If in most cases industrialization was a gradual and accumulative process, it was in no case before 1914 a complete process. When we talk of an industrial economy, it is easy to forget that the economy is not entirely occupied by industry, let alone by factory industry. Traditional sectors composed of agriculture and nonfactory craft manufactures survived in all European economies down to 1914; and in some they retained considerable social and political power. Even in Britain the factory did not become the dominant form of industrial organization until beyond 1830; before that, workshop production was the most common type of industrial organization. France remained a country of market-town economies and widespread rural industry until late in the century; a genuinely national and urban market probably did not come into existence before the 1890s. Even in Germany, where the rise of cartels in the 1870s and 1880s helped to carry large-scale industrial organization further than anywhere else on the continent, traditional methods of production were by no means extinguished: as late as 1882 one-third of all German textile workers were still employed within the domestic system of manufacturing. In Italy, the early application of electric power gave an extended lease of life to small-scale workshop methods of production. And, in Russia, the physical separation between modern factories and village markets allowed peasant craft manufacturing to survive en masse to the end of the Tsarist period and beyond: in 1914 some 30 per cent of all manufacturing output derived from these kustar industries in the countryside. So, although a transition towards large-scale forms of organization is an essential feature of modern economic growth, it is not a sweeping transition. Traditional technologies and modes of work proved durable well into this century and most industrial economies were characterized around 1914, to one degree or another, by technological dualism, by the coexistence of modern processes and corporations alongside much older methods and types of venture.
Rarely, however, did small-scale industry or craft production do much to impede the progress of the modern sector. It either coexisted or it was crushed. But in agricultural production proper, matters could be quite otherwise. This was because interests existed in this sphere which were both large-scale and traditionalist. Often the aristocratic or gentry exponents of cultivation on large estates, they possessed good access to political power. Indeed, it is an irony of nineteenth-century economic history that, in many states undergoing industrial modernization, the political or administrative leadership lay in the hands of an agrarian ascendancy, or its relatives. Sometimes, usually in the early stages of the growth process, this ascendancy would perceive a utility—normally a military one—in industrial activity and would not seek to constrain it. But other aspects of industrial growth—loss of labour from the countryside, encroaching urbanization, a leaning towards free trade—could easily cut across the interests of this group. When this happened, its members possessed the means to extract a particular price for the inconvenience of living in an industrial society.
Table I gives a measure of the amount of economic muscle remaining in agriculture around 1910; and this in turn, of course, provides a very rough measure of its political muscle. Only in Britain had the process of industrial change reduced the agricultural share in national output to truly modest dimensions. And Britain, of course, maintained agricultural (and all other forms of) free trade between 1846 and 1914. Another
Notable measure of modernity in the British case is the size of the services sector. All mature economies undergo a shift in this direction, but only one case displays it convincingly in this sample from the pre-1914 world. At the other end of the scale, it is striking that in three countries which had clearly achieved industrial take-off by 1910—France, Germany, and Italy—the traditional sector still accounted for at least 25 per cent of national output. In Russia, agriculture was still massively predominant, which highlights the central conundrum of the late Tsarist economy: despite its high growth rates and its worldranking industrial sector, how can it be said to have achieved modern economic growth if the traditional sector still covered 60 per cent of the economy?
The event of the pre-1914 decades which most irritated the large agricultural interests who lived in these large agricultural sectors, particularly those of France, Germany, and Russia, was the pressure on grain prices which built up after 1870. Their response was to demand tariff protection in order to defend their domestic prices from the inroads of extra-European cargoes infiltrated into the home market by newfangled locomotives and cargo ships. Some industrialists, worried by rising competition levels, also perceived virtue in tariffs at this point. This convergence of interests permitted alliances like that in Germany in the late 1870s, the famous ‘compact between iron and rye’, aimed at securing tariff aid for the great producers of both. But the convergence did not last long. The industrial depression, especially in Germany, was not as extended as the agricultural price crisis. As markets recovered, industrialists wanted to get back into the export business and realized that freer, not more restricted, trade was the correct recipe for this. Even worse, tariffs on food crops meant higher living costs and thus upward pressure on the wages industrialists had to pay.
Nevertheless, the grain lobbies of France, Germany, and Russia fought for their tariffs and got them, whatever the true developmental interest of the economy concerned. Probably, this interest was most heavily compromised in Germany. The east Elbean plains of Prussia contained some of the most unblushing and unbridled agrarian conservatives to be found anywhere in Europe. These Junkers did not like democracy, industry, cities, foreigners, and many other things besides; yet their families provided much of the civil service, officer corps, and court of the new Reich. They had a tune to call; and they roared it out. In the tariff revisions of 1879-87, the industrialists sang along, although the Junkers got by far the larger share of the takings. When German Chancellors of the 1890s—most notably Caprivi—tried to relax the tariff system and trim it more in favour of the modern sector, the Junkers erupted. These pillars of conservatism threatened to withhold taxes from the treasury, block recruits for the army, or obstruct the much-prized naval programmes of the fledgling empire. They forced Chancellors into resignation or ransom. In 1902, Prince Bulow chose the latter, and, in order to get the latest naval scheme through, consented to another enormous round of protection for the grain estates. This was clearly contrary to the interests of the modern sector and converted German arable farming into the biggest agricultural hothouse maintained by any of the advanced economies. That the most powerful industrial system in Europe could be so constrained is powerful testimony to the enduring strength of pre-industrial forces. It is important to recall that economic modernization did not proceed to unanimous applause.
