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

by David S. Landes

  The native British firms, without affiliates abroad, outsourced less. (The indifference of Morris [later Lord Nuffield] to the opportunity to acquire Volkswagen in 1945, thus a major bridgehead on the Continent, tells volumes.)55 Instead, the British resorted to mergers at home. These were intended to promote a rational division of labor, but in vain. Plants were closed and workers laid off, especially after British banks stopped spending in a lost cause. How to design new models without fresh cash, and how to sell cars without new models? The state stepped in with subsidies, £2,400 million from 1975 to 1984—this, in the heyday of Tory laissez-faire, laissez-crever (leave ’em on their own and let ’em croak).56 To no avail.

  By 1989, British Leyland (renamed Rover Group), the residual conglomerate of a generation of mergers (1936-68) that had just about swallowed the entire home industry, accounted for only 13.6 percent of domestic car sales. Had it not been for foreign transplants, including some Japanese factories using Britain as a springboard to the European Common Market, the British auto manufacture was headed for extinction. As it was, it now depended “on the financial resources, design and production technology, managerial methods, working practices and approaches to industrial relations” of American, French, and especially Japanese multinationals.57

  The explanation for this sad calvary is, as always, multiple. Here is Sidney Pollard: “[In addition to government policy], other factors in the decline have been poor management, complacency, poor industrial relations, an over-fragmented industrial structure, unhelpful financial institutions and a relatively stagnant home market.”58 And the first of all was poor management—another way of saying poor entrepreneurship.

  27

  Winners and…

  The twentieth century divides neatly at two points: 1914 and 1945. The first date marked the start of the so-called Great War—one of the most absurd conflicts in human history. These four years of combat left 10 million dead and many more maimed and stunted. They also took a prosperous and improving Europe and left it prostrate. The tragedy lay in the stupidity of kings, politicians, and generals who sought and misfought the conflict, and in the gullible vanity of people who thought war was a party—a kaleidoscope of handsome uniforms, masculine courage, feminine admiration, dress parades, and the lightheartedness of immortal youth.*

  Colonial wars should have provided a warning, but the use of repeating and automatic weapons against “savages” left the confidence of the white man intact. Still, the Boer War in South Africa, where the British took terrible casualties, should have instilled a prudent fear. Not at all: a decade later, the havoc wrought by machine guns in Flanders fields seems to have come as a great surprise. Obtuse commanders reckoned with impeccable logic that the army with the last troops standing and shooting would win. The generals got promotions, honors, and statues, usually on horseback. Their men died in the mud.

  The losses of war were compounded by the blunders of peace. Perhaps that is unfair, and statesmen and diplomats were stuck with a legacy of hatred and revenge that left little room for reason. Could France be generous to Germany? In 1870, Germany invaded France, and after few casualties and no damage to its own territory, had used its victory to compel an extortionate indemnity. Now Germany had invaded France again, killing well over a million Frenchmen and wasting the richest industrial regions, pulling out as soon as the Allied armies threatened to move on to German land. Could France let them get away with that? How to calculate such losses? How much for vicious intentions? What if the Germans had won?

  And what about the home fronts? The Germans did not surrender in 1918; they concluded an armistice. They had lost, but had not admitted defeat. German (and Austrian) malcontents and chauvinists cried betrayal: we were stabbed in the back. Villains were there for the marking—Jews to begin with, also socialists, and even better, the two together. Meanwhile tsarist Russia had collapsed, first into civil war and then into a Bolshevist regime that fomented in every country a festering conflict between revolution and status quo. The Soviet rulers may have settled momentarily for “revolution in one country,” but agents abroad, working with local socialist parties, posed everywhere an implicit threat to property, hierarchy, and order.

  The response, at the extreme, was fascism—a label of diverse content for a corporatist, status-conscious society under dictatorial rule. The political rhetoric of the day stressed the differences between socialism-communism on the far left, fascism on the far right. In fact, the extremes met and resembled each other: in their contempt for democracy, their pretense to virtue, their abhorrence of bourgeois values, their emphasis on state rather than market direction of the economy. Both sides would have rejected any thought of similarity; but the number of people who managed to slither from the one to the other testified to their compatibility.

  To contemporaries, the year 1945 was one of triumph and defeat, of revelation and ruin, of relief and despair, of joy and sorrow. The war years had witnessed atrocities and cruelties beyond experience: 55 million dead, 35 million wounded, 3 million lost; some 30 million civilian deaths, including 6 million European Jews. Some survivors consoled themselves with the hope that war had become unthinkable. Others nursed incurable wounds and insatiable grievances. Still others set about to make a better world.

  These responses, often fused in the same person, sparked a diversity of objectives and means. The larger goals were the same: restoration and repair, material improvement, peace and happiness. Like motherhood—everyone was in favor. For all the idealistic consensus, however, the world after 1945 was riven by the rivalry between bourgeois, capitalist countries on the one hand, Socialist and Communist societies on the other. This conflict had slept during the war, permitting all to collaborate against a Germany gone berserk in the pursuit of racial “purity” and world dominion.

