The Transformation of the World (157 page)

This capacity of merchants for organization was not a Western monopoly. Trading networks also contributed to China's prosperity in the eighteenth century, ensuring an optimum division of labor among the various provinces of the empire. They also presupposed a highly developed use of writing, and rested on solidarity among people from a shared locality rather than simply on kinship ties. Certain sectors all over China were in the hands of merchants from a particular city. Commercial techniques were often very similar in East and West, with partnership a major instrument joining together capital and skills both in Europe and in China or the Ottoman Empire;
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one important difference, though, was that the state in Western Europe not only tolerated commercial capitalism but often explicitly promoted it. Outside Europe, merchant networks mostly survived into the nineteenth century and adapted to the new challenges, by no means disappearing overnight with the arrival of Western capitalism. One of their hallmarks was a close association with proto-industrial production. Many such networks—for example, the Chinese wholesale trade in cotton cloth during the second half of the nineteenth century—took care of the distribution of goods from quite different production contexts and “stages” of industrial development: household industry and early factories in China as well as imports from abroad.
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Another structural element to survive from the eighteenth century was the niches of religious and ethnic minorities spanning different countries and continents: Armenians, Greeks in the Ottoman Empire and Egypt, Parsis in India and Central Asia, Irish and Scots in the British world. Many of these groups, among which Jews were increasingly important, energetically took up the new opportunities that appeared with the nineteenth century. A growing European dominance in large parts of world trade did not prevent Hindu merchants from Sind province (in today's Pakistan) from continuing to build durable links in the Asian interior and establishing themselves as intermediaries among Chinese, British, and Russian interests. This was a specialty of the Shikapuri community. Another network, built and run by merchants from Hyderabad, resettled along the new tourist routes of the final decades of the nineteenth century and took advantage of the opportunities to market exotic textiles and Oriental handicrafts. Such groups were based mainly on kinship ties, although some of these were of a fictitious nature. They could not have been as successful as they were if they had not kept their eyes on the fast-changing markets and drawn the correct conclusions. Political borders meant little or nothing to them: they were “transnational” in their orientation.
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Crossborder trading networks were closely linked to those existing inside South Asia or China. The rise of all-Indian networks and the expansion of activity in more distant areas were just as much two sides of the same coin as were the accelerated circulation between Chinese provinces and the expansion of Chinese business ties into Southeast Asia or the Americas.
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In short, Asians and Africans were indispensable as a workforce for the new Europeanized world economy, but in many instances they also proved able to keep pace as merchants and to make the necessary adjustments. What was much more difficult for them was to break out of subordinate positions in industry and finance. By the beginning of the First World War only Japan had succeeded in these fields: its industry competed more and more with Europeans and Americans in Asian markets, and its trading and shipping companies had extended their operations far beyond their homeland archipelago.

Old Patterns, New Emphases

Between 1840 and 1913, statistics record an average expansion of world trade that had never been seen before and would be exceeded only in the “golden” postwar years of 1948 to 1971. Its value, at constant prices, increased tenfold between 1850 and 1913,
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while its volume—which had crept up by an annual average of just under 1 percent between 1500 and 1820—jumped by 4.18 percent a year between 1820 and 1870, and by 3.4 percent between 1870 and 1913.
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The bulk of international trade during this period took place among Europeans, or between Europeans and inhabitants of the neo-European settler colonies. From 1876 to 1880, Europe (including Russia) and North America together accounted on average for three-quarters of all international trade—a proportion that had changed only minimally by 1913.
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Essentially this involved exchanges between
economies with a relatively high level of income. European demand for tropical products declined slightly after the 1820s in comparison with the eighteenth century, when the attractions of sugar had been at their height. On the other hand, imports of foodstuffs and industrial raw materials from temperate regions became more important. Only in the mid-1890s did a new boom in tropical products from Asia, Africa, and Latin America get under way.

When Western import and export firms looked beyond the West, they almost invariably encountered trading structures with which they had to cooperate in order to open up Asian (and, to a more limited extent, African) markets. Before the end of the century, there could be no question of directly marketing Western products. Everywhere it was necessary to devise complicated mechanisms to mediate between different economic cultures. In Latin America too, where the cultural barriers were lower than in East Asia, European import-export houses seldom dominated a market completely and were forced to rely on the superior market knowledge and business ties of Spanish and Creole wholesale dealers. The telegraph weakened the position of the great trading houses, since less startup capital was necessary to enter a market and many smaller European or local firms (often run by recent immigrants from Italy, Spain, or elsewhere) jumped at the chance.
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It was easier if the customer was a non-European
government
, since a business deal for weaponry or rolling stock could then be negotiated directly and the risks of default were smaller, though not entirely absent.

Imports
from the future “third world” were another story. Western capital here managed to gain direct control over vital sources of production, such as plantations and mines, much earlier and more powerfully than over the marketing of its own products, so that its main dealings were not with self-confident local merchants but with a dependent labor force. The proliferation of export enclaves weakened indigenous businessmen unless they were able to gain a foothold there themselves—an eventuality that Latin America, in particular, shows to have been more common than was previously thought.
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Export production in the periphery was always a patently new type of economy, for which integration with a hinterland was of lesser importance. In the case of such “dual” structures, the insertion into an overseas network was greater than into the local “national” economy. What has rightly been called a “Europeanization”
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of the world economy in the first three quarters of the nineteenth century happened not through a uniform spread of European influence but because European firms (a) linked into trading networks already present in extra-European regions, (b) established bridgeheads for export production, or (c) restructured large frontier regions such as Australia, New Zealand, and Argentina in line with European requirements (so that the whole country became a kind of bridgehead).

