1 04. The Industrial Revolution: Great Britain, U.S.

, France, Germany, Imperial Russia, Japan

The Third Wave is a book published in 1980 by Alvin Toffler; it is the sequel to Future Shock, published in 1970, and the second in a trilogy that was completed with Powershift in 1990. In the book Toffler describes three types of societies, based on the concept of waves each wave pushes the older societies and cultures aside. First Wave is the society after Agrarian Revolution and replaced the first huntergatherer cultures. The transition from the earlier hunter-gatherer societies to the agrarian and agricultural societies is also known as the Neolithic Revolution; this coincides with the transition from the Mesolithic era to the Neolithic era [respectively, the Middle and Late Stone Age]. The transition from Tofflers First Wave and Second Wave is sometimes also recognized as a transition from the Iron Age to the Steel Age or as the Industrial Revolution. The main components of the Second Wave Society are nuclear family, factory-type education system and the corporation. Toffler writes: The Second Wave Society is industrial and based on mass production, mass distribution, mass consumption, mass education, mass media, mass recreation, mass entertainment, and weapons of mass destruction. You combine those things with standardization, centralization, concentration, and synchronization, and you wind up a style of organization we call bureaucracy. Toffler would also add that since late 1950s most countries are moving away from a Second Wave Society into what he would call a Third Wave Society. Third Wave is the post-industrial [Daniel Bell] society. In The Coming of PostIndustrial Society (1973), Daniel Bell outlined a new kind of society the post-industrial society. He argued that post-industrialism would be information-led and service-oriented. Bell also argued that the post-industrial society would replace the industrial society as the dominant system. There are three components to a post-industrial society, according to Bell: A shift from manufacturing to services The centrality of the new science-based industries The rise of new technical elites and the advent of a new principle of stratification

Definitions:

Industrial revolution a rapid development in industry; spec. (freq. with capital initials) the development which took place in England in the late eighteenth and early nineteenth centuries, chiefly owing to the introduction of new or improved machinery and large-scale production methods [Oxford English Dictionary]. Industrial revolution the vast social and economic changes that resulted from the development of steam-powered machinery and mass-production methods, beginning in the late eighteenth century in Great Britain and extending through the nineteenth century elsewhere in the world [Academic Press Dictionary of Science and Technology]. The Industrial Revolution is not simply an acceleration of economic growth, but an acceleration of growth because of, and through, economic and social transformation [Eric Hobsbawm, Industry and Empire. The Birth of the Industrial Revolution, New Press, New York, 1999]

Industrial Revolution: Pre-conditions

What were the necessary conditions educational, social, political, economical, and technological for a radically new ways of production and distribution to arise and then flourish? Historians ask why the Industrial Revolution happened, why it happened where it did (in England instead, of, say, France), and why it happened when it did and not either earlier or later. According to those who have studied this turning-point in world history, the following conditions had to exist before the first phase of the Industrial Revolution could occur: Population with modern attitudes towards work: to create the combination of factory work and urban life required, one needed a population no longer tied to the land and specific places; without changes in attitudes towards place, one could not find a workforce willing to move from country to the city.

Literacy: such a revolutionary change in kinds of work also required people who could read. Widely available printed materials, particularly including those with technical diagrams: simple literacy could not enable the exchange of information and receptivity to it required for fundamental economic and industrial change.

Many technical advances required (a) multiple copies of (b) mechanically reproduced technical texts and diagrams that were (c) comparatively inexpensive. Such widely available materials, which high-speed printing made possible increasingly after 1850, produced enormous growth of amateur scientific, engineering, and other technological innovations.

An easily commercializable product needed by and affordable by many people; cotton, little used until the technology to manufacture it cheaply, proved such a product desirable at home and abroad.

Adequate transportation and communication: in eighteenth-century Britain transportation and communication were comparatively easy and cheap, since no part of Britain is more than seventy miles away from the sea, and even less from some navigable waterway [Eric Hobsbawm].

Markets: England and countries in similar conditions had to have access to both local and international economies. Government commitment to subordinate foreign policy to economic ends.

Patterns of Development

From one point of view the process of industrialization in the nineteenth century was a European-wide phenomenon. The fact that by the centurys end the United States had become the leading industrial nation does not alter the matter, because the United States was basically European in its culture. From a different point of view, however, industrialization was basically a regional phenomenon. The region in question might lie wholly within a single nation, as in the case of southern Lancashire and its immediately adjacent areas. Or they might overlap national boundaries, as with the Austrasian

4 coalfield, which runs from the English Channel in northern France through Belgium and into western Germany, terminating with the Ruhr area. For many scholars regional analysis offers the most satisfying means of understanding the process of industrialization. Yet a third way to view the process of industrialization, however, is the more conventional method of looking at it in terms of national economies. Such a procedure has the disadvantages of possibly overlooking the international and supranational ramifications of the process and of ignoring or slighting its regional dynamics. But it has two powerful offsetting advantages: 1. The first is the purely technical advantage that most quantitative descriptive measures of economic activity are collected and aggregated in terms of national economies; 2. Second, and more fundamentally, the institutional framework of economic activity, and the policies intended to influence the direction and character of that activity, are most often set within national boundaries. 3. Fortunately, the three approaches are not mutually exclusive.

Industrialization : Great Britain

Great Britain was the first industrial nation. At the end of the Napoleonic Wars Britain was clearly the worlds leading manufacturing nation, producing about onequarter of the total world industrial production according to some estimates. Moreover, as a result of both its lead in manufacturing and its role as the worlds overwhelmingly superior sea power, achieved during the late wars, it emerged as the worlds leading commercial nation as well, accounting for between one-fourth and one-third of total international commerce well over twice that of its leading rivals. Britain retained its dominance as both an industrial and trading nation for most of the nineteenth century. After some slippage in the middle decades of the century, it still accounted for about onequarter of the total international commerce in 1870, and actually increased its share of total industrial production to more than 30 percent. After 1870, even as total output and trade continued to increase (e.g., industrial production increased by 250 percent between 1870 and 1913), it gradually lost its lead to other rapidly industrializing nations.

5 The United States overtook it in total industrial production in the 1880s and Germany in the first decade of the twentieth century. On the eve of World War I it was still the leading commercial nation, but it then commanded only about one-sixth of total trade and was closely followed by Germany and the United States. Textiles, coal, iron, and engineering, the bases of Britains early prosperity, remained its standbys. As late as 1880 its production of cotton yarn and cloth surpassed that of the rest of Europe combined; by 1913, although its relative position had declined, it still accounted for onethird of total European production, more than twice as much as its closest competitor. Similarly, in the iron industry Britain reached its relative peak around 1870, producing more than half the worlds pig iron. By 1890s, however, the United States had snared the lead, and in the early years of the twentieth century Germany also forget ahead. In the coal industry, on the other hand, Britain maintained its lead in Europe (although the United States overtook it at the beginning of the twentieth century) and produced a surplus for export. On per capita basis, Britain produced almost twice as much coal throughout the century as its leading European rivals, Belgium and Germany. The northeastern coalfield (Northumberland and Durham) and South Wales had exported to the Continent from early in the century, and even before; in 1870 that trade was valued at 3 percent of total British exports. The rapid industrialization of Britains coal-poor European neighbors resulted in a remarkable rise: in 1913 exports of coal, a raw material, accounted for more than 10 percent of the value of all exports from the worlds most highly industrialized nation. The engineering industry, a creation of the late eighteenth century, can trace its roots in all three of the industries just mentioned. The textile industry needed machine builders and machine menders, the iron industry produced its own; and the coal industrys need for efficient pumps and cheap transport resulted in the development of both the steam engine and the railways. Railways constituted the most important new industry of the nineteenth century. They were especially important for both their forward and backward linkages to other industries; moreover, as a result of Britains pioneering role in the development of railways, the foreign demand both in Europe and overseas for British expertise, materiel, and capital provided a strong stimulus for the entire economy.

