THE ECONOMIC DIMENSION: INDUSTRIALIZATION AND ITS EFFECTS

The direction, composition, and volume of trade in phase 3 empires hinged upon the Industrial Revolution, which by this time was reshaping the economies and social structures of northwestern Europe.

increased use of inanimate sources of energy, including compressed steam and electricity;

machine-based technologies permitting mass production of virtually identical items; a shift of production sites from scattered rural households to large factories in urban centers;

production of a vast array of consumer goods, complemented by capital goods (machinery of all types, railroads, steamships);

economies of scale in production, leading to low unit costs;

generation of a steady stream of new products and productive techniques with practical uses;

greater reliance on scientific enquiry into underlying natural laws as the basis for technological innovation;

a growing tendency to view the natural world and human relationships in economic terms: land, other natural resources, and labor were commodified and assigned monetary value as factors of production.

The planning, management, and finance of industrialization in northwestern Europe was mainly in private hands. Capitalist entrepreneurs and financiers found they could amass profits by controlling critical factors of production and combining them in new ways; reducing unit costs of production by increasing the scale of operations, repressing workers’ demands for higher wages, and introducing effi­cient, labor-saving new techniques; stimulating demand for their goods and services through advertising; and reinvesting profits from past activities to extend the scope of profitable future operations. A steadily increasing scale of operations entailed major changes on both the input and output sides of the productive process.

These characteristics of the productive and technological revolution north­western Europe experienced in phase 3 radically altered economic relations with the rest of the world. Changes from phase 1 include the following:

The kinds of commodities Europeans imported Imports in the preindustrial era consisted largely of items requiring little or no processing in Europe before being marketed, for example, bullion and cane sugar from the New World and spices, precious stones, and handcrafted luxury goods from Asia. Industrialization raised demand for primary products that had to be processed and combined with other imported inputs before being sold. These included long- and short-staple cotton, vegetable oils, natural rubber, sisal, tin, sodium nitrates, phosphates, and copper. Late nineteenth-century advances in metallurgy created a demand for such rare metals as tungsten, manganese, chromium, and nickel. Many of these were available only (or at lowest cost) outside of Europe. An assured supply of the new imports was more critical to the European economy in phase 3 than before industrialization began.

Earlier imports were geared to economic elites and their desire for luxury goods. New imports reached a far larger, middle-class market and were made into what purchasers increasingly saw as ordinary consumption items. The range of foodstuffs and beverages imported in phase 1 was limited, the main items being sugar, sugar’s alcoholic by-products, tea, and coffee. The range expanded enor­mously in phase 3 to include wheat and wheat products, butter and cheese, canned and frozen meat, vegetable oils, citrus fruits, bananas, coconuts, and cocoa.²⁵

The volume and value of European imports To exponential increases in the scale of European production during phase 3 should be added technological ad­vances that increased the size, speed, and carrying capacity of commercial ships.

The economic gap between the world’s first industrializers and nonindustrial societies became a yawning chasm in phase 3. Paul Bairoch estimates that between 1800 and 1913 real per capita income rose 458 percent in North America, 222 percent in western Europe, 77 percent in Latin America, 9 percent in Africa, and 1 percent in Asia,²⁶ Commodities that wealthy regions wanted to import were readily affordable. The volume of imports into North America rose much less than its rapidly rising income level would suggest. This is because the raw materials used as the United States and Canada industrialized were in general domestically available and because North Americas population was still relatively small. Western Europe’s growing prosperity was more directly reflected in the rising volume of commodities imported from abroad.

The regional source of exports to Europe. In phase i each non-European conti­nent tended to specialize in certain exports to the metropoles. The Americas focused on raw materials or semiprocessed commodities from its mines, plantations, and ranches. Asia sent handcrafted luxury goods in addition to primary products. Africa exported little directly to Europe, though a substantial amount indirectly when one takes into account the vital role African slaves played in producing New World plantation crops.

In phase 3 the composition of exports to Europe from other regions began to converge. The Americas continued as before to export agricultural and mineral primary products, though the nature of these products changed over time. Newly formed African colonies began to send agricultural commodities and minerals di­rectly to their metropoles. Perhaps the most significant transformation occurred in Asia, the region least affected in phase i by changes in the world economy. Europe’s demand for Asia’s handcrafted goods fell while demand for its raw materials rose, pushing it in this respect closer to other non-European regions.

