The Wealth and Poverty of Nations: Why Some Are So Rich and Some So Poor

by David S. Landes

  Once again, a small European nation surpassed itself, and this achievement reflected both intrinsic capabilities and the highly competitive character of European nation building. Above all, Dutch success reflected an attitude toward work and trade best exemplified by the fable of the Tortoise and the Hare. Loot and prizes were well and good, but what mattered in the long run (never forget the long run) were those small, low-risk gains that add up and do not disappoint.4

  We call it Holland, but the Dutch knew it as the United Provinces of the Netherlands. It was a confederation, the northern half of a collection of cities, counties, and duchies once northern Europe’s most vital and precociously urban civilization, only to become the pawn and prize of feudal bargains and matrimonial accident. In the early seventeenth century, Charles V, Holy Roman Emperor, also became king of Spain through the marriage of his father Philip to Juana, daughter of Ferdinand and Isabella. Charles brought along in his basket of titles and sovereignties the duchy of Burgundy (fruit of another happy alliance). Burgundy, in turn, held sway over the Low Countries. In this roundabout way, one of the wealthiest and most cosmopolitan areas of Europe—hub of industry, trade, and ideas, long free of seigneurial servitudes and accustomed to economic, intellectual, and spiritual diversity—got tied to the short leash of the Spanish Habsburgs. One source of irreconcilable conflict: the ruler of Spain, bound by his country’s past, could never tolerate open Protestant worship in his dominions.5

  It is an irony of history that Dutch and Spanish should do battle. The Low Countries (north and south) had better things to do. These doughty burghers, seamen, fishers, and peasants had become the middlemen of northern Europe. They imported and reexported the primary products of the North Sea, Scandinavia, and eastern Europe: grain, timber, fish, tallow, tar, hides. They manufactured woolen and mixed fabrics and were masters of commercial credit and international finance. Antwerp, great port on the Scheldt, dominated the new maritime economy. It linked an enormous European hinterland to the Atlantic and beyond, sweeping past older centers such as Venice and Genoa to become the ultimate destination of cargoes from new worlds overseas. These might stop first in Lisbon and Seville, but they finished in the Netherlands, there to be absorbed, processed, and redistributed throughout the world.

  On the other hand, this was Spain’s moment on the world stage. The immense inflow of colonial treasure gave the Spanish crown unheard-of sway. Spain was now the greatest power in Europe, and nothing must thwart its claims and ambitions. So when these pesky wool-clad Lowlanders dared to stand up to Spain’s silky representatives, they were dismissed as a bunch of bums (tas de gueux). Spain would spare neither money nor men to show them who was boss.

  That was the world of wealth and guns. But in the realm of belief, two things sharpened the conflict and shaped the fate of this region. First fanaticism and intolerance triumphed in Spain, leading in 1492 to the expulsion of the Jews (later on to a similar expulsion of Muslims). Many of the Jews sought peace and dignity in the Low Countries, which had a reputation for tolerance.

  The second great religious event was the rise of Protestant Christianity as a system of organized worship and belief. Dissent and heresy were an old story, but in 1517, when Martin Luther nailed his “Ninety-five Theses” to the church door in Wittenberg, he struck the first blow for secession. Christendom was headed for breakup. In the decades that followed, Protestants in several countries (the English Lollards had preceded them) translated the Bible into the vernacular. People read and started thinking for themselves, and laymen joined divines in rebellion. Among the areas that took smartly to the new dispensations: the Low Countries, particularly the northern provinces, where dissenters had long been indulged in matters of personal conscience.

  So it was that when Spanish administrators and clerics went north, they found a spiritual diversity and anarchy long since uprooted in Spain. Intolerable. Their response was to punish and suppress, in the face of outrage and against an abundance of good advice. After all, right is right, and one must not sacrifice God to Mammon (except of course in colonial areas). So the Spanish brought in the spies and thought police and soldiery; introduced the Holy Office of the Inquisition into a land that had never known it (1522-23); and ordered a number of exemplary executions that enraged the public and mobilized resistance.

