THE FISCAL-NAVAL-MERCANTILIST STATE AND ECONOMIC DEVELOPMENT
In the end, the visible and often heavy hand of the fiscal-naval-mercantilist state that had emerged in Britain mattered as much as the invisible hand of the market. The economy benefited from mobilization effects: war required intensive use of resources. British cotton production tripled between the 1790s and 1813, while iron and steel output quadrupled. Massive demand for arms and uniforms lay behind this, coupled with a determined push for rationalization.120
During those years, capital fled war-torn Europe. Policies that favored autarky promoted coal and iron at the expense of imports, and domestic diffusion of relevant technologies accelerated. The rate of high-value patenting increased. Meanwhile, other countries’ mercantile sectors suffered, thereby widening Britain’s lead.121
More immediate connections between war-making and technological innovation merit particular attention. The precision demands of firearms manufacturing guided the development of instrumentation and machinery including steam engines. It was cannon precision boring applied to cylinders that first made steam power viable.
Even before then, in the early eighteenth century, war with France had stimulated coke-smelting techniques that made it possible to use domestic iron to produce bar and pig iron. Within just a few years of Henry Cort’s patent of 1784, the Royal Navy embraced the puddling process, which allowed the manufacture of higher-quality bar iron without charcoal. The French Wars then enabled the state to raise both tariffs and domestic production, protecting the profits of manufacturers whose investments funded the proliferation of furnaces and foundries. At the same time, steam engines sustained the huge expansion in coal mining that was required to keep the iron industry growing.122
Economic nationalism boosted nation-building and made mass warfare a reality: economic and military mobilization went hand in hand. In this context, “interstate competition often provided the stimulus if not the sheer necessity to develop.” But did the resultant economic growth and technological change owe more to the promotion of “benign” forces than to the removal of impediments?123
In Britain, and increasingly elsewhere, some impediments were in fact being removed—Eric Jones invokes the “withering away of arbitrariness, violence, custom, and old social controls.” “Benign” institutions arose from competitive political adaptations. Yet some of the most potent policies did not promote overtly “benign” features but the exact opposite: war and protectionism, as well as colonial slavery.124
War was lethal, expensive, and on the face of it produced little tangible gain. Much the same was true of overseas empire, although in terms of economic payoff Britain may have been a rare exception. Bargaining with elites burdened consumers with protectionist tariffs and trade barriers. As Rosenthal and Wong point out, growth was thus associated with policies that were not deliberately benign or growth-enhancing but mere by-products of competition and conflict between states and bargains that favored capitalists within states. If political competition did in the end stimulate economic development, it did so indirectly and often unintentionally.125
Yet even as a comprehensive balance sheet remains beyond our reach, there is a case to be made that the British economy expanded and modernized in part because of rather than in spite of the tremendous burdens of war, taxation, and protectionism. By focusing on trade and manufacture as a means of strengthening the state, Britain’s elites came to pursue developmental policies geared toward the production of “goods with high(er) added value, that were (more) knowledge and capital intensive and that were better than those of foreign competitors so they could be sold abroad for a good price.”126
In this, the advantage lay with producers and traders, not domestic consumers, however much the latter’s purchasing power sustained domestic demand. In chasing these goals, the political elite spurred development by boosting imports and exports in sectors that proved critical for the eventual industrial takeoff and that in the absence of such targeted intervention might well not have flourished in the same way. In this specific sense, the fiscal-naval-mercantilist state may be considered a necessary—if far from sufficient—condition for the creation of a modern economy.127
This version of the state was the product of multiplicities—of a multiplicity of polities that generated the competitive pressures that shaped state formation; of a multiplicity of forces that were arrayed within these polities in a multiplicity of configurations; but also of the multiplicity of trajectories and outcomes that these multiplicities of polities allowed to appear. The greater these multiplicities, the better the odds of truly transformative divergence.
