Z: **Archived**: Political Economy 101: Notes: Slouching Towards Utopia 7.7: The World in 1900: Colonization

Colonization

What effect did this enormous expansion in world trade have on standards of living across the globe?

Some believe that the explosion in world trade (and in international migration) put substantial downward pressure on the wages of labor in the labor-scarce land- and resource-rich parts of the periphery (North America, the southern cone of South America, Australia and New Zealand), gave a boost to real wages in labor-abundant Europe, and raised the returns to owners of capital on both the periphery and in Europe–in Europe because the development of international capital markets allowed European owners of capital to take advantage of high rates of profit on the capital-scarce periphery. Yet the proxies for economy-wide real wages assembled by O’Rourke, Taylor, and Williamson do not suggest that workers on the western, peripheral side of the Atlantic lost relative to workers in northwest Europe. American, Canadian, and Argentinian real urban worker wages appear to have grown at 1.0, 1.7, and 1.7 percent per year in the years leading up to 1914–compared to growth rates that averaged 0.9 percent per year in northwest Europe. Only in Australia, where real wages seemed to stagnate in the half-century before 1913, does the logic of economic theory seem to hold: only there does increased trade appear to erode the relative wages of workers in a labor-rich economy.

Outside of the North Atlantic economy the wage-raising impact of expanded international trade and migration on labor-abundant economies is even harder to see. In India and China there were no increases in real wages. And in countries to which workers from India and China were allowed to migrate–whether Malaysia, Kenya, or South Africa–increased potential competition seems to have been assoicated with stagnant or falling real wages in the late nineteenth century as well.

It is understandable that China, India, and the other regions of what would become the post-World War II third world did not produce and export the relatively high-value commodities like wheat and wool exported by temperate settler economies: agricultural productivity was too low, and climate was unfavorable. It is understandable why–with heavy downward pressure put on wages in Malaysia, Kenya, and Colombia by migration and threatened migration from China and India–the prices of the export commodities that they did produce were and remained relatively low.

What is more puzzling is why industrialization did not spread much more rapidly to the future third world in the years before World War I.

After all, the example of the industrial core seemed easy to follow. Inventing the technologies of the original industrial revolution–steam power, spinning mills, automatic looms, iron- and steel-making, and railroad-building–had required many independent strokes of genius. But copying the technologies did not, especially when you could buy and cheaply ship industrial capital goods made in the same New and Old England machine shops that supplied the industries of England and of America.

As industries in the industrial core became more and more mechanized–more and more characterized by mass production–they should have become more and more vulnerable to foreign competition from other, lower wage countries.Throughout the twentieth century, the U.S. had the highest wage level in the world; inside the U.S., Þrms devoted immense time, energy, and thought to redesigning their production processes so that lower-skilled, and lower paid, workers could replace highly-skilled craftsmen. One would think that manufacturing would have fled the United States. If Ford can redesign production so that unskilled assembly line workers do what skilled craftsmen used to do, why can’t Ford also--or someone else–redesign production so that it can be carried out by low wage Peruvians or Poles or Kenyans rather than by Americans, who are extraordinarily expensive labor by world standards?

Industries do migrate, but they have done so surprisingly slowly in the twentieth century. One reason is added risk: political risk of all kinds tends to make investors wary of committing their money in places where it is easy to imagine political disruptions from the left or the right. Moreover, there are substantial advantages for a Þrm in keeping production in the industrial core, near to other machines and near other factories making similar products. It is much easier to keep the machines running. A reliable electric power grid is much more likely to be found in the industrial core. And so are the services of specialists needed to Þx the many things that can go wrong: minimum efÞcient scale for an industrial civilization can be far larger than the apparent minimum efÞcient scale for a plant.

Certainly attempts to industrialize in what is now the third world in the early (and, save for Japan, the late) nineteenth century were not successful. The machines could be bought, shipped, and installed. The domestic market could (in some cases at least) be protected to provide captive consumers to pu the products of industry. Managers could be found. Yet in Egypt, in India, in Mexico–even in Italy and in Spain–attempts at the periphery to copy what was going on in the industrial core were unsuccessful.

But we still understand far too little about why the pace of technological diffusion out of the industrial core was so slow back before World War I: why "peripheral" economies did such a good job at specializing in plantation agriculture for export, and such a bad job at creating modern manufacturing industries.

Gregory Clark has counted the staffing levels–how many operatives for each machine–at textile firms worldwide early in the twentieth cenury, and found enormous differences in how many workers watch, operate, and maintain the same machine across countries and continents. It is not that places where labor is abundant use the same machines more efficiently: it is that it appears to take many times the workforce to achieve the same level of machine performance. Workforces in the industrial core appear to have an acquaintance with machines and how they work, which was very, very hard to duplicate in the periphery. It is as if one’s social capital allows an economy to overleap one or perhaps two stages of technological development, but no more: and the gap between the quality and sophistication of machinery needed to be competitive in the late nineteenth century and the largely-handicraft traditions of the periphery appears to have been just too large.

The World Textile Industry, 1910: Weekly Wages and Staffing Levels

Country or Region

Weekly Wage (Dollars)

Looms per Worker

Ring Spindles per Worker

New England 8.8 2.97 902 Canada 8.8 2.53 750 U.S. South 6.5 2.65 770 Britain 5 2.04 625 Germany 3.8 1.28 327 France 3.7 1.11 500 Switzerland 3.7 1.4 450 Austria 2.8 1.24 403 Spain 2.7 0.91 450 Mexico 2.6 1.15 540 Russia 2.4 1.1 450 Italy 2.4 0.88 436 Portugal 1.72 0.88 384 Egypt 1.69 0.81 240 Greece 1.38 0.46
Japan 0.8 0.53 190 India 0.78 0.5 214 China 0.54 0.48 168 Peru 1.17 391 Brazil 0.88 527

Europe's seventeenth and eighteenth century overseas empires also had an economic component: obtaining a near-monopoly of the tobacco or the slave trade, or conquering the sugar-growing islands of the Caribbean, could boost mercantile prosperity.

But by the nineteenth century little was needed in the way of luxuries that could not be made more cheaply in the industrial core of the world economy, and little was to be found in raw materials from further extensions of European empires. Yet the nineteenth century saw the European great powers complete their conquest of the world.

Europe's sixteenth century overseas empires, in Latin America, in the Philippines, and in the spice islands of Indonesia, had firm economic rationales: in the words of the chronicler of the Spanish Conquistadores, Spain's warriors conquered the New World "to spread the word of God, and to get rich." Control over the high-value low-weight luxury goods of East Asia, or over the precious metals of Latin America, could make individuals' fortunes and provide a healthy boost to any early modern European royal treasury. Europe's seventeenth and eighteenth century overseas empires also had an economic component: obtaining a near-monopoly of the tobacco or the slave trade, or conquering the sugar-growing islands of the Caribbean, could boost mercantile prosperity.

In the last years before World War I, only Ethiopia, Siam, Persia, Afghanistan, the Ottoman Empire (the core of which is now Turkey), China, and Japan could claim to be neither a colony nor an ex-colony of Europe's great powers. The independence of all those save Ethiopia (which had slaughtered an invading Italian army) and Japan (with its junior empire of Taiwan, Korea, and scattered Pacific islands, along with large chunks of Manchuria) was heavily compromised. For in the second half of the nineteenth century it became clear that there was no part of the world in which Europeans could not--if they wished--impose their will by armed force without anything like total mobilization.

To give just example: at the battle of Omdurman in the Sudan in 1898, 10,000 soldiers of the Mahdist Sudanese regime died; only 48 British and Egyptian soldiers died. The difference was not entirely due to superior European military technology. After all, the Mahdist regime did have machine-guns, telegraphs, and mines--all bought from European suppliers. What it did not the have was the organizational capacity and discipline to make effective use of them.

The outcome was integration into the European dominated world economy, political submission--either formal or informal--to rule by European proconsuls, and what we might call "cultural contamination": the spread of European languges and European views of life around the globe. Missionaries brought European religions. Proconsuls interested in uplift brought European-style schools. Europe-originated culture, methods of administration, science, and technology began to percolate down through non-European societies as the children of the past and the members of the future elite were taught--in European languages--how "our ancestors the Gauls" had fought the Romans in the fist century B.C. European technologies percolated up through non-European societies as international investments paved the way for world trade: harbors, railroads, factories, and (most important) plantations sprung up from Bali in what is now Indonesia to Accra in what is now Ghana.

In Latin America, the U.S. helped the continent avoid a second round of recolonization. The "Munroe Doctrine" declared that the U.S. would oppose any attempt to impose European rule on the former Spanish colonies, and it served Britain's interest to use the British navy to support the formal independence of Latin America. (During the U.S. Civil War of 1861-1865, however, the French did attempt to set up a Mexican empire under a client Austrian prince). But toward the end of the nineteenth century United States politicians began to exert U.S. influence in Latin America, not just to bar potentially-hostile European powers from having American colonies. The aim was "to teach the Mexicans [and others] to elect good men," in the words of President Woodrow Wilson. Steamships and the rise of American interest in Asia made the United States government much more sensitive to central America: one consequence was U.S. intervention in Colombia, triggering the secession of a piece of the country, the establishment of the independent republic of Panama, and the Panama Canal.

