Book Report: Economics and World History, Myths and Paradoxes

I’m a little more than halfway through Paul Bairoch’s Economics and World History: Myths and Paradoxes. I wanted to organize his major findings on the history of industrialization into two sets and put them together to draw out some larger observations.

In the discussion below, “developed” = industrialized, as in Europe, Russia, US, Canada, Japan (at least from the late 1800s on), and Australia. “Third World” includes all other countries up until the late 20th century. By the end of the 20th, China, Brazil, India, South Korea, and Singapore all move out of this category to varying degrees.

Set one: The history of Western industrialization

  1. Britain was the first to industrialize and had a nearly 150 year head start on most of Continental Europe by the early 1800s.
  2. Nearly all industrializing countries developed under strong protectionist measures, though the level of protectionism varied over time and location. A few small nations filled free trade niches.
  3. A strategy to maximize gains from development is for the leading industrial power to switch from protectionism to free trade and encourage its less developed competitors to adopt free trade as well.
  4. Britain’s enormous head start led it to push for free trade in Europe by the 1800s. It succeeded for a brief window from 1860 – 1880, but other Continental powers eventually went back to more effective protectionism.
  5. This free trade period is coincident with an economic depression in Europe, though causation is not completely clear.
  6. The US consistently had very high tariffs on imports, generally the highest of all developed countries, right up until the end of WWII. It switched to free trade in the post-war era in order to maximize gains from its position as “leading industrial power,” much like Britain in the pre-war era.
  7. Historically, the US tended to grow fastest when it had higher tariffs and its competitors engaged in free trade.
  8. Industrialization among the Western developed countries was achieved largely with materials and energy from the developed countries. Some numbers are warranted:

“Therefore, on the eve of World War I when the developed world already had a volume of per capita manufacturing production some seven to nine times higher than that of the world in 1750, 98% of metal ores used by the developed countries came from the developed world; 80% of its textile fibers; and, as we have seen, over 100% of its energy [due to next exports to the Third World]. In terms of the volume of the rest of raw materials (such as those used in glass, cement, paper, and clay industries), the degree of local autonomy was over 99%.

…As a very approximate estimate of the self-sufficiency of the developed countries during the 1800 – 1913 period I would suggest 96 – 102% (the upper figure implying some room for export).”

  1. Enormous imports of raw materials from Third World countries into developed countries is a post-WWII phenomenon in all but a handful of cases.
  2. Europe was likely just as poor as the Third World when it began to industrialize. It had little or no inherent advantage in resources.
  3. Colonialism was made possible by the Industrial Revolution, not the other way around.
  4. Colonial empires tended to grow slower than other developed nations, probably because they diverted more resources to administration, the military, and trade with less developed areas.

Set two: Impacts on the Third World

  1. The Third World had free trade imposed on it by the developed world powers and was not allowed to protect its markets from imported goods. In a few cases (e.g. the Ottoman Empire), free markets were already-existing state policy, and these polities still tended to do poorly.
  2. Up until 1938, the total volume of production exported by developed countries to Third World markets was approximately 1.3 – 1.7% of total developed world production, with Britain as an extreme outlier at 4 – 6%. If measured as a fraction of total exports, the average was around 17%. Half of this (9%) was exports from Britain to its colonies, the remaining half was from all other developed nations combined.
  3. The effects of just a few percentage points of total production being exported to a forcibly non-protectionist Third World were devastating. A tiny portion of a vast market is capable of destroying a vast portion of a tiny market.
  4. Subsequent deindustrialization of the Third World resulted in a loss of roughly 70% of its total industrial capacity from 1750 to 1913. More remote regions, especially in China, “only” suffered about a 40% loss, while others lost upwards of 95%.
  5. Exportation of cash crops from the Third World to developed countries increased greatly while deindustrialization took place, leading to poorer land for food crops, export of profits (foreign-owned plantations backed by militaries), and loss of political rights as local and foreign elites sought to profit.
  6. Colonization brought immense population growth in some Third World areas, but concomitant industrialization to support this population was not allowed to happen.
  7. The combination of forcibly open markets, deindustrialization, intensified cash crop exports, and large population growth essentially destroyed the welfare of the Third World. Standards of living in these countries in 1950 were lower on average than in 1800. It is only in recent years, with the ascension of China, Brazil, South Korea, India, and others, that living standards have begun to catch up a little.

Observations

Bairoch himself notes that what happened to the Third World wasn’t necessary, not even on “greater good” utilitarian grounds. There was no greater good to the devastation. On the one hand, it is a relief that industrialization can occur without necessitating the exploitation of an enormous hinterland for resources. On the other, we see the horror of what can happen when more technologically advanced and organized societies exert just a small portion of their energies toward exploiting their weaker neighbors.

