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

by David S. Landes

  In the diversity that was Germany, the nature of serfdom varied. West of the Elbe River, it resembled the French arrangement: generally money rents plus seignorial dues, little or no payment in labor, and freedom of movement. Eastward lay the lands of estate bondage (Gutsuntertänigkeit) and personal (bodily) servitude (Leibeigenschaft); so, no movement except at the pleasure or order of the lord.

  Political events accentuated the difference. The lands west of the Rhine were absorbed for a moment (until 1815) into Revolutionary France, and came and stayed under the new emancipatory dispensation. East of the Rhine, however, the French came and went. They left a memory of foreign oppression that served as justification for the later reimposition of servile obligations. Even so, war and the pursuit of power had their own surprising logic. The most important German political unit east of the Rhine was the kingdom of Prussia, a modern Sparta, an overmilitarized kingdom not given to romantic ideals. Yet Prussia emancipated the serfs in 1809—not because of enlightened attitudes, but rather because it had suffered grievous defeats at the hands of the French army and recognized that serfs will not fight so hard and well as free men.

  In other German states, the taste of freedom had created an instant addiction; reactionaries found little support. The solution, which tried to please everybody, was to free the peasants and buy the landowners off; nothing like cash in the hand to overcome scruples and regrets. Where to find the money? The landowners were generally indemnified by state bonds, which the state then amortized by levies on the peasants over a period of years. (The one issue where reaction was acceptable, even popular, was the status of Jews. There disabilities were restored, and decades were to pass before full emancipation was grudgingly conceded. Even then, public gains were spoiled by private hatred.)

  The other great barrier to mobility in German lands was the division of society into status groups (Stände) of reserved vocation and privilege. The lords had their land, ruled over their serfs and tenants, administered low if not high justice, led soldiers into battle. Merchants held a monopoly of trade but were not permitted to own rural land. The industrial crafts were reserved to properly trained journeymen and masters in the cities and towns. The countryside was peasant and seigneurial turf. The relationship of all this to medieval concepts of the three orders (lords, peasants, clergy), now with urban traders and artisans thrown in, will not have escaped the reader.*

  Much of this was already breaking down in the eighteenth century. Still, one found persistent vestiges into the twentieth, especially in areas where German noblemen could lord it over a Slavic peasantry. In East Elbean Germany in general, lords continued to administer justice and collect fees and fines for their trouble; as the saying had it, the power of the state stopped at the gate to the estate. To be sure, some concessions had been made to the appearances of parliamentary democracy; but much of this was sham. In Prussia, for example, the most important of the German states, elections were held in tripartite colleges that gave hugely disproportionate clout to wealth.

  Farther east, in Poland and Russia, the old ways held on longer, indeed were reinforced by the logic of commercial agriculture and comparative advantage. From the sixteenth century, the open plains of East Elbean Europe became a granary and livestock breeder for the urban centers of the west. The resulting exports (cereals, hides, tallow) stimulated land settlement; with one major hitch: scarcity of labor. Land was far more abundant than people.

  Over a hundred years ago, Russian agrarian scholars pointed out that such disparity was incompatible with large holdings; or as one theoretical economist, picking up on this tradition, put it, three things cannot coexist: free land, free labor, and large estates. Why should peasants sign or stay on as hired labor when they can go off to the frontier and farm their own land?13

  This meant that lords in Russia who wanted to cultivate on a large scale had to fix their workers to the soil. Hence the phenomenon known as the second serfdom—a progressive reinforcement of the peasant’s obligations, reducing him to near-slave status. This policy can be tracked through a succession of decrees, each stronger than the one before, from the sixteenth to the eighteenth century. These deepened the social and political gulf between West and East—the one moving steadily toward greater freedom, the other to petrified servitude. Russia became in effect a huge prison, and with the exception of some months in 1917 and the few years since 1990, it has remained a prison ever since. (It remains to be seen whether the current experiment in democracy will last.)

  Such a system could not work unless no exit. The absence of urban communes with the right to define the status of their inhabitants made all the difference. Such cities and towns as existed were far sparser than in the West and enjoyed neither liberties nor immunities. Emigration was prohibited, except to Jews and other non-Russians. Meanwhile the state and the aristocracy cooperated in catching and returning runaway serfs. (One significant exception: in the eighteenth century, the mining and metallurgical enterprises of the Urals grabbed and kept any loose, breathing male they could lay their hands on. No room for altruism.)

  In general, whenever industry located in empty places, usually to minimize transport costs (also in connection with canal and road projects), the only solution was to move in forced labor. This was Russia’s school for wastage, an anticipation of the gulag. Even in more densely settled areas, where casual layabouts and “street people” could be had for food and booze to do loading, unloading, carting and hauling, steady work called for servile labor assigned to the job. Entire villages, often belonging to the state, were moved about in this way.

