Slouching Towards Utopia?:
The Economic History of the Twentieth Century
-VIII. How the Pre-World War
I World Economy Worked: Trade and Migration-
J. Bradford DeLong
University of California at Berkeley
and NBER
August 1996
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Industrial Structure:
In Great Britain
alone was the economy primarily industrial at the turn of the twentieth
century. In the United States, and elsewhere in Europe, farmers still made
up the largest single occupational group. More than half the population
still lived in the country, farming the land or providing the basic goods
and services that farmers needed. In the American west, and in the other
countries that Arthur Lewis named "regions of European settlement"-Canada,
Australia, New Zealand, and Argentina-farming was not only the core of the
economy but farmers were very rich, both compared to those dwelling in the
cities and compared to those who had remained in Europe.
The second half of the nineteenth century had seen
a steep decline in the costs of transporting staple commodities across oceans
as the steamship and the iron hull became dominant. Improvements in food
processing and preservation meant that mutton from Argentina and Australia,
beef from the American west, grain, and hides for leather could be produced
on the praries or the pampas and consumed in the growing economies of Europe.
A sharp division of international labor began to emerge: "temperate"
settler colonies, like the western United States, Canada, Australia, and
Argentina, produced and supplied grain, meat, leather, wool, and other high-value
agricultural products to Europe and to the eastern, urban, industrialized
United States; "tropical" regions, like Malaysia, Colombia, Cuba,
Brazil, or Ghana (and to some degree the U.S. south), supplied rubber, coffee,
sugar, vegetable oil, cotton, and other relatively low-value agricultural
products to Europe; Europe paid for its imports by exporting manufactured
goods-some 75% of Britain's exports were manufactured goods in the years
before World War I, and textile exports made up half of Britain's manufacturing
exports.
By contrast, some 40% of United States exports
in 1900 were food, feeds, and beverages; and a futher 35% were industrial
supplies and materials. Industrial supplies and materials would rise to
be fully half of exports by 1910.
The eve of World War I saw agriculture account
for only twelve percent of the British labor force; while manufacturing
and construction accounted for 38%; and distribution and services for 32%.
By contrast, the eve of World War I still saw more than one out of three
Americans at work at work in agriculture, and one in thirty at work in mining.
With the exception of Belgium, other European countries were much closer
to the American than the British pattern in their distribution of the labor
force.
In some ways the economy on the eve of World War
I was amazingly far advanced. Britain burned 194 million tons of coal in
1913; in 1987 it would only burn 116 million tons-and the total coal-equivalent
energy consumption of Britain in 1987 would by only some two-thirds greater
than on the eve of World War I. The U.S. railroads carried passengers some
35 billion miles in 1913: that's 350 miles per person, which indicates a
sizeable use of modern technology for travel even then. (But by 1987 U.S.
airlines would carry passengers some 400 billion miles in a year.)
Relatively cheap ways of making the fundamental
building material of the twentieth century-steel-emerged in the second half
of the nineteenth, with the invention first of the Bessemer process
and then of the Thomas-Gilchrist process. World steel production was some
70 million tons a year by 1913, and would grow to 170 million tons by 1950.
Chemistry as we know it emerged from German universities and laboratories
in the second half of the nineteenth century; by the eve of World War I
Germany produced a full quarter of the world's chemical output; rayon became
an established competitor to silk in the first decades of this century.
On the eve of World War I some 1.7 million passenger
cars were registered, and some 100,000 goods-carrying vehicles were registered
in the United States. But the United States was far ahead of other countries
in its use of internal combustion engine vehicles: there were only some
132,000 passenger cars in Britain.
The years before World War I saw a vast increase
in education, as at least elementary school became the rule for children
in leading-edge economies. And years of education grew as well. In 1910
some 652,000 childen fifteen years and older were still in school in
Britain; in the United States in 1910 some 355,000 were attending college-making
up nearly five percent of their age cohort-in Germany in 1910 some
1,000,000 students were enrolled in post-elementary education.
With the possible exception of Great Britain, a
lack of technically trained and educated workers does not seem to have been
a major contraint on economic or industrial gorwth in the years before World
War I. Much necessary technological knowledge could be (and can today still
be) learned on the job. And the higher wages and salaries paid to trained
engineers and craftsmen induced the boom in education.
