The Empire Project: The Rise and Fall of the British World-System, 1830–1970 (20 page)

Far-called our navies melt away;

On dune and headland sinks the fire:

Lo, all our pomp of yesterday

Is one with Nineveh and Tyre!

Judge of the Nations, spare us yet,

Lest we forget – lest we forget.

The urgency of modernising – and unifying – the Empire to meet the challenge of other ‘world-states’ was obvious to Chamberlain and his followers. ‘The tendency of the time’, cried Chamberlain, ‘is to throw all power into the hands of the greater empires, and the minor kingdoms – those which are non-progressive – seemed to be destined to fall into a secondary and subordinate place.’
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The folly of vacillation or appeasement was the cry of those who denounced any compromise on British claims in China or the Middle East. To the self-proclaimed ‘imperialists’ the climax of the struggle was near. The world would soon be made anew and on lines very different from the old order of cosmopolitan free trade and an open maritime frontier. In the age of world states, politics, economies and society would have to be organised on an imperial scale and for imperial purposes. The deeper thinkers suspected that even sea supremacy was not enough to guarantee the survival of the British system.

The outbreak of the South African War in October 1899 thus served to catalyse a variety of hopes and fears in Britain whose political fall-out lasted for much of the following decade. But the most immediate effect of the war was geostrategic. For a decade or more, Salisbury and his Liberal shadow Lord Rosebery had perfected a diplomacy of opportunism. But British success had rested upon the skilful evasion of any large or lasting conflict that would soak up their limited manpower. In South Africa, however, Salisbury stumbled into a war that quickly became more than a colonial expedition. The European chancelleries rubbed their hands with glee. At last, perhaps, the British system could be brought to heel and a European price extracted for its global claims. In a world that was all but partitioned, where the undivided zones of East Asia and the Near East were cockpits of Great Power rivalry, and where the naval and military strength of the contending ‘world states’ seemed more finely balanced than ever, a new era of world politics was about to begin.

3 THE COMMERCIAL REPUBLIC

The striking expansion of Britain's geostrategic commitments and of its spheres of influence, occupation and rule had a less visible counterpart. There was at the same time a great widening and thickening of the web of commercial relations between Britain and many other parts of the world. This ‘commercial republic’
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centred on the City of London, became one of the vital constituents of the British world-system that the late Victorians erected on its mid-Victorian foundations. Indeed, there was an obvious link between its extraordinary growth and the comparative ease with which the British world-system survived the stresses of geopolitical change after the mid-1870s. Britain's prosperity appeared to rise in direct proportion to the scale of its overseas trade and the increase of its invisible income. Income tax, estate duty, excise and postal receipts increased government revenues by nearly 50 per cent between 1870 and 1897.
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The favourable balance of payments (largely the product of invisible income) kept sterling strong and replenished the sources of investment abroad. The stream of outward-bound wealth, greasing and fuelling overseas commercial connections, was a powerful addition to British world influence. It secured Britain's claims on a huge range of assets, most of them safely remote from the great powers in Europe. It helped to sustain the flow of migration, Britain's demographic imperialism. Last, but not least, it preserved Britain's lead in communications technology, especially the telegraph and undersea cables that made London (and Britain) the information hub of the world.

But Britain's position in the new world economy could not be taken for granted. It required adaptations of practice and outlook that were just as far-reaching as those that tested political nerves in Whitehall and Westminster. The scale of commercial activity as ‘new regions’ were drawn into the ‘high-pressure zone’ of the Atlantic economy; the intricate network of multilateral payments on which trade growth depended; the demand for finance, both credit and capital; and the competitive threat posed by new industrial producers: all posed new challenges to the commercial apparatus that the mid-Victorians had fashioned.

