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Until recently, global business history existed mainly as an extension of the business history of Western Europe and North America. The assumption was that modern business emerged in Europe first, and travelled to the tropical world via European expansion and colonialism. Colonists needed the colonies to find markets for goods produced at home. Colonialism created fields of investment of surplus capital that earned too little return in Europe. The value of overseas territories as fields of employment was also considerable. In turn, the beneficiaries of the system, be they industrialists or bankers in the free regions, backed colonial rule.
There are two problems with this narrative. First, whereas the theory of capital or commodity export presumed that the return to investment in the colonies was necessarily high, the risks were high, too. In the 19th century, investors often had exaggerated and ill-informed ideas about the profitability of projects in the tropics. Governments sometimes helped firms to manage risks. They gave concessions and monopolies to companies in southern Africa, guaranteed profits of railway companies in India, gave profitable or subsidized contracts to shipping lines, and regulated markets in post-Depression West Africa. But they also sometimes refused to help. Rival businesses resented subsidies, and governments lost money or legitimacy in the process. The firms themselves had to devise ways to manage risk. This process was locally variable because the nature of the risk varied. To sum up, the notion that colonialism pushed global capitalism overestimates colonial power, and underestimates risks and the local context that shaped these risks.
By the early 20th century, a small number of European states ruled not only the territory and people within their own boundaries but also a large share of the rest of the world. According to one calculation, Europeans conquered some 84 per cent of the world between 1492 and 1914, before losing the vast majority of these territories by 1960 (Hoffman 2015: 2). That same period saw a rapid and substantial divergence in per capita incomes between the poorest and wealthiest countries, with trade and industrialization bringing previously unknown levels of prosperity to some regions while others saw little sustained growth. Together, these two transformations have shaped the world today.
In broad terms, this book explores the link between them. The conquest and rule of so large a share of the world reflected imbalances in political, technological and military capacities which grew during the period of industrialization. It remains the subject of debates whether resources gained by European powers may have aided them in the process of industrialization, or whether empires diverted resources that might have been more profitably invested at home. For the colonies themselves, the impact of colonial interventions varied widely across space and time, which makes it difficult to sustain simplified narratives of resource extraction.
Discussions of the economic impact of colonial rule using a variety of theories and methods are now more than a century old, and can be roughly divided into three groups. In one, the range of different colonial experiences came as a result of European decisions and policies, which provided a solid foundation for economic development in some colonies but not in others.
There are many reasons to be interested in the link between colonialism and the environment in Asia and Africa. During colonial rule, the commercial value of land, minerals and forests increased along with export production. It was in the states’ interest to promote exports and make resource extraction sustainable. The attraction of ‘ghost acreage’ or the availability of colonial resources to relieve the pressure of overpopulation in Europe made colonial resources vital to Europe’s wellbeing. Railways and other technological advances improved the capacity of the states and private businesses to exploit resources. New laws strengthened the idea of private property, and some colonial regimes established state or private property rights on the commons, disenfranchizing the indigenous population from the right to use and sometimes conserve trees and water. Alongside sponsoring policies that entailed damage to the environment, colonial states collected a lot more information about the natural world than regimes before. They did this because they needed the data to govern. Moreover, inherited ideas and technologies sometimes clashed with indigenous ideas about nature.
But there is a lot that we do not know about the link between colonialism and the environment. We do not know in precise terms what environmental management before colonial rule looked like. Some of these same processes had been in existence from a long time past. The precolonial era was hardly a changeless one. Despite such ignorance about the prehistory, it would be safe to say that the scale of the impact of colonial states on the environment was unprecedented.
