on, independent Belgium), did not lead at first to a redefinition of Dutch vocation. Perhaps the persistently higher price of labor discouraged manufacturing, at least in the coastal provinces,10 or the Dutch may have had trouble abandoning ingrained habits and refiguring the opportunities.11

  On this point, scholars have pointed to a Dutch distaste for modernity and high aversion to risk. One historian wrote:

  In nearly all the industrial towns in our land one saw the owners of factories and trafieken rather give up the unequal struggle with a more dynamic neighbour than adapt the new machine power to the increasingly old-fashioned inherited means of production. Yes, many regarded the smoke of the fuming steam engine as the hideous smoke from the pit of the abyss.12

  And another:

  The Dutch merchant seemed to be dozing off on the soft cushions of formerly gathered riches and the leaders of industrial business from this period strike us as belonging to the respectable class of slow fat-bellied trade bosses whose brains, suffering from spiritual flabbiness, prevented them from hazarding the leap from the traditional way of doing business.13

  A harsh judgment, but one could cite others like it. How important were such attitudes? Economists and “new economic historians” are skeptical of entrepreneurship as explanation, because it is hard to pin down and does not lend itself to measurement or prediction. Some business people may be indifferent or lazy, but others will take their place. After all, if peasants act quickly on differences in crop returns, how much quicker should merchants and manufacturers respond to new technologies! (On the other hand, the stakes in industry are typically bigger, the payoff slower, the penalties for error heavier.)