The Transformation of the World (160 page)

Given the state of statistics in the nineteenth century, the export of capital was much more poorly recorded than international trade. In the end, the only source of accurate information remains the archives of participating banks. The extraordinarily high figures for “British” capital exports processed by the City
of London include not just capital originating in the British Isles; investors from other countries that lacked financial institutions of their own usually had no other choice than to channel their funds via London. In 1850 roughly one-half of
British
foreign capital was invested in Europe and another quarter in the United States, followed by Latin America and finally the British Empire. The distribution pattern changed after 1865, however, and then remained essentially the same until 1914. During this period 34 percent of new issues went to North America (United States and Canada), 17 percent to South America, 14 percent to Asia, 13 percent to Europe, 11 percent to Australia and New Zealand, and 11 percent to Africa (mostly South Africa).
¹²¹
One is struck by the shrinking significance of Europe and the rise of the United States to become the number one destination for British capital. Almost exactly 40 percent went to the countries of the empire: India retained its importance throughout; Australia was the chief recipient of credit until 1890, after which the booming Canadian economy took the lead. Many small colonies in Africa or the Caribbean absorbed very little capital. Nevertheless, capital exports meant that major projects in the colonies no longer had to be accomplished with local resources alone. In the years around 1800, the development of Calcutta into the architectural pearl of the East had been funded entirely out of Indian taxes. That would have been altogether insufficient for the large-scale railroad construction that took place later in the century.

Within a few decades of the beginning of new-style capital exports, the “global South” was tightly enmeshed into the patterns of global cross-holdings. A comparison with the present day will make this apparent. In 1913–14, of all foreign investment around the world (not only British investment, as in the figures given in the last paragraph), no less than 42 percent was placed in Latin America, Asia, and Africa. In 2001 the corresponding total was only 18 percent. The share of Latin America had plummeted from 20 percent to 5 percent and that of Africa from 10 percent to 1 percent, while Asia had remained steady at the 1913–14 level of 12 percent.
¹²²
In absolute terms, the figures are incomparably greater today than they were a century ago. But their geographical distribution, instead of widening out, is now concentrated to an extreme degree in western Europe and North America. The web of global capital did not become more even and dense, as did the networks of trade or (after 1950) air transportation. Latin America is today largely, and Africa almost completely, uncoupled from the great flows of finance. On the other hand, huge amounts of capital stream into North America or western Europe from regions that in 1913 were peripheral to the world financial system (Arabian oil states, China). The twentieth century witnessed a
de
globalization of international finance. Poor countries have worse access to external sources of capital than they did before the First World War. The good news is that political colonialism has been defeated; the bad is that economic development has become very difficult to achieve without the participation of foreign capital.

Whether as portfolio investment or foreign direct investment by companies using the capital on their own account, the largest share of British (and probably European) foreign investment before 1914 flowed not into the development of new industries but into infrastructural projects such as railroads, ports, and telegraph lines. The export of capital, itself only to a limited extent channeled through dispersed weblike structures, was thus a decisive element in the construction of
communication
networks around the world. Of course, a lot of this was used to fund the exports of Europe's machine-building industry (mainly railroads); many loans were directly linked to trade orders. The intertwining of
indigenous
financial systems with international flows of capital is a subject about which too little is known. The circuits of
agrarian
finance, supremely important for societies with a large farming sector, were little affected until around 1910, especially in business environments where efficient credit institutions survived from the period before contact with the West. Not all credit in Asia or Africa was—as Western clichés had it—“usury.”
¹²³

Debts

The export of capital in the last five decades before the First World War projected the distinction between creditors and debtors onto the international level.
¹²⁴
From now on there were creditor and debtor
countries
. Quite a few debtors actively sought to obtain capital. In the 1870s, large US banks sent representatives to London and various Continental financial centers to gather funds for investment in American infrastructure.
¹²⁵
For those in search of capital, it was advisable to negotiate favorable rates of interest, maturity dates, and payment terms. Many overseas governments—not only Japan but post-1876 Mexico, for example, under Porfirio Díaz—went to great pains to shore up their reputation as financial partners who paid their debts on time. A country highly valued for its investment potential could hope to attract a continual inflow of foreign capital on tolerable conditions.
¹²⁶
Elsewhere, a mixture of European predation and reckless non-European extravagance might lead to financial catastrophe in dependent countries. Egypt in the third quarter of the nineteenth century was a case in point. The government first sank £12 millions into the Suez Canal, out of which the country got nothing economically, and then had to sell its shares to the British government for £4 million. Ferdinand de Lesseps had palmed this huge commitment off onto Pasha Said, and in November 1875 Benjamin Disraeli used the impending financial collapse of the khedive to stage a coup that placed Britain alongside France at the center of political influence and promised rich pickings for the British state coffers. Since no session of Parliament capable of approving the financial outlay was imminent, the British prime minister borrowed it from the House of Rothschild, which charged a commission of £100,000. The Suez Canal business was highly complicated, and Disraeli soon had to recognize that Britain's stake of 44 percent did not give it a controlling interest. He could not foresee just
how rich the pickings would be, or that the value of the shares would increase tenfold to £40 million.
¹²⁷