The most obvious difficulties arose from the struggle to enter new hinterlands, open new markets and create new commodity trades. Exploiting ‘new’ lands and their productive capacity, and bringing their produce to market more cheaply than a generation before, were the great driving forces behind the late-century expansion of trade. But they required a huge effort to pay for new systems of transport and maintain the momentum of technological change. That meant the mobilisation of capital in ever increasing amounts, and finding the means to transfer it cheaply and quickly between regions, sectors and firms. It meant devising the tactics and recruiting the men that were required to drive deeper into previously closed or self-sufficient economies, sometimes against the determined resistance of entrenched local interests. It increased the importance of managing two kinds of risk: the political risk that an obstructive, enfeebled or hostile regime would frustrate or despoil a foreign-owned enterprise; and the financial risk that those who had borrowed – on public or private account – would simply default. There was also the threat, widely discussed in the 1870s and after, that large parts of the world beyond Europe would be walled off by tariffs – an economic partition to match the diplomatic division of spheres in Southeast Asia and Africa, and (as seemed increasingly likely) the Near East and China.

These actual or possible barriers to trade were a forceful reminder that success in the new global economy depended on being able to meet the transaction costs it imposed. As Douglass North pointed out, in modern large-scale economies, the costs of coordinating productive activity usually exceed the cost of production itself.
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Settling the terms of exchange for different commodities, grading their quality, and securing the claims to property rights over them (a complex operation in tradeable goods) were elaborate tasks. The long train of agents that brought products to market, and then to the consumer, cost time and effort to manage. The key to success was commercial intelligence. ‘Information’, remarked one profound economic observer, ‘is one of the principal commodities that the economic organisation is engaged in supplying.’
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The risks and transaction costs of global trade and investment were lowest where (more or less) reliable information was cheap and accessible. Their burden was lightest where commercial institutions responded most quickly to new products, new markets, new forms of exchange and the need for new kinds of investment. It was here that London's long lead as the world's principal entrepot conferred a crucial advantage. It was why it became the headquarters of the new global economy. No other port city enjoyed the double advantage of lying so close to such densely used sea-lanes, while being the capital of a wealthy state and the centre of its internal communications. No other port-city was the political centre for so many dependencies, or formed the arena where so many lobbies – imperial and colonial – contended for backers or paraded their claims. The benefits accruing to Britain were huge. Yet, as we shall see, there was no simple equation between the interests of the City with its web of commercial relations and those of British imperial power. In theory at least, the power that the City enjoyed sprang not from authority but from the leverage conferred by the need for its services, and the economic reciprocities it had helped to create. But one of the critical questions was how far the commercial republic really depended upon its ‘imperial alliance’; and whether its rapid acquisition of a huge property empire, and the income drawn from it, now made it a hostage to geopolitical fortune.

The mercantile cosmopolis

British economic success in the late nineteenth century rode on the back of the colossal growth in world trade whose value increased tenfold between 1850 and 1913. British enterprise was still better placed than any competitor to promote this expansion of trade and profit from it. Technology (especially the application of steam power), capital (accumulated from industrial and commercial success), institutions (already developed to serve a highly integrated industrial and commercial economy) and personnel (both commercial and technical) equipped it to exploit overseas opportunities all over the world. This was particularly true of the building of infrastructure on which much British effort was concentrated. Railways were the key to opening up hinterlands without access to navigable water, dragging them from subsistence into commercial production. The world's railway mileage rose from 66,000 in 1860 to 465,000 in 1910 (and 674,000 in 1920).
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Shipping tonnage more than doubled in the same period (and travelled more rapidly). Telegraph cables lengthened from approximately 8,000 miles in 1872 to reach 325,000 miles by 1922. British interests owned, managed or controlled all these enterprises on a grand scale: the vast proportion of railways outside the United States and Continental Europe and some 40% of registered shipping by the early twentieth century. By then, 40% of the world's telegraph cables were in the hands of a single British concern, the Eastern Telegraph Company and its associates.
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Trade followed construction. Building railways overseas required locomotives, rolling stock and iron rails. New customers appeared as commercial production extended. The demand for British exports rose on both accounts. It was true that, as new industrial competitors arose in Germany and the United States, Britain's share of the world's manufactured exports drifted down from 38% in 1880 to 30% in 1913.
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More generally, Britain's share of world trade fell from 25% in 1860 to 20% in 1900 and 17% by 1913.
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But these figures disguised a large absolute rise in the value of British exports and a remarkable increase in the share of Britain's total production that they represented. In 1856, the ratio of exports to gross domestic product had been 14.6%. By 1873, it had reached 18.3%. In 1913 it was 25%.
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British imports also grew rapidly as dependence upon foreign food supplies became greater and greater. Indeed, the imbalance between exports and imports widened steadily after 1880 despite the falling cost of food and many raw materials from an average of around £97 million in 1880–9 to £160 million after 1900.
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In production and consumption Britain had become more dependent upon international trade and more international in outlook than ever before. Free-trade capitalism had reached its highest stage.