The Third World absorbed only a very minor portion of the developed world’s total output but was conquered and economically destroyed by it. It’s exposure to only a small fraction of developed world markets did this, and it was kept from adapting by the owners of those same markets. The developed world was mostly self-sufficient up until the two world wars. Forays into the Third World were for political aggrandizement, power politics, and the enrichment of a few countries (*cough* Britain *cough*) and a few well-connected sectors within those countries.

This provides some new perspective on the Native American genocide in North America as well. If I may borrow from Jared Diamond, in places without exposure to the germs of Europe and without the same level of urbanization to breed their own “supergerms,” plague was the first and major impact. This was then followed up by direct military confrontation and displacement of the weakened and reduced populations. It’s easier to justify the confiscation of an entire continent if there aren’t so many people living there to protest in the first place. Germs paved the way for aggressive military expansion and eventually complete replacement.

In parts of the globe that already had some contact with Europe and had a long tradition of dense settlements, plagues had a smaller effect but economic imperialism enforced by overwhelming military superiority carried the day. The destruction of these other regions still only required a small fraction of the developed world elite to want to turn Third World societies into their own private cash cows and playgrounds (e.g. the Belgian Congo). However, minus the biological warfare capability of Europe that presented itself in North America, the populations in these other regions largely survived even if the more sophisticated portions of their political economies were heavily damaged or destroyed.

Bairoch’s research shows that industrialization occurred thanks to protectionist policies in most countries, and that free trade is typically used by more industrialized countries to exploit less industrialized ones. More advanced countries typically produce more and better goods, so removing import barriers in other countries allows their superior products to beat local products and their superior numbers to flood the market. However, superior free trade countries are themselves making a trade-off, as once they “win” in some subset of foreign markets they end up with high profits but low motivation to improve. They can become complacent monopolists and slowly lose their edge over other countries that have not opened up to them and which have been actively catching up.

That is not to say that free trade must always used in this manner, as relatively equal countries could probably engage in it and not suffer. Countries such as the Netherlands did well under free trade regimes, but they are small and fill more of a niche role in the global economy. Even Britain, the champion of free trade in the 1800s, benefited from protectionist policies for well over a century prior. To borrow from Erik Reinert and The Other Canon, trading partners should be as equal as possible, and any trade between more advanced and less advanced areas must be performed very carefully or not at all.

I also can’t help but think that the Third World as portrayed by Bairoch has many parallels to Jane Jacobs’ observation about what happens when city capital, markets, etc. reach out into less developed supply regions unequally. Jacobs theorizes that there are a handful of economic forces that cities exert on their rural hinterlands. When in balance, this hinterland becomes absorbed into a larger “city region” and prospers. When unbalanced, when only a few of these forces function correctly or at the right time, the hinterland is impoverished, depopulated, or otherwise warped and the city simply expropriates from it rather than absorb it. While it wasn’t necessary for the developed countries to interact with the Third World as they did, they seem to have exhibited similar dynamics. Since cities are where manufacturing and technological development happens, one could recast the developed nations as alliances of cities under larger political banners, reaching out into the global hinterlands. But I suspect that much of this outreach was promoted not by the cities themselves but by the larger state political apparatus and high-level industrial elites, leading to forced and premature interactions characterized by exploitation and power-seeking rather than mutual trade, and ending in warped economies and societies around the world.

This book was written in 1993, and its curious to note that China hardly rates a mention in the present tense. It has, by page 111, thus far only been referenced in the colonial period and further back. This is a clear reminder that in only the last 20 years (roughly 1995 – 2015), China has gone from “economically depressed Third World country that might be on a bit of an upswing” to “second largest economy on the planet and rapidly gaining on the US.” The time to industrialize, even for a country of 1 billion people, has shrunk from centuries to a few decades. Industrialization is a self-reinforcing process—the more capacity to produce that is out there, the faster capacity to produce can be developed. It is a problem with a known solution set, though it does give rise to further problems that are remain unsolved.

Finally, the post WWII period saw an increase in the exploitation of resources in the Third World by the developed world, with some moderation starting in the 1980s. I don’t mean to downplay the tragedies and horrors of the colonial period from 1750 to 1950, but it appears that in terms of control and exploitation of foreign resources, the developed world must be worse today than it was at the height of imperialism. Perhaps WWII created a system of international bodies that replaced direct state/empire ownership and allowed the people of the developed regions to increase the use of corporate or indirect ownership and exploitation. This may be related to the trend, since the late 1960s in the US at least, of abrogating political power to distribute wealth to “the market” as a means to justify unpalatable policies via impersonal “market forces.” From the point of view of global elites, it’s more efficient for people to believe in the power of markets, that the world just works a certain way, instead of having them believe it’s forced on them by overt state power backed by wealthy and well-connected individuals.

In the final analysis, the post-WWII period has been dominated by a free-trade advocating, hugely militarized superpower that oversees an international system of extraction that exceeds the colonial period in volume if not in brutality. This superpower advocates freedom, democracy, human rights, and development, while perched atop a system that actively suppresses them.

The net loss to human developmental potential was bad enough from 1750 – 1950. Since then, it has been staggering.

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