After a brief aggressive war against Spain, Puerto Rico and the Phillippines became U.S. possessions at the turn of the century. Cuba gained an "independence" that guaranteed the U.S. a right of intervention. The U.S. provoked the break-up of Colombia in order to create an independent Panama in which to build a canal, established a protectorate over panama, and placed the canal zone itself under U.S. administration. U.S. interventions in Cuba and the Dominican Republic were frequent; the marines landed in Nicaragua in 1912, at Vera Cruz in Mexico in 1914, and in Haiti in 1915.

The expansion of european empires was coupled with a willingness to hand over power over local affairs to locals--to white locals. Canada gained its substantive independence from Britain with the granting of "Dominion status" in 1867, nearly two decades before the completion of the Canadian Pacific Railroad in 1885 made "Canada" as an economic unit even possible. The various British colonies in Australia were gathered into the self-governing Commonwealth of Australia in 1901. Self-government for New Zealand followed in 1907. And the Union of South Africa was established with Dominion status in 1910, even though the majority of the white population of the newly-established Union had been at war with the British Empire only a decade before.

South Africa is of special interest as the point of closest contact between the first and the third world--a region that was half settler colony (like Canada or Australia) and half colonial possession (like Nigeria or India). After the end in 1815 of the Napoleonic Wars that began the nineteenth century , Great Britain retained as a strategic asset the former Dutch colony at the southern tip of Africa, the Cape of Good Hope. The British navy saw control of the Cape of Good Hope as an important safeguard for communications with British-ruled India. The Dutch monarchy did not mind--or at least did not object. The Orange dynasty was being returned to power in a much stronger position (as Kings of the Netherlands rather than as "stadtholders" of each of the individual provinces), was protected from future French interference by a British and Prussian alliance--and was allowed to annex what is now Belgium as well.

After 1815 British colonists began to arrive in the Cape Colony. The response of the Dutch-descended Boers to this gorwing influx of foreigners who could talk to the rulers sent out from London was to leave: to move north across the Orange River outside of the British Empire in 1835, to found the Orange Free State. Once in South Africa, the British began to expand: their annexation of the neighboring Natal triggered another exodus of Boers to the Transvaal north of the Vaal River. Zulu kingdom of Shaka. Attempted annexation of the Transvaal Republic in the late 1870s. The Xhosa, the Zulu, and other kingdoms on the ground and in the way of the British expansion put up some resistence: the Zulu kingdom even annihilated a British battalion and mauled a second at the battles of Rourke's Drift and Islandhwana, thus doing even better against the advance of European settlers and their armies than the Souix at the Little Bighorn. An attempt to annex the Transvaal in the 1870s was abandoned when London contemplated the difficulties of maintaining effective rule over a hostile population of European-descended and European-armed farmers.

But the calculus changed when gold was discovered in large quantity in the Transvaal in 1886. The result was a huge influx of miners and speculators. Johannesburg grew in a few years to a city of 100,000--the largest city in Africa south of the Sahara. Railroads were built to transport gold to the coast, powerful pneumatic tools were installed to crush gold-bearing rock, a complicated high-technology advanced chemicals industry was built to extract gold from the rock, for although South African gold deposits were vast they were too low-quality for mining to be possible without the most advanced chemisry of the late nineteenth century. Gold made the interior of South Africa important to Europeans, the swallowing-up of the rest of Africa by European colonial powers made British geopoliticians anxious to cement control over the Cape.

British officials on the spot in South Africa provoked the Boer War in 1899. A quarter of a million British soldiers were sent to South Africa. Defeated in open battle, the Boers turned to guerrilla warfare. The British responded with the twentieth century's first concentration camps. Mao Zedong was to remark that a successful guerrilla army is like a school of fish: they must learn to swim in the sea of the people. The British at the turn of the century knew how to fight such a guerrilla army: dry up the sea in which they swim by bringing the population into "concentration camps" where they can be monitored and watched. It is effective--even though the "concentrated" civilian population dies of disease at a relatively rapid rate, and even though it impoverishes the country.

The possibility of a British defeat simply did not exist. A peace treaty ending the war was signed in 1902, annexing the two Boer republics to the British Empire. But control over the newly-conquered South Africa by proconsuls set by London or by British-speaking colonists was relatively brief. By 1906 Boer-centered political parties had won control over the Transvaal provincial legislature. 1910 saw the establishment of the Union of South Africa as a self-governing dominion, with equality for Afrikaans and English as official languages.

A millennium from now, historians are likely to judge the British and Dutch-descended colonists of South Africa less harshly than the settlers of North America, of the Argentine pampas, or of Australia. They will be struck by the--relatively only--mercy shown by settlers in South Africa to the indigenous population. In North America the standard treatment of the Cherokee, the Souix, the Pequot, and many others was to expel them by force from land that white settlers might want, to concentrate them on reservations, and to give them smallpox-infected blankets. In Australia the standard treatment of the Aborgines was to massacre them. There are no survivors from the indigenous population of Tasmania. What the Boers and English colonists of South Africa did was first to fight, and then to employ the Xhosa, Zulu, Swazi, Matabele, Basuto, and others.

Perhaps the difference was that the aborigines in Australia and the Indians in the United States were simply not very useful as employees in the land-intensive, capital-intensive agriculture of the New World or of Australia, while African employees were very useful indeed in the mine- and transport-based relatively industrialized gold-centered South African economy of the turn of the century. Perhaps the difference was that Africa was always connected by land to Eurasia, and so the coming of Europeans bearing their diseases did not have the catastrophic consequences for indigenous populations that it had in the Americas or Australia. Perhaps the difference was that the Boers who settled South Africa were a more moral people than the American or the Australian settlers.

Asia

From the beginning of the nineteenth century, the British had effective control of India. The conquests (largely with Indian armies) that made the British the dominant power in India in the eighteenth century had been carried out on a shoestring, under the formal authority of a trading company: the British East India Company. Yet from that base British military operations in the nineteenth century were largely mopping-up operations: small wars against Indian powers that had no chance of assembling the resources to match the British-controlled forces in India.

Possession of India gave the British an immense interest in Egypt. Control over Egypt, and the link between the Mediterranean and the Red Sea, could cut several months off of the time needed to travel to or communicate from London to the centers of British influence at Calcutta or Bombay. The coming of the steamship, and the completion of the Suez Canal in 1869 brought India much closer to Britain--and made British interests in Egypt much stronger.

Egypt in the mid-nineteenth century was ruled by a "khedive." The Mamluk warrior-slave aristocracy that had ruled Egypt (under pledge of formal obedience to the Istanbul-centered Ottoman Empire) had been broken by Napoleon during his campaign of conquest. The viceroys established in Egypt afterwards by the Ottoman Empire had established their substantive independence within a generation.

In 1863, six years before the completion of the Suez Canal, the relatively young khedive Ismail took the throne. Ismail had been educated in France: he was open to European influences, eager to modernize his country, and eager to play the role of the open-handed Eastern ruler. He became ruler of Egypt in 1863, in the middle of the "cotton famine" created by the American Civil War and the consequent temporary disappearance of the U.S. South from the world's cotton supply. The consequence was a cotton boom everywhere else in the world: the factories of the industrial revolution needed cotton to run on, and they were willing to pay almost any price for it. Egypt grew cotton. And so for a few years it seemed as though Egypt's economic resources and wealth were growing rapidly and were inexhaustible.

More over, the khedive Ismail was more than extravagant. The Egyptian national debt was 7 million British pounds or so at Ismail's accession. It had swelled to 100 million British pounds 13 years later--and interest charges on the debt amounted to 5 million a year.

In 1876 the Egyptian government declared bankruptcy, and the creditors of the khedive became the rulers of the country. Ismail abdicated. Two financial controllers--one British, one Frence, for the bankers who had loaned to Ismail came overwhelmingly from those two counties--were appointed with substantial control over taxes and expenditures. Their task was to make sure that Egypt was governed by Ismail's son to keep up revenue and pay off the debt.

The Egyptians wondered why they were being highly-taxed to pay off debts run up by their extravagant ex-khedive. If Ismail had borrowed more than he could repay, wasn't that a problem for the bankers? Why was it a problem for the Egyptian people--and why should they be taxed and ruled by foreigners as a result? Discontent led to attempted revolution against foreign domination and high taxation. And British troops restored order and suppressed the uprising in 1882. Thereafter the khedive was a British puppet: the strategic importance of the Suez Canal for communications with India meant that British troops were to stay in Egypt on varying pretexts and for various reasons until 1956.

The opening of the Suez Canal cut the travel time to Egypt by a third. The coming of the steamship cut travel time by another third. Travelling to India from London after 1870 or so took perhaps two months, compared to six months around 1800. As India came closer, more Britons began to go there for at least a part of their career. The British presence was transformed from long-term expatriates willing to make substantial and semi-permanent adjustments in their culture and style of life to shorter-term visitors anxious to reproduce as much of Britain as possible and keep their lives as close to the British pattern as possible. And as India came closer to Britain, British institutions began to penetrate the country. The old eighteenth-century East India Company had no interest in Christianizing India. But missionaries began to appear from 1813; the first railroads were started in 1853; and universities to educate young Indians in European styles of learning started in 1857.

