Industrialization and the World Economy

Almost as a byproduct of industrialization and nationalism, Europe entered its third great expansion into the world in the last half of the nineteenth century. The first great expansion had been the crusades; the second the expansion of European population, culture, and influence into the Americas and Asia during the Age of Discovery. The third expansion was the most dramatic and most aggressive; it was based on a stream of European products, people, and ideas flowing from Europe to other parts of the world.

The third great expansion had economic beginnings. With the industrial revolution, the ability of European industry to produce had increased exponentially. Those areas of the world that industrialized increased their wealth and power enormously in comparison to those who did not. As a result, a gap developed between the developed industrialized nations of the world and the non-industrialized "developing" areas, such as Africa, Asia, and Latin America. Three important elements must be born in mind:

World trade grew at a prodigious rate in the late nineteenth century. In 1913, the value of world trade was $38 Billion; twenty five times greater than it had been in 1800. If one considers that the average price of manufactured goods had actually decreased during that time, the disparity appears even greater. Great Britain took the lead in using trade to tie the world together economically. Britain had a large empire including India, Canada, and Australia. The breakthroughs of the Industrial Revolution allowed Britain to manufacture cotton textiles, iron, and other goods more cheaply and as a result, production soon outstripped demand in domestic markets. So, European manufacturers sought markets elsewhere in the world. Cotton Textiles are a case in point. In 1820, Britain exported 50 per cent of its textile production. Europe bought 50 percent, while India bought only 6 percent. Then, as protective tariffs were erected in the United States and other European countries against British textiles, manufacturers aggressively sought other markets in non-European areas. In 1850, India was buying 25 per cent of British textiles and Europe only 16 per cent. Since India was a British colony, it could not erect tariffs to protect its own textile industry, and as a result, many Indian weavers were put out of work by cheap British textiles.

At the same time, Britain became a consumer nation, and with the repeal of the Corn Laws, Britain became a world market. Britain resisted tariffs as it was believed that it must purchase if it were to sell on world markets. Free access to British markets stimulated growth in mines and plantations in many non-western countries.

British industrial development was aided by the invention of the steam engine and railroads, which made transportation costs considerably cheaper. Passenger and freight rates plummeted when steam engines cut the cost of transportation in half. "Tramp Steamers" were used for trans-oceanic transport, which carried cargoes all over the world. An example is a ship which left England in 1910 carrying rails and general freight to western Australia. From there it carried Lumber to Melbourne in southeastern Australia, then it took on harvester combines for Argentina. In Buenos Aires it took on Wheat for Calcutta, India; and from Calcutta it carried industrial products to Australia before returning to England with lead, wool, and wheat. The entire voyage took seventy two months and traversed 72,000 miles, almost three times around the earth at the equator.

The invention of refrigerator railroad cars and ships allowed the shipment of large amounts of beef and mutton to European consumers, as well as spices, tea, sugar, and coffee. Also, jute, rubber, cotton and coconut oil was shipped to Europe in large quantities. Trade was enormously facilitated by the opening of the Suez and Panama canals as well as investment in modern port facilities which made loading and unloading cheaper, faster, and more dependable. Transoceanic cable lines allowed rapid communication with other parts of the world.

Foreign investment was encouraged by the expanding European economy. European capitalists began investing large sums of money in foreign enterprises. Before 1914, Great Britain invested seven percent of its annual national income abroad, slightly more than it invested in its entire domestic economy. The most profitable investments were in railroads, ports, and utilities necessary to settle vacant lands. Most investments went to the U.S., Canada, Australia, New Zealand, or other European countries. A third of the investment to develop American railroads was European money.

The Opening of China and Japan:  The Chinese were traditionally a self-sufficient culture. They had sent more goods and inventions to Europe than they received for centuries. Europeans, particularly the English, had developed a taste for Chinese tea, but had to pay for it with hard silver; China had no interest in purchasing European goods. The Manchu Dynasty which ruled China carefully regulated trade with Europe. The Manchu government was more concerned with isolating and controlling the "sea barbarians" as they called European traders than in commercial exchange. It considered European states "inferior," and refused to establish diplomatic relations. All foreign merchants were required to live in the city of Canton, and could buy and sell only with the local merchant monopoly. The export of silver and import of anything the government considered harmful, such as opium, was strictly forbidden.

The British grew opium legally in India, and found that the Chinese had a taste for it, even though the trade was illegal. They often smuggled it in by means of fast ships and local officials who were susceptible to bribes. The trade grew and merchants grew rich in the illegal trade. As they grew richer, they more and more resented the efforts of the Chinese government to stop the opium traffic. By 1836, British merchants planned to establish an independent British colony in China and "safe and unrestricted liberty" in trade. They pressured the British government to take action on their behalf.