But the most spectacular change was the extent to which British-based interests profited from the surging growth of international trade and the scale on which they acquired assets abroad. A huge proportion of the world's trade passed through London by the early twentieth century, not so much physically but rather in all the commercial and financial operations that international commerce required: ship-broking; insurance; the grading of products; and sale. Sterling was the currency of trade, and the ‘bill on London’ the usual (because most convenient) form of payment. By 1913–14, 60 per cent of bills on London were for transactions entirely between foreign buyers and sellers.
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London was the world centre for commercial information, the listening post for commercial opportunities in every continent. London prices were, for most goods, the world's prices. Not surprisingly, British companies took the lead in providing the information and services that world trade needed, especially in shipping and insurance. Despite the huge fall in the cost of seaborne freight (by some 50 per cent between 1870 and 1913
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), the income from these ‘invisible’ exports rose steadily from £80 million a year to nearly £170 million by 1913.
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Large as this figure was, more than covering the trade gap, it was outstripped by the income drawn from assets built up abroad.

A marked tendency to invest overseas was already visible before 1880. Partly it arose as British merchants mobilised capital at home to create the kind of ‘fixed’ assets – like docks or warehouses – that would expand their business on the spot. British lenders, who readily bought government bonds (‘consols’) at home, also willingly placed money in the bonds issued by foreign states. A disinclination to risk savings in domestic commercial ventures, and the low level of government borrowing at home after mid-century, drove the surplus incomes of the wealthy abroad. The major impetus came from the construction of railways overseas, which, unlike most commercial or industrial ventures, required a very large immediate investment before any return was forthcoming. British confidence in railway technology, the early development in Britain of a market in railway shares and the prominent role of British railway contractors overseas combined to make this an especially attractive outlet for surplus British funds. As the international railway boom developed in the 1870s, a huge stream of British capital flowed abroad. Between 1870 and 1913, British investment in Indian, colonial and foreign railway companies rose fivefold to £1.5 billion – around 40 per cent of all British overseas investment. There was a similar rise in the sums invested in government bonds (both inside and outside the Empire) – often to fund state railway construction or other kinds of infrastructure. By 1913, a third category of foreign investment was growing even faster: overseas companies controlling utilities (like gas- or waterworks), banks, real estate, mines and plantations, but rarely industry.
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The result was an overall increase in the value of Britain's assets abroad from under £1,000 million in the early 1870s to around £2,000 million by 1900, and £4,000 million by 1913.
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Almost all of this was placed outside Europe and 44 per cent of the world total of foreign investment was in British hands.
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Altogether these overseas assets produced an income worth more than one-fifth of all Britain's overseas earnings.
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They made up some 34 per cent of all British assets at home and abroad. A forward glance will reveal the true scale of this astonishing mountain of wealth. By 1937, the effects of war loss and depression had driven that proportion down to 18 per cent and by 1973 to 3 per cent.
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In 1990, British overseas investment, having staged a major recovery, reached the impressive figure of £100 billion. But, measured against the overall rise of Britain's assets, this was no more than one-seventh of its value in 1913.
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