A period of intense inter-European rivalry and military contest had come to an end in the mid-19th century, leaving Britain and France to pursue empire-building with relative ease. Economic globalization gave them a strong reason for doing so. A definition of globalization is helpful to understand why imperialists were keen to extend their influence overseas. A basic definition – unprecedented growth in the scale of trade between 1820 and 1920 – is useful but insufficient. No doubt British export of manufactures formed a significant part of the growth of world trade and British industrialists had some influence on colonial policy. Still, making a direct connection between the direction of trade and the geography of colonialism is difficult. The emerging economic relations in the world contained other ingredients besides trade. These included the integration of commodity, capital and labour markets across continents and the increasing geographical mobility of firms. State support mattered in all cases because the states were multipurpose instruments that could play a variety of roles. They could, as the need arose, make laws, protect trade routes, negotiate openness, subsidize investment and validate indentures.
By playing these roles, colonial states not only acted as an agent in globalization but also as a conduit for the transmission of technologies and institutions. Trade was largely tariff-free at least within the British Empire. Barriers to the movement of labour, capital and technology were also generally low, especially so between countries within an empire. The gold standard and international banking contributed to broad stability in exchange rates and balance of payments.
Previous chapters showed that no single explanation can account for the timing, scale or scope of modern imperial expansion in the 19th and 20th centuries. Rather, it reflected wider changes in the global economy, including the spread of industrialization in Europe and North America, and the rapid expansion of trade as transport costs fell. Both indigenous and European actors responded to these changes in a variety of ways, and these shifts underpinned the accumulation of territory by a growing number of colonial powers through the 19th and early 20th centuries.
This process was costly in both human and monetary terms, and prompted fierce debates within colonizing states about whose interests were served by this process and whether the expense would be at all repaid for the economies financing colonial conquest. Historians have subsequently taken up these debates, using an approach Avner Offer (1993: 215) refers to as ‘imperial accountancy’. Neither contemporaries nor historians have come to any solid consensus about the question of net cost or benefit to the colonizer or the colonized. One reason is the complexity and variation in colonial connections which emerged from the process outlined in the previous chapter. John Darwin (2009: 1) describes the British Empire as consisting of ‘an extraordinary range of constitutional, diplomatic, political, commercial and cultural relationships’. While the British Empire was the largest of the European empires, the others were no less complex. Another reason is that the ‘accounting’ approach relies on surviving and accessible data, which necessarily restricts the range of questions that might be asked, and interests that might be considered.
Histories of formerly colonized countries written in the immediate aftermath of the transfer of power often stressed how short the colonial period actually was, particularly when set in the context of the longer histories of these countries. One reason for this was the relatively rapid dismantling of the European empires which occurred in the 20 years or so after the end of the Second World War. This was contrary to the expectations of many people at the time, who expected the transition to independence to be gradual, and hoped to retain strong relationships with their colonial territories going forward.
There are two contrasting perspectives on why the empires collapsed relatively suddenly. One, which might be termed the imperial perspective, argues that the colonizing powers saw the economic benefits of their empires decline as economic links within Europe became more important (Feinstein 1997). This narrative is challenged by voices from imperial governments which showed little sign until late in the day that decolonization was an intended or desired outcome. Particularly in the immediate aftermath of the war, colonies were important sources of both raw materials and foreign exchange, and thus the intention of many imperial governments was to strengthen rather than weaken their ties to their colonies (White 2011). The second explanation turns to the colonies themselves. Economic instability and hardships during the Depression and then the war led to considerable social unrest and demands from people in the colonies for more comprehensive public service provision, and according to this view it was these developments which forced the hand of the imperial powers and made it impossible for them to retain their hold.
European rule deeply influenced the institutions that mattered to business or agriculture in the colonized regions. This old idea received a new emphasis in the 2000s when economic historians inspired by NIE started to use it to explain the origins of world inequality since 1820 (see Chapter 1). They divided the world according to the institutional legacies of colonial rule and showed that these divisions were correlated with differences in long-term economic performance measured in per capita income growth. The literature laid stress on the laws of property and contract, making two propositions about their origin and effects. First, whereas in the normal course, laws evolved through changes in jurisprudence and the context of practice, in the colonial societies, laws came from the outside, they had western roots and were unilaterally imposed on the colonized peoples. And second, the quality of this inheritance shaped comparative economic growth in the modern world.
