European imperialism and Great war Europe in International Economy 2017 • •European Imperialism • –Western countries (UK, FRA, NED, USA) forced its way into untouchable territories (China 1842+1860, Japan 1854+1868); –Informal empire – strong influence (LATAM, Egypt, Ottoman e., Persia); –Territorial imperium (India, Burma, Java, Africa); –Deindustrialization (China, India, Ottoman e.); • • • •India –GB India most populous part of empire, second trade partner (US); –EIC (monopoly in India till 1813; China till 1833; India to GB gov. 1858); •Primary concern always to make money for shareholders, not to govern a colony – taxing and trading – chief servants extremely wealthy; •Bengal (1757 Plassey) – tax collection rights, enormous burden on peasants; – –Drain of the annual sums sent to GB by EIC impoverished the country, reduced its savings and investment, government was required to borrow to meet its obligations- enlarged external debt; •Indian taxpayers had to meet the cost of the GB army and of its various wars; – –GB brought internal peace, unified the country administratively, established the rule of law; – –Destruction of ancient handicrafts, particularly the production of cotton textiles by import of GB machine-made goods; •GB cotton sold to India rose form 800k in 1814 to 1bil yards in 1870 ; •Weavers able to survive by turning to silk good, producing luxury good; •1837 cotton imports only 6% of Indian consumption, 10% 1850; transport form the ports still primitive, village craftsmen kept local customers – dual economy persisted for log time; – –Indian exports – primary commodities, 1820-30s indigo and opium (indigo declined 1830, opium leading with 33% of exports); other rice, sugar, seeds, tea, later jute; • •China –Never turned into colony, hostile to foreign imports (Kanton-tributary system); –Traditional flow of silver into China to pay for tea, porcelains, silks turned into reverse flow of specie out of china from 1820s; –Opium smuggled in –> China attempted bloc the trade, war 1830-42; –GB enforced opening of ports, extraterritorial rights for merchants and cession of Hong-Kong; •France and US similar privileges – much extended after second opium war – treaty of Tientsin 1860; •Tea increasingly dominant in China‘s export; • •Japan –Shut itself for centuries (1633) – forced to open its territories in the late 1850s – treaty of 1866: •Not to rise tariffs above 5% while giving foreigners extraterritorial rights; –Meiji restoration 1868; •Liberal reforms (general opinion; men of ability; all classes equal; property rights; 1890 constitutional monarchy); modernization (industry, transportations); •Economy was transformed with remarkable speed form 1870s; • • • Destroying Chinese war junks, by E. Duncan (1843).jpg https://upload.wikimedia.org/wikipedia/commons/c/ce/Japanese_1854_print_Commodore_Perry.jpg https://upload.wikimedia.org/wikipedia/commons/8/8f/Brooklyn_Museum_-_Commodore_Matthew_Perry%27s_% 22Black_Ship%22.jpg •Egypt – –Mohammed Ali (since 1805, left 1848) - attempted to turn Egypt into a modern economy; •Extensive irrigation and canal works – forced labor; •Range of industrial plants was set up with European experts; founded schools and colleges – sending students to Europe; • –Ali forced peasants to sell their crops at a fixed low price – reselling abroad to finance his industrial ventures; –Continued by Ali‘s successors – built roads, railways, steam shipping; Egypt contributed to Suez; –Most successful was growing of long stapled cotton - production increased 8x 1820-1860 (but textile industry failed); –Despite partial success, no break through into modernity; •Incomes remained low, the modern sectors remained enclaves; • –Causes: lack of skill, ability among managers and workers, unveiling coerced labor, corruption, costly imported machinery, delayed spare parts, lack of coal; –1860s and 1870s serious debt (UK) – forced to accept external fiscal control. • • • •Ottoman Empire –Classic example of economy starting out from a level comparable with that of Europe in 1800: •Not only failed to keep up, but experienced decline and deindustrialization; –Some traditional craft industries survived – silk robes, pearl goods, damascene arms, morocco leather, but others – cotton textile – destroyed