  The reaction to the German threat had been slow and reluctant. How could the land of Goethe and Beethoven become a cesspool of savagery and a threat to all?* Also, after the folly of the Great War, what could possibly justify another conflict? Fatigue and fear engendered an unconditional tolerance for evil, so long as the victims were strangers and far away. Only when it became clear that Germany’s appetite was growing with the eating, and when the Nazi-Soviet pact freed German’s rear for aggression against the West, did the democratic governments face up to reality and declare war.

  They did not do well; and once Germany had taken just about all of Continental western Europe, it turned eastward against the Soviet Union, which had slept with the devil and now felt his fangs. So democratic (capitalist) and socialist countries joined against the common enemy. The West poured in supplies, played Russian songs, romanticized “Uncle Joe” Stalin and the Red Army, fought a two-front war in the Atlantic and Pacific. Colonial troops helped their masters out. The Soviets did most of the dying: of a population of almost 200 million, more than one out of four was killed or wounded. (The Germans also lost heavily, but that’s the price of trying to take over the world.) Meanwhile the Western Allies unwittingly provided shelter for Soviet spies, both insiders and outsiders. Military collaboration had not removed the underlying differences, and the Communist regime was determined to use the alliance to lay groundwork for postwar success. Even before World War II was over, the cold war between the two systems had begun, or, more accurately, had resumed.

  In the decades that followed, Western market economies put the Great Depression and wartime losses behind them and entered a period of unprecedented growth. Much of this was due to pent-up technological innovation. France-1948, for example, after decades of economic standstill followed by war and occupation, was a tired version of France-1900. Paris, empty of vehicles, needed neither traffic lights nor one-way streets; all cars had to be garaged at night; gas stations hand-cranked the pumps. Many small flats and houses had electrical services as low as 3 amperes—enough for a light bulb, a radio, perhaps an electric iron; anything more would blow the fuse wire. (No ready-made, screw-in fuses. One bought wire of given resistanc
e and wound it around the terminals.) Some Paris dwellings had no electricity, and it was common in apartment buildings to share the privies, inside for the lucky (rich) ones, in the courtyard for the others. (Try walking down and up again five or six flights every time you have serious business. As the French say, it’s good for the legs—ça fait les jambes.) Rich people might have an indoor toilet for their own use, an outdoor privy for the servants; or running hot water for their own use but none for the kitchen. One whole department, the Lozère, admittedly a poor region, had three bathtubs in all—presumably one in the prefecture, another in the “Hotel Moderne,” and who knows where the third. Many places that had tubs used them to store firewood or debris. Refrigerators were little known; people used iceboxes and screened garde-manger (foodboxes). No point to a refrigerator unless one bought for several days at a time; no point to such shopping unless one could find all food needs in one place, and then only if one had a car to carry the comestibles home and an elevator in the apartment building to haul up the bags and bottles. The knee bone was connected to the shin bone, the shin bone to the ankle bone, the ankle bone to the foot bone, and France had not really entered the twentieth century.

  In the next three decades—what came to be known as the trente glorieuses (the thirty wonderful years from 1945 to 1975)—France moved in with alacrity. New construction, new industrial installations, a new road network—new, new, new—all of this was an opportunity to install up-to-date facilities, to electrify and mechanize and motorize. The automobile and telephone told the story. Once seen as luxuries for the rich, they now became necessities. Whereas in 1953, only 8 percent of French workers owned a car, fourteen years later half of them did. From 1954 to 1970, households-with-auto rose from 22.5 to 56.8 percent. Streets filled with cars day and night; vehicles could be seen parked outside farms that, even after the war, had still relied on horses. Rush-hour traffic became a pain and worse, and cities like Paris began to measure air pollution and warn the citizens of unavoidable poisons. No one really cared; the freedom that came with mobility trumped all the rest. Besides, a society that could smoke gauloises could breathe anything.

  Meanwhile the same people who had once sat for hours in a cafe waiting for a long-distance call to go through (and maybe drinking a little and playing cards; the cafetier had to make a living too), now began to have home telephones. They might have to wait a year or two to get their connection. Central switchboards were swamped, particularly in Paris, and the post office, which ran the telephone service, had little sympathy for this rival mode of communication. People renting apartments to foreign vistors made much of the fact that they already had a phone. But not only foreigners; telephones are addictive, and the French can talk with the best. In the end, P.T.T. (Postes, Telegraphs, Telephones) hived off the phone system and the government created France Telecom to deal with these matters—an indispensable first step to autonomy, initiative, and market responsiveness.

  In all this, the French economy grew and changed under government direction and planning (dirigisme, étatisme)—much more than in other European countries. This accorded with national tradition, going back to the Colbertism of the Old Regime and relying heavily on the competitive recruitment of the best and brightest into the grandes écoles—Polytechnique, Mines, Normale; and now a new one: the Ecole Nationale d’Administration, ENA, with its graduating classes of fledgling bureaucrats and rulers-to-be—the one of the as they quickly came to be called.

