Growth of the International Economy, 1820-2015

Michael Graff, A. G. Kenwood, A. L. Lougheed

• Publisher: Routledge
• Year: 2013
• ISBN:
  9781135010645
• Edition: 5
• Topic: Negocios y empresa
• Subtopic: Negocios en general

Kenwood and Lougheed's classic book has been the benchmark introduction to the development of the global economy for decades. For this fifth edition, Michael Graff has brought the story up to date to include events from the early part of the twenty first century – continued globalization, the emergence of Asia as an economic power and the greater role played by business on the international scene.

Beginning with the industrial revolution, the book charts the long nineteenth century, the impact of colonialism, the fast pace of technology growth and the impact of global wars. New features to this edition include:

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• a prologue explaining the initial conditions faced by the world economy in 1820, detailing the beginnings of international trade and the influence of slavery

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• greater coverage of developing countries

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• increased coverage of World Wars I and II and of the twentieth century

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• a number of appendices outlining the economic concepts and theories underlying the text

This new edition of Growth of the International Economy provides the reader with a clear understanding of the factors which have been instrumental in creating the economic environment we face two hundred years after the industrial revolution.

The causes of the growth of the international economy in the nineteenth century

DOI: 10.4324/9780203744444-3

The causes of the growth of the international economy in the nineteenth century

DOI: 10.4324/9780203744444-4

To understand why a truly international economy first evolved during the nineteenth century, it is necessary to examine the economic, technical and other changes which were responsible for the massive expansion of capital movements, migration and foreign trade that occurred during these years. For it was through these flows of money, people and goods that countries hitherto economically independent were fused into the international economy.

Technological Progress: Industry and Agriculture

The Industrial Revolution, which began in Britain in the late eighteenth century and spread first to the European continent and then to the US during the nineteenth century, and later to Japan, enormously increased the opportunities for trade between countries, for the new technology presupposed a wide variety of resources and an expanding market. But except for a few favoured countries, such as the US, most industrializing nations during the nineteenth century had to look outside their own borders for markets in which to sell the surplus output yielded by modern industry, and for the additional supplies of raw materials that were needed when domestic production of these inputs failed to keep pace with rising industrial demand. A similar situation arose in the new centres of primary production overseas, where the use of modern farming techniques produced agricultural surpluses for which markets had to be found abroad. At the same time, the apparatus of improved farming often had to be imported, along with the transport equipment necessary to the opening up of new areas of primary production.

Success in the search for foreign markets for manufactured goods depended very much on whether the new techniques resulted in a new product or in the cheapening of an existing one. Obviously, trade in a new product will grow fastest when many countries are unable to produce it for themselves but want to consume it. For this reason, the rather limited spread of industrialization before 1913 must have given a powerful impetus to the growth of trade in industrial goods during the nineteenth century. On the other hand, where innovation involves the cheapening of old goods the effects on trade are often less clear. Thus, foreign trade in cheap machine-made articles often increased at the expense of trade in hand-made substitutes. This happened with British cotton textiles and Indian calicoes during the late eighteenth and early nineteenth centuries, though on balance the revolution in textile manufacturing that occurred in Britain at this time led to a net increase in the volume of cotton goods traded internationally. In other instances, however, where, for example, synthetic substitutes for natural products were discovered, a decline in trade could result from the introduction of the technical improvement.¹

Taken generally, however, technical progress in the nineteenth century tended to be pro-trade biased. Innovation was widespread, and the opportunities for trade multiplied accordingly. Before 1870, the important innovating industries were textiles (especially cotton) and iron, with steam the new source of power. After 1870, the focus of technical change began to shift, as increasing emphasis came to be placed on the production of steel, machine tools, electrical engineering products and chemicals. Electricity emerged as a new form of energy, and the internal combustion engine as the basis of a new means of transport. The outcome of all these developments was a flood of new goods, including railway equipment, steamships, steel and electrical products, plant and machinery of all kinds, and a growing variety of other manufactured products. In addition, many of the articles already traded internationally became cheaper, especially cotton cloth. The result was a rapid expansion in foreign trade in manufactures.

Part of this trade in manufactures was necessarily of a temporary nature, since it was linked with the spread of industrialization. For, while technical progress in the form of new or cheaper goods undoubtedly favours trade, the diffusion of technology, by encouraging imitation in production and the substitution of domestically produced goods for goods previously imported, tends to be biased against trade. Within a limited area, the diffusion of the Industrial Revolution that began in Britain was fairly rapid. By 1850 it had penetrated into France and Belgium; Switzerland and Germany would follow soon. By 1900, it had reached the US, Scandinavia, Russia and Japan. In certain lines of foreign trade — for example, textiles and clothing — the trade-reducing effect of technical diffusion soon became apparent. On the other hand, the spread of industrialization may have increased the world innovatory capacity, and there is some evidence of shifts in innovatory capacity occurring after 1870 from Britain to Germany and the US. If increased innovation meant fresh opportunities for trade, shifts in the centre of innovatory activity were obviously important in influencing the geographical pattern of world trade.