The drawing-nearer of India to Britain helped create a class of British officials with little sympathy for old Indian patterns: reform minded officials saw a culture in which female infanticide and the incineration of widows were common customs, in which religion served to keep the poor submissive and unambitious by convincing them that meekness now would allow them to inherit the earth in a future reincarnation, and in which caste distinctions and monopolies blocked any possibility of efficient production. Earlier conquerors had all been absorbed by Indian society in greater or lesser measure. The Victorian British with their modern technology, confidence in their intellectual and religious superiority, and continuously-renewed contacts with their homeland maintained their own caste distinctiveness.

India came surprisingly close to evicting the British in the great mutiny of 1857. Suppression of the mutiny also led to the rationalization of the institutions of British rule, and to the creation of the post of Viceroy of India, directly responsible to the British government. The Indian National Congress--with its demands first for self-government and later for independence--was founded in 1885.

Before 1800 or so there was very little that European traders could offer to sell that Chinese consumers would wish to buy. For more than two thousand years China had been one of the leading, if not the leading civilization on the planet. It was not that the average standard of living was higher in China: Malthusian population pressures roughly equalized standards of living around the world. But China had a higher population density because more efficient technologies allowed a given plot of arable land to generate more food, better craftswork in most industries, a larger class of literati interested in high culture, and--quite probably--a higher standard of living for the landed and ruling elite. Before 1800 European trade for Chinese goods was by and large trade of silver for China-made luxuries. And the transfer of technology flowed from east to west: it is still unclear to what degree the European development of items like gunpowder, printing, the compass, and noodles owed to the Chinese example. It is clear that all of these were known in China before they were known in Europe.

Even after the voyages of European discovery it was not clear that Europe was in any sense the "dominant" culture. China had long had the capability of launching its own "voyages of discovery"--and its governments had chosen not to. The one exception came under the early Ming dynasty: the fifteenth-century imperial court funded its own series of voyages of discovery commanded by the politically-powerful eunuch admiral Cheng Ho. The fleet reached Zanzibar, and touched the east coast of Africa several times. Annoyed at their treatment by a Sri Lankan king, they captured him and brought him back to China to make his apology to the emperor. But the political balance in the Ming court changed, the follow-up expeditions were cancelled, and the exploration program abandoned.

After 1800 British merchants did discover one commodity besides silver that Indian producers could supply and that Chinese consumers were eager to buy: opium. By the end of the 1830s the Chinese government was beginning to worry about the consequences of opium addiction on the country, and the exchange of European silver for Chinese goods had turned around: the bulk of the China trade was the exchange of Chinese silver for Indian-grown opium. The Chinese government attempted to suppress the opium trade and opium smuggling. The result was the 1839-1842 "Opium War," in which the British fleet intervened on the side of free trade, the sale of opium, and drug addiction. The British Empire acquired the then nearly barren island of Hong Kong as a base, European influence was established in a substantial number of "treaty ports" along the Chinese coast, and the division of China not into European colonies but into regions in the "spheres of influence" of different European powers began.

The fact that the coming of the European powers to the western Pacific coincided with the decay into bureaucracy and impotence of the Ching dynasty (which had ruled China since 1648) did not make China's lot any easier in the nineteenth century. The normal Chinese pattern of peasant revolts against corrupt rulers during the decay of a dynasty combined with European influence to produce a catastrophe: the Tai-Ping rebellion of 1850-1864. Hung Hsiu-ch'uan, a would-be bureaucrat who failed him Chinese examinations several times, had visions that convinced him that he was the younger brother of Jesus Christ: The armies of "God's Chinese Son" dedicated to overthrowing the ruling dynasty and to the coming of the kingdom of "Great Peace" ravaged central China for fifteen years, aided by the fact that the imperial court feared successful generals (as potential usurpers) at least as much as it feared the rebels.

China's Relative Apogee

In the Tang Dynasty years before and the Sung Dynasty years after the year 1000, China had been the most progressive and innovative civilization in the world: innovative technologically, organizationally, and militarily. Its population--60 million? 80 million? 100 million?--was one of the most rapidly growing and best-fed populations in the world, thanks to the development of strains of rice that could be wet-planted, irrigated, and produce three crops a year in the fertile soil of China from the Yangtze basin south. China then led the world in non-agricultural technologies as well. At the start of the seventeenth century the British savant, politician, and bureaucrat Francis Bacon had marvelled at three inventions that he said had utterly transformed Europe: gunpowder, printing, and the compass. China had developed all three, and had developed all three before 1000.

China had long had the capability of launching its own "voyages of discovery"--and its governments had chosen not to. The one exception came under the early Ming dynasty: the fifteenth-century imperial court funded its own series of voyages of discovery commanded by the politically-powerful eunuch admiral Zeng He. The fleet reached Zanzibar, and touched Africa. Annoyed at their treatment by a Sri Lankan king, they captured him and brought him back to China to make his apology to the emperor. But the political balance in the Ming court changed, the follow-up expeditions were cancelled, and the exploration program abandoned.

China led the world in political organization as well. No other ruler's writ ran a third as far or has even a third as large a chance of being obeyed as that of China's emperor. Tang Dynasty cavalry has skirmished with Persians on the shores of the Aral Sea. The Sung Dynasty river navy was the only military force to even temporarily stymie Ghengis Khan's Mongols before his descendants took to fighting each other rather than expanding the empire. No pre-industrial central government anywhere ever managed to match the reach, extent, and power of the landlord-scholar-bureaucracy mode of domination invented under the Tang and developed under the Sung.

China in the twelfth century at its pre-industrial apogee produced more iron and saw a greater share of agricultural production sold on markets than Britain would produce and market in the eighteenth. Zheng He's mid-fifteenth century voyages of exploration sailed four times as far with twenty times as many sailors as Columbus, and could land ten times as many soldiers at Dar es Salaam and Trincomalee as Cortez would land at Vera Cruz. The Sung Dynasty capital, Hangzhou, was before the Mongol conquest the largest city in the world--larger than Baghdad or Constantinople or Cordova or Delhi--with perhaps half a million inhabitants: the closest thing to an economic, cultural, and political capital the twelfth-century world had.

China's Relative Stagnation

But by the second half of the nineteenth century China's relative apogee was three-quarters of a millennium past, and the government and the people were in crisis. The people were in crisis because they were more than three times as numerous as their predecessors at the pre-industrial apogee, because they were ruled by a rapacious landed aristocracy, and because progress in agriculture and industry to counterbalance rising population had been nearly absent for most of the second millennium. In 1100 the Chinese people were rich, or at least as rich as pre-industrial peasant societies get. At the start of the second millennium development of new types of crops and new strains of rice had greatly boosted agricultural productivity and triggered the centuries-long spread of China's heartland from the Yellow River to the Yangtze and further south, to Hunan and Guangzhou. But by the second half of the nineteenth century Malthus was having his revenge. China had filled up, with more than 300 million people, which left average farm size less than third of what they had been three quarters of a millennium before, the bulk of peasant families were close to the edge. It is virtually certain that the average Chinese peasant family in the second half of the nineteenth century had less food than its predecessors in the twelfth: think of 1300 calories per person per day as a rough guess.

The technological dynamism and organizational relative edge that China had possessed in the twelfth century was gone as well. Chinese producers still had substantial technological edges in limited industrial segments: high end silk textiles, high-end porcelain, tea. But there had been little internally-driven technological progress in any industry for more than half a millennium. And the bureaucracy that in 1150 had looked efficient and powerful compared to a Europe--a place where no king would even think of asking an Earl of Pembroke to explain anything--by 1870 looked corrupt and incapable.

Why this 750 year relative stagnation is a great mystery. There are many potential suspects to take the blame as the root cause of China's long, long relative stagnation.

Perhaps the root problem was that emperors, grand secretaries, and landlords feared their own generals more than they feared their neighbors' soldiers. European kings, ministers, and landlords sought a strong military to protect them and theirs against the next William the Conqueror or Friedrich II or Francois I or Napoleon. In China there was little to fear from outside the empire as long as the Mongols were kept divided, but a great deal to be feared inside the empire from your own generals--men like the ninth-century An Lu-Shan or the seventeenth-century Three Feudatories. Thus the military-industrial-metallurgy-innovation complex that drove so much of pre-industrial and early-industrial European technological progress was absent.

Perhaps the root problem was that with triple-cropping rice strains the wet-rice fields were too fertile, the governmental bureaucracy too effective, and the avenues of establishment-oriented upward mobility to the striving and aggressive too open. After making a little money the logical next step was to buy some land. Because the land was rich, because labor was plentiful and cheap, and because the empire was (most of the time) strong internally, one could live well after turning one's wealth into land. One could also easily make the important social contacts to pave the way for one's children to advance further. And one's children could do the most important thing needed for upward mobility: study the Confucian classics and do well on the examinations: first the local shengyan, then the regional juren, and then the national jinshi.