6 Similarly, the evolution of the shipbuilding industry from sail to steam propulsion, and from wood to iron to steel construction, was another potent stimulus. Newly constructed steam tonnage did not surpass new sailing tonnage until 1870, but its predominance increased rapidly thereafter; by 1900 the output of new sailing ships had fallen to less than 5 percent of the total. Iron began to replace wood on a large scale in the construction of both steam and sailing ships in the 1850s, and steel to replace iron in the 1880s. In the early years of the twentieth century the British shipbuilding industry produced, on average, more than 1 million tons a year, virtually all steel steamships; that accounted for more than 60 percent of world construction (for a few years in the 1880s and 1890s Britain produced more than 80 percent of the total). A substantial fraction of this output, between one-sixth and one-third, was exported. These impressive achievements notwithstanding, the pace and extent of British industrialization should not be exaggerated, as they often have been. Relative recent research has demonstrated that the rate of industrial growth in the century 1750-1850 was considerably slower than earlier, impressionistic estimates had implied, and that: even as late as 1870 about half the total steam horsepower in manufacturing was in textiles, and that in many trades power-driven mechanization had as yet made comparatively little impact. The great majority of industrial workers in 1851 and perhaps in 1871 were not in large-scale factory but were still craftsmen in small workshops. The massive application of steam power did not occur until after 1870, rising from a total of around 2 million h.p. by that date to nearly 10 million h.p. in 1907. (A.E.Musson, Technological Change and Manpower, 1982) The census of 1851 further confirms these generalizations. For example, agriculture was still the largest single employer of labor until as late 1921 with domestic service around. The textile industries accounted for less than 8 percent of the total labor force (the cotton industry alone for about 4 percent). Blacksmiths outnumbered workers in the primary iron industry by 112,500 to 79,500. Shoemakers (274,000) were more numerous than coalminers (219,000).

7 Britain reached its peak of industrial supremacy in relation to other nations in the two decades from 1850 to 1870. The growth rate of gross national product from 1856 to 1873 - both peak years of the business cycle averaged 2.5 percent, lower than its century-long average and substantially lower than those of the United States and Germany during the same period. On a per capita basis it was even lower than that of France, traditionally regarded as the laggard among the great powers. How should this lackluster performance be evaluated? In the first place, growth rates are to some extent misleading, as units with a small statistical base can post high growth rates with very modest absolute increments of increase. More fundamentally, Britain could not retain its preeminence indefinitely, as other less-developed but wellendowed nations began to industrialize. In that sense, Britains relative decline was inevitable. Moreover, in view of the vast resources and rapid population growth of the United States and Russia, it is not surprising that they would eventually overtake the small island nation in total output. More difficult to explain is the low rate of growth of output per capita: from 1873 to 1913 the rate of growth of total factor productivity (output per unit of all inputs) was zero. Many explanations for this disappointing performance have been offered; some are highly technical, involving the relative prices of primary products and manufactured goods, the terms of trade, investment ratios and patterns, and so on. Some have seen availability of natural resources and access to raw materials as a problem, but it was certainly a minor one: the cotton industry, of course, had always depended on imported raw cotton, but that did not prevent Britain from becoming the worlds leading manufacturer of cotton goods; and in any case all other European cotton producers also obtained their raw material from abroad, frequently by way of Britain. Native ores of nonferrous metals copper, lead, and tin were gradually depleted or could not compete with cheaper supplies from overseas; but in most cases those cheaper supplies were mined and imported by British firms operating abroad. By the beginning of the twentieth century the iron industry imported about one-third of its ore, mainly from Spain; but that was largely because of the failure of the industry to switch completely to the ThomasGilchrist basic process of steelmaking, which would have allowed it to use domestic phosphoric ore.

8 The latter instance points to another possible cause of Britains relative decline: entrepreneurial failure. The question has been (and still is) hotly debated by scholars, with no definitive resolution in sight. Victorian Britain had some dynamic, aggressive individual entrepreneurs: William Lever (of Lever Brothers, later Unilever) and Thomas Lipton (tea), among others, became household names. On the other hand, there is abundant evidence that late Victorian entrepreneurs generally did not exhibit the dynamism of their forebears, as the sons and grandsons of the founders of family firms adopted the lifestyle of leisured gentlemen and left the day-to-day operation of their firms to hired managers. The tardy, almost half-hearted introduction of new, high-technology industries (in those days), such as organic chemicals, electricity, optics, and aluminum, even though many inventors were British, is one sign of entrepreneurial lethargy. Even more telling is the tardy and partial response of British entrepreneurs to new technology in those staple industries in which they were, or had been, leaders. The slow and incomplete adoption of the Thomas-Gilchrist process is a case in point and, in the same industry, the relatively slow adoption of the Siemens-Martin furnace. The textile industries long resisted the introduction of superior spinning and weaving machinery invented in the United States and on the Continent, and the Leblanc soda producers fought a thirty-year losing rearguard action against the Solvay ammoniasoda process, introduced from Belgium. In part, the backwardness of the British educational system may be blamed for both the industrial slowdown and the entrepreneurial shortcomings. Britain was the last major Western nation to adopt universal public elementary schooling, important for training a skilled labor force. The few great English universities paid slight attention to scientific and engineering education (the Scottish universities did, however); although they had revived somewhat from their eighteenth-century torpor, they were still primarily engaged in educating the sons of the leisured classes in the classics. This was part of the perpetuation of aristocratic values, with their disdain for commercial and industrial achievements.

9 The contrast with the eighteenth century is striking, and ironic: at that time British society was widely regarded as more fluid and open than those of the ancien regime on the Continent; a century later the perceptions, if not the reality, were reversed. Off all large nations, Great Britain was most dependent on both imports and exports for its material well-being. Thus, the commercial policies, especially tariffs, of other nations had important repercussions. More than that, Britain depended to a greater extent than even smaller nations on the international economy for its sustenance. It had by far the largest merchant marine and the largest foreign investments of any nation both important earners of foreign exchange. From the beginning of the nineteenth century, if not before, in spite of its important export industries, Britain had an unfavorable, or negative, balance of commodity trade; the deficit was covered (more than covered) by the earnings of the merchant marine and foreign investments, which enabled the latter to increase almost continually throughout the century. To conclude this all-to-brief discussion of Great Britains pattern of industrialization in the nineteenth century, it should be said that, for all its vicissitudes: the per capita real income of Britons increased by roughly 2.5 times between 1850 and 1914, income distribution became slightly more equal, the proportion of the population in dire poverty fell, and the average Briton in 1914 enjoyed the highest standard of living in Europe.

Industrialization : The U.S.

The most spectacular example of rapid national economic growth in the nineteenth century was the United States. The first federal census of 1790 recorded fewer than 4 million inhabitants. In 1870, after the limits of continental expansion had been reached, the population had risen to almost 40 million, larger than that of any European nation except Russia. In 1915 the population surpassed 100 million.