In short, despite the spread of industrialization, nineteenth-century technical progress tended, on balance, to favour the expansion of world trade, while at the same time bringing about changes in the direction and composition of trade between countries.

Besides providing expanding opportunities for the international exchange of manufactured goods, modern industrial technology also created increased opportunities for trade in raw materials. In the early stages of the Industrial Revolution, when textile production expanded rapidly, and machinery continued to be constructed largely of wood, agricultural raw materials dominated these exchanges, especially raw cotton and timber. Later on, however, as industrial technology continued to evolve, manufacturing industry came to rely more on minerals and relatively less on agricultural raw materials. This growing industrial dependence on mineral resources was reflected both in a widening of the range of minerals for which an industrial use was found and in the development of mass consumption of a few of them. While the output of coal and iron ore increased substantially throughout the nineteenth century, after 1850 the output of other metals, such as copper and zinc, grew even faster, and other previously little-used minerals such as petroleum and aluminium had achieved a considerable economic importance by the beginning of the twentieth century.

As industrial growth accelerated in the last quarter of the nineteenth century, the consumption of raw materials increased phenomenally. Between 1880 and 1913, petroleum production doubled every 8.6 years, copper every 13 years, pig iron, phosphates, coal and zinc every 15–17 years, and lead and tin every 20 years. In the circumstances, the tendency to exhaustion of the more readily available supplies of less common metals and fuels was to be expected, and their costs of production rose accordingly. In the search for new and cheaper supplies of minerals that followed, the US emerged as a major producer, capable of supplying not only most of its own needs but also of providing a surplus for export to other industrial nations. Russia, too, possessed great, though widely dispersed, mineral resources, and Canada, South Africa, Australia, Chile, Malaya and a number of other countries emerged as other important mineral producers. Indeed, a feature of the growth of world mineral production during these years was the constant shifting of the centre of world supply of these materials from one region to another. Such shifts were recorded for various minerals, including copper and iron ore, and for precious metals, such as gold. Quite obviously, these production shifts had important repercussions on the pattern of world trade, and they also exerted a significant influence on the international flows of labour and capital before 1914.

A similar situation to that found in mineral production developed in agriculture when the spread of industrialization and the rapid growth of population brought about a phenomenal increase in the demand for foodstuffs and agricultural raw materials, a series of shifts in the geographical sources of supply and, consequently, great changes in the volume and commodity structure of foreign trade. Simultaneously, technological progress and the opening up of new regions cheapened many agricultural products and provided conditions under which mass markets could be supplied with many items formerly classified as luxuries. More and better farm implements and machinery, the use of chemical fertilizers, improved stock-breeding and new methods of checking plant and animal diseases all made significant contributions to the growth of agricultural output. Many of these innovations originated in Europe and eventually diffused to countries overseas. Others were developed in the new farming regions themselves, where labour shortage, drought, short growing seasons and other problems called forth fresh invention and innovation to deal with them.

The growing demand for tropical products, which accompanied industrialization and the rise of real incomes in Europe and North America, led to a rapid expansion of plantation agriculture in the period after 1850. In the old established areas of European enterprise, the growth of output was achieved primarily by the more efficient use of an abundant labour force. Elsewhere, it was obtained either through improvements in peasant farming or through the spread of the plantation system, which brought with it better farming methods, higher-yielding plant strains and the greater use of machinery, particularly in the preliminary processing operations. The plantation system also encouraged the introduction of new crops. Rubber trees, for example, were introduced into Malaya from Brazil in 1877. Rubber cultivation spread rapidly from there to the Netherlands East Indies and French Indo-China, and by the end of the century Southeast Asia had become the chief source of the world supply of natural rubber. In contrast to rubber, the centre of world coffee production shifted in the opposite direction, from Asia to Latin America, following the emergence of Brazil as the world's greatest coffee-producing country. Rice, sugar, tea, tobacco and cotton production were similarly affected by these production shifts as their output grew in response to the expanding demand for primary products in industrial Europe and North America.

Technical Progress: Transport and Communications

Through cheapening and speeding up the movement of goods and people, improved transport and communications played a vital role in the growth of the world economy in the nineteenth century. By promoting the exchange of a growing volume of goods; by expanding markets, as well as opening up new sources of supply of many products; by permitting the concentration of certain types of production in fewer centres, thereby encouraging specialization and assisting the realization of economies of scale; and by allowing a greater interregional flow of people and capital, the new forms of transport and communications made possible the growing economic interdependence of the whole world which is so remarkable a feature of nineteenth-century economic development. Moreover, by making possible a significant relocation of economic activity throughout the world, transport improvements contributed substantially to the rising productivity that lay behind the growth of real incomes in the world economy during these years.²

Table 1.1 Railway routes (in ′000 kilometres), 1840–1910

	1840	1870	1910
Europe	4.2	105	341
North America	4.5	89	428
Latin America	0.2	4	98
Asia		8	96
Africa		2	37
Oceania		2	31
World	8.9	210	1,031
Sources: Woytinsky and Woytinsky (1953, p. 341); Woodruff (1966, p. 253).

Of these improvements, the application of steam to land and sea transport was of critical...