The Anxious Triumph
Page 68
The revolution in transportation meant that ships went faster and could cross the oceans more frequently. There was an improved knowledge of sea currents, the telegraph provided information that enabled ship owners to have a better sense of the stock required and did not need to wait too long in harbours. In the mid-nineteenth century sailing packets made the trip to Europe in twenty-one days, the fastest clippers in fourteen, and steamships in ten days. By the 1880s the Atlantic could be crossed in less than a week.28 Similarly, the railways contributed to the lowering of freight rates. The cost of sending wheat from Chicago to New York fell by 35 per cent between 1868 and 1880.29 There were, everywhere, massive rail-building programmes, all the more necessary since, in 1846, the trip from Paris to Marseille took longer than crossing the Atlantic.30
It was widely understood that the first global crisis of capitalism signalled a great readjustment in the international economy and had trans-national characteristics particularly affecting the great trading nations involved in a ‘universal market’. Karl Marx’s prediction in the Communist Manifesto (‘the need of a constantly expanding market for its products chases the bourgeoisie over the whole surface of the globe’) had turned out to be true. This was to be capitalism’s destiny: from growth to crisis, from crisis to growth, with ‘capitalism’ usually emerging stronger but leaving on the roadside some victims, the poor, yes, but also unlucky or incompetent capitalists. What no one knew was when the next crisis would come about. Would crises occur in a regular cycle, like the seasons, or would they be totally unpredictable? Post-Enlightenment optimism, one of the hallmarks of capitalism, required some attempts to predict the unpredictable – repeated failures simply accelerated the search for a better crystal ball.
Since random events, by definition, cannot be predicted, theorists assumed patterns. The idea of economic cycles is generally attributed to the Swiss economist Jean-Charles de Sismondi in his Nouveaux principes d’économie politique (1819). The French statistician Clément Juglar, one of the earliest cycle theorists, warned in 1862 that it would be difficult to analyse such cycles because ‘whenever we try to isolate the determinant causes, a crowd of occasional causes besiege us, trouble our perception and lead us into the error of taking what is accidental for the very essence of the problem’.31 In fact, in spite of the considerable efforts by talented economists, it proved difficult, almost impossible, to predict the next ‘panic’. This is still the case.
Obviously, for a crisis to become deeper there needs to be interconnectedness among states. If all states were completely self-sufficient, completely isolated from each other – no exports, no imports, no migration – then crises would, of course, still occur, but they would be self-contained. It is the world market that makes global crises possible. And there would be crises even if there were in the world a single state with a single market, with totally free movement of people and capital, no tariffs, no differences in taxes, and with costs only reflecting non-political or customary factors such as distances, weather, local conditions, and so on. For, in this imaginary world state there would still be regional disparities and inequalities in wealth, health, and conditions of existence (after all such differences exist within modern states). And such disparities would lead to political instability unless an effective system of political rules could be enforced between the regions.
Of course, there are those who believe that capitalism can adjust itself with relatively little interference from the political level, that regional and class inequalities sort themselves out (low wages in one part of the state attract investment and/or cause migrants to move to high-wage regions). For those who believe in the smooth functioning of markets the Leibnizian mantra of Professor Pangloss, mocked in Voltaire’s Candide (‘all is for the best in the best of all possible worlds’), holds true.
But what if capitalism itself is unstable, permanently, chronically? What if it does not develop harmoniously? What if the losers do not become winners? What if it is largely a matter of luck? After all, for centuries this is exactly what farmers, totally dependent on the weather (a force over which they have no control), have had to endure. They prayed to the gods and hoped for the best. Sometimes they were lucky and prospered, at other times they were not so lucky and starved. Traders too had to be lucky as they sailed with their goods across the seas. If they arrived safely they could sell their stuff at a good price and become wealthy. If they encountered a serious storm they drowned. Bad luck. And the more social mobility was restricted, as in the past, the more luck comes into the equation: some are born rich aristocrats and can afford to be lazy and do little; others are just born poor and will remain poor regardless of how hard they work.
What happens in the real world is that each state tries to protect ‘its’ economy and some of its citizens, or, at least, the citizens who ‘matter’, namely those who are electorally or economically significant and powerful. And each state must also agree to international rules in order to enable ‘its’ firms to conduct international business. Today there are international and regional agreements which are, in principle, acceptable to all the members, all sovereign states of unequal power. So each must be convinced that the agreements are also to their individual advantage (or that lack of an agreement would be a greater disadvantage) or they must be bullied or cajoled or bribed into submission. Usually economic benefits are very difficult to calculate and are unlikely to be evenly distributed, so that internal discussions and conflicts are almost inevitable. Each state will seek to minimize the negative impact of externalities and maximize their own impact. Protective tariffs are one way of achieving this; another is control over one’s currency, enabling a state artificially to modify its export/import prices. But there are obvious problems with such exercise in sovereign power: if you devalue, or impose protective tariffs, others might do so and everyone would be back at the starting point.