Thanks to a combination of historical legacies and geography, England and then Britain happened to make the most of their pricey membership in the European state system. Economic growth had set in early; medieval integrative institutions and bargaining mechanisms were preserved and adapted to govern a more cohesive state; elite commitments facilitated high levels of taxation and public debt; and the wars that mattered most were won.128
In chapters 11 and 12 I will highlight other contributing factors, such as steadily improving access to overseas trade and resources, an emerging culture of toleration and improvement, and synergistic collaboration between entrepreneurs and engineers that promoted practical application of technological innovation. Even so, it cannot be our primary objective to compile the most comprehensive list of features that distinguished British development from that of its continental European peers. The main point is much more basic: regardless of how much of an outlier we judge early modern Britain to have been, its success and subsequent influence would have been unthinkable without the diversity, pressure, and opportunity generated by a polycentric state system. Far from acting as an increasingly remote background condition, fragmentation shaped Britain’s path every step of the way.129
The Institutionalization of Progress
British development was embedded in broader processes that unfolded across Latin Europe. To varying degrees and at greatly differing speeds, they sustained momentum toward “well-defined, medium-sized states, burgeoning commerce, and a culture of vigorous critique.” Even if in practice only a few European societies met all these requirements, this particular blend of features was at the time unique in the world.130
The state was the ultimate bundle of institutions. The more developmental it was in nature, the more innovative were the outcomes that followed. The early modern style of state intervention—which, as already noted, was generally more strongly motivated by strategic concerns than by economic rationales—offset and undid some of the earlier medieval openness that had resulted from the decline of centralized state power. Perhaps paradoxically, it was this tightening that allowed capitalism to flourish, shielded by the exclusions and privileges imposed and conferred by the warfare state.131
Reduced to its essentials, the story of institutional development followed a clear arc. In the Middle Ages, the dispersion of power within polities constrained the intensity of interstate competition by depriving rulers of the means to engage in sustained conflict. In the early modern period, these conditions were reversed. Interstate conflict escalated as diversity within states diminished and state capacity increased. Enduring differences between rival polities shaped and were in turn shaped by the ways in which elements of earlier domestic heterogeneity, bargaining and balancing survived and influenced centralization to varying degrees.
The key to success was to capitalize on these medieval legacies in maximizing internal cohesion and state capacity later. This alone made it possible to prevail in interstate conflict without adopting authoritarian governance that stifled innovation. The closest approximations of this “Goldilocks scenario” could be found in the North Sea region, first in the Netherlands and then in England. Given that these societies pioneered vital elements of the transformative development that eventually changed the world, it is with good reason that Peer Vries identifies the “non-monopolization but at the same ti
me close interaction of the sources of social power, between and within states” as “the fundamental cause of the rise of the West in all its varieties.”132
Societies were made modern by institutions that rendered continuous change possible. This required the presence of institutionalized mechanisms—what Erik Ringmar calls “enabling conditions”—for discovering potentialities, acting on them, and accommodating them. Diversity was conducive to the discovery of potentialities because it created natural experiments: thus, discrete but interconnected polities addressed shared challenges in different ways and learned from outcomes. Domestic pluralism likewise contributed by weakening orthodoxies.133
The proper enabling conditions arose from the institutionalization of spaces and activities that fostered debate and innovation: parliaments, learned societies, patent offices, and economic organizations from public banks and joint-stock and chartered corporations to stock and bond markets. More generally, capitalism could flourish only in a capitalist society in which elite support was assured: sustained modernizing development was fueled by synergies between the economic and the political orders.134
Joseph Bryant succinctly captures this relationship in his defense of the view that “the nascent European fusion of mercantilist imperialism with a technologically driven capitalistic transformation of production and exchange was the decisive development.” Even if Western Europe’s political economy as such did not create industrialization, it “created a set of institutions able to promote industrialization once it appeared.”135
This assessment, however, may well be too conservative. Had it not been for the competitive pressures of Europe’s state system, would industrialization and the fossil fuel economy have taken off at all? Or, at the very least, might they not have been delayed?
But there is no need to delve into such counterfactuals: for present purposes, the question is moot. Institutions played a crucial role regardless of whether they made transformative breakthroughs possible in the first place by providing the required set of incentives or whether they “merely” allowed such breakthroughs to succeed.136
“ALL UNDER HEAVEN UNDER ONE LINEAGE”
The Logic of Imperial Institutions
How do conditions in traditional empires compare to the European experience? In addressing this question, I focus on China before I more briefly turn to other cases. The Chinese example illustrates several key points: how imperial continuity preserved inefficient arrangements and blocked change; the drawbacks of monopolistic policymaking; the impact of sustained competition as revealed through its absence; and the weight of persistent imperial traditions in general.137
We must be careful not to perpetuate outdated narratives. Imperial rule outside Europe used to be portrayed as despotic and oppressive. Modern accounts were mired in Orientalizing tropes that ultimately go back to the ancient Greeks almost two and a half thousand years ago. More often than not, this biased perspective generated long lists of what was “wrong” with China and other Asian societies. Eric Jones’s blithe assertion that “despotic Asian institutions suppressed creativity” is representative in this regard.138
Revisionist scholarship has criticized this school of thought, reminding us that “it is time to bury the despot.” Subtler assessments have taken over, emphasizing features that were intrinsic to the logic of imperial rule and may even have contributed to public welfare but did not support the dynamics that pushed European societies into uncharted territory.139
