The Empire Project: The Rise and Fall of the British World-System, 1830–1970 (48 page)

In the decade before the outbreak of war, British leaders exploited the errors and weaknesses of their imperial rivals and the new opportunities of global politics. They reinforced Britain's role as the strategic guardian of her worldwide system and in doing so shored up her imperial authority. But they had not of course devised a final solution to the problem of imperial security. Nor could they rule out extending the territorial burdens over whose vast scope official opinion was always fretting. In the partitioned world, re-partition was likely sooner or later. Portuguese Africa and the Belgian Congo might change hands if their owners went bankrupt or their commercial life became dominated by foreign interests – an outcome that Grey regarded as all but inevitable.
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Indeed, Britain and Germany reached agreement in principle on the division of Portugal's colonies in 1913.
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In the unpartitioned world, the difficulties of an amicable share-out and the risks of collision were considerably greater. In China, the revolution of 1911 had installed an unstable republican regime. The breakdown of central authority and the rise of regional warlords seemed likely to test the cooperation of the outside powers – Britain, Russia, Germany, France, the United States and Japan – even more than the Boxer Rebellion of 1900. Defending Britain's large slice of the Chinese commercial cake was unlikely to grow easier or its diplomatic and military costs less burdensome.
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Most dangerous of all was the political flux in the Near and Middle East. In Persia, it seemed more than likely that the insistent pressure of Russian influence in the north and the gradual detachment of whole provinces like Azerbaijan (where there were 10,000 Russian troops by 1913) from Persian control would be mirrored in a British quasi-protectorate in the south and southwest of the shah's dominions – a tendency that the British oil concession there was bound to accentuate.
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In the Persian Gulf and in the Hedjaz – the seat of the Muslim Holy Places – the British watched uneasily as the new ‘Young Turk’ regime in Constantinople cut down the freedoms of local notables – like the Sherif of Mecca, hereditary guardian of the Holy Places – and drove its railways and garrisons deeper into Arabia. An Ottoman ‘forward policy’ would push up the cost of British influence.
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Worse still, after its catastrophic losses in 1912–13 (Libya, the Dodecanese, Crete and the rest of Ottoman Europe save Eastern Thrace), the Ottoman Empire might become the catspaw of Germany. In the Baghdad Railway agreement of 1914, the British insisted that no German-owned railway be allowed to reach the Gulf and challenge their political and commercial influence there. But here, as in North Persia, the British were well aware that the mutual antagonism of their European rivals was the key to the economical defence of their regional interests.

British leaders had made the best of the new geopolitical universe. They had squared the circle of domestic reform, imperial unity and great power rivalry. Buoyant revenues and diplomatic fortune had come to their rescue. But a real equilibrium had eluded them. Ultimately, their ‘system’ depended upon the stability of great power relations in Europe and the conservative ethos of ‘old diplomacy’. It assumed that general war was improbable and that, if it broke out, neither side could gain decisive victory. It rested upon the accidents of dynastic politics in Central Europe, and the fate of Europe's semi-colonial periphery in the Balkans. But Europe was not the still calm centre of a restless world. And its stresses were soon to erupt with volcanic force.

The political economy of Edwardian Empire

The cohesion of the British world-system depended in the last resort upon Britain's independence and the guarantee of strategic protection offered by her naval and military power. But it was unlikely to last long if the British economy began to lose speed. Yet, by some measures, economic decline seemed to have set in by 1914. The era when Britain had been the unchallenged workshop of the world was over. In Germany and the United States, new industrial economies had grown up. In both iron and steel production (the basic index of industrial power), they had outstripped the first industrial nation. American output was three times as great; German production of crude steel was twice that of Britain by 1910.
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As they industrialised, both Germany and the United States closed their doors to many British-manufactured imports, driving them towards other markets. Worse still, they began to compete strongly in export markets favoured by British manufacturers, especially in Europe, and invaded the home market as well. Not surprisingly, Britain's share of world trade fell steadily. Manufactures began to make up a larger share of British imports, rising to some 25 per cent by 1913. And, while Germany and the United States moved rapidly into the second generation of industrial products – electrical goods, chemicals, motor vehicles – Britain seemed to lag behind. Technological conservatism and excessive dependence upon ‘old-fashioned’ industries like cotton textiles, signalled an apparent loss of managerial dynamism, the onset of commercial sclerosis, and the triumph of a complacent upper-class amateurism over the scientific management demanded by the scale and scope of modern industry.