  The inevitable rebellion was led by the Calvinists of the northern provinces, the so-called sea-beggars; the southern provinces, overwhelmingly Catholic, remained more submissive. Even there, however, martial law and an all-intrusive surveillance did violence to an open and free market. In 1576, the southern provinces joined with their Protestant brethren to make war against the intruders. In return the intruders took some important cities—Antwerp and Ghent among them—and put them to the sack in the time-honored mode of sixteenth-century warfare. In a matter of years, the Spanish destroyed Antwerp’s prosperity and provoked a new exodus. Merchants, weavers (who brought the valuable secrets of the “new draperies” to England), Jews, Calvinists—all left. Also Catholics, who understood that even the faithful had no business future in a world of arrogant caballeros and prying friars.

  The southern counties yielded; the northern persisted, and by 1609 effectively won their independence. They were not yet Calvinist in their majority, but the Protestants had led the revolt. In the beginning, the Spanish put down these insolent rebels with a sword swipe and a few cannonades. But in those days the Dutch were made of tough metal. They bent but did not break, and they learned the art of war. And like the Flemish burghers of medieval Courtrai and the Swiss peasantry at Morgarten, Sempach, Murat, Dornach, and other battle venues; like the English longbowmen of Agincourt and the Japanese peasantry against the samurai of Satsuma, they taught the prideful heirs of martial tradition that little people too can fight.

  Amsterdam brought up the rear—-cautious, collaborationist. Not until the war was won did it come over to the side of independence. For all its prudence, however, and perhaps because of it, Amsterdam straightway became the capital of the confederation, the business center. What it lacked in virtue, it made up in good sense. Sometimes lack of principle pays.

  The same for colonial adventure. The Dutch would have preferred to let the Portuguese and Spanish have the blood and glory, while they served as middlemen, agents, processors, distributors, and the like. But when Spain virtually annexed Portugal and closed the ports of Seville and Lisbon to Dutch vessels in 1585, it forced these sober flatlanders to become fighting seamen in alien seas.

  The Hollanders learned by espionage. The key figures were Cornelis de Houtman, seaman and captain, and Jan Huyghen van Linschoten, clerk, traveler, and geographer. Both men spent some years in Portuguese service, because the Portuguese needed all the help they could get and did not understand that Dutchmen were a security risk. When our expatriates returned to Holland, they brought precious information about eastern lands and seas: the shores, rocks, and reefs; the islands and harbors; the routes, winds, and currents; seasonal storms and calms; latitudes and compass bearings; the birds that fly and signal the land; the friends and enemies; the strengths and weaknesses of the Portuguese.

  Then the Dutch set sail. A half-dozen ships went out and came back, some empty, some laden. The main point—it could be done. A half-dozen companies, then four more, were formed, all determined to take the spices and treasures of the Indies. That clearly would not do. They were persuaded to merge. Like the Confederation: in union, strength. So was born in 1602 the Vereenigde Oost-indische Compagnie (VOC), alias Jan Compagnie.

  The Dutch set out to make money by commerce. They found a world where trade was bound to force. No spice could be bought without the benevolence of the local ruler or his agent, who had his own living to worry about. No buy was sure: local rulers would sell the same crop twice. The political rivalries of the region were complex and ephemeral—Muslims vs. infidels, petty chiefs who would be king or sultan, loyalists vs. rebels, with the one becoming the other and then back again. And all of this was
complicated and exacerbated by the actions of other Europeans. The Portuguese, already installed, were ready to bribe, lie, steal, even kill to thwart the Dutch. Likewise the Spanish, coming in through their Philippine back door. And hot on their heels, the English, too few yet to compete for market or territory, but making up for numbers with seamanship and gunnery.