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International Trade:
The second half of the nineteenth century had seen
a steep decline in the costs of transporting staple commodities across oceans
as the steamship and the iron hull became dominant. Improvements in food
processing and preservation meant that mutton from Argentina and Australia,
beef from the American west, grain, and hides for leather could be produced
on the praries or the pampas and consumed in the growing economies of Europe.
Falling transport costs led to an integrated world
economy. By 1910 exports of goods and services amounted to more than a quarter
of British, and Australian, and Canadian, national product; and to perhaps
a fifth of German and Italian national product.
Even the enormous and largely closed economy of
the United States managed to import and export roughly five percent
of national product in the years before World War I.
A sharp division of international labor began to
emerge: "temperate" settler colonies, like the western United
States, Canada, Australia, and Argentina, produced and supplied grain, meat,
leather, wool, and other high-value agricultural products to Europe and
to the eastern, urban, industrialized United States; "tropical"
regions, like Malaysia, Colombia, Cuba, Brazil, or Ghana (and to some degree
the U.S. south), supplied rubber, coffee, sugar, vegetable oil, cotton,
and other relatively low-value agricultural products to Europe; Europe paid
for its imports by exporting manufactured goods-some 75% of Britain's exports
were manufactured goods in the years before World War I, and textile exports
made up half of Britain's manufacturing exports.
By contrast, some 40% of United States exports
in 1900 were food, feeds, and beverages; and a futher 35% were industrial
supplies and materials. Industrial supplies and materials would rise to
be fully half of exports by 1910. The pre-World War I U.S. was still more
a supplier of raw materials and a breadbasket than a supplier of manufactured
goods to the rest of the world.
The development of the integrated world economy
brought new industries and new agricultural specialties to all the corners
of the world. As William Ashworth points out, the rubber tree was not introduced
into Malaysia, Indonesia, and Indochina until the last quarter of the nineteenth
century. But by the end of World War I these three regions had become the
principal sources of the world's natural rubber supply. Tea was introduced
to India and Ceylon through a similar process. And the world was covered
with railroads: some 12,000 miles of railroads in Africa, 38,000 miles in
Asia, and 26,000 miles in South America by 1900; some 40,000 miles of railroads
in Africa, 80,000 miles in Asia, and 60,000 miles in South America by 1930.
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.
There seemed to be plenty of scope for following
in the footsteps of the industrial revolution as far as the ability to acquire
and manipulate late-nineteenth century technology was concerned. Yet only
a small share of output in what was to become the third world came from
the industries of the industrial revolution. W. 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 _ourish.
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.
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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 significant 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.
The half century before 1925 saw perhaps one hundred
million people moved from one continent to another in search of a better
life. About fifty million left Europe, largely eastern and southern
Europe, for Australia, and the Americas. Perhaps fifty 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 to Africa alone) 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 _ows have been much smaller
as proportions of the total world population.
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 Pacific.
The plutocrats like Leland Stanford 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 _ow of migrants out of China and India was
directed elsewhere, to the tea plantations of Ceylon or the rubber plantations
of Malaysia.
The Nobel Prize-winning economic historian 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 thee 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. An almost unlimited supply of
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 coul dnot be produced closer to the equator.
The politically-set pattern of migration ensured
that one set of countries would be rich, and another set poor as of the
beginning of World War I. Since 1900 destinies have diverged: the countries
in the southern half of South America are today "Third World"
nations, while they were "First World" nations in 1900. Japan,
in 1900 a Third World nation, 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 "no Chinaman" 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
_ows, and the resulting increased degree of internal inequality-or so has
always been the argument of those favoring immigration restrictions.
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., 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 _ed 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 from the rich industrial
core to the poor periphery, but they do so surprisingly slowly. 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 electric power grid 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.
Moreover, workforces in the industrial core have
an acquaintance with machines, and how they work, which may be lacking in
the periphery. And it may be difficult to enforce an industrial core
pace of work in the periphery. At the turn of the century textile factories
in India and China had eight times as many operatives per machine as in
New England, yet this higher staffing level did not lead to any higher
output per machine shift than in New England.
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