EMPIRES OVERSEAS 3 Types 1) Colonies of Exploitation Overseas empires that make profit; valuable territories Almost exclusively are territories w/ fairly dense agricultural population People who are disciplined to work from sun up to sun down and are pretty healthy on the whole There is an exportable product Transport costs are less than in similarly sized land-based empires but the number of products profitable to export is still limited Gold & silver bullion, spices, silk & fine cottons, luxury items, dyestuffs, 2) Sugar-Based Islands Sugar able of producing a profit No agricultural labor force Islands primarily in the Caribbean, initially populated by hunter-gatherers Sugar is extremely difficult crop to grow Required slave labor Mostly male slaves Acquisition costs in West & East Africa, transportation costs to Caribbean, high mortality on the journey Slaves that survived the journey generally unhealthy and weak Often a month gestation period where slave had to be cared for before he could work the plantation Demand for sugar high enough in Western Europe that sugar plantations profitable Sugar also profitable for the colonial power because sugar was heavily taxed 3) Colonies of Settlement Hunter-gatherer native population Won't work as field hands Can't extract profit from them Will have to bring a population that is ready to engage in agriculture to sustain itself and find some crops that are exportable and taxable Normally administrative costs exceed any profit the colonial power would be able to extract Political Implications From standpoint of colonial power, administrative costs are a dead loss Try to reduce costs of conquest and subsequent control No free entry into a colony of exploitation Sugar island, reduce administrative cots even more Administrative problem is avoidance or suppression of slave rebellion Don't maintain a huge garrison because that's expensive
If have slave rebellion have warships circle the island and prevent food shipments from arriving (island depended on imported food b/c all land used for sugar) Slave rebellion not crushed by militia; slaves were valuable Reduce administrative costs in colony of settlement by providing for limited selfgovernment Let settlers govern themselves, but colonial power keeps control of foreign policy Install tax gatherers; only way to make money from colony of settlement is to tax exports Social Implications Colony of exploitation will produce over time a very mixed population Creoles: progeny of parents born in colonial power; very few Mestizo: father of European descent and indigenous mother Women aren't allowed to go to colonies of exploitation Constitutes bulk of population Substantial Indigenous population: divided into 2 parts 1) Live in village, give up so produce to feed urban population, work in mines, public projects 2) Move to city and adopt language and culture of colonial occupier
Sugar Island Bulk of population is slaves Average survival rate only 7 years needed active slave trade Very small group of landowners or planters Small mulatto class of overseers and bookkeepers A few judges appointed by colonial power Colonies of Settlement Society composition not much different from composition in colonial power Initially may have been export of undesirables to the colonies Generally colonists active and came in family groups Not unusual for colonial govt to establish altered or new laws that would be accepted by the colonial power Characteristics of All Colonial Powers Have an Atlantic seaboard Extensive fishing fleets: the nursery of seamen Utilize new technology to produce ocean-going vessels Mounted cannon on decks 3-masted square sails
Portuguese 1440: Prince Henry the Navigator establishes school for navigators, recruits navigation experts and those who could make tools for ocean exploration 1495: Portuguese establish Cape Verde Islands Expands into sources of the spice trade Eventually Portuguese controlled enough of supply of spices to provide for more than Lisbon market 1494: Treaty of Tordesillas; Pope spilt world b/w Spain & Portugal 1500: Brazil claimed for Portuguese Portuguese capture Angola in Africa to ship slaves to Brazil Slave trade very profitable 1585: Philip II of Spain becomes King of Portugal Because Philip at war with Dutch, barred Dutch from trading in Lisbon Mercantilism not really an economic theory but a political theory motivations were political not economic Mercantilism not same as protectionism Barring Dutch from Lisbon didn't protect any Portuguese industry Point was that it was a way to take revenue from the Dutch Defeat of the Spanish Armada led to collapse of Portuguese fleet, many of whom had been in the mission Without fleet, Portugal soon lost all of its eastern colonies, mostly to the Dutch Portugal still has sugar from Brazil to sell in Europe, but since Dutch merchants kicked out of Lisbon there's a marketing problem Portuguese invite in English to replace Dutch merchants After Portugal independent from Spain, gives England Most Favored Nation treatment Portuguese use money from trade to explore interior of Brazil gold + diamond mines 1650-1750: The Golden Age of Brazil 1888: Brazil's slaves are freed Slaveholders furious because weren't compensated Brazilian generals largely slaveowners and they seized power to give reparations for slaveholders 1889: Brazil completely independent