  Everyone in these Eastern waters was half bandit, including the local sea jackals who ambushed the small boats and still in our time prey on defenseless refugees. But the English were the big guns, the pirates’ pirates. No vessel too big for the taking. Not a bad strategy: if you can’t make money in business, you grab from those who do. And moving and maneuvering among these were the locals: Gujrati merchants from India, Arabs from the Red Sea and the Gulf, Malaysians and Indonesians; above all, the Chinese. These last had their hands tied by government interference and corruption back home, but once abroad showed a spirit of enterprise that left rivals far behind.

  So the Dutch learned to fight. Their seamen may have left the Texel as landlubbers, but in the months it took to reach the Indies, they drilled every day, clearing the decks, running the guns into position, hauling ammunition, testing their marksmanship, working the fire-fighting apparatus, getting ready for combat at sea. They would need these skills, if they were fortunate enough to survive the normal hazards of a long sea journey.

  Back in Amsterdam, company directors had little stomach for these costs and risks, which ate up most of the price differential between purchase and sale. Spices, for example, were then worth ten and twelve times in Europe what they brought in the Indies; but once the overhead was factored in, profits fell to less than 100 percent—still substantial, but a far cry from the mirage of expectation.

  To be sure, it was precisely the trammels of this market that accounted for the huge difference in price between origin and consumption. A free, efficient market would have reduced profit margins per unit of merchandise, even while it increased the return to capital. But the VOC would not have liked that either. What Jan Compagnie wanted was to exclude competitors, impose prices in the Indies, and maintain wide differentials between buy and sell. There lay maximum profits. That was not business; that was power and its uses—what the economist calls rent-seeking.

  SOUTH EAST ASIA AND THE INDONESIAN ARCHIPELAGO

  For the Dutch, the great source of treasure was the “Spice Islands”—the Moluccas and Banda islands. That was where the rarest condiments came from—cloves, nutmeg, cinnamon—and laid the basis of monopoly.

  Besides, these men of the VOC were pragmatists. They cheered the prospect of peace with Spain in 1609—finally, after some eighty years of cold and hot war. The peace accord called for a division of turf on the basis of the status quo, and the company wanted to alter the status quo in anticipation. So the directors sent a fast yacht to the Indies to get the word to its agents ahead of the Spanish in the Philippines: Plant factories and agencies wherever possible, by way of posing a claim. Such aggressive spoor-planting was bound to invite clashes, but this was no time to be timid. The VOC wanted above all to establish itself in the Spice Islands, the world’s only source of nutmeg, cloves, and mace. Delivered in India, these spices brought profits ten and fifteen times cost. “The Islands of Banda and the Moluccas are our main target. We recommend most strongly that you tie these islands to the Company, if not by treaty then by force!”6

  Those were the early years, the years of dirty diapers. Once the company had stabilized its position, it came to disapprove of muscular enterprise. But then its agents in the field were there to remind it of the facts of Asian life, at least as they saw them. Here is Jan Pieterszoon Coen, the VOC’s young and forceful proconsul in Batavia, now Jakarta—a city he founded to serve as company headquarters in the Indies (the Dutch Goa) and to control the narrow gateway to the Moluccas known as the Sunda Strait:

  Your Honors should know by experience that trade in Asia must be driven and maintained under the protection and favor of Your Honors’ own weapons, and that the weapons must be paid for by the profits from the trade; so that we cannot carry on trade without war nor war without trade.7

  A generation later, it was the same story. The Delft Chamber of the company deplored the cost in lives and money of the campaigns for Malacca and Ceylon. “A merchant,” they observed, “would do better honorably to increase his talent and send rich cargoes from Asia to the Netherlands, instead of carrying out costly territorial conquests, which are more suitable to crowned heads and mighty monarchs than to merchants greedy of gain.” To which Antonio van Diemen, writing from the Indies, made reply: “There is a great deal of difference between the general and the particular, and between one kind of trade and another. We are taught by daily experience that the Company’s trade in Asia cannot subsist without territorial conquests.”8

  Over the years, the men in the field made like monarchs and the burghers back home wrung their hands. How could the directors make the decisions? It generally took two to three years for instructions to go from Amsterdam to the Indies and for replies to come back. By that time, done was done. The history of overseas empire, and not only for Holland, is largely a story of faits accomplis.