Those who had successfully written their eight-legged essays and made proper allusions to and use of the Confucian classics would then join the landlord-scholar-bureaucrat aristocracy that ruled China and profited from the empire. In the process of preparing for the examinations and mastering the material needed to do well on them, they would acquire the habits of thought and values of a Confucian aristocrat landlord-scholar-bureaucrat. Entrepreneurial drive and talent was thus molded into an orthodox Confucian-aristocratic pattern and harnessed to the service of the regime and of the landlord class: good for the rents of the landlords, good for the stability of the government, but possibly very bad indeed for the long-run development of technology and organization. Carlson (1957) quotes an imperial edict of 1724 condemning mining as a potential source of disorder and treason:

[M]iners are easy to recruit but hard to disband. If mining is left to the initiative of merchants there wil be danger of crowds assembling and harboring treachery...

Perhaps the root problem was the absence of a new world rich in resources to exploit and helpless because of technological backwardness, or the lesser weight attached to instrumental rationality as a mode of thought, or the absence of dissenting hidey-holes for ideological unconformity, or the fact that the merchants and hand-manufacturers of China's cities were governed by landlords appointed by the central government rather than governing themselves, or that large muscled animals like oxen and horses turned out to be powerful productive multipliers for temperate rain-irrigated wheat-based agricultural but not for sub-tropical paddy-irrigated rice-based agriculture, or some combination of these, or any of a host of other possibilities over which historians will struggle inconclusively (but thoughtfully and fruitfully) for the rest of time.

Perhaps there were many root problems.

Whatever the cause, the result was China's extraordinary relative stagnation through much of the second millennium. The country and region that had been the world's leader--culturally, economically, organizationally--in 1200 was poor, economically backward, and organizationally decrepit.

The poverty struck eighteenth-century British moral philosopher Adam Smith hard, for in his view China had been for a long time "the richest... most fertile, best cultivated, most industrious, and most populous" country in which even landless peasants were relatively rich: "the wages of labour had ever been more than sufficient to... enable him to bring up a family." Smith had a theory as to why the China he saw in his day--the late eighteenth century--had become poor. Because China would not trade with outsiders and so learn and adapt their ideas, it was bound to stagnate: "a country which neglects or despises foreign commerce... cannot transact the... business which it might do with different laws and institutions." A stagnant economy, Smith thought, was headed for desperate poverty through a Malthusian population crisis. Population would continue to grow while the economy did not. Without technological progress and with increasing population "competition... would soon reduce [wages] to this lowest rate which is consistent with common humanity." At that lowest rate of wages, children would be so malnourished as to be easy prey to disease and women's body fat levels would be so low that ovulation was hit-or-miss.

By 1870 it looked like that Malthusian crisis had arrived. The more than 300 million people of late nineteenth-century China had no mechanized farm machinery and no industry-produced nitrogen fertilizers. They were crowded into the wet, arable eastern slice of what is "China" on today's maps, with the median family of 6 farming perhaps 4 acres at a time when the Radical Republicans were still hoping to somehow find 40 acres plus a mule for each family of American ex-slaves. Average adult height was, we think, significantly under five feet. There were enough landless and other desperate peasants that perhaps ten million joined the Taiping Rebellion of Hong Xiuquan--who declared himself the younger brother of Jesus Christ after repeatedly failing the shengyan exam--which burned through the Yangtze valley for nearly fifteen years. Perhaps ten million, 3% of China's population, died in that war alone.

China's Late Nineteenth-Century Crisis

Thus the first iron-hulled ocean-going steamships called on a country where the government and the economy were in crisis for four reasons:

The first reason is that China's government in the late nineteenth century was the ethnically Manchurian Qing Dynasty, and the Qing Dynasty was weak because it had always been weak. It had seized power in the mid-seventeenth century. An ethnic clan of non-proper-Chinese military adventurers from beyond the Great Wall, from Manchuria, struck at the moment when the previous Ming Dynasty was paralyzed by peasant revolts and hamstrung by a run of bad emperors and more-than-usually-corrupt bureaucrats. The Manchu were unified because they were not Han Chinese: what Manchu prince or mercenary could expect to long survive a victory by any alternative faction? The Manchu were weak because they were not Han Chinese: how many of the 300 million Chinese would give how much loyalty to a ruling dynasty in which the top places were reserved for others?

It was the classic problem of colonial rule. The Manchus tried to solve it by (a) presenting themselves as ideal Confucian sage-kings (presenting themselves as more righteous Confucian rulers than Kung-Fu-Tze himself), (b) giving the landlords through which they ruled free rein throughout central and southern China (curbing rapacious landlords in the interest of protecting the Old Hundred names of China was not on the Qing Dynasty agenda, ever), and (c) opposing all change for change threatened to cause instability and the Qing Dynasty knew that it was unstable already.

This worked as a political strategy: the Qing Dynasty had a run of 250 years, and the last Qing emperor still sat a throne--albeit as a puppet of the Japanese army--in 1945. But it meant that the kind of national and nationalist appeals that those who in Japan spoke for the Emperor Meiji or that Mongkut and Chulalongkorn used to try to preserve the independence of Thailand were impossible for China's late nineteenth-century government. You cannot rally a people against foreign colonialists with the slogan "revere the emperor and expel the barbarians!" when for more than 200 years the emperor has defined himself as a barbarian.

Even in the days of its peak strength, the Qing Dynasty found it wise to tolerate dominant currents of thought that viewed its coming to power as a tragedy and its rule as profoundly illegitimate. Jonathan Spence's In Search of Modern China notes the performances at the court of the Kangxi emperor, the first strong and long-lived Qing dynasty emperor, of "The Peach-Blossom Fan" by Kong Shangren--an author still loyal to the previous Ming Dynasty, and hostile to the idea that a scholar-official could win honor by helping the Manchu conquerors rule China: "[A]t the play's end, with the Ming resistance in ruins, the lovers agree to take monastic vows... the surviving virtuous officials retreat deep into the mountains to escape a summons from the Qing that they take up office."

The second reason that China in the late nineteenth century was that Confucian landlord-bureaucrat-scholar aristocracy through which the Qing Dynasty ruled was not only potentially disloyal but trained to be incapable. As long as the Mongols were kept divided through bribes and the ruling dynasty uncorrupt, no Chinese emperor faced any outside existential military threat. Internal disorder was the main worry. So the central government had discouraged military skill among its bureaucrats and notables since the Tang dynasty rebellion of An Lushan, and discouraged any liking for change--a potential cause of disorder--since the first Ming dynasty emperor had expelled the Mongol descendants of Genghis Khan in the fourteenth century.

As Jonathan Spence also points out, seventeenth-century landlord-scholar-bureaucratic notables like Ming loyalist Kong Shangren were well aware of growing European technological developments:

White glass from across the Western Seas Is imported through Macao: Fashioned into lenses big as coins, They encompass the eyes in a double frame. I put them on--it suddenly becomes clear; I can see the very tips of things! And read fine print by the dim-lit window Just like in my youth.

Yet neither Kong Shangren nor any of his relatives and descendants ever thought that the optical glass business was worth studying or researching or entering or even financing. It was simply not the kind of thing that a Confucian gentleman would do. One consequence of this lamentable uncuriosity was extraordinary ignorance about the outside world. During the first Opium War of 1840 the staff of High Commissioner Lin, the Qing plenipotentiary on the spot in Canton, appears to have debated whether an embargo of ginseng exports might be enough all on its own to win the war for China--the British, they had heard somewhere, needed ginseng as a dietary supplement to have regular bowel movements, and would die without it.

The third reason China's government was in crisis was that the people were in crisis. As I noted above, China's population was on the downswing of a Malthusian population cycle. Compared to the aftermath of the great wave of agricultural technological development nearly a millennium before, the threefold growth in population meant that yields per person low, farms small, and peasants poor--hence malnourished, and with relatively little energy. Population growth also meant larger clans of landlords to be fed off the rents. Combined with an alien ruling dynasty that feels weak and threatened by its own upper class and tells its bureaucrats that it is justice when the landlords win, this means that the peasants have very little to lose. Thus peasant revolts--like those that everyone remembered had brought down dynasties before--burned through China in the mid-nineteenth century.

The greatest was the Taiping Rebellion. The Manchu banner-armies proved useless when Hong Xiuquan proclaimed the "Heavenly Kingdom of Great Peace" and promised his followers not only the Kingdom of Heaven in the hereafter (where he would reign alongside his elder brother Jesus Christ) but that land would be equally divided after all the landlords were killed down here--meaning a roughly fifty percent increase in median peasant standards of living. And Hong Xiuquan supplemented his brand of theocratic landlord-free authoritarian communism with anti-Manchu nationalism: "Ever since the Manchus poisoned China... the poison of corruption has defiled the emperor's throne..." 1300 calories per day versus 2000 plus God on your side plus revenge against the oppressive landlords plus the expulsion of the barbarian Manchus.