Industrialization as a Regional Experience
It follows from this distribution of industrialization within, rather than throughout, economies that it was both an international and a regional experience. It was international because it travelled in an important sense: later developing countries could copy technologies and methods or borrow capital from earlier ones, while early developers could act as customers for the raw materials and foodstuffs produced by later ones. It was regional because the modern industrial sectors took shape as particular area concentrations within individual economies, which were more like similar concentrations, lying across the waters or the frontiers, than they were like their own rural and craft-based hinterlands. The main industrial pockets by 1914 were situated in northern Britain, northern and eastern France, the Rhine-Ruhr triangle of Germany, northern Italy around Milan, southern Russia and the Baltic strip, the region around Vienna, and the Basque coast of Spain. Certainly, Tyneside at this time would have had more in common with Rhine-Ruhr than the former would have had with Cornwall or the latter with East Prussia. This type of observation is the basis of Professor Pollard’s insight that industrialization was less a national circumstance than a regional event.
Still more to the point, these regions interacted with one another. Thus, in the early nineteenth century, cotton yarn spun in Lancashire could be purchased as an input by the cotton weavers of the Rhineland. Later, Krupp of Essen would secure iron ore from wholly owned mines in Spain and Thyssen would cultivate parallel connections in Normandy and French Lorraine. By 1914, about one-half of all German iron-ore supplies came from industrial regions outside Germany, mainly Sweden and French Lorraine. Similarly, the Bilbao-Cardiff axis formed a famous mutual trade in iron ore and coal between the industrialists of the Basque and South Welsh economic regions. This axis had even replaced the earlier Bilbao-Gijon connection through which the Basque metal-makers had tapped the coal of the neighbouring Spanish mines of Asturias. In eastern France, the notoriously disputed frontier of Alsace-Lorraine ran through what was in reality a single integrated complex of mining and manufacturing, bisecting trading partners, and even individual firms, with sporadically disastrous political consequences.
After victory in the Franco-Prussian war in 1871, in which Germany’s rapidly advancing capacity in high-quality steel manufacture and gun-making was a not insignificant variable, the Germans drew the new frontier in Alsace to what appeared the maximum economic advantage of the moment. But the iron-ore field of Longwy-Briey, the richest in Europe, was not discovered until the 1880s and it lay on the French side of the border. It became a German war aim in the disturbed years leading up to the next confrontation between these two, and many other, powers in 1914.
But this last case should be a warning against an overenthusiastic commitment to international regionalism in our perspective of the pre-1914 era of industrialization. Frontiers were clearly more than merely lines on a map, across which economic impulses cheerfully and freely flowed. Rather, as Professor Supple has correctly observed, ‘they frequently defined quite distinctive systems of thought and action’. Frontiers allowed individual governments to move the economic goalposts by tax, tariff, or territorial acquisition, and such tactics certainly altered the prospects for industrialists of one country vis-a-vis those of another. Even the cotton-spinner in laissez-faire Lancashire lived under a markedly different fiscal and administrative regime from his weaving colleague in the early nineteenth-century Rhineland. So, if regions matter, so do regimes.
The Institutions of Development from Backwardness
In one powerful view of industrialization during this period, what lies inside the political frontier—the economic power, intent, and will of a particular state—matters a very great deal. It is clear that the various waves of industrialization were associated not only with different places and technology but with notably different institutional patterns. By institutions we mean private firms, educational systems, financial agencies, and government ministries. Alexander Gerschenkron, though he talked least of the pioneering British model and too much perhaps of the late developing Russian one, produced the most orderly arrangement of thoughts on this subject.
In the British experience — which was spontaneous, individualistic, open-market, and gradual—institutions above the level of the private firm played little part. The private firm was itself characteristically small—the largest class of cotton mill in late eighteenth-century Britain boasted a fixed capital of no more than ?10,000—and its finances were provided by the informal sources of family, congregational, local, or partnership funds. The long-running alienation between finance capital and industrial capital in Britain derives from this formative growth stage: since banks were asked to provide little in the way of (fixed) capital for plant or buildings, they readily accepted the lower-risk, and arms-length, strategy of providing (working) capital for the purchase of materials or payment of wages. These short-run transactions, quickly repaid, allowed the bankers to maintain a distance from industrial risks. Similarly, since technology levels at this point in world industrialization, like capital levels, were relatively modest, and there were no external competitors to push them upwards, the early British industrialists were under little pressure to employ scientific discovery or theoretical breakthrough to achieve innovation. Rather, this tended to be supplied by the craftsman’s observation or adjustment at the bench, the famous ‘practical tinkering’ of the first industrial revolution. Unlike those that followed, this pioneer movement owed little to the scientists.