10 Although the United States received the bulk of emigration from Europe, the largest element of population growth resulted from the extremely high rate of natural increase; at no time did the foreign-born population surpass one-sixth of the total. Nevertheless, the American policy of almost unrestricted immigration until after World War I placed a definite stamp on national life, and America became known as the melting pot of Europe. The numbers of immigrants entering the country annually rose rapidly through unsteadily from fewer than 10,000 in 1820-1825 to more than 1 million in the early years of the twentieth century. Until the 1890s the great majority came from northwestern Europe; immigrant stock from those countries continued to constitute the largest part of the foreign-born population; by 1900, however, new immigrants from Italy and Eastern Europe dominated the listings. In 1910 the foreign-born population numbered 13,500,000 or about 15 percent of the total; of these, about 17 percent came from Germany; 10 percent from Ireland; almost as many from Italy and the Austro-Hungarian Monarchy; about 9 percent each from Great Britain, Scandinavia, Canada (many of British origin), and Russia; almost 7 percent from Russian, Austrian, and German Poland; and a scattering from other countries. Income and wealth grew even more rapidly than population. From colonial times the scarcity of labor in relation to land and other resources had meant higher wages and a higher standard of living than in Europe. It was this fact, together with the related opportunities for individual achievement and the religious and political liberties enjoyed by American citizens, that drew the immigrants from Europe. Although the statistics are imperfect, it is probable that the average per capita income at least doubled between the adoption of the Constitution and the outbreak of the Civil War. Almost surely, it more than doubled between the end of that war and the outbreak of World War I. What were the sources of this enormous increase? Abundant land and rich natural resources help explain why the United States had higher per capita incomes than Europe, but they do not in themselves explain the higher rate of growth. The reasons for that are to be found mainly in the same forces that were operating in Western Europe, namely, the rapid progress of technology and the increasing regional specialization, although there were also special factors at work in the United States. For example, the continued scarcity

11 and high cost of labor placed a premium on labor-saving machinery, in agriculture as well as industry. In agriculture the best European practices yielded consistently higher returns per acre than in the United States, but American farmers using relatively inexpensive machinery (even before the introduction of tractors) obtained far larger yields per worker; a similar situation prevailed in manufacturing. The huge physical dimensions of the United States, with varied climates and resources, permitted an even greater degree of regional specialization than was possible in individual countries in Europe. Although at the time it won its independence almost 90 percent of its labor force was engaged primarily in agriculture, and much of the remainder in commerce, the new nation soon began to diversify. In 1789, the year the Constitution took effect, Samuel Slater arrived from England and the following year, in partnership with Rhode Island merchants, established Americas first factory industry. Soon afterward, in 1793, Eli Whitneys invention of the cotton gin set the American South on its course as the major supplier of the raw material for the worlds largest factory industry. This dichotomy led to one of the first major debates on economic policy in the new nation. Alexander Hamilton, the first secretary of the treasury, wished to sponsor manufacturers by means of protective tariffs and other measures. Thomas Jefferson, the first secretary of state and third president, on the other hand, preferred the encouragement of agriculture, and of commerce as its handmaid. The Jeffersonians won the political struggle, but the Hamiltonians (after Hamiltons tragic and untimely death) saw his ideas triumph. The New England cotton industry, after weathering some severe ups and downs before 1815, emerged in the 1820s, and remained until 1860, as Americas leading factory industry and one of the worlds most productive. In its shadow a number of other industries, notably the manufacture of guns by means of interchangeable parts (another Eli Whitney innovation) developed, and laid the basis for subsequent mass production industries.

12 Another advantage of the size of the United States was its potential for a large domestic market, virtually free of artificial trade barriers. But to realize that potential required a vast transportation network. At the beginning of the nineteenth century the sparse population was scattered along the Atlantic seacoast; communication was maintained by coastal shipping supplemented by a few post roads; rivers provided the only practical access to the interior, and that was severely limited by falls and rapids. To remedy this deficiency the states and municipalities, in cooperation with private interests (the federal government was scarcely involved), engaged in an extensive program of internal improvements, meaning primarily the construction of turnpikes and canals. By 1830 more than 11,000 miles of turnpikes had been built, mainly in southern New England and the mid-Atlantic states. Canal construction got seriously underway after 1815 and reached a peak in the 1820s and 1830s; by 1844 more than 3,000 miles had been constructed and more than 4,000 by 1860. Public funds accounted for almost three-quarters of the total of 188 million dollars invested. A few of the enterprises notably New York States Erie Canal were spectacularly successful, but the majority were not; many did not even recoup the capital invested. A major reason for the disappointing economic performance of the canals was the advent of a new competitor, the railways. The railway age began almost simultaneously in the United States and Great Britain, although for many years the United States depended heavily on British technology, equipment, and capital. Nevertheless, American promotors quickly seized the opportunity of this new means of transportation: by 1840 the length of completed railways exceeded not only that in Britain, but that in all of Europe, and continued to do so for most of the century. As in Britain, railways in America were important not only as producers of transportation services but also for their backward links to other industries, especially iron and steel; although this importance has sometimes been exaggerated, it should not be ignored. Before the Civil War, it is true, the iron industry was largely scattered, smallscale, and dependent on charcoal technology, and much railway material, especially rails, was imported from Britain. Even so, in 1860 iron ranked fourth in value added by manufacture, after cotton, lumber, and boots and shoes.

13 After the war, with the widespread adoption of coke-smelting, the introduction of the Bessemer and open hearth processes of steelmaking, and the enormous expansion of demand by the transcontinental railways, it quickly became the largest American industry in terms of value added by manufacture. In spite of the rapid growth of manufacturers, the United States remained a predominantly rural nation throughout the nineteenth century. The urban population did not pull abreast of the rural until after World War I. In part this was because much manufacturing took place in what were essentially rural areas; as noted earlier, the iron industry was mainly rural-based until World War I. Other industries, employing cheap and efficient water power, remained so ever longer. Although steam engines gradually encroached on water power, it was the advent of central electricity-generating stations that caused the decline of rural-based industries. The westward movement continued after the Civil War, encouraged by the Homestead Act and the opening of the trans-Mississippi West by the railways. Agricultural products continued to dominate American exports, although the nonagricultural labor force surpassed workers in agriculture in the 1880s, and the income from manufacturing began to exceed that from agriculture in the same decade. By 1890 the United States had become the worlds foremost industrial nation.

Industrialization : France

Of all the early industrializers, France had the most aberrant pattern of growth. That fact gave rise to a large literature, both in the nineteenth century and more recently, devoted to explaining the supposed backwardness or retardation of the French economy; still more recently, however, new empirical research and theoretical insights have shown that the earlier debates were based on a false premise. In fact, although the pattern of industrialization in France differed from that of Great Britain and the other early industrializers, the outcome was no less efficient and, in terms of human welfare, may have been more so. Moreover, looking at the patterns of growth of successful late industrializers, it appears the French patterns may have been more typical than the British.

