The significance of this pool of talent combined with enterprise and a research-oriented culture shows up well in the story of artificial indigo. Here was a logical candidate for synthesis: a major colorant, carbon compound, derived at high cost from exotic plants (woad and others). In 1880, Professor A. Baeyer synthesized it and sold the process to BASF and Hoechst, which decided there was enough to share and pooled resources. They needed each other. Seventeen years, 152 patents, and many millions of marks later, the two firms still did not have a commercially feasible technique. One dead end used a different synthesis, also by Baeyer; but it required so much toluene that the coal-tar industry could not have supplied it without flooding the market with such co-products as benzene and naphthalene. Waste products are the curse of the chemical industry and the people who live near it. They are also a powerful stimulant to new research.20
At this point, BASF and Hoechst turned to a method worked out at the ETH (Eidgenössische Technische Hochschule, also known as the Polytechnic) in Zurich, which took its departure from naphthalene, then an almost worthless by-product of the distillation of coal tar. But this too posed practical and commercial problems that took years to solve. BASF went one way; Hoechst, which was entitled to use their process, took another path, once again based on research at the Zurich Poly. BASF got into production earlier (1897, as against 1904), but the Hoechst technique proved the better. In chemistry as in business, there is more than one way to skin a cat.
Here as in so many other instances, the new technique spelled disaster for older methods and the people who lived by them. Within three years, BASF was producing as much indigo as could be got from 250,000 acres. The big losers in this instance were the Indians who grew and exported the natural product: 187,000 tons in 1895-96; 11,000 in 1913-14. The price of the dye had been halved.21
By World War I, Germany had left the rest of the world far behind in modern chemistry—so far behind that even the confiscation of German industrial patents during that war did not immediately benefit competitors overseas. The biggest American firms, with the best American chemical engineers, did not know what to do with them or how to make them work. So in the twenties, they hired away German chemists. Industrial espionage back in the saddle.
19
Frontiers
In 1700, product per head in Mexico was worth about 450 U.S. 1985 dollars; in the colonies that would become the United States, product was somewhat larger, say $490; and in the booming sugar colony of Barbados, the figure was substantially higher, $736. One hundred years later, Mexico was still at $450, and the United States was at $807. By 1989, the United States had drawn far ahead: GDP of $3,500 for Mexico, $5350 for Barbados, $18,300 for the United States.1
The Industrial Revolution came to a world still relatively empty—at least by comparison with the population densities we know today. Within this world, of course, concentrations varied, from the thicker settlement of China, India, and parts of northwestern Europe, to the wide spaces of central Asia, Australia, and the Americas. The reasons for this variance were largely geographical and technological: populations moved to and multiplied best in favorable climes, on fertile soils, using techniques of cultivation that seized the natural potential. Political considerations also played a role. In Europe, for example, the potentially rich Danubian plain of the early eighteenth century lay quite open. Ending hundreds of years of misrule, the Ottomans had abruptly withdrawn after the failed second siege of Vienna (1685). Half a century later, the Russians opened the great Ukrainian breadbasket by driving back the nomadic peoples that had roamed and vaguely ruled these wide spaces since the days of the Golden Horde (mid-thirteenth century).
The biggest frontiers, however, waited overseas: the Americas above all, but also lesser spaces in Australia and southern Africa. None of these lands was empty when the Europeans arrived. Everywhere, indigenous peoples tilled the soil, raised their livestock, or just hunted and gathered. But again, densities of settlement varied, dictating the opportunity and circumstances of invasion. In the Americas, a few areas were thickly settled—the valley of Mexico, the Peruvian hill country, some Caribbean islands. Ordinarily such densities would have precluded conquest, as they did in Asia, but the technological and political weaknesses of the native American population made them vulnerable. Imported pathogens did the rest. Elsewhere in the Americas, as in the northern latitudes that became the United States and Canada, low densities gave way to superior armament and organization. For the Indians, the white man was stealing their land; for the white man, the land lay before them for the taking, a boundless, profitable frontier.
Economists see the factors of production as land, labor, and capital. Land subsumes not only surface area but the resources that lie underneath; and from the point of view of economic development, the salient characteristics of a frontier region are space, soil, and wealth of materials. These in turn set opportunities and constraints: such lands can yield abundance of primary products per head of population, but only if they can get the necessary labor. They want people, whom they often draw by offering incentives to migration: free or cheap land in particular, but also higher wages, higher status, and political rights. (This was a crucial aspect of the improvement of status and tenure in medieval Europe.) And if voluntary labor does not come, they will import people by force, paying slave traders or recruiters to do the dirty work.
Once the factors of production assembled, frontier lands typically yield crops and other primary products far in excess of the needs of the population. These surpluses then become tradables. These economies can make so much more money producing cash crops for export than by devoting themselves to subsistence farming that it pays them to trade food security for income. (Witness the sugar islands of the Caribbean, which devoted every square inch to cane and imported victuals from as far away as Europe.)