  In the long run, of course, the system failed. Unfree labor would not work well or honestly. In the words of a report on the Tula Armory in 1861: “It would seem to be generally indisputable that only free men are capable of honest work. He who from childhood has been forced to work is incapable of assuming responsibility as long as his social condition remains unchanged.”14

  This, more than scale of production, explains the giantism of some of these early enterprises: they needed lots of people because productivity was so low. A better solution was eventually found in the institution of obrok, personal dues paid by serfs detached from the estate to earn a living elsewhere.* This arrangement allowed the serf to keep what he made above the obrok, hence encouraged initiative and diligence. Some even became entrepreneurs, and the best of these could become quite wealthy—thus the Elisseeffs, owners of St. Petersburg’s most luxurious delicatessen, later reduced to “Gastronom No. 1” after confiscation by the Soviets. One of the descendants fled to the United States, became professor of Japanese language and literature at Harvard. Many of these successful serfs paid fortunes to buy their freedom and that of their family, although cunning estate owners often held one or two children back, just in case the serf became even richer.

  The system of servitude, then, was not without its expedients, as the rise of a private factory sector shows. By 1860 an estimated 4 million people were working for wages, plus an indeterminate number of peasant households engaged in industry on a seasonal or part-time basis.15 In effect, the jobs found the workers and bent them to the task and, in some instances, to the lash. Whether the jobs got the skills needed was another matter.

  It is not clear, then, that general emancipation of the serfs in Russia in 1861-66, usually seen as the great economic watershed, made much difference to the supply of bodies; but by obliging enterprises to hire free wage labor (or keep the labor they had), it compelled better treatment and more careful recruitment and opened the way to new technologies and higher standards.16 Opened the way…The way was tortuous and thorny, especially in those branches and enterprises that had long been managed by the state and its agents. Emancipation here was initially partial and halfhearted. Some workers were freed; others kept on. Managers found consolation in illusions: if the best workers left, they were too old anyway and were not interested in making and doing; if the worst drifted away, well, where was the loss? The country was sufferi
ng from a massive institutional hangover, caught between new and old, anticipating by its dualism the schizophrenia of much Third World development in the twentieth century.

  The Organization of Manufacture

  A second medieval legacy was the organization of industry into guilds or corporations. These were bodies of masters and workers, organized perhaps for social or fraternal reasons, but quickly transformed into business associations and collective monopolies.

  Guilds were to be found all over the world—in Europe, but also in Islamic lands, India, China, and Japan. The economic objectives were to control entry, typically via obligatory apprenticeship and limitations on mastership; to uphold quality standards (no amateurs or “botchers” (bunglers) allowed); and to restrict competition both within (limitations on size of workshop and numbers employed) and without (prohibition of nonguild manufacture within the jurisdiction and exclusion of all imports from outside).

  Behind this array of rules lay a set of moral principles, themselves derived from the values of the rural village community and transposed to the urban context. Two considerations dominated: first, the sense of limited resources, whether in land or custom (market demand), hence of a zero-sum game (one person’s gain is someone else’s loss); and second, the priority of moral criteria over commercial. So long as a craftsman did his work conscientiously and to standard, he was entitled to a living.

  Against this good worker ethic, however, beat the forces of greed and ambition—the morality of market and money. As we have seen in our discussion of putting-out, merchants learned to bypass guild restrictions by finding workers in the countryside; or when, as in clock-and watchmaking, the work called for skills not found in cottages, by hiring journeymen (once apprentices, not yet masters) to work in their own rooms or in suburbs outside guild jurisdiction. That was a great weakness of these corporate monopolists: they were closely bound with municipalities and ill-equipped to impose themselves on a changing turf.

  Not that they did not try. In Italy, industrial centers typically annexed the surrounding countryside, and guild controls extended beyond city limits. In the Low Countries (the other great manufacturing center of medieval Europe), urban masters and their henchmen sallied forth into the countryside to break looms and terrorize their rural competition. Such expeditions succeeded only until the country weavers learned to defend themselves, giving blow for blow, and from the seventeenth century on, rural manufacture was tolerated if not recognized. In Germany, the complication of political boundaries was such that every exclusive center had a potential rival next door, only too happy to welcome interlopers, “botchers,” Jews, and similar fee-and taxpaying outlaws.

  In France, on the other hand, the guilds were well placed to defend their interests because they were sanctioned and defended by the crown, partly for fiscal reasons, partly as instruments of social control. The crown’s writ extended almost everywhere.* Even so, maverick masters found ways to bypass constraints. Some of them, for example, enjoyed the kind of reputation that created demand beyond their shop’s capacity. So they hired others to do their work and signed it with their own name. Such outsourcing was strictly forbidden, and occasionally guild representatives came searching, accompanied by bailiffs, confiscated the contraband, fined the culprit. For every master turned in and caught, dozens got away with it.