14 In seeking a solution to this paradox it is worth looking at the basic determinants of economic growth. The most striking feature of the nineteenth century, in the case of France, was its low rate of demographic growth. When all relevant measures of growth (GNP, industrial production, etc) are reduced to a per capita basis, it appears that France did very well indeed. Second is the matter of resources. British, Belgian, and eventually American and German industrialization were based to a large extent on abundant coal resources. France, although not totally deprived of coal, was much less endowed and, moreover, the character of its deposits rendered their exploitation more expensive. These facts had important implications for other, coal-connected industries, such as iron and steel. In technology, France was no laggard far from it. French scientists, inventors, and innovators took the lead in several industries, including hydropower (turbines and electricity), steel (the open heart process), aluminum, automobiles, and, in the twentieth century, aviation. The institutional factor is much more complex and difficult to evaluate. The Revolutionary and Napoleonic regimes provided the basic institutional context for most of continental Europe, but many important changes took place in the course of the nineteenth century. It is now well established that modern economic growth in France began in the eighteenth century; for the century as a whole the rates of growth of both total output and output per capita were roughly the same in France and Britain, perhaps even slightly higher in France, although France began (and ended) with a lower per capita output. But the century ended with Britain undergoing an industrial revolution (in cotton) while France was caught up in the throes of a great political upheaval, the French Revolution. Therein lies an important difference that affected the relative performances of the two economies for much of the nineteenth century; for a quarter of a century, from 1790 until 1815, except for the brief truce of Amiens (1802-1803) France was almost continually involved in what was been called the first modern war, involving mass conscription of manpower. Under wartime demand the output of the economy expanded, but mainly along established lines, with little technological progress; some spinning machinery was established in the cotton industry, and a few steam engines were erected, but the important iron and chemical industries experienced technological stasis.

15 Britain also went to war in 1793, but it experienced much less drain on its manpower, leaving most of the land warfare, except in the Iberian peninsula, to its continental allies. With its control of the seas (and, by the same token, with France cut off from overseas markets), its exports expanded dramatically, hastening the technological modernization of its principal industries. After a rather severe postwar depression, which affected all of continental western Europe and even touched Great Britain, the French economy resumed its growth at even higher rates than during the eighteenth century. For the century as a whole gross national product probably grew at an average rate between 1.5 and 2.0 percent per year, although these figures are subject to some uncertainty, especially for the first half of the century. For the period 1871-1914, for which statistics are both more numerous and more reliable, the French gross national product grew at an average annual rate of approximately 1.6 percent, whereas that of the United Kingdom grew at approximately 2.1 percent and that of Germany at 2.8 percent. These figures appear to indicate that the German economy grew almost twice as fast as the French, and the British a third again as fast. The figures can be misleading as a guide to the overall performance of the economy, however, because when all growth rates are reduced to a per capita basis the comparable rates are 1.4 percent for France against 1.7 percent for Germany and only 1.2 percent for the United Kingdom. In other words, the slow demographic growth of France accounts in large measure for the apparently slow growth of the economy as a whole. Moreover, even the per capita growth rates can be misleading because Germany, a relatively backward economy in the midnineteenth century, began with a much lower per capita incomes and thus a smaller statistical base. Furthermore, as a result of the outcome of the Franco-Prussian War, two of Frances most economically dynamic provinces, Alsace and Loraine, became part of the new German Empire in 1871. Industrial production, the leading edge of modern economic growth in France as in the most other industrializing nations, grew even more rapidly than total product. It has been variously estimated at between 2.0 and 2.8 percent; the variations arise not only with different methods of estimation (and different estimators), but also according to the number of industries included in the estimates.

16 Throughout the first half of the century even as late as the Second Empire handicrafts, artisan, and domestic industry accounted for three-quarters or more of total industrial production; the output of these activities grew more slowly than that of modern factories and other new industries, and in some cases declined absolutely; thus their exclusion from the indexes shows apparently higher growth rates. Nevertheless, their importance should not be underestimated, for in large measure they gave French industry its distinctive characteristics. Although the overall performance of the economy was quite respectable, it experienced variations in the rate of growth (quite apart from short-term fluctuations, to which all industrializing economies were subject). Between 1820 and 1848 the economy grew at a moderate or even rapid rate, punctuated by occasional minor fluctuations. Coal production, which averaged less than 1 million tons from 1816 to 1820, exceeded 5 million tons in 1847, and coal consumption rose even more rapidly. The iron industry adopted the puddling process and began the transition to coke smelting; by mid-century more than one hundred coke furnaces produced more pig iron than 350 charcoal furnaces. The foundations of an important machinery and engineering industry were laid; by mid-century the value of machinery exports exceeded that of imports by more than 3 to 1. Many of the new machines went to the domestic textile industry, woolens and cottons in particular, which were the largest users of steam engines and other mechanical equipment, as well as the most important industries in terms of employment and value added. Consumption of raw cotton rose fivefold from 1815 to 1845, and imports of raw wool (in addition to domestic production) increased sixfold from 1830. Beet sugar refineries grew from one in 1821 to more than one hundred in 1827. The chemical, glass, porcelain, and paper industries, which also grew rapidly, were unexcelled for the variety and quality of their products. A number of new industries originated or were quickly domesticated in France in this period, including gas lightning, matches, photography, electroplating and galvanization, and the manufacture of vulcanized rubber. Improvements in transportation and communication, including extensive canal building, the introduction of steam navigation, the first railways, and the electric telegraph, facilitated the growth of both domestic and foreign commerce. The latter, valued in current prices, increased by 4.5

17 percent per year from 1815 to 1847, and because prices were falling for most of that period, the real value was even greater. Moreover, France had a sizable export surplus in commodity trade throughout the period, by means of which it obtained the resources for substantial foreign investments. The political and economic crises of 1848-1851 inserted a hiatus in the rhythm of economic development. The crisis in both public and private finance paralyzed railway construction and other public work. Coal production dropped abruptly by 20 percent. Iron output declined more slowly but in 1850 amounted to less than 70 percent of the 1847 figure. Commodity imports fell by half in 1848 and did not fully recover until 1851. Exports dipped slightly in 1848, but recovered the following year. With the coup detat of 1851 and the proclamation of the Second Empire the following year, French economic growth resumed its former course at an accelerated rate. The rate of growth slackened somewhat after the mild recession of 1857, but the economic reforms of the 1860s, notably the free treaties and the liberalized incorporation laws of 1863 and 1867, provided fresh stimuli. The war of 1870-1871 brought economic as well as military disaster, but France recovered economically in a manner that astounded the world. It suffered less from the depression of 1873 than other industrializing nations, and recovered more quickly. A new boom developed that carried through the end of 1881. During this period the railway network grew from about 3,000 kilometers to more than 27,000, the telegraph network from 2,000 to 88,000. Railway construction provided a powerful stimulus to the remainder of the economy, both directly and indirectly. The iron industry completed the transition to coke smelting in the 1850s, and in the 1860s and 1870s adopted the Bessemer and Martin processes for cheap steel. Both coal and iron production registered a fourfold increase during the period, coal production reaching 20 million tons and iron 2 million. Foreign commerce, profiting from the continued improvements in transportation and communication, increased by more than 5 percent annually, and France, still the worlds second trading nation, increased its share of total world trade slightly from 10 to 11 percent. Over the period 1851 to 1881 as a whole, French wealth and income grew at their most rapid rates for the entire century, averaging 2 to 4 percent annually.

18 The depression that began in 1882 lasted longer and probably cost France more than any other in the nineteenth century. At its inception it resembled many other minor recessions, beginning with a financial panic, but a number of factors arose to complicate and prolong it: disastrous diseases, which seriously affected the wine and silk industries for almost two decades; large losses on foreign investments from defaulting governments and bankrupt railways; the worldwide return to protectionism in general and the new French tariffs in particular, and a bitter commercial war with Italy from 1887 to 1898. Foreign trade as a whole fell off and remained virtually stationary for more than fifteen years, and with the loss of foreign markets, domestic industry also stagnated. Capital accumulation fell to its lowest point in the second half of the century. Prosperity returned at last, just before the end of the century, with the extension of the Lorraine ore fields and the advent of such new industries as electricity, aluminum, nickel, and automobiles. France once more enjoyed a rate of growth comparable with that of 18151848, if not with 1851-1881. La Belle poque, as the French call the years immediately preceding World War I, was thus a period of material prosperity as well as cultural efflorescence. Although precise comparisons are not possible, it is likely that the average French person in 1913 enjoyed a material standard of living as high as or higher that the citizens of any other continental nation. Certain key features of the French pattern of growth remain to be analyzed: The low rate of urbanization The scale and structure of enterprises The sources of industrial power All are interrelated, and closely related to two other features that have already been emphasized: The low rate of demographic growth and The relative scarcity of coal.