At the same time as the British decided to entrench their position, the Manchu Government decided to eradicate the country of the Opium trade, which it considered ruinous to the people and was also stripping the empire of its silver supply, which was going to pay for the stuff. In 1839, the government sent a special envoy, Lin Tse-shu, who ordered the foreign merchants to obey Chinese laws "for our great unified Manchu Empire regards itself as responsible for the habits and morals of its subjects and cannot rest content to see any of them become victims of deadly poison." Characteristically, the British refused and were expelled from the country. War soon broke out.

The British used troops from India and soon occupied several coastal cities. China was forced to surrender, and by the terms of the Treaty of Nanking (1842), China was forced to cede the Island of Hong Kong to Britain forever, pay an indemnity of $100 million, and open up four large cities to foreign trade with low tariffs. Although trade flourished, China still considered itself superior to the barbarian Europeans, and refused to accept foreign diplomats in Peking, the imperial capital. A second war broke out in 1856 and 1860, during which British and French troops occupied Peking and intentionally burned the Emperor's summer palace. The treaty ending the hostilities forced the Chinese to accept trade on very unfavorable terms and Europeans were given greater access to Chinese markets.

Japan had even less use for Europeans and Americans than the Chinese. Europeans had had some contact with the Japanese since 1640, but they were not welcomed. The Japanese government had attempted to seal the country off from all European influence. Japanese Christians were severely persecuted and all but a few Dutch merchants were expelled. Those who remained were confined to a single port and rigidly controlled. An order of 1825 commanded Japanese officials to "drive away foreign vessels without second thought."

This practice seemed hostile and barbaric to many Western countries, particularly the United States. Whaling ships in the area often had to be provisioned, and oftentimes they would wreck on the Japanese coastline. Americans were also caught up in the idea of Manifest Destiny after having taken land from Mexico in 1848; most felt they were destined to play a great role in the Pacific as well. Many Americans considered it their duty to "civilize" the Japanese and force them to share their ports.

Several attempts were made to negotiate with the Japanese, but all failed. In 1853, Commodore Matthew Perry steamed into Tokyo Bay and demanded diplomatic negotiations with the Emperor. Although many officials urged resistance, the Japanese knew they did not have the fire power to resist bombardment from navy ships. Many Japanese buildings were made of wood and paper, and would be easily destroyed if Perry's ships opened fire. The Japanese were humiliated and shocked, but signed a treaty that opened two ports and allowed trade with American merchants. New treaties over five years expanded the rights of European and American traders. Thus, Japan was "opened" for business. The Americans had opened Japan with only the threat of war; the British had used actual force in China.

Western Penetration in Egypt:  Egypt had been ruled by a succession of foreigners since 525 B.C., most recently the Ottoman Turks. A Turkish General, Muhammad Ali had ruled after the departure of French forces under Napoleon, who disposed of political rivals and set out to build his on state with a powerful army organized along European lines. He hired French and Italian army officers to train soldiers and reformed the government. By the time he died in 1848, Muhammad had established a strong, virtually independent Egyptian state to be ruled by his family on a hereditary basis within the Turkish empire.

Ali's  policies of modernization attracted large numbers of Europeans. Alexandria had over 50, 000 Europeans by 1864, who served as army officers, engineers, doctors, government officials, and police officers. To pay for his modern army as well as for European services and manufactured goods, Ali encouraged the development of commercial agriculture for European markets. Most "modern" agriculture was confined to large estates, largely to the detriment of Egyptian peasants who had farmed for a subsistence living.

Ali was succeeded by his grandson, Ismail, who wanted to modernize Egypt along Western lines. Under his leaderships, production of cotton and exportation to Europe skyrocketed, and the Suez canal was completed by a French company in 1869. Opera houses, Western hotels, etc developed all over Cairo, such that Ismail proclaimed, "My country is no longer in Africa; we now form part of Europe." However, he had borrowed heavily to modernize Egypt, and the country could not even pay the interest on its massive foreign debt. Rather than see the debts repudiated, the governments of France and Germany intervened politically to protect their bankers. They forced Ismail to appoint British and French commissioners to oversee Egyptian finances, and thus guarantee that the debt was paid. This implied direct European political control as opposed to the trade and investment control that Europeans had used in other parts of the world. 

Foreign financial control resulted in a violent nationalist reaction among Egyptian religious leaders, army officers, and young intellectuals. In 1879, the Egyptian Nationalist Party was formed under the leadership of Col. Ahmed Arabi.  They forced Ismail to abdicate in favor of his son, and bloody riots broke out. When Arabi declared that an "irreconcilable war between the Egyptians and the English" had broken out, British forces quickly defeated the insurgents, and occupied all of Egypt. The British claimed their occupation of Egypt was only temporary, but they remained until 1956. The British consul-general, Lord Cromer, ruled the country as a paternalistic reformer who believed that "without European interference and initiative, reform is impossible here." He did work for tax reforms and better conditions for the peasants; while at the same time, foreign bondholders quietly collected the interest on their investments and Egyptian nationalists were forced to sit back quietly and watch it all happen. Military force and political domination had been used for purposes of European expansion.