  Government engineers and functionaries, with and without the cooperation of private enterprise, modernized the infrastructure: roads, railroads, communications, public housing, equipment. The results exceeded expectations, and France in some areas, such as high-speed rail service, set the pace for the rest of the world. Whether such developments were always profitable is not clear; state subsidies, manifest and discreet, obscure the realities of the market. But what a pleasure for the privileged railway passenger, especially one favored by discount ticket prices (state employees, for example), to ride some of the smoothest and fastest lines in the world! France never became a giant maker of standardized industrial products. The French typically bought household machines in Germany and Italy, and as income rose, the richer among them tended to buy their cars from Germany. But France remained the master of quality, making articles set above and apart by taste (in both senses) and beauty. And France, the country, remained one of the world’s most beautiful places to visit, a work of natural and man-made art, a tourist paradise. By the 1990s France had one of the highest standards of living in the world, with income a quarter again as high as that of old rival Great Britain. The old staples had slumped; France did not learn to mass-produce the high-tech devices of the computer age. But wine and cheese and fabrics and fashions remained.

  One sticking point, source of weakness as well as strength: the French are proud. They have their way of doing things and, unlike the British, do not take easily to loss of power. This makes them poor learners of foreign ways. They have their own way. Today, French workers enjoy a generous social safety net and excellent medical and child care, along with strong vested privileges (long paid vacations, early retirement). This, plus cultural advantages, makes France a marvelous country to grow old in. But it also makes employers slow to hire, because every hire is laden with associated costs and potential liabilities. The effect: a high unemployment rate that hits especially hard at the young. The state, concerned for social peace (how does one argue peaceably and reasonably with truckers who block major roads?), would preserve these social arrangements, fears to adulterate them, yet wants more jobs. Such countries as the United States, persuaded of the value of free markets and committed to survival of the fittest, shower the French with advice. The French reply: Get lost; we don’t need any lessons from you. Especially not from you, with your crime, racial antagonisms, imperfect assimilation.

  The German comeback was even more astonishing. The country had suffered heavy war damage, and much of what was left was seized by the Russians, who had good reason to make the losers pay for what they had destroyed and taken—but did not always know what to do with the machines and materials. Heaps were left to rust at roadside. Better junk than German. In 1945, Germans had stopped taking baths for lack of hot water or soap. Young women gave themselves to occupation troops for a pack of cigarettes. Bourgeois in coat and tie could be seen scavenging horse droppings to use as fuel.

  These German hardships and humiliations elicited little sympathy. Some Allied experts called for the pastoralization of the country: no more industry. Others argued that if the country was to pay reparations, some industry was unavoidable—say, half the output of 1938. All such retributive projects fell before the imperatives of cold war: the Western powers needed and wanted Germany. So, unlike the hard, if often futile, enforcement of reparations after World War I, this time the victors offered substantial aid to their defeated enemies. The prospect of Soviet aggression defined everything.

  But one should credit above all the energy and work habits of the defeated Germans. In 1945 their currency was worthless. The only money that mattered was dollars or cigarettes, and American GI’s, smokers or not, were entitled to a carton a week.* (I myself bought a Harley motorcycle, minus generator, for five cartons—strictly against the rules.) The years that followed were marked by hard winters, food and fuel shortages, endless cleanup of rubble, and political repair, if not retribution. And then in 1948 the new Germany issued a new currency, exchanging 1 deutsche Mark for 10 Reichsmark. Price controls came off, and hoarded stocks came out of hiding. The economy took off.1 In twenty years, the deutsche Mark, along with the Swiss franc, became the strongest currency in Europe. New plants sprang up and German goods sold everywhere, enjoying a nonpareil reputation for solidity and design.

  As spectacular as was the German “economic miracle,” the Japanese one was even more so. Destruction and casualties from American bombing were horrific, in large part owing to flammable housing and the tenacious refusal of a pr
oud country, never defeated in war, to acknowledge its situation. Toward the end, the Americans “owned” the skies and could attack at will. Even so, it took the atom bomb to persuade the emperor and many (but even then not all) of his advisers and military to surrender.2

  The Japanese, like the Germans, built their recovery on work, education, determination. They too were helped by American financial assistance; here, as in Europe, the aim was to parry the perceived Russian threat. The rapidity of Japanese development was the more astonishing in that it took place without the advantages of empire. Prewar Japan had been convinced that control of raw materials was a sine qua non of power and wealth, indeed had gone to war to secure this control. Now they had lost everything and found to their surprise what the economists could have told them all along, namely, that raw materials can be delivered on competitive terms anywhere in the world. All it takes is money to buy them. If the Western powers were so difficult before the war, it was because Japan’s militaristic policy invited precautions and reprisals. Now the Japanese learned that they had more to gain by buying than by grabbing.