  It would take too long to review the history of these done deeds—of Dutch attacks on the Portuguese (often in connivance with local Muslim rulers), of sallies into Spanish territory, of fights with the English, of pursuit of pirates and practice of piracy (one country’s piracy is another’s police), of punitive expeditions and preemptive strikes against local rulers, of promises and treaties, cross and double cross. Suffice it to say that the Dutch came to “own” the Moluccas (the Spice Islands) and Java while establishing an effective sphere of influence over the rest of the Indonesian archipelago. They also took Ceylon and Formosa (Taiwan) and planted factories along the east coast of India (Coromandel and as far north as Bengal). They did less well on the western side (Malabar)—too close to the Portuguese, who could still defend their own turf. The Dutch tried and failed to snatch Macao too, but eventually got permission (along with others) to trade at Canton; and in Japan they were the only Europeans allowed, on condition that they accept confinement to a tiny island in Nagasaki harbor and submit to condign humiliation. Profit goeth before pride.

  From this experience of combat and commerce, the Dutch drew certain lessons: no one could be trusted, not even one’s fellow Christians (they had good reason to know); and Asians in general and Muslims in particular were lying, thieving scoundrels. In return, other Europeans came to think of the Dutch as avaricious, sanctimonious hypocrites; while the Muslims and other natives were convinced by faith, fear, and contact that no stratagem was too duplicitous for such infidels as these. None of these stereotypes was wholly true or wholly false. Life and work in the Indies did not bring out the best in people. Besides, although the Asians could not know it, they rarely met the best of the Dutch. The VOC recruited to its lower ranks the dregs of Dutch and German society; at the higher levels, the company got the greediest of the greedy. Batavia had a murderous reputation, and no one with a modicum of survivor instinct cared to stay long in these pestilential lands whence few returned. These men had to get rich fast.

  How to tame this understandable voracity? The company thought to inculcate habits of modesty by the exercise of parsimony. It paid niggardly wages. This, needless to say, proved a bad tactic. Greed elicits greed, and the meanness of the company’s directors brought out the worst in its representatives. In the end, these were far more concerned with their own enrichment than with serving their masters back in Amsterdam. A good lawyer would say in their defense that they had no choice. They had to find ways to make money; they had to steal if necessary.

  And so they did. The greater volume of Dutch business in the Indies was not the company’s shipments to and from the Netherlands, but rather the so-called country trade, the movement of cargoes from one Asian point to another: cottons from Coromandel to Indonesia and China, silks from China, Tonkin, India, and Persia to Manila and
on to New Spain (Mexico), bullion and specie from Japan and the Philippines (out of Mexico), tea and gold from China, coffee from Mocha and later Java, slaves from Arakan, Buton, and Bali. And so on. A host of middling and small ships and junks (the Chinese were very busy) tramped the eastern seas, going from port to port as supply and demand suggested. Along with these cargoes went the treasures, purchased and pilfered, that individual sailors carried in their sea chests or hung over gunwales on company and private vessels. These rascals lived like dogs and were treated like dogs (slaves got better care, because slaves were worth money).9 So they traded. Everyone on shipboard was a dealer, and captains and supercargoes had to defend their space from the trespass of private merchandise. They had their own saleables to move.

  One truism of historical evidence: rules that constantly have to be repeated and strengthened are no rules. So here: the VOC was always redefining the quality and quantity of goods that could be shipped back to Holland duty-free and tried to reserve the most valuable commodities to the company. To little avail. As a British historian wrote of similar regulations for the English East India Company, “What came of this egregious arrangement might have been foreseen by the intellect of a moderate-sized rabbit.”10 In spite of occasional seizures and punishments, everyone got away with this illicit trade, if only because everyone, right up to the top, was doing it.