The composition of European exports As noted in chapter 3, Europeans in the preindustrial era produced a limited range of consumer goods for overseas markets. What they did sell or barter was targeted at a society’s wealthiest and most powerful elements, whether settlers or indigenous elites. In contrast, by phase 3 Europeans had an enormously wide range of consumer goods to sell, many designed for everyday use by people of limited means. Writing in 1862, the explorer W. B. Baikie listed the British-made goods traded on the Niger and Benue rivers in West Africa’s im­poverished interior: tin dishes and pans, white calico cloth, cotton blankets, scissors, razors, fishhooks, padlocks, zinc mirrors, sewing thread and needles, pistols, ma­chetes, and iron spoons.²⁸ At the other end of the spectrum, Europeans began for the first time to export capital goods. Railway ties, railroad cars and engines, steel girders for bridges and docks, tugboats, and eventually factory machinery were sent to destinations around the globe. Many capital goods were so expensive that they were purchased by governments overseas, the necessary financing being furnished by private European banks.

The volume and value of European exports Europe absorbed the bulk of the region’s industrial output in phase 3. But the existence of a market elsewhere for its consumer and capital goods was significant, both as a stimulus to expand the scale and cost-effectiveness of industrial operations and as a supplementary source of demand should the European business cycle turn downward. Export of machine- made goods was greatly aided by the cost-reducing effects of new technology. David Landes notes that in Britain around 1810 “the price of yarn had fallen to perhaps one- twentieth of what it had been [fifty years earlier], and the cheapest Hindu labour could not compete in either quality or quantity with Lancashire’s mules and thros­tles.”²⁹ This trend helps explain the rise of cotton fabric exports to India from a negligible amount in 1813 to 51 million yards in 1830 and more than 2 billion yards by 1890. Bairoch estimates that about a tenth of western Europe’s and North America’s manufactures was exported to South and Central America, Africa, and Asia in the nineteenth century.³⁰ As Europe’s industrial output exploded, so did its exports.

The cumulative effect of these trends was emergence of a global economy marked by a distinctive territorial division of labor. Broadly, regions outside Europe specialized in exporting raw and semiprocessed goods to Europe, which in turn exported factory-manufactured goods to them. Bairoch estimates that in 1830 Latin America, Asia, and Africa generated 60.5 percent of the world’s goods made by hand or machine. By i860 the figure had fallen to 36.6 percent. By 1913 it had plummeted to 7.5 percent.³¹ Such an astonishingly rapid change could not have taken place had western Europe not transformed itself through industrialization.

World trade flows: theory and practice As noted earlier, there was a discrep­ancy in phase 1 between the way Europeans thought imperial trade should flow and the kind of trade that actually took place.

In phase 3 the relationship between dominant ideology and actual trade prac­tices was in effect reversed. The doctrine of free trade—most persuasively articulated by political economists in the United Kingdom, more reluctantly accepted in other metropoles—opposed imposition of formal restrictions on colonial exports or im­ports. Free trade theory was noncommittal on the relative merits of vertical and lateral trade. Presumably if lateral trade made economic sense it should be allowed to flourish. But industrial Europe’s capacity to direct global production and trade toward itself was so great that vertical patterns increasingly dominated lateral ones. As Europe’s comparative advantage in generating consumer and capital goods grew over time, people elsewhere who wanted these goods looked to the source to provide them. Moreover, rulers of newly acquired Asian and African colonies used the coer­cive and fiscal policy levers at their disposal to push each colony toward specializing in a few commodities the metropole needed. Nonmarket public policies reinforced market forces in verticalizing world trade.

Meanwhile south-south economic ties atrophied. Abolition of the transatlan­tic slave trade ended the old link between Africa and the New World, with little to take its place. There was no phase 3 equivalent of the old transpacific trade in which Spanish galleons exchanged New World bullion for the East Asian silks and china­ware that criollo elites in New Spain and Peru desired. African gold was no longer shipped east to pay for Asian luxury goods. Intra-Asian maritime trade did, however, continue. While the older exchanges of local handcrafted goods declined in relative importance, new commodities emerged. Indian opium was exchanged for Chinese silver and tea despite strong objections by the Chinese government. Rice grown on the Asian mainland was exported to plantation colonies in the Indian Ocean. Move­ments of Indian and Chinese laborers to other parts of Asia—and to eastern and southern Africa and even the Caribbean—represented a new human dimension of lateralization.

Even taking the Asian experience into account, the overriding reality is that Europe’s industrialization channeled world trade along north-south lines to a far greater extent than in the preindustrial era. Mercantilist theory could afford to lose favor in Europe because mercantilist practice, driven largely by technological change, was coming into its own.³²