Spain Not significant player in Eastern hemisphere (Philippines were intermediary for Spain in Chinese and spice trade but had huge administrative costs) Problem for Spain is getting bullion from western hemisphere safely to Spain Creates a monopolist trade system Only 1 port in Spain allowed to trade with Mexico and Peru (Seville) Everything must be supervised in Seville Merchants in the consulado almost entirely Genoese with a few Castillians Emperor Charles I & V gave Genoese the monopoly because he ruled them as well and because they were hated in Spain which made them easy to tax Most of bullion arriving in Spain is for private miners Pay 20% to govt, keep 80% Only 3 ports in the New World where bullion could be shipped Ships leaving for Spain had to be accompanied by huge warships to guard against pirates System was great for security but had huge transportation costs In colonies, Spain establishes vice-regal rule but left intact govt on the village level Only Spanish allowed to live in villages were missionaries Towns were self-governing with mayor and town council Also had sale of offices in colonial government 1650: Native population had fallen dramatically due to disease Labor wasn't available to do everything because needed food first Mine production fell 1700: Regime change in Spain; arrival of the Bourbons Tried to weed out corruption in the colonies Increased the power of the centralized state in the colonies which lead to liberalization Liberalization of trade put a stop to clandestine trade and gave authorities more income to fight smugglers economic revival Tax on bullion reduced to 10% silver production boomed Social liberalization: freedom of though & association, foreigners allowed to be imported into the colonies (ex: German mining engineers) Who liberated the Spanish Colonies? *Napoleon Bonaparte* Without Napoleon France and Spain would have suppressed rebellion in the colonies Napoleon occupied Spain from 1808 to 1812, which allowed independence movement in Latin America to have free reign
The Dutch 1602: Dutch establish themselves in Java and take control of spice trade Dutch also establish base in Japan and after driving out Portuguese have virtual monopoly on Japanese trade with Western Europe Dutch also have colonies in Capetown, South Africa, Hudson River Valley Dutch had sea advantage because had built up large fleet of fishing boats for North Sea Dutch became great low-cost shipbuilders Could recruit sailors & soldiers from German principalities and Swiss cantons Rhine access gave Dutch best market area in Northern Eurpoe Dutch used profits from Eastern trade to pay for mercenaries to fight Spain During wars with Spain, England and France had given the Dutch Most Favored Nation treatment allowing them to dominate trade Once war with Spain was over, the deal was off English pass Navigation Act declaring all goods arriving in English ports must arrive in English ships (also applied in colonial ports) This act was directed squarely at the Dutch Led to the first Anglo-Dutch War Dutch are whipped in the war and Britain becomes better at competing with Dutch merchants Dutch lose their colonies throughout the 17th and 18th centuries After Napoleonic wars, Dutch empire reduced to a few posts in the East
The British & French Empires Both have colonies of settlement in North America and Caribbean sugar islands in 17 thc By 1670, both Brits and French established in India Seven Years War: Brits and French at war in India and North America In peace treaty, France cedes everything it has in North America to get back islands of Guadalupe and Martinique (both profitable and defendable) French lands east of the Mississippi given to Britain and west of the Mississippi to Spain French essentially have no big presence in Western hemisphere French also kicked out of India French most likely lost on balance by virtue of their colonial activities British doing okay until 1763 but afterward things turn for worse Brits never got much profit from American colonies Increased size of colonies lead to great administrative expenses Brits wanted Americans to pay for themselves more taxes Quartering Act (colonists must house British troops) created social discontent England lost the American Revolution because English people were divided over the war because of the increased taxes it would require French & Spanish want to get back at British, so blockaded them at Yorktown forcing them surrender