  Toward the end of the Old Regime, in 1762, the French government formally recognized the status quo and legitimized rural manufacture, while a succession of functionaries tried vainly to abolish corporate privileges or the corporations themselves. In vain; but here again the revolution accomplished what an inept monarchy could not. In 1791, the momentarily laissez-faire government abolished trade and craft corporations—not only workers’ guilds but associations of employers. It was all very progressive and impartial, but over the next three quarters of a century, the law was applied much more strictly against labor unions than against employers’ associations. Not surprising: the first priority was order, which meant keeping those above on top and those below in their place.*

  In Germany, where the guilds had long been bypassed by employers and interlopers, they remained a force in the cities and in divers principalities and kingdoms, and it was not until the formation of the empire in 1870 that they finally gave up the ghost. The issue of their legitimacy was subsumed in a general debate concerning “industrial freedom.” On one side were the liberals and big business, which felt that Germany could not hold its own with modern competitors unless people were free to work, move, and reside where they pleased. What was the point of a German customs union where goods could pass and people not? What good the right to establish mills if there were no hands to hire? On the other side were conservatives and small tradesmen and artisans, fearful of such new forms of enterprise as factories and now department stores. The modern men (among them, the Jews), the free market, open competition, new wealth…these were the enemy.

  These attempts to hold back the future were doomed in a Germany still pursuing power. Power meant engines, machines, modern technologies and the rules to go with them. The balance tilted inexorably toward the apostles of change. The guildsmen had a moment of revival in 1848-49, when revolutionary disturbances gave them an opportunity to make their local power felt. They attempted to reimpose long abandoned or neglected constraints on entry and movement, but failed, essentially because this reactionary move was seen as a blow to order. Besides, the rising commercial and industrial bourgeoisie was in no mood to return to the Middle Ages.

  The dam broke first in relatively backward Austria. The Ministry of Commerce put it bluntly: “…for Austrian industry, which since the fall of the prohibitive system has to struggle in all directions against foreign competition, the grant of complete freedom of movement is no longer a question of mere improvement and greater well-being, but a necessary condition of its ability to compete.”17 If the government still had doubts about the matter, the military defeats in northern Italy drove home the need for reform. War, especially unsuccessful war, concentrates the mind. On 20 December 1859 an imperial patent established freedom of enterprise throughout the Habsburg dominions. The move was contagious. The system of corporate industrial control began collapsing throughout the Germanies. By 1870 and unification, the battle was over.18

  Boundaries and Barriers

  A third major medieval legacy in restraint of trade was the extraordinarily complex array of interferences with transport and travel: river and port tolls; road fees; entrance duties at city gates (“Oxen and Jews: 4 Pfennig”); customs barriers following one upon the other because of the lacework of political boundaries, including enclaves and exclaves; a multiplicity of exemptions and franchises, honored as much in the breach as in the observance.

  Most of the road and river tolls went back to times of political weakness and general insecurity when higher political authority could not prevent robber barons and local jurisdictions from levying on passersby. Once there, only try to remove: the one thing everyone respected was vested interest, because everyone had one, or wanted to have one. Even where higher authority ruled and permission was needed to levy, the right to charge was seen, not as a fee for service or facilities, but as one more source of income, hence a mark of favor to be solicited or bought. We have the story of this Count of the Palatinate, impecunious and importuning, who in 1579 pulled out all the stops in his petition for toll-right: “God have mercy and help us and our six poor uneducated children and our wife with heavy belly full with child.”19

  These tolls, then, did not pay for improvements and maintenance, but were simply extortion; and so well did they return, especially on water routes, that haulers were often compelled to use roads, however poor and slow, even for bulk commodities of low value per weight.

  Equally costly were the delays for inspection and sometimes transshipment—a form of job creation and a pretext for further exactions.

  The maximizing strategy of these brigands-in-guise-of-officials may be inferred from their poli
cy of deliberate uncertainty. Even where tariffs were set, the toll-takers would make it a point not to publish them, the better to levy as opportunity offered.20 (That kind of transaction put a premium on shrewdness and separated the “slick traders” and fast talkers from the easy marks—a selection process, in effect.) The whole system was designed to encourage bribes, including rounds of food and drinks for the boys, which did not help the next boat to get through.

  Needless to say, the local barons and municipal authorities who enjoyed these gains had no desire to give them up by way of easing trade and encouraging business; on the contrary, growing trade was an incentive to increase the tariffs. Such increases invariably drew howls of protest and pain, but no one was ready to crack down even on small gougers; too many glass houses to start throwing stones. The initial result of industrial development, then, was to raise the barriers.

  From the seventeenth century on, the centralizing tendency of European monarchies worked against this racket. One of the primary goals of the new bureaucracies was to erase these levies and interferences, seen not only as restraints of trade, hence tax-eaters, but also as poaching, as lèse-majesté. The British had little to do along these lines: their local tolls had largely disappeared by the fifteenth century; as a result they had the largest national market in Europe. The French needed much more, and the great minister Colbert issued order upon order banning and abolishing this legacy of disorder; to little avail. Once again, it was the revolution that did the job, one hundred years later, clearing the debris of an outworn regime.