The pursuit of this strategy by a number of fledgling economies has led to a staples theory, or “vent for surplus” argument.* The idea: one starts with earnings from export of primary products, which raise incomes at home. Higher incomes in turn promote a market for manufactures while financing the development of an industrial sector and a more balanced economy. (Much depends on the distribution of income in the staples producer. The less equal, the smaller the market for manufactures. Thus a plantation economy will not generate much industrial demand: the estate owners will buy luxury goods for themselves and spend a minimum to clothe and house their slaves.)
The staples model was first put forward by Harold Innes to explain Canadian performance in terms of a succession of export staples: first furs (seventeenth and eighteenth centuries), then timber (late eighteenth and nineteenth), and finally cereals (mid-and late-nineteenth century). Similar schemas have since been put forward for Sweden (timber, copper, iron), the United States (tobacco and cotton, then wheat), Australia (wool, meat, wheat), Argentina (hides, tallow, meat, grain), Meiji Japan (silk), even medieval England (wool).2 And one could conceive of parallel developments taking place in oil-producing nations today.
But like most good economic theories, vent for surplus models have a tautological aspect: they explain best what fits best. Just because an economy earns by export of primary products does not mean that it will then use this income well to promote development. There’s the rub: invest or spend? And even if one decides to invest, who says that the money will go to the right activities? Besides, what is right? Stay with staples and maximize comparative advantage? Or aim at balanced development, that is, take less now for more later?
The history of frontier economies in the Americas and their success in industrialization is a case study in the power and weakness of staples theory. On the one hand, we have the United States and Canada—high-income, developed economies; on the other, the fragments of the old Spanish empire plus the former Portuguese colony of Brazil. In the beginning these southern countries were richer and more populous; today they lag far behind, and although they are finally beginning to modernize, few would pred
ict their rapid convergence with the North American republics, even with the help of such common markets as NAFTA.
The divergent story of North America (ex-British) on the one hand, Latin America (ex-Spanish and Portuguese) on the other, needs multiple explanation. Economists would not always have it so. For them, one good reason is enough, and where the Americas are concerned, the best reason is resources. These frontier lands abounded in natural wealth, but this wealth proved differentially useful in the context of the new industrial technologies. Here the United States came out best: large expanses of fertile, virgin land; a fine climate for growing a crucial industrial-entry raw material, namely, cotton; rich deposits of the key ingredients for ferrous metallurgy; plenty of wood and coal for fuel, plus generous waterpower all along the east coast; an abundance of petroleum, valuable from the mid-nineteenth century for light, as lubricant, and above all as fuel for internal combustion motors; copper ores in quantity, ready by the end of the nineteenth century for the burgeoning demands of electrical power, motors, and transmission. And along with this went relatively convenient lines of access and communication: a well-indented coastline punctuated by superb harbors, large rivers (above all, the Mississippi and its affluents), and wide plains. The only serious mountain barrier between the Atlantic and the Rockies was the Appalachians, and here a number of gaps opened to trade and travel, in particular, the breach made by the Hudson River and the flat stretch to the Great Lakes. Here man was able to improve on nature, as the Erie Canal and railroads opened the Middle West to Middle Atlantic ports.
In these respects, the United States was more favored than other parts of the New World. No other country had iron and coal, for example, in proximity; no other had comparable natural ways of transport and communication. By comparison, Mexico is a puzzle of mountains, plateaus, and deserts—not without its good places but poorly joined, as railway builders found out. Much of Brazil is tropical and subtropical, so that the awesome Amazon river basin is even now penetrated with difficulty. Argentina is the country most comparable to the United States in its natural features and accessibility; but immigration there was long impeded and the key industrial raw materials are wanting.
One could, then, argue, as numerous economists have, that American priority in development was predetermined by nature—the luck of the draw. Recently, however, scholars have advanced a more complex geographical explanation, one that links natural circumstances to culture and institutions.3 The argument here is that geography dictates crops and the mode of cultivation, hence the nature of land tenure and the distribution of wealth; while these in turn are critical to the pace and character of development. Where society is divided between a privileged few landowners and a large mass of poor, dependent, perhaps unfree laborers—in effect, between a school for laziness (or self-indulgence) over against a slough of despond—what the incentive to change and improve? At the top, a lofty indifference; below, the resignation of despair. Now and then, resistance breaks out and gives the elites and their soldiers opportunity to practice the martial arts; while religion offers the consolation of a better world after death.