INDUSTRIALISM Refers to the use of inanimate sources of power to operate various forms of machinery Textile equipment transformed, iron & steel production expanded greatly Coal produced steel more cheaply and expanded its uses railroads Steam engine primary mover of land goods (steamships used inland waters or coastal areas because needed supply of coal) Improvements in mining techniques By 1850s & 1860s these industries give way to chemical, electrical, & communications Where England + Scotland were leaders in early industrialism in later period were surpassed by France and the US US important in agricultural technology (cotton gin) and communications (telegraph, telephone) Germans also leaders at end of 19th century Why were England and Scotland first to experience industrial development? 1707: England and Scotland united into Great Britain Gave Scots access to England and England's colonial markets Britain had presence of iron and coal Also had a very profitable overseas empire Iron and steel products produced to excess in Britain because could they enjoyed protected overseas markets with millions of consumers which no other country in Europe had Perhaps possession of populous overseas empire made a difference British also benefited from the immigration of French Huguenots who had great trading capital and were kicked out of France in 1685 with the repeal of the Treaty of Nance Germany and Italy did not have overseas empires, but their main impediment was political disunity Transportation difficult in Germany Development of market in Germany requires development of political union Bismarck creates a customs union that lead to development of railroads connecting the German principalities Prussia dominates the small north-eastern German states and then defeats France, taking the Alsace-Lorraine which had iron and coal On eve of World War I, Germans have best-equipped army in Europe Prussia made France pay and indemnity after its defeat in the Franco-Prussian War Prussia took these indemnities and joined the gold standard in 1873 maybe finance played some role in why France was a relatively late industrializer
South Sea Bubble South Sea Company in Britain had been selling stock to pay high dividends on previous stock sold to investors and then collapsed Parliament passed a law banning companies from issuing shares without receiving a Parliamentary charter to form a joint-stock company British industry mostly organized as sole proprietorships and partnerships Effect was to produce a large number of relatively small firms in a few industries where technological innovations had taken place Growth of firms limited by profits and cash flow By 1861 Bubble Act repealed Why couldn't Britain retain its industrial lead? British govt less supportive of industry than govts of US, France, or Germany New industries and innovations were very different from early steel & textiles phase Chemical, electrical, and communications industries more science and research related British education system was more classical and applied science virtually nonexistent German Technical High School World leader in applied science France also had great polytechnics school German had large firms totally financed by investment banks specifically created and enjoyed govt protection Britain was free trade, Germany was protectionist German D-Banks enjoyed monopoly position in banking just as their industries they supported had protection from foreign competition Graduates of the Technical High School went to do research for the firms who, by contract, had to share technology with each other Britain still industrialized in spite of these financial disadvantages Britain had larges market for its firms of any nation in Europe because of overseas colonies Britain eventually had control of trade, finance, and merchant marine in Latin America After independence from Spain, newly formed govts borrowed money from Britain Terms of British loans included British traders get Most Favored Nation treatment Britain could undersell anyone in steel and textiles Essentially turned bulk of trade over to Britain Colonies provided imports like cotton, wheat, grain, and metal ores to Britain Britain took over 75% of Latin American trade by volume British loan terms somewhat generous so could get the imports Eventually all Latin American countries default on their debt Latin American markets as valuable as India but with much reduced costs (didn't need to support an army there)