The attempt to draw a causal link between colonialism and comparative growth via institutional effects did not go unchallenged. Critics felt that the attempt overstated the value of institutions and the European lead in institutions, and underestimated the weight of indigenous traditions and the power of other drivers of comparative growth such as geography. Whoever wins this debate, we must explain the difference that institutions and colonial legacy made. Explaining comparative growth is not the only reason to be interested in that legacy. Besides economic growth, institutional change might have contributed to the capacity of societies to take part in globalization, or to inequality within the colonial societies.
Debates about the origins and effects of European rule in the non-European world have animated the field of economic history since the 1850s. This pioneering text provides a concise and accessible resource that introduces key readings, builds connections between ideas and helps students to develop informed views of colonialism as a force in shaping the modern world.
With special reference to European colonialism of the nineteenth and twentieth centuries in both Asia and Africa, this book:
critically reviews the literature on colonialism and economic growth;
covers a range of different methods of analysis;
offers a comparative approach, as opposed to a collection of regional histories, deftly weaving together different themes.
With debates around globalization, migration, global finance and environmental change intensifying, this authoritative account of the relationship between colonialism and economic development makes an invaluable contribution to several distinct literatures in economic history.
The previous chapter showed that the links between colonialism and globalization were complex and nonlinear. Further, the experience of colonialism was dynamic, and its impact varied over time and across space. Unfortunately, understanding how colonialism affected individuals and communities is difficult given the surviving data in many colonies. Most colonial governments collected data consistently on only a few economic phenomena, mainly related to public finance and trade. Recent work in quantitative economic history has, however, made innovative use of surviving sources to document how colonial economic change affected groups within colonies over time. This chapter reviews this evidence, emphasizing the diversity of colonial experiences as well as identifying some common patterns across regions.
Efforts to examine living standards in the colonies have addressed the paucity of data by combining a variety of measures (see for example Booth 2012; Bowden et al 2008). Inspired by wider debates about comparative living standards, researchers have used wages and prices as one way to test hypotheses about the ways in which colonialism affected living standards (Broadberry and Gupta 2015; Frankema and van Waijenburg 2012; de Zwart and van Zanden 2015). Another approach is to use data on average heights, which are influenced by disease environments and food availability in childhood (Bassino and Coclanis 2008; Földvári et al 2013; Baten et al 2013; Moradi 2009; Austin et al 2012). Literacy rates or other educational outcomes provide yet another measure of how colonialism affected the lives of the colonized (Chaudhary and Garg 2015; Wantchekon et al 2015).
The previous chapter showed that, whatever the varying motives for the acquisition of colonies, the minds of officials and politicians in colonizing countries were much preoccupied by the balance sheets of the empires they had built, and in particular of convincing sometimes reluctant voters that expenditures on imperial conquest and development would somehow pay off to their benefit. While, as Davis and Huttenback (1986: 1) put it, ‘the last word may never be written’ on whether those arguments were correct, making these arguments required at least a notional separation of the interests of the colonies from those of the metropole, and a consideration of how the costs and benefits of imperial rule were divided between them.
This chapter considers how this logic influenced the structure and operation of colonial governments in the colonies themselves, and thus their relationships to the indigenous people they claimed to govern. Building on the ‘imperial accountancy’ discussion, it focuses particularly on the finances of those governments, which in most modern empires were kept separate from those of the metropolitan state. The idea that colonies should be financially self-sufficient introduced specific political dynamics within individual colonies which did much to shape the experience and legacies of colonial rule (Gardner 2012).
Taxation and public spending by colonial governments are now the subjects of a literature which approaches public finances as a window into broader political and economic trends. This approach, often described as ‘fiscal sociology’, dates back at least to the early 20th century and the theories of Rudolph Goldschied and Joseph Schumpeter.