The Wealth and Poverty of Nations: Why Some Are So Rich and Some So Poor
Page 53
That is the point of innovation and initiative: they are not there until they are there. In the meantime, one has to ask why they took so long, and longer in some places than others. “Postindustrial” Holland did not want for capital or cheap labor or experience of industry. What it lacked, it could import. Transport might have been better, but that too could be had for the enterprise. We even find a few sports, unexpected entrepreneurs, people whose assets were, not business know-how, but rather technical knowledge and government connections. Thus the ex-naval officer Gerard Moritz Roentgen, back from a failed expedition to Indonesia, commissioned by the Dutch navy to look into new techniques of ship construction and iron manufacture. In so doing, he helped found Holland’s first steamship yard, in Rotterdam in 1825.14
But mavericks did not add up to a self-sustaining, general movement. Some adventurers found an outlet in Indonesia. Meanwhile Holland itself marked time and found the long pause congenial. That is where culture came in: it defined patterns of recruitment, avenues of opportunity, and sources of satisfaction.
To be sure, culture changes. In the latter nineteenth century, Holland got back into modern industry on an internationally competitive basis. A protected market in Indonesia helped. The first gains came in textile manufacture, not coincidentally in the inland, off-the-beaten-track Twente district; but the real takeoff had to await the “second industrial revolution” of electricity, internal combustion (diesel motors), chemicals and artificial fibers; also scientific agriculture and horticulture. Soon Dutch income, never far behind, converged with that of the European leaders.15
Britain succeeded Holland. In the seventeenth century, England harassed and fought the United Provinces at every opportunity: hence a tax on the export of unfinished woolens and Alderman Cockayne’s Project (1614-17) to take back from the Dutch the valuable dyeing and finishing (unsuccessful);* two navigation acts, designed to hurt the Dutch in their role as chief carriers and middlemen (they did); and a pair of naval wars that displaced the Dutch as masters of the seas, extruded them from North America, and led indirectly to their containment in India. Then the Dutch placed William of Orange on the English throne (1688), and from then on, the two countries partnered in war and peace; but the Dutch were the junior partners. In particular, the Dutch were Britain’s barrier to French territorial ambitions on the Continent. So useful were they in this role that, once the takeover by Revolutionary-Napoleonic France liquidated, the British gave back (1815) to the newly created Kingdom of the Netherlands its lost colonies, including Indonesia (one major exception: Cape Colony in South Africa). In the bargain came what is now Belgium, then a mosaic of the Austrian Netherlands and sundry bishoprics and principalities.
The point was, Britain no longer had to fear Dutch economic rivalry. Whatever the Dutch had done, the British now did bigger and better. Josiah Child, London merchant, M.P., later governor of the East India Company, and political arithmetician, saw the issue clearly in his New Discourse of Trade (1668 and 1690):
The prodigious increase of the Netherlanders in their domestick and foreign trade, riches, and multitude of shipping, is the envy of the present, and may be the wonder of all future generations. And yet the means whereby they have thus advanced themselves are…imitable by most other nations but more easily by us of this kingdom of England.16
Exactly. By Child’s time, Holland was exporting capital to Britain, while Britain led the way to modern industry and took over as the world’s premier mercantile and financial center.
After 1815 the British, sure of their hegemony, began abolishing the restrictions introduced in an earlier mercantilist spirit: thus prohibitions on export of machinery and emigration of artisans and some major tariff barriers and navigation acts. At the same time, using unimpeachable arguments about division of labor and gains from trade, they sought to persuade other countries to reciprocate. They did make some progress, but unfortunately for comparative advantage and classical doctrine, most other countries saw this as a device to keep them in their agricultural place. Free trade became British dogma and practice; most other countries flirted with it and found the water cold. Or perceived it as a British trap: if perfidious Albion wanted it, it couldn’t be good.17
Meanwhile British industry throve in a world that wanted cheap manufactures. If European nations would not take these goods, buyers could be found on other continents, the more so as improved transport steadily lowered the cost of delivery. When in 1851 the British held the first worldwide exposition of technical and industrial achievement, they thought to celebrate their own mastery. They gave room and prizes to other, lesser nations, to be sure, but the principal theme was Britain as workshop to the world. And to the future: the very architecture of the Crystal Palace, hall to the exhibits, marked farewell to stone and brick and welcomed in a new age of iron and glass, of light and open space, of modular components and mechanized washings. It was the equivalent of the medieval shift from heavy Romanesque to vaulting Gothic. (Such boldness entailed a few surprises. The palace was big enough to plant trees; the trees received birds; the birds left souvenirs on the throngs below. What to do? Shoot them? But how to do that without breaking the glass walls and roof? “Sparrow hawks, Ma’am,” suggested the duke of Wellington to Her Majesty the Queen.)