The implications of failure to compete with the most advanced and successful industrial economies were dire. If the British economy grew less swiftly than its main competitors, British consumers would become (relatively) poorer, and their demand for the commodities of Britain's trading partners in the extra-European world would slacken. If British technology stagnated, then new industries would be slow to emerge when old products like textiles could no longer compete with lower-cost rivals in the industrialising world. If neither exports nor imports kept pace with those of rival powers, Britain would gradually lose its claim to be the marketplace of the world, and the natural terminus of the world's merchant shipping. And, as the profits of trade and industry declined, it might be harder to find the capital for the investment overseas whose proceeds had buoyed up the buying power of the British consumer. Britain's trading partners within and without the Empire would turn instead to new sources of capital, to new and more vigorous markets, and to more up-to-date suppliers of the technologies and manufactures they needed. As the vicious circle tightened, the means to sustain the costly apparatus of world power – the expense of which was subject to constant inflation – would begin to dry up. The allies and associates of the British system would drift at best towards centrifugal autonomy, at worst towards a new constellation of imperial power. The British would enter the well-filled graveyard of empires.

But it is easy to exaggerate the symptoms of commercial decline and misleading to assume that the British economy was competing head on with its American and German counterparts. In trade as in strategy, the interests and capacities of Britain's main rivals limited the sphere of outright confrontation. The peculiar trajectory of British economic development meant that it complemented the growth of new industrial powers as much as competing with them. It was the viability of this ‘economics of coexistence’, rather than a Darwinian struggle for industrial supremacy, that would determine the fate of the British system.

In 1913, the four largest industrial economies in the world were the United States, Britain, Germany and France. The American economy had the largest output (at around £8 billion a year in current prices). Britain and Germany had smaller economies of roughly equal size (different estimates place Britain's GDP at between £2.2 and £2.5 billion, Germany's at £2.8 billion). France trailed some way behind; Russia was an industrial minnow. But this crude ranking conceals important differences. The British had little in common with the other industrial powers. They were still the world's greatest trader. Though their share of world trade had fallen with the huge increase of commercial traffic, they still exported and imported far more than any other state: 40 per cent more than Germany in 1913, nearly 60 per cent more than America. Their share of the world's manufactured exports at 30 per cent was comfortably ahead of both. With commercial primacy went a commanding superiority in shipping and business services. In 1907, they earned from these some £107 million, nine times the American figure. Britain's steam-powered mercantile fleet of over 10 million tons was four times the size of Germany's. British overseas banks were ubiquitous and their financial services indispensable to international business outside Europe and North America.
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Their strength and importance owed much to London's unrivalled status as an international money market. At more than £4 billion, British overseas investment made up some 44 per cent of the world's total of foreign-owned capital in 1913. It was more than twice the size of France's, more than three times Germany's, and six times that of America. And, unlike the investments of the French and Germans, it was to be found not in Europe but spread across the world, in the Americas, India, Africa and the Pacific. Taken together, the income from the export of services and from overseas investments contributed one-third of Britain's external earnings (the rest came from merchandise exports). Net export of services contributed over 5 per cent and net overseas income over 8 per cent of gross domestic product in 1913 – a greater proportion than that of any other major power.
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Thus Britain was quite unlike its main economic rivals. It was not just an industrial state, but an agency state (providing commercial services) and a rentier state as well, drawing a huge proportion of its wealth from these latter functions where the growth of international competition was much less acute. This distinctive pattern reflected Britain's comparative advantage as an economic power. In a seaborne age, its location between Europe and America and its excellent maritime communications made Britain a natural entrepot. A compact landmass and a dense rail network had encouraged simultaneously the growth of specialised industrial districts (like Lancashire, West Yorkshire, the Potteries, the Black Country, Clydeside, Tyneside and South Wales) and a centralised machinery of commerce and finance with its headquarters in London – a winning combination. With the second largest reserves of hard coal (thermally the most efficient) in the developed world, energy for industry and transport was abundant. With a large population, rapid population growth but an agricultural sector that employed proportionately far fewer workers than its German, French and American counterparts, Britain had relocated much of its agricultural production to overseas countries. In the ‘white dominions’ especially, this helped to turn its emigrant demographic surplus into suppliers, customers and borrowers on a grand scale. But it was the enormous growth of world trade and the world economy (to which the British had contributed heavily) that yielded a vital dividend of wealth in the last decade before the First World War.