Consequently, little connection was perceived between educational effort and industrial outcome: technology appeared to be self-generated. Of course, this would hold true only of a limited stretch of world industrialization. But because this approach created the world’s first and richest industrial state, it seemed in Britain to be truer than that. Indeed this misperception, as it turned out to be, exercised a recognizable influence upon British educational practice until 1914 and beyond.
Modest requirements in capital and technology in early industrial Britain permitted many small ventures to enter the market. These were often family firms and they created a tradition of atomistic competition and a suspicion of modern large-scale corporate enterprise that was long lasting. Between 1750 and 1870, British governments had little incentive to do much about this; and after 1870 old habits died hard and old principles succumbed only slowly to new realities. This is scarcely surprising. Open markets, self-directed capitalists, and gentle government had combined to produce huge industrial and imperial pre-eminence. Before 1870 no convincing competitors emerged to provoke official anxiety. And when they did emerge, they were met only with official complacency; they were seen for too long as industrial also-rans who required newfangled devices and dubious policies merely to approach the starting-line in the industrial race. British methods were tried and trusted. And set, it seemed, in gold; only later did this substance turn out to be stone; and porous.
Early institutional ‘imprinting’ of this kind has featured in some powerful recent explanations of Britain’s inability to adjust to the competitive markets and new technological prospects of the late nineteenth century. However, Gerschenkron had more to say about the follower economies, whose situation around 1850 or i860 was not the soon-to-be-threatened industrial prosperity of Britain, but the relative deprivation of economic backwardness. How were they to escape from it? Particularly now that the threshold for entry to industrial status was steeper: the railways, engineering shops, and steel mills of this technology band would not yield to the institutional equipment of small firms, aloof banks, non-technical education, and lordly restraint by governments. If the follower economies were to react positively to the dangers and examples proffered by the industrial leaders something more in the way of affirmative action was needed.
Gerschenkron’s achievement was to propose that a certain kind of institutional action was associated with particular levels of backwardness. Chronic backwardness required a full programme of development spearheaded by an interventionist state. Medium backwardness was best managed, and growth extracted from it, by the use of specialized investment banks. Suppressed backwardness, or, put another way, economic maturity, could be left in the capable hands of the modern large-scale corporation. Any given country could pass through all these institutional stages as backwardness was confronted and beaten back.
The logic is quite simple. The developed status of other powers poses a threat to the chronically backward society. By definition, that society lacks sufficient capitalists, markets, or investment for modern economic growth. The economy contains so many gaps that the state is the only agency with sufficient power, reach, and resources to fill them. It can use its own officials as substitute capitalists or as mentors to what capitalists there are. It can use its own custom—often for weapons or rail-ways—to create markets for manufactured goods. It can use its own exchequer —for the state is always potentially rich, however poor the country—to finance the necessary capital formation. Military inferiority will often be a sufficient motive for even very conservative states to undertake these tasks.
In the context of medium backwardness, some gaps have been filled. The easiest are filled first, and thus some markets and some capitalists will exist. The major residual bottleneck will be in capital supply. Breaking it will require the institutional innovation of the investment bank. British-style, short-term credit provision will be no use amidst the problems of medium backwardness. Here capital is not plentiful but scarce, technology thresholds are not low but high. Some method has to be found of concentrating scarce capital within large-scale financial institutions which will then confront the dangerous task of lending it on a long-term basis to railways and factories. This was the method discovered in the mid-nineteenth century in the shape of the investment bank. Outside Britain, it was used throughout Europe; but most intensively in Berlin and Cologne. The investment bank was to institutional innovation what the steam engine was to technological innovation—and it was just as important to industrialization in the last century. Many steam engines would never have run without it; the investment bank was the financial engine of nineteenth-century development. Its wide spread also indicates how many economies experienced medium backwardness in the period preceding 1914.
If the investment bank was the premier institution of medium backwardness, it was not the only one. It revolutionized the flow of industrial capital in the high-cost development process of the mid-century. But this process contained high thresholds in areas other than finance; one also certainly existed in skills. The supply of human capital, as well as the supply of finance capital, had to be improved. And for this polytechnics, technical high schools, and scientific universities were needed. These too were institutions of the mediumly backward economy.
In the context of suppressed backwardness, or economic maturity, the problems of development are past. The issue is now how most equitably to distribute the fruits of develop-ment—a new welfare role for the state at the other end of the growth process — and how to maintain momentum amidst maturity. In this connection, the job of the large-scale corporation is to maximize throughput, organize markets, and, through research, to sustain technological fertility. Institutions able to do this, some of them multinational corporations, certainly existed in the United States and Germany, and even in Britain, before 1914; but their heyday was to be somewhat later.
Classic European cases of growth out of medium backwardness are those of France and Germany in the period 1840-70; with traces of similar patterns occurring in Italy from the 1890s and in Austria and even Russia from the 1900s. Classic cases of growth out of chronic backwardness are those of Prussia, 1780-1820, and Russia in the 1890s; with some echoes occurring in Hungary around the turn of the century.
World History