That the world was becoming increasingly interdependent and that sovereignty was a relative concept was obvious to intelligent politicians. Thus, in 1896, as Italy was emerging from its worst crisis since unification, Giovanni Giolitti, five times Prime Minister of Italy, lectured his constituents on the meaning of national sovereignty.32 He explained that a country which has borrowed abroad by selling bonds (such as Italy) was subject to the financial influence of the countries where the bond-holders reside as well as to the bond-holders themselves; crises and political events in those countries will have repercussions even if the debtor country is not responsible. In other words, the debtor country ‘lacks financial independence which is the necessary complement to political independence’.33
Did anti-capitalist forces and the labour movement benefit from the Long Depression? It is difficult to say, since so many factors were involved. In Europe and in the United States strikes were frequent (and often successful) from the end of the Long Depression to the First World War. Trade unions in Europe vastly increased their membership from over 2 million in 1890 to 15.3 million in 1913. By 1919 the numbers had trebled again. The pre-war growth of trade unions was, for obvious reasons, more pronounced in the leading industrial countries: in Germany from 269,000 members in 1890 to nearly 4 million in 1913, in the United Kingdom from 1.5 million in 1890 to 4.1 million in 1913, and in the USA from a mere 50,000 in 1890 to 9 million in 1913.34
Virtually all of the main European socialist parties were formed in the last quarter of the nineteenth century (the British Labour Party is a notable exception) and virtually all of them saw their vote increase in the years leading up to the First World War. But since this was also a period of constant growth in the workforce and in urbanization, it is difficult to know how much to attribute to the effect of the depression and how much to capitalist development. Besides, as we have seen, wages went up and prices went down to the advantage of many workers.
Subsequent crises, such as the Crash of ’29 and the downturn of 2008, far from constituting an ideal scenario for anti-capitalism, were followed by periods of retrenchment of work
ing-class militancy. This, however, was not true for the decades following the 1880s, when unions and socialist parties became ever stronger, though in Britain nothing like the great Chartist movement of the 1840s materialized. In fact Britain, in terms of socialist politics, remained fairly backward, probably because it was home to an ‘enlightened’ Liberal Party that delayed the formation of a Labour Party. Besides, Britain was a beneficiary of the post-1896 recovery: ‘As its industrial supremacy waned, its finance triumphed’, as well as its services as a shipper, trader, insurance broker – all increasingly central to the global economy.35
This led to serious political problems for the governing classes, particularly for the Liberal Party, whose aim was to try to keep together the urban classes (workers and capitalists), while preventing the workers from embracing some kind of socialism. As for the Conservatives, their main problem was to defend landed interests (not just the landlords but also farmers and crofters in Wales and Scotland), while getting closer to the growing urban classes. Protectionism, the Conservatives believed, could be a solution since it would appeal to landed interests as well as to many in industry.36
In France the ‘Long Depression’ did not manifest itself fully until 1882. When it did, all official reports underlined its gravity. There was the fear of a right-wing coup led by Général Boulanger (who was, however, soundly defeated in the elections of 1889). There was a revival of anarchism.37 There was an agricultural crisis, made worse by the ongoing destruction of vineyards by phylloxera (which, having first struck in 1860, reached prosperous Burgundy in 1880). The total areas cultivated with vines shrank by one-third and many small vine growers disappeared. (The problem was eventually resolved by importing aphid-resistant American vines.)38 Commerce was hit and workshops closed. There was social unrest and an increase in strikes, especially at the end of the Long Depression: 634 strikes in 1893 (mainly in textiles and construction) compared to an annual average of 157 in the previous two decades.39 A further increase in strikes occurred in 1899, coinciding with a progressive government, that of Pierre Waldeck-Rousseau, not surprisingly, since ‘friendly’ governments embolden working-class activity.40
In this crisis there were winners and losers. Lower interest rates penalized savers, and Émile Cheysson, a social Christian writer, declared euphorically in 1897 that the era of rentier capitalism was over.41 But this was a little premature: profits already generated by previous generations sustained the development of a rentier class, which lived off interest on capital investments, even in ‘advanced’ England.42 And as Thomas Piketty shows, though inherited income dipped in the period we are examining, it revived massively after 1945.43 Besides, in England, there was another kind of rentier class, denounced by John A. Hobson, the liberal arch-critic of colonialism, mainly domiciled in the south, in the ‘home’ counties, and in seaside towns, who lived off their overseas investments.44
Generally, industrialists regarded themselves as among the losers of the Long Depression, particularly in Germany, where pessimism was rife. Yet the 1873 fall in prices, though significant, was short-lived. The economy picked up during the winter of 1879–80, propelled by the resumption of railway construction in the United States that was profitable for German exports of iron, steel, and coal. But this revival was also short-lived. German producers had to find new markets for their ever cheaper goods, thus lowering their profits. The Long Depression gave impetus to pro-colonial sentiments, to mergers and the formation of vertical cartels, to industrialist pressure for government to compensate for falling profits and, ultimately, to protectionism.45 Landowners were even more alarmed than industrialists, because of the fall in international wheat prices. Germany imported cheaper wheat from Russia and from the United States. German landlords were weakened.46 The crisis of capitalism was far more serious for the aristocracy than for the capitalists.