In a broader perspective and going beyond the description of specific contacts, other processes were also at work in the nineteenth-century evolution of world trade: (a) the dismantling of customs barriers in Europe, the British Empire, China, the Ottoman Empire, and other parts of the world;
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(b) the
formation of new demand as industrialization and the opening of productive frontiers gradually raised income levels; (c) the creation of railroad access to new regions; and (d) the lowering of transportation costs for passengers and freight. The last of these factors is especially important. The opening of the Suez Canal in 1869 cut journey times from London to Bombay by 41 percent, while the North Atlantic passage fell from an average of thirty-five days in 1840 to twelve days in 1913. The improvement of sailing ships, followed by a smooth transition through the early steamships to ironclad vessels with efficient engines, steadily reduced the costs of freight and (to a lesser extent) passenger travel. In 1906 transportation costs per unit mass between Britain and India were a mere 2 percent of the 1793 level. At the same time, it cost only twice or three times as much to ship a ton of cotton goods from Liverpool to Bombay as it did to send them 45 kilometers by train from Manchester to Liverpool.
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The effects of this revolution were similar all over the world.

The basic connections of the nineteenth-century system of trade were in place by the middle of the eighteenth century: the North and South Atlantic was crisscrossed by permanent shipping lanes, the fur trade integrated the northern latitudes of Eurasia and America, maritime commerce between Europe and Asia stretched from the Baltic to the South China Sea and the Bay of Nagasaki, continental Eurasia was covered with trade routes, deserts were traversed by caravans and the Pacific by Spanish Manila galleons.
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Only Australasia and parts of southern Africa still resisted incorporation into global contexts. The organizational forms of trade scarcely underwent any revolutionary change until the appearance of multinational corporations in the late nineteenth century. As in the eighteenth century, individual and family businesses created extensive networks branching out into trade: for example, the Rothschild financial empire became a European player after about 1830, and Sir William Mackinnon's investment group, until its collapse in the 1890s, encompassed everything from Scottish shipbuilding to the Indian import-export trade to East African coastal shipping services.
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European and North American commercial capitalism did not sweep away existing networks, and since Western-generated commodities were not marketed exclusively by trading organizations, the exports of Western industrial economies gave a powerful boost to local commerce in many parts of the world. It even happened that Europeans were unable to gain a foothold in new and dynamic market sectors, such as the cotton or coal trade between China and Japan.
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The “rise of Asia” becomes less of a mystery if we bear in mind that the business infrastructures of East Asia have been continually developing at least since the eighteenth century, damaged but not destroyed by imperialism and, later, Chinese communism. The general market expansion of the second half of the nineteenth century created opportunities that were not taken up only by people from the West.
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So, with all the continuities from the early modern period, what was new about the commercial networks that formed in the nineteenth century?

First
. International trade in 1800 was by no means confined to light, high-value luxury products; raw cotton, sugar, and Indian textiles were already bulk goods. But only the transportation revolution, by dramatically lowering costs, made it possible to ship products such as wheat and rice, iron and coal, on such a scale that they dominated world trade in value terms too. High returns in early modern commerce were often due to a lack of competition in the destination country: tea in 1780 came only from China, sugar almost exclusively from the Caribbean. Eighty years later, long-distance shipping was worthwhile also for goods that could be produced in many different places. The great ports received products from literally all over the world; “natural” monopolies, not conferred by the state, were much fewer in number, and this meant that competition was considerably greater.
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Second
. Without the factor of mass transportation, the quantitative soaring of intercontinental trade by both value and volume would remain inexplicable. Only with the record growth of freight in the 1850s, and again between 1896 and 1913, did external trade become crucially important for numerous societies and have an impact on living standards well beyond the rich. This expansion went hand in hand with market integration, apparent from the increasing convergence of international commodity prices. Before 1800 there was virtually no systematic relationship in price formation on opposite sides of an ocean. The picture changed enormously in the course of the nineteenth century as price levels began to match each other more and more closely.
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Three-quarters of this was attributable to falling transportation costs, and one-quarter to the elimination of tariff barriers.
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Market integration did not always conform to political boundaries: Bombay, Singapore, and Hong Kong, for instance, were integral parts of the
British
overseas economy. There, prices were more in line with London's than with those in their own Indian, Malayan, or Chinese hinterland.

Third.
Since many of the shipments between continents—from raw cotton and iron to palm oil and rubber—ended up as industrial inputs, commodity chains now became more complicated. Additional processing stages inserted themselves between primary producer and end user.
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The lack of mature industries in Asia, Africa, and Latin America also meant that value creation became more strongly concentrated in the leading industrial countries. Whereas early modern Europe had imported finished products from overseas (fine cotton towels from India, tea and silk materials from China, ready-to-use sugar from the Caribbean), processing now took place mainly in the metropolitan countries. It was there that cotton was machine spun, raw coffee roasted, and palm oil converted into margarine or soap. Indeed, some of these goods were then shipped back to be sold in the country that had produced the original input: cotton goods to India, for example.

3 Money and Finance