In one of the most ambitious interpretations to date, Dingxin Zhao seeks to explain China’s macro-social evolution with reference to the configuration of the principal sources of social power over the long run. In his telling, the pressures of intensifying military competition during the Warring States period gave rise to an instrumental culture in which bureaucracy, varied intellectual traditions, and economic activity expanded side by side but state power came to outweigh all its rivals: aristocratic autonomy was suppressed, Legalist principles carried the day, and merchants remained politically disempowered.140
As already noted in chapter 9, the rigid Legalist template proved unsustainable once interstate competition subsided and was replaced by a hybrid of Confucian and Legalist norms under the Han dynasty. The resultant “highly stable crystallization” merged political and ideological power, ensured its control of military power, and marginalized economic power. The symbiotic relationship between rulers and Confucian scholar-officials created a powerful and highly resilient political system. While imperial unity curtailed the autonomy of the scholarly elite, the latter’s cultural hegemony and access to state rents offered ample compensation. With some exceptions, discussed below, the state neither inhibited nor promoted private commercial ventures. Denied a power base from which to defend their own interests, merchants were compelled to defer to the Confucian scholar elite.141
Zhao takes pains to stress that deviations from this pattern—such as periods of warlordism and political disunity or the late Tang/Song transition to more commercially oriented cities—do not undermine the fact that this template remained in place in the long term and, crucially, matters most for “comparing China as a whole with other civilizations, especially the West.”142
The twin hegemonies of the dominant belief and value system and of universal empire were closely intertwined. Confucianism was revived under the Northern Song, which greatly expanded the civil service examination system by setting up more than 400 schools for candidates, helping to establish a gentry class based on canonical education rather than inherited wealth. Firmly attached to the state, this elite supported it whether from within or outside the civil service and remained loyal regardless of which regime was in power.143
At the same time, in the absence of an arms race that might have generated demand for new forms of finance, China’s “capitalists remained a subordinate social group with no capacity to subject the general interest to their own class interest”—or, more modestly, even to counterbalance state power.144
China’s cities generally enjoyed less autonomy than their European counterparts. Their fortunes were tied up with dynastic changes and centralized political and administrative decisions. Lacking political standing, merchants were strongly motivated to join the official class via kinsmen, to ally themselves to gentry families, and to participate in government at the local level: whatever formal standing they could hope to gain would accrue from public service and proximity to traditional power brokers. The contrast to medieval and early modern Europe, where financiers and associations of merchants and craftsmen could dominate local politics and overseas trading companies were equipped with their own military arms, could hardly have been more dramatic.145
Low fiscal capacity stifled state formation and developmental policies. A simple model developed by Loren Brandt, Debin Ma, and Thomas Rawski envisions revolts and invasion as the biggest threats to imperial authority and unity. A tax system centered on privately owned land triggered conflicts between rent-seeking officials and landowning households that were allied to local gentry. Moreover, due to monitoring problems that were inevitable in a centralized hierarchy that operated across such a large territory, state agents could not be sufficiently deterred by internal checks. The results were informal taxation, bureaucratic predation, and tax avoidance by the privileged, all of which undermined the standing of the central authorities.146
For the most part, formal tax rates were low and the bureaucracy was relatively small. In fact, public revenue declined from the Song to the Qing periods just as it rose in Europe. This limited spending to basic welfare programs and defense and encouraged emphasis on maintenance rather than performance. Dependence on informal or de facto property rights meant that legal processes were primarily determined by social hierarchy and status. Commercial and civil law codes were absent. Thus, property rights remained secondary to the political standing of property holders: “The foundation of property rights in imperial China, especially in the sphere of commerce, rested on politics
rather than law.”147
This in turn compelled entrepreneurs to seek accommodation with officials: the wealthy obtained titles, the poor relied on patronage networks, and merchants pursued state-approved monopolies. Heads of merchant associations were expected to control members and deliver tax revenues, and acted as officials’ surrogates to block unwelcome initiatives. Instead of charters, patronage relations played a central role in these bodies.148
Taken together, these factors favored a long-term equilibrium characterized by “mutual reinforcement between ideology and incentives.” Investment in Confucian education was tied to the status, power, and income enjoyed by officials, a nexus that also attracted well-off merchants. The ensuing “cross-fertilization of economic resources, status, and political power represented both a bulwark of stability and a formidable obstacle to reform.” As a consequence, institutional arrangements were stable, resilient, and path-dependent.
The repeated success of imperial restoration after intermittent shocks shows how much the interests of rulers and various elite groups from bureaucrats and scholars to commercial and landed property owners overlapped and coalesced into “a tight web of vested interests, that, once established, proved extremely difficult to dislodge.” Overall, these structures impeded economic development due to lack of vision, fiscal capacity, and administrative support. Instead, they sustained a patronage economy governed by interlocking elite interests that made it resistant to change.149
Other scholars have painted a similar picture. To name just one more example, Bin Wong contrasts the multiple divisions of Europe that manifested themselves both in competition between states and, domestically, in centralizing governments’ negotiating “with distinct and delimited social groups which developed their claims on the state as the state expanded its capacities to extract resources and make war” with conditions in China, where neither elites nor commoners “enjoyed institutionalized positions of autonomous power from which they could place claims on the state as a counterweight to its continued expansion.” Instead, the Chinese merger of officials and elites “produced a continuum between state and society” with an enduring preference for “a vertically integrated unitary state.”150
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