The Empire Project: The Rise and Fall of the British World-System, 1830–1970 (24 page)

Despite the scale of Britain's commercial interests and the expected value of the China market, the modest scope of British action in the crucial decade after 1895 stood in marked contrast to the intervention, partition and annexation favoured in Egypt and Africa. This was not because official policy was inflexibly committed to a united and independent China, as the flirtation with a Yangtse protectorate showed. Nor because British interests were thought strong enough to fend for themselves. In the Chinese interior, that had never been true. The reality was that in China Britain's power was too limited, her unofficial protégés too weak, her international rivals too strong and the Chinese ‘host’ much too resilient for a solution along African or Egyptian lines to be imposed.
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The larger aim of promoting British commercial interests throughout China by official pressure was even more impractical. After 1905, the more perceptive of the China hands recognised that the future lay not in attempts at the colonial subordination of China, still less in partition, but in ‘normalising’ her relations with the West, especially through currency reform, the greatest single barrier to trade.
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European financial cooperation, thought Addis, would be the instrument of modernity.
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It was a banker's dream. But, in the time of troubles that lay ahead, it was a vision to which British leaders would return with almost desperate faith.

Latin America: the swing to the West

Up to 1914 (and long after), foreign-owned business in China remained the step-child of diplomacy or was confined to the shelter of treaty-ports. By contrast, Latin America was a fair field of commercial enterprise, offering exceptionally favourable conditions after 1880 for the growth of a vast business empire pivoted upon London. Latin America was far away from the great geopolitical faultline that ran from Vienna through Constantinople to Teheran and Peking. Latin American states were defective by European standards, but after c.1850 they were far more robust and commerce-friendly than almost anything to be found in tropical Africa.
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There was neither the need nor the opportunity to engage in the costly privatised state-building to which Goldie, Mackinnon and Rhodes had resorted. Nor was there a great imperial bureaucracy, like that in China, to confine the commercial intruder to a coastal enclave. Latin American elites, far from resisting a disruptive alien culture, eagerly embraced European models of ‘order and progress’ and identified with Europe's colonising drive elsewhere in the world. They saw themselves as the vanguard of civilisation among their benighted countrymen, especially where those countrymen were Indian or black.
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Amid the enthusiasm with which they opened their economies to the outside world, the clumsy apparatus of semi-colonialism erected in China would have been an absurd irrelevance.

Three other circumstances shaped the economic connection between Britain and Latin America. No Latin American state in 1880 remotely compared with the United States in population, accessible resources, commercial infrastructure or industrial development. There was neither the means nor the will to challenge Britain's financial, commercial and industrial superiority by building a manufacturing base behind tariff walls. Secondly, Latin America's mineral wealth and its rich zones of tropical, sub-tropical and temperate agriculture promised a huge stream of primary products at the very moment when Europe's urban and industrial transformation was moving into high gear. Finally, Latin American governments, notably in Brazil, Argentina and Uruguay, were now ready to exploit their natural resources with a vast immigrant workforce drawn from the stagnant rural economies of Italy and Spain.

British businessmen were perfectly placed to exploit this dynamic new commercial frontier. They could move out from the old mercantile bridgeheads first occupied during or before the 1820s. They commanded an ample reservoir of commercial credit and a versatile shipping network. They were attuned to the commodity markets in London and well supplied with commercial intelligence. Above all, they enjoyed ready access, through merchant banks and the Stock Exchange, to a stream of capital. Credit, capital and commercial know-how were their supreme comparative advantage for, though none of these was entirely lacking in Latin American economies, local businessmen preferred familiar assets like land or housing to riskier long-term projects subject to the ebb and flow of foreign markets.
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As the Latin American economies were drawn more fully into the web of international trade, their commercial association with Britain grew closer and closer.