The value of international trade is usually thought to have increased tenfold between 1850 and 1913. Between 1860 and 1880 it doubled from about £1.5 billion to £3.0 billion. The pace slackened between 1880 and 1900, by which date it had reached nearly £4 billion. Then, between 1900 and 1913, it doubled again to nearly £8 billion.
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This phenomenal commercial growth was driven by the urbanisation and industrialisation of Europe (which accelerated sharply after 1870) and the opening up of new agrarian regions to supply the food and raw materials it needed. The key was the ever-falling cost of transport by sea and rail, the effect of which was initially to drive down the price of many agricultural commodities. But, after 1896, when wheat reached its lowest price for a century, commodity prices recovered, setting off the long boom in world trade up to 1913. As rural producers around the world reaped richer rewards, they bought more imports and borrowed more money. Vast new tracts of land in Argentina and the Canadian West were cultivated. Wheat was exported from India to Europe. West African farmers took up cocoa. The demand for rubber and oil began to soar.

Not surprisingly, in such dynamic conditions, the demand for capital became intense. It was needed above all to finance the transport infrastructure without which development would be retarded, curtailing the profits of speculation in land, mines and urban property. Commodity-producing regions competed furiously to bring their goods to market and capture the largest share. They needed the services of shipping lines, shipping agents, insurers, banks and brokers. They needed the fast accurate commercial information provided by the telegraph. In turn, they spent much of the proceeds of their newfound wealth on consumer goods, especially clothes and cotton goods which, in non-industrial countries, typically made up between 15 and 30 per cent of imports.
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And, as the traffic in trade, capital and commercial information grew in scale and velocity, they experienced its ‘globalising’ effects. Their port-cities, the hinge between hinterland and world market, swelled in size and importance, especially those on the great trunk routes of maritime trade across the North Atlantic, to the River Plate and eastward via Colombo to Singapore, Hong Kong and Yokohama. Commercial elites waxed richer and their views more influential. Diasporas expanded and prospered as their networks became more valuable. Information, fashion, opinion and news were more widely, swiftly and sometimes accurately disseminated.

The principal great power beneficiary of these trends was Britain. The growth of world trade after 1900 was a huge opportunity. British steamship tonnage rose from 7.2 million in 1900 to 11.2 million in 1913.
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The ‘invisible’ income from commercial services shot up from £109 million to over £168 million.
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The value of British exports rose from £291 million to £525 million,
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forming by 1913 some 25 per cent of GDP.
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The total of British investment overseas all but doubled, and so did the income that it yielded – from £103 million to £199 million. Returns on investment abroad was now twice the figure for 1873, and four times that of the 1850s.
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The overall surplus on the balance of payments (current account) climbed like a rocket from £37 million in 1900 to £224 million in 1913,
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creating a huge new fund for investment overseas. And, as if to reflect the broadening stream of trade and capital, the number of emigrants from the British Isles to extra-European countries now reached its highest level in the last three years of peace, with Canada, Australia and New Zealand as the most popular destinations.
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