The fifteen-year march of the Taiping through south-central China and reign from Nanjing had echoes not just of previous peasant rebellions (like the one that had given the Manchus their opening in the 1640s at the end of the Ming dynasty) but of what Mao Zedong and company would do from 1925 to 1945. Move into a village, get the peasants' hands dirty by having them kill a couple of landlords, divide up the land so all the small peasants are much richer, point out that if the landlord-backed authorities return they will all be in big trouble, and ask for volunteers to join the army and come along to the next village.

The Taiping prohibited opium, foot-binding, prostitution, and female servitude. They instituted equal shares for all, vaccination, low taxes, and encouraged tea and silk exports. Hugh Deane quotes American missionary E.C. Bridgeman's report that the Taiping "appear[ed] like a new race of warriors... well-clad, well-fed, and well-provided for... content and in high spirits, as if sure of success," and asserts that twentieth century Communist leaders like Mao Zedong, Zhu Te, and Peng Dehaui drew inspiration from the stories of the Taiping heroes that they had grown up with in Hunan, Sichuan, and Nanjing.

Outside observers like Karl Marx were impressed enough that they thought that the World Revolution was starting in the late 1850s in China, and that the last moments of the Chinese empire had come. But competent local landlords organized pickup militias, some of which grew into competent--but non-Manchu--battalions and brigades. The merchants and bankers of Shanghai and other ports in contact with and profiting from European trade were desperate for help and knew how to draw on European military-technological competence. The thirty year-old Frederick Ward Townsend--with, Deane reports, two years' experience as a military cadet in Norwich, Vermont followed by service as a Texas Ranger, a Mexican army drill instructor, and in the Crimean War--organized an army on the British Indian sepoy model: officers from Europe and America, rifles and carbines and cannon supplied by the British government, high pay, and river mobility through steampower. The Qing court heard such good things about his army from Li Hongzhang, their commander on the spot, that they named Ward's army "The Undefeatables." Ward was killed at Ningbo in 1862, but his successor the British General Charles "Chinese" Gordon's army proved equally capable. The Taiping were crushed in 1864. China's political revolution was postponed for half a century, and the Qing Dynasty continued to rule until 1911.

The fourth reason China's government was in crisis was that it was so weak relative to the forces that first Britain and later other European powers began to project into the western Pacific. In the mid-1880s the Qing Dynasty, having bought foreign metal-working machinery and built a navy, arsenals, and docks, thought it was strong enough to oppose the French conquest of Vietnam. The fleet was destroyed in an hour. Jonathan Spence reports that the Chinese navy lost 572 dead, while the French lost five. In 1895 the Qing Dynasty thought it was strong enough to oppose the Japanese extension of their sphere of influence to Korea. It was wrong. The Treaty of Shimonoseki added Taiwan, Korea, and southern Manchuria to Japan's sphere of influence. European and American mercenaries, concessionaires, merchants and manufacturers went where they wanted, did what they wanted, and enforced whatever laws they thought were good.

The Failure of "Self-Strengthening" in China

In the late nineteenth and early twentieth centuries, in the last years of the Qing empire and the first years of the Republic of China, economic growth and development took place around China's coastal fringes in and near foreign enclaves, but not elsewhere. In 1929 China produced 20K tons of steel--less than two ounces per person per year. It produced 400K tons of iron--that's 1.6 pounds per person per year. It mined 27M tons of coal--that's 100 pounds per person per year. Compare this to America's 700 pounds of steel per capita in 1929 or 200 pounds in 1900, or to America's 8000 pounds of coal per capita in 1929 or 5000 pounds of coal per capita in 1900.

China specialists see and can almost touch an alternative history in which late-nineteenth century China managed to match the political and economic achievements of Meiji Japan. They see an alternative in which China stood up economically, politically, and organizationally. Japan, after all, won its short victorious war against Russia in 1905, negotiated as an equal with Britain and the U.S. over warship construction in 1921, and was perhaps the eighth industrial power in the world by 1929. Why couldn't China have done the same?

Jonathan Spence, for example, praises the nineteenth century:

Confucian statesmen [like Li Hongzhang] whose skill, integrity, and tenacity helped suppress the [Taiping and other] rebellions... showed how imaginatively the Chinese could respond to new challenges... managed to develop new structures to handle foreign relations and collect customs dues, to build modern ships and weapons, and to start teaching international law and the rudiments of modern science.... It was true that there remained complex problems... rural militarization... local autonomy over taxation... landlord abuses... bureaucratic corruption... bellicose foreign powers.... But with forceful imperial leadership and a resolute Grand Council, it appeared that the Qing Dynasty might regain some of its former strength...

And laments that:

forceful leadership was not forthcoming... the empress dowager Cixi... coregent for her son Tongzhi from 1861-73... coregent for her nephew Guangxu from 1875-89.... [A]bsolute political authority... while Guangxu [was imprisoned in the palace]... on her orders from 1898-1908.... Cixi had clashed badly in 1869 with Prince Gong.... Zeng Guofan died in 1872... Wenxiang died in 1876... Zuo Zongtang remained preoccupied with the pacification of the Muslims in [Xinjiang].... The grand councilors... worthy... with distinguished careers... lacked the skill or initiative to direct China on a new course. Although self-strengthening programs continued to be implemented... a disproportionate number of them were initiated by one man, Li Hongzhang... governor-general of Hebei... commissioner of trade for the northern ports...

We economists are more skeptical. We note that the "new structures to... collect customs dues" consisted of things like the Qing Imperial Maritime Customs Service build up in the 1860s under Robert Hart--no Chinese officials allowed. We note that the enormous bureaucracies that allegedly managed the Yellow River dike works and the Grand Canal had grown corrupt and incompetent. We note that the Qing could not get their local officials to collect the salt tax. We do not find it satisfactory to attribute China's stagnation through the first decade of the twentieth century to poor choice of ministers by the dowager empress Cixi--even though Spence is following in a long tradition that treats her as the original mold for the figure of the Dragon Lady.

Let's go back to Jonathan Spence's observation that "a disproportionate number" of self-strengthening attempts to adapt and use modern technologies were due to "Li Hongzhang... governor-general of Hebei... commissioner of trade for the northern ports..." Li Hongzhang's achievements were indeed impressive: the 1877 Kaiping coal mine, in 1878 cotton mills in Shanghai, the Tianjin arsenal, the telegraph between Tianjin and Peking, a seven-mile railroad to ship from Kaiping to the river and then downriver to Tianjin, and so forth. And what wasn't undertaken by Li Hongzhang appears likely to have been undertaken by Zhang Zhidong, governor-general of Hunan-Hubei for two decades: the railroad from Hankou to Beijing, the Wuhan Han-Ye-Ping heavy industrial complex. In the last generation of the Qing empire, individual governors-general who made economic development a top priority could make some things happen--elsewhere it didn't, save to some degree in and next to the foreign concessions and treaty ports: Qingdao, Tientsin, Shanghai, Guangdong, Hong Kong.

Manufacturing Location at the Start of the Twentieth Century

It is understandable that China, India, and the other non-European and non-settler-colony regions of the world did not in the years before World War I produce and export the relatively high-value commodities like wheat and wool exported by temperate settler economies: agricultural productivity was too low, and climate was unfavorable. It is understandable why--with heavy downward pressure put on wages in Malaysia, Kenya, and Colombia by migration and threatened migration from very low-wage China and India--the prices of the export commodities that they did produce were and remained relatively low.

What is more puzzling is why industrialization did not spread much more rapidly in the years before World War I. After all, the example of the industrial core seemed easy to follow. Inventing the technologies of the original industrial revolution--steam power, spinning mills, automatic looms, iron- and steel-making, and railroad-building--had required many independent strokes of genius. But copying the technologies did not, especially when you could buy and cheaply ship industrial capital goods made in the same New and Old England machine shops that supplied the industries of England and of America.

As industries in the industrial core became more and more mechanized--more and more characterized by what would be called "mass production"--they should have become more and more vulnerable to foreign competition from other, lower wage countries. Even at the start of the twentieth century, the U.S. had the highest wage level in the world; inside the U.S., firms devoted immense time, energy, and thought to redesigning their production processes so that lower-skilled, and lower paid, workers could replace highly-skilled craftsmen. One would think that manufacturing would have fled the United States even in the late nineteenth century. If Ford could redesign production immediately after World war I so that semi-skilled assembly line workers could do what highly-skilled craftsmen used to do, why couldn't Ford also--or someone else--redesign production before World War I so that it could be carried out by low wage Peruvians or Poles or Kenyans rather than by Americans, who were extraordinarily expensive labor by world standards eve back then?

Industries do migrate, but they have done so surprisingly slowly in the twentieth century. One reason is added risk: political risk of all kinds tends to make investors wary of committing their money in places where it is easy to imagine political disruptions from the left or the right. Moreover, there are substantial advantages for a firm in keeping production in the industrial core, near to other machines and near other factories making similar products. It is much easier to keep the machines running. A reliable infrastructure is much more likely to be found in the industrial core. And so are the services of specialists needed to fix the many things that can go wrong: minimum efficient scale for an industrial civilization can be far larger than the apparent minimum efficient scale for a plant.