The results were impressive. In 1880, Britain exported goods worth some £17 million to Latin America. By 1890, the figure had risen to nearly £29 million, and had surged past £50 million by 1910.
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By that date, British purchases had grown even faster to exceed £70 million. By the eve of the First World War, around 10 per cent of British trade was with the Latin American states. But much more striking than the growth of trade was the astronomical rise in British investment. In 1875, when Latin American borrowing was already under way, the total had been £175 million. Thirty years later, it had increased fourfold, and by 1913 stood at nearly £1,200 million
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(these figures must be treated as orders of magnitude since the amount of private investment, as opposed to quoted securities is necessarily conjectural). By 1913, two-thirds of that total was invested in enterprises rather than government bonds (the reverse had been true in 1885). Perhaps half of all British investment was in railways, and there were British-owned railways in every South American country and in Mexico, Guatemala and Costa Rica. More British capital was poured into docks, harbours, tramways and utilities to serve the booming cities, including Buenos Aires, the ‘Paris of the southern hemisphere’.
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‘Nowhere in the world’, remarked James Bryce of Buenos Aires, ‘does one feel a stronger sense of exuberant wealth.’
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In this benign environment, British businessmen like the Johnston family in Brazil,
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the banker George Wilkinson Drabble in Argentina,
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Colonel North, the ‘nitrate king’, in Chile
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and the great contractor Weetman Pearson (later Lord Cowdray) in Mexico
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could build up their interests on an imperial scale.

In fact, British interests were scattered prodigally across Central and South America. Even in inhospitable states like Paraguay and Venezuela, there were British-owned railways like the Paraguay Central and the Bolivar.
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Sixty per cent of Colombia's network was British-owned.
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In Peru, where the government had defaulted on its railway loans in 1879, a British holding company, the Peruvian Corporation, administered the country's railways, guano deposits and certain utilities under the ‘Grace Contract’ of 1890.
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In Chile, British capital controlled one-third of nitrates production – Chile's principal export and its main source of public revenue – by the 1880s.
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In fact, British capital was concentrated in Mexico, Chile and along the Atlantic coast in Brazil, Uruguay and Argentina. Mexico ranked third in 1913, with some £132 million in railways, mines and the oil concessions into which the Pearson interests had diversified – a figure broadly equal to that of American investment.
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In Uruguay, British commercial predominance was proverbial. ‘All of the industrial enterprises…of any importance are in English hands’, remarked the British minister in 1881.
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Transport, communications, utilities, insurance, banking, meat-processing and ranching were largely British-owned or managed by 1900,
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and the Uruguayan president ruefully described himself as the ‘manager of a great ranch whose board of directors is in London’.
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In Brazil, the growth of British banks and insurance companies followed in the wake of the large trading houses dealing in coffee and sugar. The British-owned Sao Paulo Railway, the great trunk route into the coffee-growing heartland, was the most profitable British railway anywhere in South America.
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But it was in Argentina that British interests had flourished most of all. Argentina was the miracle economy of the age and the most dynamic in Latin America.
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Its seemingly boundless resources prompted comparisons with the United States. Between 1880 and 1913, its population increased fourfold to eight million, nearly half the increase being due to immigration. Its production of cereals grew by forty times. In 1913, it was by far the world's greatest exporter of maize. It became a major supplier of frozen meat and the second largest producer of wool. Its railway network by 1910 covered more than 17,000 miles of line
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and was still growing rapidly. The maize and wheat lands west of Buenos Aires were crisscrossed by the densest railway system in South America. By 1913, Argentina had long since overtaken Brazil as Britain's main trading partner and dominated British trade with the continent. Not surprisingly, this exceptional growth and the close commercial tie with Britain were reflected in the volume of British capital directed to the country. In 1880, British investment had stood at £20 million; a decade later at £157 million;
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and by 1913 at £360 million – as much as in India. More than half this sum had been placed in the railway system, the key to export-led growth. The Buenos and Great Southern, the Buenos Aires and Pacific, the Central Argentine, the Western, the Central Cordoba and other British lines made up 70 per cent of Argentina's network.
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After 1900, the Southern returned a consistent dividend of 7 per cent.
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The railway companies were also linked to docks and harbour companies and to shipping lines. Other British capital went into water, gas and tramways. And, by the late nineteenth century, British banks like the Bank of London and South America dominated the finance of trade.