by European industry; –Political and economic weaknesses – commercial treaty with GB 1838 opened country to foreign imports, limited duties and privileged foreign merchants – exempt from provincial tariffs; •1856 monopoly for coastal traffic granted to foreigners; •Incompetent and corrupt administration; • –Contact with Europe encouraged the production of primary goods – cotton, tobacco for export; –From 1854 government forced to take up foreign loans – 1860 it privileged the foreign run Ottoman bank; •By 1869 empire owed 76mil. pounds abroad – received only about half – very little used on productive enterprises; •Growing foreign control over Turkish administration; – –Similar story Persia: forced open by treaty with GB 1841 – exports stagnated between 1830-1860. • •First World War • •In a generation, Europe threw away a legacy that had taken centuries to accumulate (Aldcroft); • •Output and export levels well down on those of 1913, even by mid1920s, markets lost for ever; • •European share of international trade down from 59 to 48% (1913-1920); US more manufactured output than Europe combined; • •Later in period: increasing importance of totalitarian powers – USSR and GER (USSR, GER, ITA, JAP increased share in industrial production from 22% to 38% 1929-1938); • •US failed to assert its leadership; • •Problem: longer boarders in Europe as a consequence of establishment of new countries (A-H, RUS empires) –> nationalism and protectionism; •Relative manufacturing shares (% of world output) 1913 1929 1938 USA 35,8 43,3 28,7 USSR 5,5 5,0 17,6 GER 15,7 11,1 13,2 UK 14,0 9,4 9,2 FRA 6,4 6,6 4,5 ITA 2,7 3,3 2,9 BEL 2,1 1,9 1,3 JAP 1,2 2,5 3,8 • • •Impact of WWI on European position in IE • -US (CAN, AUS, ARG) production and sales grew during war: -commodity and food prices were high; markets were secured (no competition form Europe); - -Farmers expanded production, invested into new technologies –> borrowing; after war restoration of E production… crisis; - -Non-European countries (LATAM, Asia): -WWI: lost source of imports of manufactured goods from Europe –> industrialized (or imported from US); - -European producers faced new competitors… at the same time was export revenues badly needed; - Austria-Hungary (bill.) France (mill.) Germany (bill.) Russia (mill.) UK (mill.) Import Export Import Export Import Export Import Export Import Export 1913 3,51 2,99 8,421 6,880 10,751 10,097 1,374 1,520 659,1 525,2 1914 2,98 2,24 6,402 4,869 8,500 7,400 1,098 956 601,1 430,7 1915 3,85 1,43 11,036 3,937 7,100 3,100 1,139 402 752,8 384,9 1916 6,09 1,63 20,640 6,214 8,400 3,800 2,451 577 850,9 506,3 1917 5,08 1,81 27,554 6,013 7,100 3,500 2,317 464 994,5 527,1 1918 3,79 1,64 22,306 4,723 7,100 4,700 1,285,3 501,4 1919 35,799 11,880 1,461,5 798,6 Argentina Australia Canada South Africa US Import Export Import Export Import Export Import Export Import Export 1913 1,128 1,180 72,5 76,8 619 455 40 28 1,854 2,538 1914 733 916 456 461 34 18 1,924 2,420 1915 694 1,323 58,2 57,9 508 779 30 15 1,703 2,820 1916 832 1,302 70,0 64,1 846 1,179 38 24 2,424 5,554 1917 864 1,250 69,1 86,3 964 1,586 34 29 3,005 6,318 1918 1,138 1,822 55,3 75,1 920 1,269 47 51 3,993 8,159 1919 1,490 2,343 86,3 107,0 941 1,290 47 51 3,993 8,159 India Japan China Indochina Indonesia Import Export Import Export Import Export Import Export Import Export 1913 2,022 2,574 795 716 888 628 306 645 464 671 1914 1,550 1,907 671 671 887 555 266 332 412 674 1915 1,487 2,082 636 793 708 653 224 345 390 770 1916 1,710 2,570 879 1,234 805 751 335 391 419 895 1917 1,774 2,572 1,201 1,752 856 721 374 430 385 778 1918 2,018 2,690 1,902 2,159 865 757 363 455 556 676 1919 2,371 3,503 2,501 2,379 1,008 983 751 1,051 740 2,146 •The Politics of Peace • •New geographical configuration – attempt to ring-fence Germany + W. Wilson: support for national self-determination; •Collapse of empires: Austro-Hungarian, Russian, Ottoman; •Third of the inhabitants of Eastern Europe stateless; •Few regarded the settlement as final; •States in East weak in every sense; • •Peace settlement – for Germany cause for resentment and revenge; •War guilt clause – Article 231 of the Treaty of Versailles; • •Disastrous outcome of Paris peace Conference (Versailles treaty) for Germany: •Loss of 13% land, 10% citizens, 