Even then, small clouds appeared. Some potential competitors displayed quality and taste that made their products unbeatable: French silks, Saxon porcelains, or vintage wines, for example. But that was an old story, perfectly comprehensible in a regime of inherited skills, natural favors, and comparative advantage. More vexing were signs of non-British technological superiority in a branch that Britain tended to see as its own—the production of machines and machine-made objects. The first hints of trouble came in American clocks and firearms, mass-produced with quasi-interchangeable parts.18 In 1854, the British government sent a mission to the United States to look further into this “American system.” Back came the message that, yes, the British had to start learning again.19
Serious unease set in toward the end of the century. It was linked to political changes signaling a shift in the balance of power: Germany’s sudden rise to primacy on the Continent; its defeat of France in 1870 and establishment of a Deutsches Reich; its colonial ambitions in Africa and the Pacific; its projects of railway construction and trade in the Ottoman empire, which the British saw as threats to the India lifeline; the departure of the prudent, sagacious Bismarck and his replacement by a chauvinistic emperor who bullied his political advisers and resented his British cousins (so much for family ties); finally, Germany’s decision to build a big navy, that is, to challenge Britannia’s God-given right to rule the waves. All of this, moreover, rested on substantial economic gains: rapid growth of heavy industry (iron, steel, chemicals); special strength in the newer technologies (electricity, organic chemicals, internal combustion, and gas and oil motors); a banking sector exceptionally supportive of manufacturing and commercial enterprise; an educational system that was turning out large numbers of technicians, engineers, and applied scientists. Britain had cause to worry.
For the student of economic performance, this growing concern raises interesting questions. Was Britain failing? Was Britain declining? If so, whose fault? What remedies? The debate, believe it or not, has been going on for more than a century, indeed, is still going on. In April 1993, Professor Barry Supple of the University of Cambridge devoted his presidential address to the British Economic History Society to the question of Britain’s alleged “failure” and suggested that the fear was greater than the reality.20 In September 1995, an international colloquium met at Montpellier, France, to deal with the same issue and came to similar conclusions. And in May 1997, still another group convened in the shadow of Windsor Castle to treat of national “hegemonies”—the very word pronounced in as many different ways as there were countries present. Subjects of special attention: Britain in the nineteenth century; the United States in the twentieth. How long must we worry this old bone?
1. The terms of the quarrel betray a confusion or misunderstanding of the issues—matter for endless disagreement. People speak or write of “decline.”* Yet Britain clearly has not declined in a material sense. It is richer today than a hundred years ago. To be sure, entire branches have shriveled. Also it has suffered relative decline: other countries, once poorer, have passed it by and become richer. Yet a term like relative decline is technical, needs explanation, lacks punch. So people talk of decline and worse. The believers have used the term to attack the government or the business classes or both, sometimes with a view to political gain. The critics have denounced its use as “declinism”—clearly a bad thing. So doing, they demolish a strawman and falsify the debate.21
2. The economic merges with the political. A decline of relative economic strength (loss of market share, of industrial branches) means less political power, if only because armed forces cost money. The Britain of today is a far cry from the “Rule Britannia” of 1914-18 or even 1939-45. Such power as it has stems from possession of nuclear arms and its special tie, for what that is worth, with the United States. Now, hard as loss of relative wealth may be, it is not the pain of powerlessness.22 Nationalism is an expression of identity, and via identity, of dignity and self-esteem. When one’s country becomes smaller, one’s self becomes smaller. When one has known and enjoyed the greatness of Great Britain, ebb tide is hard to take.
Perceptions rule here. Some scholars have wanted to treat this sense of loss as an illusion—like the one experienced by passengers in a stationary train who see another train going by and imagine they are moving in the opposite direction.23 Besides, does not this kind of loss flow inevitably from the growth of other powers? The world does not stand still, and the diffusion of technology and industry was bound to raise up new, and often bigger rivals.24 Britain could not but lose standing. But that does not make the loss easier to bear. Perception is subjective, and the dispassion of the scholar is like caviar to the general: it doesn’t taste good.
Appeals to national vanity, we are cautioned, are the work of politicians. “But they mislead us.” After all, there can be only one top dog, only one number one. So, “if not being top is failure then Britain has been in good and abundant company…” But is that the same as losing first place? The pain, w are told, is sharpest for those who remember better days, especially when one recalls long-standing superiorities. It is one thing to see the United States richer and stronger. But France, Italy! Ask English football fans who go from Merseyside and the Midlands to watch matches in Milan and find Italians living better and more modern than they. Still, that kind of pain eases with time. Soon no one will be left to remember. Besides, the world is filled with much poorer people. In the club of advanced industrial nations, Britain may have sunk to the lower ranks, but think how much better off it is than Mexico or India.25
3. The issue has its religious aspects, and nothing rouses more contention than issues of faith. In this matter, we are talking about economic religion, the religion of free trade. Where did free trade come in? Well, no sooner did Britain feel the heat of competition than home producers called for a return to protection. Free trade, they said, may have been fine when Britain was the workshop of the world, but now other nations could make things cheaper if not so well. These nations, moreover, did not play fair. They had tariffs and other barriers to foreign imports, while Britain opened its doors to everyone. They subsidized their industries, sold (dumped) their goods at less than home market prices, engaged in “unfair” business practices in order to gain market share. As a result, one after another branch of British manufacture found itself pressed into a corner, compelled to cut back on investment, to close down plant.