What delayed industrialism in Latin America? Could not achieve a significant degree of political integration Allowed Britain to run the show and sell its exports in this substantial market Political integration difficult in Latin America because Spain had not encouraged any form of government beyond local government in its colonies No legislatures, no elected officials Failure to achieve political unification virtually assured industrialism would come late What determined the unique character of Latin American industry? Immigration to southern cone of South America (Argentina, Uruguay) Chile, began in 1850s and continued until before WWI Early immigrants tended to be Northern Europeans (Scots, English, Irish, German) By 1870s bulk of immigrants coming from Southern Europe (Spain, Italy) Most of these immigrants from agricultural villages and were attracted to available land in southern cone Few of them actually ended up in the agricultural field--most in the cities Push factors in Western Europe that caused this immigration were Irish Potato Famine, warfare in Europe (wars of Italian unification, Austro-Prussian and Franco-Prussian Wars) These immigrants contributed substantially to development of industrialism Big push to industrialize came from: 1) World War I 2) Great Depression 3) World War II Based on their export economy of foodstuffs, meats + grains, and metals, southern cone had higher per capita income and developed taste for imports and manufactures But Latin American exports dependent upon British merchant shipping During WWI, British industry converted to a wartime footing Some industrial development occurred in southern cone Latin American industry tended to be small scale and high cost and transportation system was far from optimal After WWII head of economic commission for Latin America argued that protectionism was necessary to recreate conditions that led southern cone to industrialize for other countries in Latin America Post-WWII economy was liberalizing while Latin America was become protectionist Couldn't get Latin American countries to organize as a common market or free trade association Latin America was going to have to compete with Asian challengers In 1970s, Latin America de-industrialized because couldn't compete with Asian challengers in quality or price 1981-1982: Debt Crisis Latin American countries default on debt Led to massive devaluation of currency This currency devaluation made their goods cheaper to the world Latin America now exporting more than it ever had before
Political Effects of Industrialism Leads to increase in political participation [in Britain, not same for France or Germany] In Britain, began with Glorious Revolution of 1688 when Stuart monarch replaced with William of Orange and Queen Mary (power of parliament increased) 1832: First Reform Act Ended the Rotten Boroughs in England that had small populations but right to send a member to House of Commons Redistribution of seats: growing towns and cities would be represented Reduced influence of extremely wealthy and increased representation of industrialists and some part of the industrial working class First act of the Reformed Parliament was to free the slaves (with compensation to owners) Industrialists mostly concerned with trade liberalization 1859-1860: Cobden-Chevalier Treaty reciprocally opened up markets between Britain and France Eventually even Tories (under Disraeli) were supporting gradual extension of the franchise
Repeal of Corn Laws: 1847 Corn Laws had been protecting British agriculture and kept food prices high Effect of repealing them was to reduce cost of living in the cities (increase real wages, decrease costs of production) Until 1850 had been no increase in real wages because of industrialism in Britain British agriculture for centuries had been converting from grain to pastoralism In days before refrigeration, could import grain no problem but had to produce meat and dairy domestically Conversion from arable land to pasture was push factor leading people to find new jobs in the cities Social Changes Attributed to Industrialism 1) Urbanization (in Northern and Western Europe) a. Allowed for foreign exchange to have enormous imports of food b. Occurred even given horrid conditions of European industrial cities 2) Rise of local government a. Cities had tons of problems that families could not deal with individually b. Local govt in Britain developed rapidly in 19th century and generally occurred elsewhere in Western Europe c. Fire protection, garbage collection, sanitation, etc municipal functions 3) Public Education a. Traditionally was responsibility of Church, but when people moved to urban areas there was no Church facility capable of providing this b. John Wesley: Methodism i. Built chapels proving eremonies and education in urban area ii. Core ethics: Don't drink, Work hard, Support your family iii. Wesley also started adult education iv. Industrialists liked Wesley's ethics and funded Methodism