Arthur Lewis hypothesized that barriers to starting up an export-oriented industry were large, that infant industries on the periphery of the world economy had to rely on domestic demand, and that where domestic demand was low because of mass poverty modern industry could not flourish. Thus only a small share of output in what was to become the third world came from the industries of the industrial revolution. But we still understand far too little about why the pace of technological diffusion out of the industrial core was so slow back before World War I: why "peripheral" economies did such a good job at specializing in plantation agriculture for export, and such a bad job at creating modern manufacturing industries.

Gregory Clark at the University of California at Davis has counted the staffing levels--how many operatives for each machine--at textile firms worldwide early in the twentieth cenury, and found enormous differences in how many workers watch, operate, and maintain the same machine across countries and continents. It is not that places where labor is abundant use the same machines more efficiently: it is that it appears to take many times the workforce to achieve the same level of machine performance. Clark argues that in 1910 typical labor productivity in English-speaking countries in cotton spinning was fifteen times that of China, ten times that of Japan, three times that of Mexico or Russia, and twice that of continental northern Europe. Workforces in the industrial core appear to have had an acquaintance with machines and how they work, which was very, very hard to duplicate.

The Kaiping Coal Mines

Let's take a look at one of these in detail: the first one, the Kaiping coal mine. We are lucky in that we can draw on Ellsworth Carlson's 1957 Harvard east asian monograph to understand how and to what extent Li Hongzhang could midwife modern coal-mining technology in late-nineteenth century China.

In 1877 Li Hongzhang--a senior scholar-landlord-bureaucrat high in the confidence of the Qing court--joined forces with Tang Tingshu--a prominent, experienced, and wealthy treaty port comprador-merchant who had managed Jardine, Matheson's interests along the Yangtze--to establish a modern, industrial, large-scale coal mine in Kaiping, in Chihli. Li Hongzhang and Tang Tingshu faced unusual forms of opposition to their mining plans. Carlson quotes a British cable of 1882 stating that mining work had been stopped because Chi Shihchang, a vice-president of the Board of Civil Offices, had declared that "foreign mining methods angered the earth dragon... [and so] the late empress could not rest quietly in her grave" sixty miles away from Kaiping:

The Governor-General [Li Hongzhang] has been ordered to make inquiry and report... work has partially ceased.... Either he must throw over a company... formed with his direct sanction... [and] a very large quantity of capital, or he must... declare the mines harmless with the knowledge that he will then be considered responsible for any bodily ailment or other ill which may befall the Emperor or his family...

Tang Tingshu had originally proposed to build a steam railway to get the coal from the mines to the port of Tientsin, but dropped that idea and replace it with a proposal for a seven mile mule-drawn tramway to be connected to a twenty-one mile canal. Shen Pao-chen had in 1877 dismantled China's first railway--the Shanghai-Woosung. According to David Pong, Li Hongzhang was furious, blaming the destruction on Shen's narrow-mindedness and his desire to curry favor with anti-foreign elements. Moreover, the Manchu court had just rejected Liu Mingchuan's request for permission to build railways. When the mining began and the tramway started up, however, there were no mules: there was a locomotive--the "Rocket of China" with, engineer Claude Kinder reported, a boiler from "a portable winding engine, the wheels had been purchased as scrap castings, the frames... made of cast iron." Ellsworth Carlson believes that Li Hongzhang and Tang Tingshu were able to get their steam railroad going because of three reasons. First, it was built in a remote and sparsely populated area with no Confucian scholar-landlord-bureaucrats around. Second, Li Hongzhang used all his political skills to keep the existence of the steam railroad. Third, Carlson believes that Li had the blessing of the empress dowager Cixi to proceed--and thus her protection from his superiors on the Grand Council and elsewhere.

Tang Tingshu and Li Hongzhang persevered. Production began with modern machinery in 1881 excavating coal seems about ten feet in diameter 200, 300 and 500 feet down. 200 tons of coal a day were excavated by 1883. By 1889, 3000 workers in three shifts were producing was 700 tons of coal a day, nearly 500 pounds per worker per day, using steam lifts underground coal cars on rails, and pneumatic drills--but still only two pounds a year for every person in China. At the end of 1888 a railway to carry the coal from Kaiping down to Taku was finally opened. But it could not be extended to Tientsin. As chief engineer Claude Kinder wrote:

high officials who detested the railway... foster[ed] trouble with the junk people.... So great was the clamor... that the Viceroy... gave the order for the nearly completed bridge [over the Peiho to Tientsin] to be destroyed, although hundreds of the largest junks had already safely passed through...

Starting in 1889 the company began paying dividends: annual dividends amounted to 10 to 12% on the company's equity capital of 1.5M taels--about £150,000 pounds, or $750,000 dollars of the time. The mine had 3000 workers in 1889, and 9000 in 1900, paid about $6 a month (with the highest-paid Chinese-born technical employees earning some $60). About four miners died each year. As Herbert Hoover reported to his bosses at Bewick, Moreing: "The disregard for human life permits cheap mining by economy in timber [supports].... The aggrieved relatives are amply compensated by... $30 per man.... cases have been proved of suicide for that amount..." Hoover's judgment was that the miners were producing 1/4 to 1/8 of what was expected of miners in America or Australia. By 1912 Kaiping was producing 1.4M tons of coal a year--seven pounds for each person in China--and accounted for perhaps 20% of China's total coal production.

Without the aegis of Li Hongzhang and his position as governor, the enterprise is unlikely to have survived. Ellsworth Carswell quotes Tang Shouchien on the difficulties that merchants and entrepreneurs had outside the coastal foreign concessions: "The officials have rights; the merchants have no rights; their influence does not go beyond the bringing together of capital; and naturally the profits of the merchants are lost to the officials ceaselessly..." Even with his aegis, not everything went smoothly. Carswell quotes the North China Herald of June 24, 2007 as pessimistic about the future of Kaiping as a capitalist economic enterprise: "if a mine is at a promising state, Kaiping to wit, the kinsmen of the Director, Managers, and officials, come in shoals, and without the slightest regard to competence are provided with posts and fatten..." But as long as Li Hongzhang was in control and his attention was focused on making the mine a successful economic enterprise, Tang Tingshu, his team, and his specialist foreign engineers could do their work. Their position, however, was shaky, for the mine was both a public governmental project and a private capitalist enterprise: shang-pan kuan-tu: official supervision and merchant management. This meant that each manager of the mine wore two hats: on the one hand, they were intendants in the Qing administrative bureaucracy with jurisdiction not over a town and its villages but over a mining enterprise, and on the other hand they were employees of the shareholders. Should push come to shove, it would turn out that they worked for the governor of Chihli rather than the shareholders of the company.

Mine director-general Tang Tingshu died in 1892. His successor was a very different man. Tang Tingshu was a merchant. Chang Yenmao was a bannerman--a hereditary retainer of Prince Qun. Tang Tingshu was a merchant who had worked extensively for British bosses. Chang Yenmao was a retainer and fixer. He had little education. In spite of his lack of literary attainment, he somehow acquired official rank, played on his connections with the empress dowager Cixi, and was slotted to become an intendant in Kaingsu when the director-generalship of Kaiping fell vacant. In The Making of Herbert Hoover, Rose Wilder Lane, claims that Chang Yenmao played a key role in Cixi's coup of 1885 when she placed the Gwangxu emperor on the throne.

By 1900 Chang Yenmao--once a poor bannerman and retainer--was one of the wealthiest men in Tientsin. When Herbert Hoover looked at the books of Taiping in 1901, he reported that the 9000-worker payroll had been padded by 6000 names, and that the director of personnel doing the padding and collecting the wages had paid Chang Yenmao $50,000 for the post. Chang Yenmao's company paid £20000--$100000--a year in dividends. After Herbert Hoover took over as director-general in 1901, he was able to pay out £150,000--$750,000--a year.

Herbert Hoover? you say. Yes, Herbert Hoover: at the time a 26 year old mining engineer on the make, later to become the architect of food relief to Europe after World War I to prevent mass starvation, the wonder-working Commerce Secretary during the Roaring Twenties, and president during the slide into the Great Depression.

What happened was this: Herbert Hoover, mining expert, arrived in Tientsin in 1900 just in time to be besieged in the city by the Boxers (a better translation for this grassroots uprising influenced and encouraged but not controlled by the Forbidden City would have been "Fighters United for Justice"). In Tientsin Hoover met Gustav Detring of the China Maritime Customs Service, a friend of Chang Yenmao's. He also met Chang Yenmao. Chang had fled to Tientsin as well, fearing that the Boxers would execute him as a corrupt puppet of the Europeans; in Tientsin, however, the Europeans arrested Chang--fearing, probably correctly, that he was passing intelligence to the besieging Boxer armies as a way of hedging his bets. The British charge d'affaires on the scene later said that Chang "ought to have been shot in 1900."