But free trade was become a matter a matter of faith—faith not only in the gains from trade but also in the power of material progress and international exchange to create peace and love. The logic was economic, the rationality of comparative advantage. But the passion was moral. Listen to John Bowring, our peripatetic agent of British commercial interests, recalling a visit to the Holy Land (what better place?) and gushing about trade, peace, and love:
What a satisfaction it is to every man going from the West to the East, when he finds one of the ancient Druses clothed in garments with which our industrious countrymen provided him. What a delight it is in going to the Holy City to stop within the caravan at Nazareth—to see four thousand individuals and scarcely be able to fix upon one to whom your country has not presented some comfort or decoration! Peace and industry have been doing this and much more; for be assured that while this country is diffusing blessings, she is creating an interest, she is erecting in the minds of those she serves an affection towards her, and that commerce is a communication of good and a dispensing of blessings which were never enjoyed before.26
Does it make a doctrine less a matter of belief because it claims to be scientific? Here is W. S. Jevons, one of the icons of British political economy, smiting the heretics during the business crisis of the mid-18808:
Freedom of trade may be regarded as a fundamental axiom of political economy…. We may welcome bona fide investigation into the state of trade, and the causes of our present depression, but we can no more expect to have our opinions on free trade altered by such an investigation, than the Mathematical Society would expect to have axioms of Euclid disproved during the investigation of a complex problem.27
As a result, concerns about Britain’s loss of industrial leadership were rejected by many—including many economists—because they could be and were used to challenge the sacred.
4. An economy built on exports was losing its export markets. In response to labor unions and political pressure, the British government subsidized and socialized the old standbys—iron and steel, cotton textiles, coal. But no growth there. Just underemployed labor, encrusted practices, and torturous decline.
As for new technologies and manufactures, well, jobs were opening up in lesser lines. The Cambridge economic historian J. H. Clapham pointed out that such a shift was normal: as branches close down, people have to leave them and move “to some expanding occupation, say, chocolate-making or chorus singing.” He said this in 1942; had he been able to see the future, he would have spoken of the Beatles. The problem with such specialties is that some of them are culture-specific and do not travel well, at least not everywhere. Some people, for example, do not care for British chocolate—too milky, too sweet. But it suits British taste, and children like it, and it sells in U.S. supermarkets. De gustibus…
More important, these new lines may not have the same social and economic value as older employments. That was the gravamen of the Chamberlain argument. Not clear, says Barry Supple. “Is the production of cigarettes or tanks inherently more useful than the supply of nurses or violinists?” he asks, loading the choices and inviting a “no” answer. Other comparisons—say autos or computers vs. movies or saxophonists—might yield a “yes,” though not to all.28 Many of these new products do not have the same payoff in skills, knowledge, and high-wage jobs that high-tech items do. All of this raises a fundamental question: are some activities more fruitful than others? Economists are sharply divided on this, but the neoclassicists would insist that a dollar of hamburger is the same as a dollar of computer chip; or in Ricardian terms, a pound’s worth of port wine equaled a pound’s worth of machine-spun cotton. The dissenters, strangely cowed, caught between logic and intuition, object sotto voce.
5. “Did Victorian Britain Fail?”—a loaded question. It was the title of an article that defined failure as doing less well than rational behavior would have permitted.29 Did British entrepreneurs miss opportunities to make more money because of want of character, knowledge, or rationality? The answer of the historical economist (the “new economic historian”) was no: if Britain did less well than some other countries in, say, coal or steel or cotton manufacture, it was because it could not have done better. Coal deposits were not
thick enough; better iron ores could wait while older, poorer ores were used up; faster spinning machines did not suit fine British yarn. Given competition, all had to be for the best in the best of all possible worlds.
True, foreign rivals now ran faster and better machines and more of them. But new is not always cheaper, at least not for the early comer. Never underestimate the tenacity and ingenuity of older devices where touch and hand skills play a role lost with automation. Even where British equipment aged, it did not always pay to replace it. These older machines had already been paid for, and their net return might be higher than a new device’s. New might be more productive, but it still had to be amortized.
And then some things were beyond the entrepreneur’s control. External costs (related costs), for example, were greater in Britain, which was stuck with relatively narrow-gauge track, small freight cars, low bridges, narrow, winding roads. These installations had been built economically when volume was smaller. Now they reduced economies of scale and hurt mass production. Similarly, Britain had developed a system of commission brokers and multimark distributors between manufacturer and potential customers.30 These arrangements had once promoted division of labor. Now they got in the way of big deals. Some British enterprises did find ways to bypass the bottlenecks; but too few.
Ironically, many of the production changes deemed unnecessary and unprofitable before 1914 were made after the war—everything in its time. They came then too late.* And when one sees evidence of de layed remedies in the decades since the World War II, one is inclined to define the British disease as a case of hard tardiness; entrepreneurial constipation.