The British stake in Argentina's development was huge. But, both there and elsewhere in Latin America, it was based on a tacit accommodation with local elites. Even in Colombia, a congressman could urge that ‘we…offer Europe raw materials and open our ports to manufactures to facilitate trade and the advantages it brings’.
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The ‘open economy’ favoured the political, commercial and cultural aspirations of a dominant landed class, nowhere more so than in Argentina where
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supremacy had been consolidated in the pampas war against the Indians – the sordid prelude to the economic miracle. Import substitution occurred and capital was accumulated locally. But any deliberate policy of large-scale industrial development faced insuperable difficulties in the transitional phase. It could hardly be undertaken without the protection of tariffs. But tariffs would produce a slackening of trade, reducing exports and foreign income. The inflow of capital would tail off threatening an adverse balance of payments and destabilising the whole economy and its fragile superstructure. Hence, while development ‘towards the interior’ had its advocates and appealed to important local interests, they were rarely strong enough to challenge the agrarian class and its commercial allies before 1914.

Even so, in a region of such rapid economic and social change, where political institutions were relatively weak, foreign interests could not escape the side-effects of instability and sometimes faced frontal attack. The Peruvian Corporation representative in Lima, Clinton Dawkins, complained bitterly of breaches of the 1890 agreement under which the loan default was being paid off: the Peruvian president was ‘bestially stupid’.
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With its guano running out, its nitrates lost and silver's value in steep decline, Peru was going to ruin ‘not by degrees but by sheer strides’.
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In Chile, the civil war of 1891 threatened British nitrate interests with a government take-over. In Brazil, political upheaval in the 1890s and a policy of industrialisation choked off foreign capital and wrecked the exchange rate.
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Worst of all was the great crisis of 1890 in Argentina. Reckless over-investment by the great banking house of Barings crashed into the reckless inflation of its paper currency by the Argentinian government. As Argentina's ability to meet its fixed payments on railway and government loans (payable in gold not paper) came into question, panic spread in London about the value of British holdings, the solvency of Barings and the stability of the City's whole enormous stake in international lending.
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The instinct to punish default by diplomatic intervention and a blockade of cruisers had not entirely disappeared, but on the British side it was widely recognised as clumsy and inappropriate. Diplomatic pressure in Chile was abandoned when it was realised that local British opinion was as divided as the Chileans over the rights and wrongs of the civil conflict.
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In Peru, Dawkins (an ardent imperialist) jeered at the ‘absurd notions’ of his London board ‘about diplomatic interference, British squadrons, Johnny Atkins and all that fustian’.
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In the aftermath of the Barings crisis, Lord Salisbury curtly dismissed the idea of official involvement in a stabilisation agreement as ‘dreams’.
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In fact, political coercion was redundant, if not counter-productive. Subtler means lay to hand. The British could exploit their ‘structural’ advantages as the source of credit, capital and information.
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Nationalisation in Chile was resisted as fiercely by Chilean as by British owners.
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Elsewhere, the penalties of financial default were felt as keenly by the South American elites as by their British creditors. It meant an indefinite stoppage of new capital whose inflow had become essential not just to the growth of the export economy but to the efficient working of the export-import cycle, with its dependence on credit and its exposure to volatile price movements. Credit starvation heralded a total breakdown of the commercial economy, with a revolution close behind. Hence the focus of South American diplomacy in London in the troubled 1890s was not the Foreign Office but New Court, the Rothschild offices in the City. It was Rothschilds who negotiated the Romero agreement with Argentina in 1893,
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and a loan to stabilise the Brazilian exchange in 1898.
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For both countries, the price was a sharp deflation, and the strengthening of British-based banks and railway companies over local competitors. The adoption (or re-adoption) of the gold standard with its fixed parities by Peru (1897–9), Argentina (1899), Mexico (1904) and Brazil (1906)
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was further evidence that they were willing to accept the financial discipline imposed by the City.