75% ore, 25% coal reserves; •colonies were occupied, foreign investments confiscated -> how to import raw materials (to produce to pay reparations) without hard currency? •Drastic reparations (33 bil. USD=200% GDP); •Occupation of the Ruhr 1923-25 by France; •Rampart inflation 1:4,2 in 1914 – 1:4,2 quintillion in 1923; •1923 real GDP on 50% of 1913…US starts to lend to GER •(Dawes plan 1924, Young plan 1929 -> 1988); • •Locarno 1925 GER refused to guarantee her eastern borders; http://upload.wikimedia.org/wikipedia/commons/thumb/4/41/Map_Europe_1923-en.svg/2000px-Map_Europe_1 923-en.svg.png • •Reparations problem • •During war US lend to GB, FRA, BEL and others app 12bil. USD – insisted on repayment (part of US isolationism); • •GB and especially FRA planned to raise money through reparations extracted from GER – unrealistic (FRA occupying the Ruhr area) – paid at most 25%; • •Peace settlement failed to make adequate provision for the economic reconstruction of Europe; •CEE (DCs) Debt Problems • •CEE relied on world markets for the sale of their primary products + depended on imported capital for development; •Late 1920s: western markets were less open and the terms of trade were turning against primary producers (1925-1929 prices of agri.prod. 30% down, stockpiles rose by 75%); • •Indebtedness •CEE relied heavily on capital imports to balance external accounts; •HUN, POL, BUL, YUG – half of inflows to cover trade deficit, most of rest to cover foreign debt; •By 1929 inflows barely sufficient to cover interest payments and dividends; •Germany: heavy debtor – complicated by reparation payments; • •War debts + reparations + weakening commodity prices + trade deficits + …suction of funds back to NY as a result of the US stock market boom –> USD shortage; •US cutback of lending 1928 (tightening of monetary policy to control the stock market boom), capital inflows to East Europe stopped, to GER halved; •Germany – inflationary experience – Reichsbank following a tight monetary policy – when the depression set system fell apart; •Great depression • •World slowing down - only US stock exchange grew (black Thursday and Tuesday 24-29 October 1929); • •US contributed to the spread of panic – (1922 Fordney-McCumber tariff) 1930 Smoot-Hawley tariff (attempt to protect US farmers); •when the Creditanstalt of Austria fell in 1931, the global deficiencies of economic nationalism became apparent: •U.S. imports decreased by 66% from US$4.4 billion (1929) to US$1.5 billion (1933), and exports decreased 61% from US$5.4 billion to US$2.1 billion; •U.S. imports from Europe decreased from a 1929 high of $1,334 million to just $390 million during 1932, while U.S. exports to Europe decreased from $2,341 million in 1929 to $784 million in 1932; • •Overall, world trade decreased by some 66% between 1929 and 1934 (33% in real terms); http://www.iie.com/images/noland0298-fig1.gif •Disintegration of world trade • •Indebted countries didn't have sufficient access to markets and therefore to USD earnings; •raised tariffs: to earn USD + to limit imports to stop spending USD; •had to export (to earn USD) -> currency devaluation; •All countries: excessive NTBs are introduced (import licenses, TBTs, sanitary regulations, capital controls, monopolies for foreign trade); •in turn DCs don’t have market access for their export commodities and without export earnings cannot buy AICs‘ exports (colonial goods exporters were hard hit); • •Deflation – economic crisis – role of labor unions; •Fundamental limitation of immigration into US; • •Results •1932: world industrial output decreased to 64% of 1929; •1938 trade between AICs was still lower than in 1913; •isolationism, mercantilism, unilateralism… •unemployment peaks 1932: GB 17,2%, GER 15,3%; •US 1929-1933: -30% GDP, -90% investment, -50% industrial output, unemployment 25,2%; •Norman Davies (1996): • •“The effects of the Depression were psychological and political as well as purely economic. Everyone from banker to bellboy was perplexed. The Great War had brought death and destruction; but it had also brought a purpose to life and full employment. Peace appeared to bring neither. There were men who said life amidst the danger and comradeship of the trenches was preferable to life on the dole.”