19 Off all major industrial nations, France had the lowest rate of urbanization. The slow growth of its total population was mainly responsible, but the proportion of the labor force in agriculture and the structure and location of industrial enterprise are also implicated. France also had the largest proportion of its labor force in agriculture among major industrial nations about 40 percent in 1913. This fact has frequently been pointed to as primary evidence of the retardation of the French economy, but the correct interpretation is not so simple. A number of factors have been invoked to account for the relative high proportion of population in agriculture including the low rates of population growth and urbanization but it is less often observed that at the beginning of the twentieth century France was the only industrial nation in Europe that was self-sufficient in foodstuffs, and indeed had a surplus for export. With respect to the scale and structure of enterprise, France was famous (or notorious) for the small scale of its firms. According to the census of 1906, fully 71 percent of all industrial firms had no wage earners; their workers owners and family members constituted 27 percent of the industrial labor force. At the other extreme, 574 large firms employed more than 500 workers each; their workers accounted for about 10 percent of the industrial labor force, or 18.5 percent of industrial wage workers. Significantly, these firms were concentrated in mining, metallurgy, and textiles, the same industries in which large-scale, capital-intensive enterprises prevailed in other major industrial countries, except that there were more of them. Between these two extremes lay large numbers of small and medium-sized firms employing the vast majority of wage earners. At the lower end of the scale, those employing fewer than ten workers each were in the traditional artisanal industries, such as food processing, clothing, and woodworking, whereas those with more than 100 workers were mainly in modern industries chemicals, glass, paper, and rubber, as well as textiles, mining, and metallurgy. Two other characteristics of the relatively small scale of French enterprises should not pass notice:

20 High value added (luxury articles) and Geographical dispersion. Rather having just a few conurbations of heavy industry, as Britain and Germany had, France had widely dispersed, highly diverse industries, in small towns, villages, and even the countryside. In part, the dispersion was determined by the nature of the power sources available. As previously pointed out, France was the least well endowed with coal of all early industrializers. At the beginning of the twentieth century coal production per capita in France was about one-third that of Belgium and Germany, and about one-seventh that of Great Britain, even though France was exploiting its known reserves at a higher rate than the other countries. In the early part of nineteenth century the most important mines, with one exception, were located in the hilly central and southern portions of the country, distant from markets and difficult of access, especially before the coming of the railway. Nevertheless, it was on the basis of these resources that France established its early cokesmelted iron industry. From the 1840s on the great northern coalfield, an extension of those in Belgium and Germany, came into use and served to fuel the growth of the modern steel industry. Still, for the century as a whole France depended on imports for about one-third of its coal consumption; and even with that French consumption per capita was only a fraction of that of its neighbors. To offset the scarcity and high cost of coal France relied to a much greater extent than its coal-rich neighbors on water power. It has already been pointed out that, thanks in part to improved technology, including the introduction of the hydraulic turbine, water power remained competitive with steam until near the middle of the century, even in Great Britain. On the Continent, especially in France and other coalpoor countries, it retained its importance for much longer. In France in the early 1860s falling water supplied almost twice the horsepower of steam engines, and in terms of total horsepower it continued to increase until the 1930s (quite apart from its use in generating energy, which became increasingly important from the 1890s). But the characteristics of water as a source of power imposed restraints on its use: the best locations were generally remote from the centers of population; the number of users in any given location was limited to one or a very few, and the size of

21 installations was similarly limited. Thus, water power, important though it was for French industrialization, helped impose a pattern: small firm size, geographical dispersion, and low urbanization. These characteristics came to be shared by other coal-poor countries.

Industrialization : Germany

Germany was the last of the early industrializers. Indeed, a case can be made that it was something of a laggard. Poor and backward in the first half of the nineteenth century, the politically divided nation was also predominantly rural and agrarian. Small concentrations of industry existed in the Rhineland, Saxony, Silesia, and the city of Berlin, but they were mostly of the handicraft or proto-industrial variety. Poor transportation and communications facilities held back economic development, and the numerous political divisions with their separate monetary systems, commercial policies, and other obstacles to commercial exchange further retarded progress. On the eve of the First World War, in contrast, the unified German Empire was the most powerful industrial nation in Europe. It had the largest and most modern industries for the production of iron and steel and their products (including munitions and military hardware), electrical power and machinery, and chemicals. Its coal output was second only to that of Great Britain, and it was a leading producer of glass, optical instruments, nonferrous metals, textiles, and several other manufactured goods. It had one of the densest railway networks, and a high degree of urbanization. How did this remarkable transformation come about? With only slight oversimplification, German economic history in the nineteenth century can be divided into three fairly distinct, almost symmetrical periods: The first, extending from the beginning of the century to the formation of the Zollverein in 1833, witnessed a gradual awakening to the economic changing taking place in Britain, France, and Belgium, and the creation of the legal and intellectual conditions essential for transition to the modern industrial order. In the second, a period of conscious imitation and borrowing that lasted until about 1870, the actual material foundations of modern industry, transportation, and finance took shape.

22 Finally, Germany rose rapidly to the position of industrial supremacy in continental western Europe that it continues to occupy. In each of these periods foreign influences played an important role. In the beginning the influences, like the changes themselves, were primarily legal and intellectual, emanating from the French Revolution and the Napoleonic reorganization of Europe. A brisk inflow of foreign capital, technology, and enterprise, reaching a crescendo in the 1850s, marked the second period. In the final period the expansion of German industry into foreign markets dominated the picture. The left bank of the Rhine, united politically and economically with France under Napoleon, adopted the French legal system and economic institutions, most of which were retained after 1815. Under Napoleon French influence was quite strong in the Confederation of the Rhine (most of central Germany). Even Prussia adopted in modified form many French legal and economic institutions. An edict of 1807 abolished serfdom, permitted the nobility to engage in bourgeois occupations [commerce and industry] without derogation to their status, and abolished the distinction between noble and nonnoble property, thus effectively creating free trade in land. Subsequent edicts abolished the guilds and removed other restrictions on commercial and industrial activity,

ameliorated the legal status of the Jews, reformed the fiscal system, and streamlined the central administration; still more reforms gave Germany the first modern educational system. One of the most important economic reforms instigated by Prussian officials led to the formation of the Zollverein [literally, toll or tariff union]. They laid the foundations in 1818 by enacting a common tariff for all of Prussia, primarily in the interests of administrative efficiency and a higher fiscal yield. Several small states, some of them completely surrounded by Prussian territory, joined the Prussian tariff system, and in 1833 a treaty with the larger states of South Germany, except for Austria, resulted in the creation of the Zollverein itself. The Zollverein did two things: 1. In the first place, it abolished all internal tolls and customs barriers, creating a German common market. 2. Second, it created a common external tariff determined by Prussia.