WORLD WAR I Marxist theory was that finance capitalism would result in a declaration of war in which the working class would refuse to participate and overthrow their existing governments But socialism only prevailed in Russia, which according to the Marxist theory, would have been the least likely country to have a communist revolution Russia was least industrialized country in the war w/ exception of Ottomans Germans sent back an exiled Lenin to Russian during the war Within months Bolsheviks sign peace treaty with Germany Frees up Germany to focus on Western Front Before US entered the war, had made loans to Britain and France US Govt wanted the loans to be paid after the war In order to repay loans, Britain and France demanded reparations from Germany France demanded back the Alsace-Lorraine and Germany had to give up other territories, many that had substantial German populations and heavy industry Without these industries, how can Germany pay its reparations? John Maynard Kenyes warned that this plan was madness Germany couldn't afford to pay reparations Defeated counted had never paid reparations out of post-bellum earnings but had always borrowed money to pay them Even assuming it was politically possible, London did not have the resources to loan to Germany US loans to Germany were too little too late German government printed money because no one would buy their debt hyperinflation Hyperinflation with ended with German currency worth less than the paper it was printed on Destroyed the middle class whose wealth was in bank deposits Weimar Republic lost its political support Supporters went to Socialists or Nazis Britain also had problems after WWI General Strike: 1926 Paralyzed Britain for an entire year Coal industry and everything that depended on it were shut down Was caused by decision of London bankers to peg its currency to gold at the prewar level (but France had been devalued 500%) British exports tanked, industrial work stagnated, workers thrown out of jobs Because of these domestic problems in Britain, no one paying attention to internal affairs in Germany
Which countries did the best in the 1930s? Soviet Russia and Nazi Germany Major reason was that decentralized allocation of resources is best, most efficient when times are good and people's expectations and confidence are high But when confidence of farmers, industrialists, and financers is shaken, nothing much happens Russian and German industry were not efficient and often not profitable, but plant managers were told how much to produce or else To try to keep these firms profitable, real wage was as low as possible No labor organizations, no collective bargaining
JAPAN Industrialization followed the Meiji Restoration of the Japanese emperor Emperor replaced Tokugawa Shogunate Tokugawa had been highly decentralized, isolationist After restoration, had highly centralized govt actively promoting industry Japan entered WWI relatively late, fought Russia for Pacific territories and some land in China Japanese came to Paris for peace treaty asking for end to Japanese Exclusion (which prevented Japanese immigration to USA or European Asian colonies) but were denied Japanese insulted by exclusion and it's probably this is why Japan joined Germany and Italy in WWII Japanese occupied Asian territories in WWII that had mineral resources
WORLD WAR II Germany reclaimed lands that had been taken from it after WWI because they still had substantial German populations Invasion of Poland brought in Britain and France who had promised Poland would result in a joint declaration of war After war ended, Allies set up their own post-war administration and the Soviet Union set up one of their own USSR wouldn't participate in the Marshall plan Cold War was a blessing and curse for reconstruction of Europe: Curse: armaments would be continuing financial burden Blessing: European political rivalries essentially ended Europeans convinced small squabbling states couldn't stand up to USSR Economic integration of Europe not only feasible, something of a mandate Post-WWII Japan had no military expenses because were denied an army Reconstruction a lot easier than development Doesn't' involve education, training, building of infrastructure, etc
All that was required in W Europe + Japan was food until ag sector up and running, raw materials, fuel, spare parts to put industrial sector back on its feet Marshall Plan Provided $17-18 billion for reconstruction of Europe Money went overwhelmingly to US exports US army demobilized, plenty of labor to expand production Troops carrier ships easily converted to carrying grain or ore, etc Second part of Marshall Plan was to contribute to economic and possible political integration of Europe in the future Funds given to a centralized European authority where all countries could debate where to use the money The nucleus of what would become the Organization of European Economic Cooperation Dollar Shortage Europe needed to import everything and could export next to nothing Institution that could get dollars would hold on to them To integrate Europe, needed to break down internal barriers to trade Payments Union created common pool of dollars to which net exporters to entire region would obtain payments and importers from entire region would make payments Led to breakdown of internal and administrative barriers to trade Reconstruction in Japan Land reform Large estates which were held by the govt and military officers were confiscated, divided, and offered to decommissioned soldiers as farms Economic objective was to increase domestic agricultural production Forced to give up its colonies, Japan was food deficient Land reform also created base for Liberal Party in pariliament in Japan Liberal Party fought for high protectionism for agriculture Japan needed to find highly-valued products to produce to keep its high wage rate Japan's miracle not only based on technology, but on very high savings ratio Allowed Japan to pursue export-oriented growth Allowed Japan to develop largest fiscal deficit of any major industrial country With success, Japan had even higher wage rates so outsourced production to other Asian countries with cheaper labor and Japan became primarily marketer of high quality goods