For countries with a relatively low level of integration in the world economy (such as Russia) the crisis mattered less since exports were not as crucial as elsewhere. Some small countries, though well integrated in the global economy, did very well, and did not need protectionism. Belgium, for instance, exported coal and manufactures and imported food. The government did not have to face powerful rural interests. Its bourgeoisie was in full control.47 Its working class was relatively prosperous. Its insertion in the world market, like that of Britain, meant that it was at the mercy of foreign demand, but not as much as those countries that depended on the export of food and were unable to develop technologically – countries such as those of Latin America or, to take a quite different example, Romania. There the bourgeoisie imported luxury goods (silks, fine cloth, clothing, carriages, glassware), exported primary products, and had a tiny home market. These countries were at the mercy of world markets, had a narrow fiscal basis and, at all times, found it difficult to raise taxes and hence develop a domestic capitalism.
Everyone was faced with a new phenomenon: a world economy governed by world prices; a changing economic power balance where Great Britain was no longer supreme, though its trade was still far larger than that of its main European competitors, Germany and France; an ever-increasing involvement of the state in the economy; and industrialists the world over turning to their governments, begging for help, requesting protection, demanding subsidies, and pointing to other states protecting their economies. They used patriotism, nationalism, the spectre of socialism, and every argument they could find to obtain more ‘state’. A few liberal intellectuals still complained about the state’s being overweening, but most capitalists wanted more of it.
20
Protecting the Economy
The Long Depression of 1873 to 1896 had considerable transnational consequences, unsurprisingly, since the world was increasingly globalized. The most important of these was a turn towards protectionism. Not that the nineteenth century had been entirely committed to free trade. In the early part of the century, trade policy could be described ‘as an ocean of protectionism surrounding a few liberal islands’.1 But the gradual movement towards lower trade barriers that had started in the 1860s went into reverse. A wave of tariffs swept across the developed world.
Protective tariffs were increased or established in Italy, Spain, Austria-Hungary, and Romania in 1878; then in Greece, Switzerland, and Germany in 1879 (and again in Germany in 1890 and 1902); then in France in 1881, 1892, and 1902; and in Russia in 1882 and 1891. In Japan protectionism took the form of large-scale military production for the state.2 The arms race that preceded the First World War was a great opportunity for subsidizing domestic manufacturing enterprises by awarding them military contracts, particularly when it came to shipbuilding. While there was not yet a powerful military-industrial complex able to determine policy, armaments firms, while pursuing a wider global market, were backed by their respective governments.3 In the United States, where the level of protectionism was already high, new tariffs were set in 1883, and again in 1890 with the McKinley Tariff Act. By 1897 the Dingley Tariffs had increased duties to the highest level in the history of the USA (52 per cent) before lowering them again in the years leading to the First World War, though they still remained the highest in the developed world. Protectionism was so entrenched in the USA that even free traders never really expected to remove all trade barriers.4 Even when the 1890 and 1892 elections showed that protectionism was unpopular, Congress did not find the courage to go against vested business interests keen to preserve a high tariff wall.5 One of the consequences was that Great Britain, which in 1850 sent 20 per cent of its exports to the USA, saw these reduced to 6 per cent in 1900.6 Yet Great Britain continued, almost alone (almost, because the Netherlands too had very low tariffs), to resist the trend towards protectionism.
Table 20 compares protective tariffs in 1875, at the onset of the Long Depression, with those in 1913, on the eve of the First World War.
Table 20 Protective Tariffs, c. 1875–1913, in percentage (average)
c. 1875 1913
Austria-Hungary 15�
�20 18
Belgium 9–10 9
Denmark 15–20 14
France 12–15 20
Germany 4–6 13
Italy 8–10 18
Japan 5 30
Netherlands 3–5 4
Russia 15–20 84
Spain 15–20 41
Sweden 3–5 20
Switzerland 4–6 9
United Kingdom 0 0
USA 40–50 44
Source: Paul Bairoch, Victoires et déboires, vol. II: Histoire économique et sociale du monde du XVIe siècle à nos jours, Folio Gallimard, Paris 1997, p. 294.
High-exporting countries such as Belgium and Switzerland were always less protectionist than Italy, Spain, and Russia. In Germany, Bismarck abandoned his liberals allies, made peace with the Catholics, which he had persecuted during the so-called Kulturkampf (see Chapter 16), and turned against the ‘free market’ of which he had never been a fervent supporter. Having previously abolished most tariffs, he reintroduced them in 1879 to protect a wide range of agricultural and industrial goods: what became known as the ‘marriage of iron and rye’, i.e. an informal coalition of large-scale industrialists and the landed aristocracy (Junker). This shift was largely determined by the collapse, in the elections of 1878, of the two main pro-free trade parties, the National Liberal Party and the German Progress Party, and by the triumph of protectionist parties.7 Bismarck followed the trend by casting aside the liberal commercial bourgeoisie in favour of an alliance with protectionist-minded heavy industry.8