23 In general, the Zollverein followed a liberal (i.e. low-tariff) commercial policy, not on economic principle but because Prussian officials wanted to exclude protectionist Austria from participation. If the Zollverein made a unified German economy possible, the railway made it a reality. The rivalry among the various German states, which contributed to the number and quality of German universities, also hastened railway construction. As a result the German rail network expanded more rapidly than that of France, for example, which had a unified government but was divided over the question of state versus private enterprise. Railway construction also required the states to get together to agree on routes, and other technical matters, resulting in greater interstate cooperation. Important as they were for the country and stimulating the growth of both domestic and international commerce, the railways role in the growth of industry, by means of both forward and backward linkages, was no less important. Until the 1840s Germany produced less coal than France or even tiny Belgium; it also produced less iron than France until 1860s. Thereafter progress in both industries was extremely rapid; this progress owed much (though not everything) to the extension of the railway network, because of both the direct demand of railways for their output and the lower cost of transportation that they provided to other users. The key to the rapid industrialization of Germany was the rapid growth of the coal industry, and the key to the rapid growth of the coal industry was the Ruhr coalfield. The Ruhr River and valley, from which the coalfield and the industrial region, the largest in the world, get their name, actually form the southern boundary of the region; the larger part of the area lies to the north. Just before World War I the Ruhr produced about twothirds of Germanys coal. Prior to 1850, however, the region was much less important than Silesia, the Saar, Saxony, and even the Aachen region. Commercial production began in the Ruhr valley proper in the 1780s, under the direction of the Prussian state mining administration; the mines were shallow, the techniques simple, and the output insignificant. In the late 1830s the hidden [deep] seams north of the Ruhr valley were discovered. Their exploitation, although extremely profitable, required greater capital, more sophisticated techniques [use of steam pumps, etc] and greater freedom of enterprise.

24 All of these were eventually supplied, although not without bureaucratic delays, largely by foreign firms (French, Belgian, British). From about 1850 coal production in the Ruhr rose very rapidly, and with it the production of iron and steel, chemicals, and other coal-based industries. The German iron industry as late as 1840 had a primitive aspect. The first puddling furnace began production in 1824, but it was financed by foreign capital; medieval bloomeries were still in use in the 1840s. Coke smelting began in Silesia, but development of the West German industry is almost synonymous with development of the Ruhr, and that came largely after 1850. By 1855 there were about twenty-five coke furnaces in the Ruhr and a similar number in Silesia; these and a scattering of other coke furnaces produced almost 50 percent of the total German output of pig iron, although charcoal furnaces still outnumbered them 5 to 1. Production of Bessemer steel began in 1863, and the Siemens-Martin process was adopted soon afterward; but not until after the Gilchrist-Thomas process was introduced, in 1881, permitting the use of the phosphoric iron ore of Lorraine, did German steel production accelerate dramatically. For the period 1870-1913 as a whole steel production increased at an average annual rate of more than 6 percent, but the most rapid growth came after 1880. German steel production surpassed that of Great Britain in 1895, and by 1914 it amounted to more than twice the British output. The German industry was large not only in its total output, but also in its individual units of production; in the early years of the twentieth century average output per firm was almost twice as great as that in Britain. German firms quickly adopted the strategy of vertical integration, acquiring their own coal and ore mines, coking plants, blast furnaces, foundries and rolling mills, machine shops, and so on. The year 1870-1871, so dramatic in political history with the Franco-Prussian War, the overthrow of the Second Empire in France, and the creation of a new Second Empire in Germany, was less dramatic in economic history. Economic unification had already been achieved, and a new cyclical upswing in investment, trade, and industrial production had begun in 1869. But the successful outcome of the war, including an unprecedented 5 billion franc indemnity, and the proclamation of the empire added euphoria to the boom. In 1871 alone 207 new joint-stock companies came into existence (aided, to be sure, by the new free incorporation law of the North German Confederation

25 of 1869), and an additional 479 in 1872. In the process German investors, aided and encouraged by the banks, began buying back foreign holdings of German firms, and even began investing abroad. This hyperactivity came to a sudden halt with the financial crisis of June 1873 that heralded a severe depression. Nevertheless after the depression had run its course growth resumed more strongly than before. From 1883 to 1913 net domestic product increased at an annual rate in excess of 3 percent; in per capita terms, the increase was almost 2 percent annually. The most dynamic sectors of German industry were those producing capital goods or intermediate products for industrial consumption. Coal, iron, and steel production were notable; even more notable were two relatively new industries, chemicals and electricity. Consumer goods industries, such as textiles, clothing and leather, and food processing, had growth rates substantially below average. The emphasis given to capital and intermediate goods in Germany, and the relative neglect of consumer goods, contrasts markedly with the situation in France, and helps to explain their differing patterns of growth. Prior to 1860 the chemical industry scarcely existed in Germany, but the rapid growth of other industries created a demand for industrial chemicals, especially alkalis and sulfuric acid. Stimulated by the new literature on agricultural chemistry, a German invention, farmers also demanded artificial fertilizers; unburdened by obsolete plants and equipment, chemical entrepreneurs could use the latest technology in a rapidly changing industry. This was most striking exemplified by the advent of organic chemicals: the first synthetic dye was discovered accidentally by an English chemist, Perkin; but Perkin had studied under A.W. Hoffmann, a German chemist brought to the new Royal College of Chemistry in 1845 at the suggestion of Prince Albert; in 1864 Hoffmann returned to Germany as a distinguished professor and consultant to the fledging dyestuffs industry. Within a few years the industry, drawing on the personnel and resources of the universities, established its dominance in Europe and the world. The organic chemical industry was also the first in the world to establish its own research facilities and personnel. As a result it brought about the introduction of many new products, and also dominated the production of pharmaceuticals.

26 The electrical industry grew even more rapidly than the chemical. Science-based, in drew on the university system for personnel and ideas, as did the chemical industry. On the side on demand, the extremely rapid urbanization of Germany that occurred just as the industry was growing up gave it an extra fillip; the German industry did not have to struggle against a well-entrenched gas light industry, as did the British industry. Illumination and urban transport were the two most important early uses for electricity, but engineers and entrepreneurs soon developed other uses. By the beginning of the twentieth century electric motors were competing with and displacing steam engines as prime movers. A notable characteristic of the chemical and electrical industries, as indeed of coal, iron, and steel, was the large size of firms. Employees for most firms in these industries numbered in the thousands; at the extreme, the electrical firm of Siemens and Schuckert on the eve of World War I had more than 80,000 employees. To some degree the large size of firms was dictated by technical economies of scale; deep mining, for example, required expensive pumps, hoists, and other equipment; it was more economical, therefore, to employ the machinery with a large volume of output to spread the cost. Not all instances of large firms can be explained by such logic, however; in some cases pecuniary economies of scale arrangements that provided extra profits or rents to promoters or entrepreneurs without reducing the real cost to society furnish a better explanation of large-scale enterprise. The close connections between the banking system and manufacturing industries in Germany are frequently held responsible. Yet another notable characteristic of the German industrial structure was the prevalence of cartels. A cartel is an agreement or contract among nominally independent firms to fix prices, limit output, divide markets, or otherwise engage in monopolistic, anticompetitive practices. Such contracts or agreements were contrary to the common law prohibition of combinations in restraint of trade in Britain and the United States, and to the Sherman Anti-Trust Act in the United States, but they were perfectly legal and indeed enforceable by law in Germany. Their number grew rapidly from 4 in 1875 to more than 100 in 1890 and almost 1,000 by 1914.