This was not the case in the northern United States, nor in Canada alongside. They had the paradoxical advantage of a climate that limited cultivation to grains and yielded little at first in the way of an exportable surplus. Economies of scale were negligible, at least before the invention of mechanical technologies, so that holdings were small, often no larger than subsistence, and more or less evenly distributed.* Such equality did not always please those of aristocratic inclinations. In 1765, a British visitor to New England, Lord Adam Gordon, frowned his disapproval: “…the levelling principle here, everywhere, operates strongly and takes the lead. Everybody has property, and everybody knows it.”4
In addition, quasi-free land and scarce labor made for high wages and hard recruitment in both country and town, as Adam Smith observed:
…the disproportion between the great extent of the land and the small number of the people, which commonly takes place in new colonies, makes it difficult for him [the proprietor] to get this labour. He does not, therefore, dispute about wages, but is willing to employ labour at any price. The high wages of labour encourage population. The cheapness and plenty of good land encourage improvement, and enable the proprietor to pay those high wages.5
Farm wages and land prices, of course, set a floor for urban wages—otherwise, how hold the labor?—while the very growth of such a frontier economy pushed wages up.* Here is Smith again:
It is not, accordingly, in the richest countries, but in the most thriving, or in those which are growing rich the fastest, that the wages of labour are highest. England is certainly, in the present times, a much richer country than any part of North America. The wages of labour, however, are much higher in North America than in any part of England.6
America’s society of smallholders and relatively well-paid workers was a seedbed of democracy and enterprise. Equality bred self-esteem, ambition, a readiness to enter and compete in the marketplace, a spirit of individualism and contentiousness. At the same time, smallholdings encouraged technical self-sufficiency and the handyman, fix-it mentality. Every farm had its workshop and anvil, its gadgets and cunning improvements.† Ingenuity brought not only comfort and income but also status and prestige. Good workers were the envy of their neighbors, the heroes of the community. Meanwhile high wages enhanced the incentive to substitute capital for labor, machines for men.
As a result, the new technologies of the Industrial Revolution found fertile ground in the American colonies and then the United States. Even earlier, the need for self-sufficiency in an age of slow and intermittent communication gave rise to local manufacture. Listen to a report of 1681 on the quickness of Quaker settlers to engage in industry: “…they have also coopers, smiths, bricklayers, wheelwrights, plowrights and millwrights, ship carpenters and other trades, which work upon what the country produces for manufactories…. There are iron-houses, and a Furnace and Forging Mill already set up in East-Jersey, where they make iron.” Another report of 1698 speaks of cloth manufacture: in the Quaker communities of Burlington and Salem, “cloth workers were making very good serges, druggets, crapes, camblets, plushes and other woolen cloths. Entire families engaged in such manufactures, using wool and linen of their own raising.”7
New England and the middle colonies of Pennsylvania and New Jersey became the “industrial heartlands” of the new nation. Ironmaking got its start in the 1640s (bog iron on the Saugus [at Lynn] in Massachusetts), only two decades after the Pilgrims’ landing at Plymouth.8 By the time of the revolution (1770s), some two hundred iron forges were in operation in Britain’s American colonies, and the annual make was some 30,000 tons. Only Britain, France, Sweden, and Russia made more. Along with smelting went refining, hammering, cutting, slitting, rolling, and the sundry other operations that turn iron into tools and objects. Inevitably, the demand for British metallurgical products fell sharply, leading British manufacturers to petition Parliament for laws prohibiting colonial manufacture. As much command the tides. Such laws only sensitized the colonists to the injustice of their subordinate status and of government without representation; also to the importance of economic autonomy. As Benjamin Rush, doctor and civic leader in Pennsylvania, put it in 1775: “A people who are dependent on foreigners for food or clothes must always be subject to them.”9
One focus of colonial industry was to cost the British dear. The colonials made guns—muskets to begin with, and increasingly rifles, which along with hunting from childhood, gave them a substantial edge in marksmanship, an edge that would persist into the twentieth century. Guns had their particular virtues in a frontier society, to the point where some of the colonies imposed an obligation to bear arms, even to church. (Again, one has here a strong and persistent cultural characteristic, as witness the present-day opposition to gun control.)
Demand, however, did not assure supply. Culture matters. The people of the South and of bac
kwoods Appalachia went more heavily armed, but the guns were made in the northern colonies. The reason was simple: that was where the skills and tools were. By the time the South went to war against the Union in 1861, firearms production in the North outweighed that in the Confederacy by 32 to l.10
One sees in these early gunshops a hint of things to come: so great was the demand for weapons that long before powered machine tools became available, division of labor was enhancing productivity. The later interest of the young American republic in the mass production of small arms using interchangeable parts was anticipated well before the revolution.
Thus the colonists imported and copied models of European devices and machines, and skilled machinists and craftsmen were invited, or sought on their own account, to move to high American wages. Here the North American colonies were helped by their anglophone culture: Britain boasted the most inventive society in Europe, and British immigrants felt at home in a society speaking the same language. The Germans also contributed. The Quakers of Pennsylvania had made it a point to encourage people of like faith on the European continent to join them in the New World, and these too (the so-called Pennsylvania Dutch) brought with them manual crafts and skills. By comparison, would-be-aristocratic Virginia, the nostalgic “Old Dominion,” with its large plantations and indentured labor, found it hard to attract such people; and the crystallization of slavery only made matters worse.
(The technological dependency of the South persisted long after the end of the Civil War and the transplantation there of manufacturing industry from older centers in the Northeast, usually owned and financed from outside the region. These enterprises, typically marked by low output and value-added per worker, were mostly found in such low-tech branches as cotton and lumber. This tardy shift has given rise to diverse explanations, bearing mostly on natural resources, the low cost of labor, and the absence of trade unions. Some scholars have seen the process as an expression of economic colonialism or dependency, and many would account for the lag by anti-industrial values and culture inherited from a slave society. To which I would add the paucity of inventive activity and entrepreneurial talent.)11
The Wealth and Poverty of Nations: Why Some Are So Rich and Some So Poor Page 35