Somehow Detring and Hoover, probably, got Chang released from prison. Somehow Chang decided to reincorporate the Kaiping mines as a British-flag enterprise incorporated in London in order, he said, to make it easier to raise capital to expand the mines and to provide some political cover: Russian or Japanese proconsuls would love to confiscate a working Chinese-flag industrial property as reparations or indemnities, but would not dare touch a British-flag industrial property. Chang commissioned Detring and then Detring and Chang commissioned Hoover and then Hoover commissioned his boss C. Algernon Moreing back in London to do the deal.

The old company had owned the mine works, had little spare cash, and had owed £250,000--$1.25M--in bonds that paid 12% per year interest. When the dust cleared, the new company owned the mine works, had about £250,000 in free cash, and owed £500,000 in bonds that paid 6% per year interest. When the dust cleared, the shareholders of the old company found that they owned 37.5% of the new company, and that C. Algernon Moreing and his friends owned 62.5% of the new company without having contributed more than a few cents to the enterprise. The old company had been controlled completely by Chang Yenmao in his dual status as director-general both elected by the shareholders and appointed by the governor of Chihli. The new company was controlled completely by Herbert Hoover as the representative on the spot of the London majority shareholders. The old company had a management and advanced technical staff of 620 Chinese managers and 10 foreign-born engineers and foremen. The new company had a management and advanced technical staff of 170: 120 from china and 50 from abroad. The new company also had a Europeans-only club.

Charge d'affaires Townley was disgusted. He wrote to Britain's foreign secretary, Lord Salisbury, recommending against the British government's "giv[ing] its countenance to a financial transaction which had fleeced Chinese shareholders and lined the pockets of an Anglo-Belgian gang.... Moreing and others have made a pretty pile at the expense of the Chinese.... legally the Board of Directors were unassailable... but... morally they were in the wrong." Others were upset as well--especially Detring and Chang Yenmao. Townley's interpretation was that they were "wild... [because] they thought themselves rather smarter... and got themselves fairly had by a Yankee man of straw [Hoover] acting for Moreing..."

We have a pretty good idea of what Algernon Moreing and Herbert Hoover would have said if they could have been gotten to speak truthfully about the transaction. First, they would have said, if we had not done the deal then the Russians would have confiscated the mine in 1901 as reparations: we brought the British flag's protection to the table, and that is easily worth 62.5% of the company. We gave the original-company shareholders 37.5%, while the Russians would have given them zero. Second, they would have said, Chang Yenmao was a corrupt thief stealing from the company and untouchable because of the protection of the governor of Chihli. 6000 extra workers at $50 a year is $300,000 a year, at least, stolen from the company. Third, they would have said, Chang Yenmao is neither a mining engineer nor a merchant. Herbert Hoover is both, and can make the mine run. 37.5% of the $750,000 a year in dividends that the new company paid is about $270,000--almost three times the $100,000 the old company paid. We did the original shareholders three big favors, they would have said, and 62.5% of the company is a bargain for all we have done.

Chang Yenmao was displeased. He had to explain to the new governor of Chihli, the formidable Yuan Shihkai, why the Imperial flag was not being flown over the mine, which meant that he had to admit that he had conspired or western sharpies had tricked him or something had happened by which the Kaiping mines were now the property of a British-Belgian investors' syndicate. Yuan Shihkai was then displeased:

Although Kaiping had sold commercial shares, it was not a private property that could be bought or sold by people like Chang and Hoover. The mines had not been started... [until] Li Hongzhang had... obtained imperial approval... they could not be alienated without imperial approval.... Chang, said Yuan, was a person of humble origins to whom the country had given great favors, but he had not been properly grateful... [had sold] mining land [to foreigners] without authority... deceived the throne... about Chinese-foreign joint management.... If unpunished, Chang's action might become a precedent... losses of the country's mines, the merchant's capital, and the dynasty's ports...

It turned out that in the process of browbeating Chang Yenmao, Herbert Hoover had signed a "Memorandum of Understanding" that the change of corporate form would not alter Chang Yenmao's status: that he would remain director-general of the mine "as before." Chang Yenmao, ordered to recover the mines, went to London and sued. One British judge was shocked at the deception and dishonor, and ruled that the "Memorandum" was a valid instrument that had to be followed by the new company. Other British judges in London ruled that the "Memorandum" was a valid instrument only insofar as the powers granted Chang by the memorandum were legal according to British corporate law, but that those powers weren't. In the end Yuan Shihkai started up another coal company with rights to much more extensive deposits in the area, and the two were amicably merged. Later on, Herbert Hoover scrambled as he launched his political career to buy up and destroy all copies of the trial record containing his testimony--missing the one in Oxford's Bodleian Library.

As Albert Feuerworker summed up the story of Kaiping in the 1959 Journal of Asian Studies:

Despite its pioneering achievements, Kaiping faltered... [like] other kuan-tu shang-pan enterprises in the late nineteenth century. The first was the lack of sufficient capital and the inability to raise more from domestic sources. The second was the unpropitious political environment into which it was born. Little aid could be expected from the tottering Manchu regime either in the form of financial assistance to compensate for the reluctance of private investors, or protection from foreign encroachment such as eventuated in British domination of this enterprise.... [T]he contrast with the history of early industrial efforts in Meiji Japan is a striking one...

Feuerworker sees three things going wrong: no private capital, a poor cash-strapped government that could not contribute public capital, and a weak government that could not protect incipient enterprises against rapacious foreigners. These three were certainly important, yes, but I see three others that were even more important:

a social-economic structure that could not find and promote executives, but instead replaced Tang Tingshu with a corrupt political fixer like Chang Yenmao a political-ritual culture that required that a modernizing governor focus his attention constantly on the enterprise and run interference to protect it from anti-modernizers an educational system that continued to turn out literati instead of engineers and thus required foreign technical personnel for everything The fact is that, outside the charmed circles created by the extraterritorial foreign concessions, and to a slight degree the immediate span of control of the few modernizing governors, modern industries did not develop and modern technologies were simply not applied in late imperial China. The typical Qing bureaucrat was hostile. But the typical Qing bureaucrat was also interested. There was rough equilibrium in how much money Qing bureaucrats were expected to squeeze from landlords (not that much), merchants and traders (significant but limited), and others who needed government action (as much as they could grab). New people doing new things had no customary, social, or countervailing power protections against their overlords. And overlords with limited intelligence, limited types of experience, and limited official tenure could not be expected to nurture economic growth when there were loose assets to be stripped. And, as the shareholders of Kaiping and Chang Yenmao discovered, to flee into the arms of foreign legal systems was to flee from Scylla to Charybdis.

China's First Revolution: 1911

The loss of the Japanese-Chinese War in 1895 brought matters to a head: was the government going to make a more serious effort to mobilize the country for modernization and progress or not? The Guangxu emperor said yes: he allied himself with reformer Kang Youwei and launched the "hundred days of reform" of 1898. The dowager empress Cixi--who we have seen before as patron and protector of modernizer Li Hongzhang--said no. she imprisoned the emperor inside the palace and encouraged the grassroots "Fighters United for Justice" to see what would happen. The attempt to mobilize anti-European sentiment to support the conservative regime failed, as an all-European expeditionary force relieved the beseiged European embassies in Beijing, exacted indemnities, and wreaked destruction. A tack back to the left was not possible. Kang Youwei's memoranda on such things as the partition of weak-government poland by Russia, Prussia, and Austria and on the successful Meiji reforms in Japan could still be read, but Cixi had executed Kang Youwei's younger brother and other reformers in 1898. And when Sun Yatsen had offered his services to Li Hongzhang in 1894, Li had sent him away.

Sun Yatsen built up a financial and propaganda network among Chinese emigrants beyond the reach of the government. Military politicians like Yuan Shihkai came to the conclusion that working with the Manchu court was useless. And at the beginning of 1912 the last Chinese imperial dynasty fell, as Yuan Shihkai and his peers refused to suppress Sun Yatsen's rebellions. The six-year-old emperor abdicated. But the new Chinese republic's president was military politician Yuan Shihkai. And his authority over his peers and near peers--army commanders, provincial governors, and other would-be warlords--was nil. China descended into near-anarchy.

The Meiji "Restoration" in Japan

In the early seventeenth century the Tokugawa clan of samurai decisively defeated its opponents at the battle of Sekigahara, and won effective control over Japan. Tokugawa Ieyasu petitioned the--secluded--Priest-Emperor to grant him the title of Shogun, the Priest-Emperor's viceroy in all civil and military matters. From its capital, Edo--now Tokyo--the Tokugawa Shogunate ruled Japan for two and a half centuries.

Early in the seventeenth century the Tokugawa Shogunate took a look to the south, at the Philippines. Only a century before, the Philippines had been independent kingdoms. Then the Europeans landed. Merchants had been followed by missionaries. Converts had proved an effective base of popular support for European influence. Missionaries had been followed by soldiers. And by 1600 Spain ruled the Philippines. The Tokugawa Shogunate was confident that it could control its potential rivals and subjects in Jpan. It was not confident that it could resist the technology, military, and religious power of the Europeans. he country was closed: trade restricted to a very small number of ships allowed access to the port of Nagasaki only, Japanese subjects returning from abroad were executed, foreigners discovered outside of their restricted zone were executed, and Christianity was suppressed. The Tokugawa Shoguns did adopt one more foreign practice: crucifixion--which they saw as a fitting punishment for those who refused to abjure the foreign religion of Christianity. For two and a half centuries the Tokugawa ruled a largely peaceful Japan. Population few. Rice-growing productivity increased. The arts and crafts flourished. rade flourished. The military skills of the samurai warrior class atrophied, Japan's technology fell further and further behind tht of Europe, but the country did not become a European colony.