27 Elementary economic theory teaches that cartel behavior restricts output in order to increase profits, but such a prediction is scarcely compatible with Germanys record of rapid growth of output even or especially in cartelized industries; the resolution of this paradox is to be found in the combination of cartels with protective tariffs after Bismarcks conversion to protection in 1879. By means of protective tariffs, cartels could maintain artificially high prices in the domestic market (which also implied restrictions on domestic sales or other markets-sharing devices), while engaging in virtually unlimited exports to foreign markets, even at prices below the average cost of production if the markup on domestic sales could offset the nominal losses on exports. The profitability of this type of activity was enhanced by the practice of the state-owned or regulated railways of charging a lower rate for shipments to the countrys borders than for intracountry shipment. As a result of these various devices, German exports increased rapidly in the world market so much so that even free trade Britain adopted retaliatory measures!

Industrialization: Imperial Russia

The Russian Empire at the beginning of the twentieth century was generally regarded as one of the great powers: its territory and population, the largest by far of any European nation, merited that status. In gross economic terms as well, Russia loomed large: in total industrial production it ranked fifth in the world, after the United States, Germany, Great Britain, and France; it had large textile industries, especially cotton and linen, and heavy industries as well: coal, pig iron, and steel. It ranked second in the world (after the United States) in petroleum production, and for a few years at the end of the nineteenth century it held first place. Yet these large absolute amounts are misleading as a guide to Russia's economic strength; Russia's per capita production and consumption of coal were substantially below those of even Austria; such was the case with almost every other category of production. Russia was still a predominantly agrarian nation, with more than two-thirds of its labor force engaged in agriculture and producing more than half of the national income; per capita income was no more than half that of France and Germany and about one-third

28 that of the United States and Great Britain. Productivity, especially in agriculture, was abysmally low, hampered as it was by a primitive technology and scarcity of capital; the institutional constraint of legalized serfdom, not removed until 1861, weighed heavily against the possibilities of growth in productivity even after the Emancipation. The beginnings of Russian industrialization have been traced back to the reign of Peter the Great and even earlier but, except for the Ural iron industry of the eighteenth century, these early industrial enterprises were hothouse undertakings connected with the needs of the Russian state, and were not economically viable. In the first half of the nineteenth century, especially from the 1830s onward, industrialization became more visible; it has been estimated that the number of industrial workers grew from less than 100,000 at the beginning of the century to more than half a million on the eve of Emancipation. Most of these workers were nominal serfs who made cash payments to their lords from their money wages, instead of the customary labor services. Paradoxically, there were also a number of serf entrepreneurs: the most dynamic, rapidly growing industry was cotton textiles, mainly in the Moscow region, with beet sugar refineries in the Ukraine a distant second. St. Petersburg boasted a number of large, modem cotton mills and also some metallurgical and machinery works, as did Russian Poland. The Crimean War (1853-56) starkly revealed the backwardness of both Russian industry and Russian agriculture, and thus indirectly prepared the way for a number of reforms, the most notable of which was the emancipation of the serfs in 1861. Concurrently, the government encouraged a program of railway construction on the basis of imported capital and technology, and reorganized the banking system to permit the introduction of Western financial techniques. Signs of the effectiveness of the new policies became evident in the mid-1880s and in the great spurt of industrial production of the 1890s, when industrial output increased at an average rate of more than 8 percent, higher than even the best rates achieved in Western nations. Much of the credit for this great spurt goes to the program of railway construction, especially that of the state-owned Trans-Siberian Railway, begun in 1891, and to the associated expansion of the mining and metallurgical industries. The latter, in turn, owed much to foreign entrepreneurs and

29 capital, who contributed decisively to the development of the great mining and metallurgical centre of the southeastern Ukraine in the vicinity of the Donetz Basin. The Donbas, as it is known, had large deposits of coal, but it was also remote from the main centers of population. Before the coming of the railway the coal was uneconomical to mine; some 500 kilometers to the west, in the vicinity of Krivoi Rog, very rich iron ore deposits occurred, but for the same reason could not be economically exploited. In the 1880s French entrepreneurs persuaded the tsarist government to build a railway connecting the two areas and constructed blast furnaces at both sites. Production of both coal and pig iron soared; whereas in the 1870s domestic production of pig iron had satisfied only about 40 percent of demand, in the 1890s it accounted for threequarters of a much larger consumption. The government sought to encourage industrialization by several means: It borrowed abroad to finance the construction of the state-owned railways and guaranteed the bonds of the railways belonging to companies. It placed orders for rails, locomotives, and other equipment for the state-owned railways with companies located in Russia [whether owned by Russians or foreigners] and instructed the private companies to do likewise. It placed high tariffs on imports of iron and steel products, but at the same time facilitated the introduction of the most recent equipment for the manufacture of iron and steel and engineering products. Producers in Polish Silesia and St. Petersburg as well as the southeastern Ukraine benefited from these measures. The boom of Russian industry in the 1890s was followed by a slump in the first years of the twentieth century, which in turn was followed by the disastrous [for Russia] RussoJapanese War of 1904-5, and then by the revolution of 1905-6. Although the revolution was suppressed, it prompted a number of both political and economic reforms; the most important of the latter was the Stolypin agrarian reforms, which led to increased productivity in agriculture. In the half century before World War I the Russian economy underwent substantial change in the direction of a more modern, technologically proficient system; but it was still far behind the more advanced Western economies, that of Germany in

30 particular. Its economic weakness became acute during the war, contributing to Russian defeat and setting the stage for the revolutions of 1917.

Industrialization: Japan

The last and most surprising entry in the list of industrializing nations in the nineteenth century - and the only one entirely outside the Western tradition -was Japan. In the first half of the century Japan maintained its policy of exclusion of foreign, especially Western, influence more effectively than any other Oriental nation. From early in the seventeenth century the Tokugawa government had forbidden foreign trade (the Dutch were allowed to send one ship a year to a trading station that they maintained on a small island in Nagasaki's harbor, Japan's "window on the West") and had forbidden Japanese from traveling abroad. Society was structured into rigid social classes or castes, similar in some respects to the feudalism of medieval Europe. The level of technology was approximately that of Europe at the beginning of the seventeenth century. In spite of these constraints, however, the organization of the economy was remarkably sophisticated, with active markets and a credit system. The literacy level was substantially higher than those of southern and eastern Europe. In 1853 and again in 1854 Commodore Matthew Perry, a U.S. naval commander, sailed into Tokyo Bay and, threatening to bombard the city, forced the Tokugawa shogun to open diplomatic and commercial relations with the United States. Soon other Western nations gained privileges similar to those granted to the United States. A key feature of these unequal treaties prevented the Japanese government from levying tariffs of more than 5 percent ad valorum; foreigners also gained rights of extraterritoriality [i.e., they were not subject to Japanese law]. The weakness of the Tokugawa shogunate in the face of Western encroachments led to antiforeign riots and a movement to restore the emperor, who for centuries had performed only ceremonial functions, to a central position in the government. This movement, led by ambitious young samurai [members of the former warrior class], was fortuitously aided in 1867 by the accession of a vigorous, intelligent young emperor,