GLOBALISM AND THE WORLD ECONOMY UN called for expansion of world trade and international capital movement as principal thrust for economic development Assumption was many countries had potential for export-based growth based on cheap skilled labor Problem for realizing potential was 1) Lack of access to markets in rich countries 2) A flow of capital from rich to poor countries with potential was needed Some countries in Latin America and Africa had different problems Currency was overvalued Caused by import subsidy problems Those countries not viewed as capable of engaging in export-based growth Principal exports were commodities Help these countries by giving them a thriving world economy and price of commodities will rise Expansion of World Trade 1962 Kennedy Round of Trade Liberalization General Agreement on Tariffs and Trade (GATT): countries lowered tariffs and come to agreement on trade issues Capital Movements Largely done through private sector World Bank and International Monetary Fund made loans to poor countries Export-oriented growth strategy primarily directed towards Asia Problem: Export surplus in one country requires import surplus in another Lawrence Kline: One nation needs to be the locomotive and develop the import surplus to make the export surplus of others possible To be locomotive you need to have source of income from foreign exchange provided by liquidation of assets or borrow from the trade surplus countries Recovery had not yet restored depleted asserts of UK or Continental Europe Only asset-rich country with strong economy was US US started in 1960s as world's biggest creditor, ended 1990s as world's biggest debtor Transformations in the locomotive Tradeable sector in that society shrinks and home goods sector grows Tradeable sector = exporters and domestic firms that compete with imports Trade deficits are made up of shrinking exports and rising imports and usually associated with shrinking sector of domestic firms competing successfully with imports Home goods sector = services; primarily govt, distribution, and professional services Home goods sector grows relative to the rest of the economy
Locomotives eventually run out of steam As net indebtedness increases, cost of servicing net deficits increases Higher interest rate on govt debt Begins to feel resistance to the sale of assets When sale of assets starts to include port facilities or other strategic interests When you can't sell assets at home, next step is to liquidate assets abroad Issue for world today in terms of globalization is who will be the next locomotive? The Service Economy Has had more political and social effects than economic Most of growth of services since 1960s was replacement of service offered in the household now offered by small firms Ex: laundry, lawn service, Women toady work outside the home in aggregate doing many of the same things for money that they did without pay in the household Most of our economic growth is phony growth Services provided in the home (ex: child care) have no value in national income accounting Expansion of service industry provided opportunities for women but women had to replace their previously done home services with paid services to do those tasks This is the illusion of economic growth You don't consume any more, you consume differently If you want to increase your consumption, have to dissave What you pay for services will in many cases cost you more than what you earn in the marketplace Can't grow any more by including women in the workplace: rate of female participation has peaked and is declining When new locomotive is found, service sector will level off in the US Political Effects of Service Economy Decline of trade unions and organized labor Service sector hard to organize because production units tend to be small and relationship with employer is close Have taken economic issues out of the picture in the political scene Old Democratic base is gone or nearly gone Social Effects of Service Economy Greater gender equality as women get their own sources of income Traditional role of the mother is not what it used to be Changing role of mother may be causing women stress, which could be why women's workforce participation rate has peaked and is falling