In 1851 the President of the United States commissioned Commodore Perry to open relations with Japan. American warships enter Tokyo Bay in 1853. There argument for why the Tokugawa Shogunate should change its policy and open up trade was simple: if they did not, the U.S. fleet would burn Tokyo. The Tokugawa Shogunate submitted, and began trying to grasp how to deal with a world in which European powers would no longer permit isolation as an option.

For fifteen years the Tokugawa Shogunate muddled along. Then in 1868 it was overthown by the coup termed the "Meiji restoration." The shogunate was abolished. Theoretically, at least, the Priest- Emperor Meiji resumed the direct rule that his ancestors had turned over to the first Shoguns more than a thousand years before--hence "restoration." In fact Japan was ruled by a shifting coalition of notables interested in absorbing European technology while maintaining Japanese civilization and independence: "western learning with Japanese spirit" in the interest of creating a "rich country with a strong army."

The Priest-Emperors with their imperial court moved to Tokyo, took over the palace of the Tokugawa Shguns, and changed the name of Edo to Tokyo--"the Eastern Capital." There followed the rapid adoption of western organization: prefects, bureaucratic jobs, newspapers, an education ministry, military conscription, railways, and the Gregorian calendar were all in place by 1873. The samurai class's right to receive rents from the peasanst were transformed into bonds--debt owed by the central government. Within a generation inflation had expropriated the samurai. Representative local government was in place by 1879, and a bicameral parliament (with a newly-created peerage) was in place by 1889.

Even as early as 1876 Japan was flexing its muscles as a junior colonial power by putting pressure on Korea. A successful war with China in 1895 made Korea a Japanese protectorate. In 1899 the Japanese government abolished extra-territoriality--the immunity of Europeans from Japanese justice and law. Japan allied with Britain, seeking the role of Britain's viceroy in the North Pacific, in 1902. Disputes with Russia over spheres of influence in Manchuria led to the Russo-Japanese War in 1905. The Japanese were eager to escalate to test their armed forces; the Russians were eager to escalate as well, Czarist ministers believing that a "short victorious war" would solidify support for the Czar. The Japanese won decisively, bringing Manchuria into their sphere of influence. Formal annexation of Korea followed in 1910. And Japan's declaration of war against Germany in World War I brought it rule over all Pacific islands that had been German colonies.

International Migration:

The fall in the price of carrying goods across oceans carried with it a fall in the cost of carrying people across oceans as well. And people did move. International migration has played a signiÞcant role in raising and beginning to equalize material wealth over the past century. Those presently living in Ireland are, compared to Great Britain and the United States, relatively poor. But the descendants of those who lived in Ireland at the start of the nineteenth century are, today, one of the richest groups in the world: less than half of the descendants of the Irish of 1800 live in Ireland today; instead, they are spread throughout America, Britain, and Australia, and they have prospered.

[Descendents of the mid-nineteenth century Irish. Where and how rich]

The half century before 1925 saw perhaps one hundred million people moved from one continent to another in search of a better life. About Þfty million left Europe, largely eastern and southern Europe, for Australia, and the Americas. Perhaps Þfty million (although we are not really sure) left China, India, and other Asian countries for destinations in the Americas, in lands surrounding the South China Sea, and in east Africa. Peru in the late twentieth century could have a President surnamed Fujimori. The author V.S. Naipaul was born not in India but in the Caribbean. The redwood forests of northern California contain shrines to the boddhisatva Guan-Yin.

Tension between descendants of peoples whose ancestors had resided in the areas for somewhat longer (after all, ultimately all humans are indigenous to Africa) and descendants of migrants from China and India has dominated the politics of many countries in the twentieth century. And since World War I migration has been tightly restricted by national governments, and population flows have been much smaller as proportions of the total world population.

[Migrations, gross and net, 1870-1930]

But the roughly one hundred million migrants of 1870-1925 made up one-tenth of the world’s population in 1870. Because the migration stream contained relatively few children and few old people, the 1870-1925 intercontinental migration stream amounted to perhaps one one out of every seven people of working age.

Even before 1925, there were substantial restrictions on the migration of Asians to areas that Europeans considered "their" province of settlement. One of the most popular causes in late nineteenth century America was the restriction of immigration from China and Japan. Railroad barons wished to continue the expansion of the Asian-born population in America. Workers and populists wanted the Chinese, Japanese, and (Asian) Indians kept out of California and on the other side of the PaciÞc. The plutocrats like Leland Stanford (the railroad baron and governor of California who founded and endowed Stanford University in memory of his son) favored immigration; the populists favored exclusion–and "Chinaman go home."

By and large, the populists won. Asian immigrants were largely kept out of what Arthur Lewis calls the "temperate countries of European settlement"–the United States, Canada, Argentina, Chile, Uruguay, Australia, and New Zealand. The flow of migrants out of China and India was directed elsewhere, to the tea plantations of Ceylon or the rubber plantations of Malaysia. Arthur Lewis believes that this redirection of the migration stream had enormous consequences for the distribution of income in the twentieth century world. Europe had escaped the Malthusian trap of low living standards and populations high relative to agricultural resources and technology at perhaps the end of the eighteenth century. The availability of resource-rich settlement areas like Canada and Argentina with Europe-like climates provided a further boost to European living standards: industrializing European countries at the turn of the twentieth century found their land/labor and capital/labor ratios, and thus their productivity levels and living standards, rising as migrants left for America.

India and China, through ill-luck and bad government, had not escaped the Malthusian regime. Technology had advanced: the population of China in the late nineteenth century was some three times what it had been at the start of the second millennium, and living standards were no (or not much) lower. But improvements in productive potential had been absorbed in rising populations, and not in rising living standards.

So potential migrants from China and India were willing to move for what seemed to Europeans to be starvation wages.

Thus the large populations and low levels of material wealth and agricultural productivity in China and India put downward pressure on wages in any of the areas–Malaysia, Indonesia, the Caribbean, or east Africa–open to the Asian migration stream. Workers could be cheaply imported and employed at wages little above the physical subsistence level. These workers would be very happy with their jobs: their opportunities and living standards in Malaysian or African plantations would be far above what they could expect if they returned to India or China.

Low wage costs meant that commodities produced in countries open to Asian immigration were cheap. And competition from the Malaysian rubber plantations pushed down wages in the Brazilian rubber plantations as well. The late nineteenth century saw living standards and wage rates become and remain low (although higher than in China and India) throughout the regions that were to come to be called the third world.

Conversely, the restriction of migration to temperate latitudes to European natives meant that the prices of temperate agricultural commodities–like wheat, beef, and wool–would be relatively high because wages had to be high enough to lure Europeans, with agricultural productivity levels three or four times those of China or India, off the farm and across the ocean. Save for cotton (grown by African-American sharecroppers living at standards closer to physical subsistence than the rest of America cared to know about or cares to remember), temperate economies simply did not produce any of the commodities that could be produced in regions open to Asian migration: they could not compete. Instead, the temperate settler economies concentrated on the resource- and technology-intensive agricultural and mineral products that could nnot be produced closer to the equator.

The politically-set pattern of migration ensured that one set of countries would be relatively rich, and another set relatively poor, as of the beginning of World War I. Since 1900 destinies have diverged further. In most vicious and virtuous circles have acted to push them further toward the nearest edge of the world’s relative income distribution. But some have followed aberrant and surprising trajectories through the world income distribution. The countries in the southern half of South America were first world nations in 1900. They are not so today. Japan, with in 1900 a relatively poor developing economy, is now one of the leading industrial powers.

It is impossible to determine what the world would be like if there had not been substantial restrictions on poor people–Asians–moving to rich countries–Europe and its overeas settler colonies–throughout the twentieth century. California would certainly be very, very different if migration from Asia had been allowed to continue up until the general restrictions on all immigration were imposed in the mid-1920s.

It might have been easier for poor people to move to rich economies than it has proven to be to transfer the political institutions and economic technologies from rich to poor economies in the twentieth century. If so, the world would today be a more equal and a richer place if not for the white Australia and analogous policies of the pre-World War I era, and for the tight restrictions on all kinds of immigration imposed from the 1920's on.

Alternatively, the institutions of political democracy and the capitalist economy in the rich settler countries might have collapsed under the strain of coping with more massive immigration flows, and the resulting increased degree of internal inequality–or so has always been the argument of those favoring immigration restrictions.

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September 04, 2007

Notes: Slouching Towards Utopia 7.7: The World in 1900: Colonization

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Z: **Archived**: Political Economy 101

The Fall 2007 Version, Brad DeLong, Lecturer: Hearst Annex A1, TTh 11-12:30: University of California at Berkeley Brad DeLong's Main Home Page