31 Mutsuhito. The following year the emperors party forced the shogun to abdicate and brought the emperor to Tokyo, the de facto capital. This event, marking the birth of modern Japan, is called the Meiji Restoration [Meiji meaning enlightened government, which Mutsuhito chose to designate his reign]. The Meiji era lasted from 1868 to the death of Mutsuhito in 1912. Immediately upon coming to power the new government changed the tone of the antiforeign movement; instead of attempting to expel the foreigners Japan cooperated with them but kept them at a polite distance. The old feudal system was abolished and replaced by a highly centralized bureaucratic administration modeled on the French system, with an army of the Prussian type and a navy like the British. Industrial and financial methods were imported from many countries, but especially the United States; intelligent young men went abroad to study Western methods in politics and government, military science, industrial technology, trade, and finance, with the aim of adopting the most efficient methods. New schools were established in Japan on Western models, and foreign experts were brought in to train their Japanese counterparts; the government was careful, however, to set strict limits on their tenure, and to see that they left the country once their terms were over to prevent them from establishing positions of dominance. One of the most vexing problems facing the new government was that of finance. Financial problems had been one of the causes of dissatisfaction with the old Tokugawa regime, and the new Meiji government inherited a mass of inconvertible paper money, which it was obliged to increase in the first years of transition. In 1873 it enacted a land tax, assessed on the basis of the potential productivity of agricultural land regardless of the amount of actual produce; this had a doubly beneficial effect: On the one hand, it assured the government of a steady revenue [at the expense of the peasants, to be sure]. Second, it ensured that the land would be put to its best use, as those who were unable to maximize returns on it would lose it or be forced to sell to those who could. Also in connection with its financial problems, the government set out to create a new banking system to replace the informal credit network of the Tokugawa era. In

32 keeping with its policy of seeking the best of everything [a Prussian-style army, a Britishstyle navy, etc.], it took as its model the National Banking System of the United States, created by the Union government in the closing years of the Civil War as a measure of war finance. Under this system banks could be established using government bonds as collateral for the issue of banknotes, which should be convertible into specie [not coincidentally, the Meiji government had just issued a large quantity of bonds to the former feudal lords and samurai as a replacement for their annual pensions]. Under this system, by 1876, 153 national banks had been established. Unfortunately, the following year the Satsuma Rebellion, a rising against the government by one of the largest western clans, broke out. Although the government suppressed the rebellion, it did so at great cost and more issues of both inconvertible government money and national banknotes, resulting in rampant inflation. A new finance minister, Count Matsukata, decided the bank system was a fault and, in addition to bringing about a drastic deflation of the currency in 1881, completely revamped the banking structure. He created a new central bank, the Bank of Japan, on the model of the latest fashion in central banks, the Banque Nationale de Belgique, which, although mainly privately owned, was under the close control of the government. It obtained a monopoly of note issue, the national banks losing their issue rights and being converted into ordinary commercial deposit banks on the English model. The Bank of Japan also acted as fiscal agent of the treasury. From the time of Meiji Restoration the government intended to introduce and domesticate virtually the full range of Western-style industries. To this end it built and operated shipyards, arsenals, foundries, machine shops, and experimental or model factories for the production of textiles, glass, chemicals, cement, sugar, beer, and a variety of other goods; it also imported Western technicians to instruct the native labor force and managerial hierarchy in the use of Western equipment; such an undertaking was clearly a long-term proposition, however. In the meantime resources had to be found to pay for the imports of machinery and other equipment and the salaries of the foreign experts. As a predominantly agrarian economy at the time of the Restoration, and one with virtually no experience in foreign commerce, that was not an easy task. Moreover, Japan

33 had few natural resources. Smaller than the state of California, the island country is also quite mountainous, so that the proportion of arable land to the total was also smaller than that of California. Rice was the staple crop and also the staple of the diet, supplemented by fish and seafood from the teeming coastal waters. Japan did have some deposits of coal and copper ore, and before the 1920s these contributed to exports as well as to domestic consumption. For the most part, however, the agrarian sector had to bear the burden of providing the export revenues to finance the necessary imports. Japans two traditional textile industries, based on domestic raw materials, silk and cotton, experienced very different fortunes. Soon after the opening of trade the cotton industry was wiped out completely by the machine-produced goods from the West, especially Great Britain. The silk industry, on the other hand, survived, and that part of it closest to the agrarian sector, the production of raw silk yarn from cocoons, actually flourished. Assisted by the introduction of modern equipment obtained from France, production of raw silk rose from little more than 2 million pounds in 1868 to more than 10 million in 1893, and about 30 million on the eve of World War I. The greater part of production was exported, and from the 1860s to the 1930s raw silk accounted for between one-fifth and one-third of export revenues. Some trade also developed in silk fabrics, which in 1900 accounted for almost 10 percent of exports revenues. But high tariffs on fabrics in the countries that were the main markets for the raw silk, especially the United States, hampered the development of that industry. The other major agrarian export was tea, which in the early years of the Meiji era was as important as silk; its relative importance, however, gradually declined with the growth of domestic population and income. The same was true to an even greater degree with rice; although small amounts were exported in the early years of the era, the growth of population was such that before the end of the century Japan depended partly on imports for its total consumption. Although government initiative was responsible for introducing most elements of Western technology, it was not the governments intention to prohibit private enterprise. On the contrary, one of its slogans was develop industry and promote enterprise. As soon as the mines, model factories, and other modern establishments [except for the arsenals and one steel mill, under military control] were operating satisfactorily,

34 the government sold them [frequently at a loss in strict accounting terms] to private companies or corporation. The cotton industry [mainly spinning, but with some mechanized weaving] made the most rapid progress. The technology was relatively simple, and it employed cheap, unskilled labor, mostly women and girls. It conquered the home market in the 1890s, and by 1900 exports of cotton yarn and cloth [mostly the former] accounted for 13 percent of total exports. The largest markets were China and Korea, which imported cheap, coarse yarn for hand weaving in peasant households. The heavy industries iron, steel, engineering, and chemicals were slower to develop, and did so with large subsidies and tariffs protection [the unequal treaties expired in 1898], but by 1914 Japan was largely self-sufficient in their products. World War I greatly increased the demand for them, and at the same time opened new markets; in fact, the war was a great boon for the Japanese economy as a whole. The deficit in the balance of trade of the last prewar years had been large, but the increased wartime demand, together with the diversion of European production to war uses, enabled Japanese producers to expand rapidly into foreign markets; by entering the war on the Allied side Japan was also able to take over German colonies in the Pacific and concessions in China. Exports, which amounted to 6 or 7 percent of gross national product in the 1880s and about 15 percent in the first decade of the twentieth century, jumped to 22 percent as early as 1915. Overall, the economic transition of Japan from backward, traditional society in the 1850s to a major industrial nation at the time of First World War was a most remarkable feat. The growth rate of gross national product from the 1870s to the eve of the war averaged about 3 percent per year [estimates range from 2.4 to 3.6], as high as or higher than that of any European nation. Moreover, the growth rate was relatively stable; although it fluctuated somewhat, at no time did it fall below zero, as it frequently did in Europe and America during severe recessions or depressions. The rate of growth of mining and manufacturing output was still higher, about 5 percent for the period as a whole. Japans economic transition had political consequences as well. In 1894-95 Japan quickly defeated China in a short war and joined the ranks of the imperialist nations by annexing Chinese territory [notably Taiwan, which it renamed Formosa] and staking out

35 a sphere of influence in China itself. Even more surprisingly, just ten years later Japan decisively defeated Russia on both land and sea. The rewards of this exploit were the southern half of the island of Sakhalin, the Russian leases on Port Arthur and the Liaotung peninsula of China, and Russian acknowledgment of Japanese predominance in Korea, which Japan annexed in 1910. Thus the Japanese proved they could play the white mans game.