During the reign of Ismail, Egypt became seriously overstretched in other areas too. The khedive was unnecessarily generous in awarding concessions to foreigners and accepted loans at high real rates of interest and unusually low rates of issue. Between 1862 and 1872, Egypt took on loans with a nominal value of £68 million (for which interest then had to be paid), but received only £46 million in actual payments.
¹²⁸
Ismail was not quite as irresponsible with money as foreign detractors have claimed to this day; some of the funds went into useful projects such as railroad construction or improvements to the port of Alexandria.
¹²⁹
The real heart of the matter was a rigidly antiquated tax system, which did not allow the government to profit from the expansion of dynamic sectors of the economy, and the sharp decline in revenue from cotton exports after the end of the American Civil War in 1865. By 1876 the Egyptian state had to declare bankruptcy, and in the following years its financial affairs were placed under near-total Anglo-French control. The Egyptian Commission de la Dette grew into a major department of the central government, almost exclusively staffed by foreigners.
¹³⁰
From this it was only a small step before the British took charge alone in 1882, in a quasi-colonial setup. Egypt's fate as a debtor country was thus even harsher than that of the Ottoman Empire, which, already insolvent by 1875, was subjected to a somewhat less invasive debt-management regime.

Failure to keep up repayments to foreign creditors was not an “Oriental” speciality. Every country of Latin America found itself in this situation at one point or another, as did the Southern US states before the Civil War, Austria (five times), the Netherlands, Spain (seven times), Greece (twice), Portugal (four times), Serbia, and Russia.
¹³¹
On the other hand, there were highly indebted countries outside Europe that scrupulously paid off their debt—above all China, whose railroad bonds plunged into crisis only amid the political turmoil of the 1920s. From the 1860s on, the country's customs department was run by an authority—the Imperial Maritime Customs—which, though not a direct instrument of the imperial powers, was under strong European influence; in the late nineties it was even authorized to bypass the Chinese Finance Ministry and to pay revenue straight into the accounts of foreign creditor banks.

In the 1870s at the latest, a new kind of crisis, already common in Latin America since 1825, became a characteristic phenomenon at the interstate level: the international debt crisis. Mostly this involved a conflict between extra-European governments and European private creditors, but it seldom remained without political or diplomatic consequences. The lenders wanted their money back, but that was possible, if at all, only if governments became involved on either side. An ever-present tendency to financial imperialism therefore lurked within the international bond market. Debt was as unavoidable as it was risky for everyone involved.
¹³²
But for almost a whole century—from 1820 to 1914—no tears in the web of international loans were so radical that they could not be repaired
through intervention. Such breakdowns would become a feature of the twentieth century: in 1914 the state coffers in Mexico lay empty in the aftermath of revolution, in 1918 the new Soviet regime in Russia repudiated the Tsar's foreign obligations, and after 1949, in an exact replay, the People's Republic of China unilaterally canceled all debts to “imperialist” creditors. Such financial radicalism was unthinkable in the nineteenth century.

CHAPTER XV

 

Hierarchies

The Vertical Dimension of Social Space

1 Is a Global Social History Possible?

“Society” has many dimensions. One of the most important is hierarchy.
¹
The majority of societies have an
objectively
unequal structure: some of their members dispose of more resources and life chances than others, perform less hard physical labor, enjoy greater respect, and command obedience for their wishes and orders. As a rule, people also perceive these
subjectively
as a set of relations of superiority and subordination. The utopian dream of a society of equals has existed at various times in many civilizations—utopian, because it contradicted the reality of life as a hierarchy in which the individual sought to find his or her place. In the Victorian era, even in a distinctly modern society such as Britain, the image of society as a kind of step ladder was widespread even among the working population.
²

“Hierarchy” is only one of several approaches to social history. Historians have variously focused on classes and social strata; groups and milieux; family types and gender relations; lifestyles, roles, and identities; conflict and violence; communicative relations; and collective symbolic universes. Many of these aspects lend themselves to comparisons between societies at a geographical distance from one another. Often it is worth pursuing the hypothesis that there were influences and transfers across civilizations—more plausible and easier to demonstrate in the case of economic networks, cultural orientations, and political institutions than in the formation of social structures. Society grows out of everyday practice at specific places and times. It is also dependent on local ecological conditions: collective human life inevitably varies according to whether the location is tropical rainforest, desert, or Mediterranean coast. Beijing and Rome are at approximately the same latitude, yet for long periods of time they have had very different forms of society. The ecological framework defines possibilities, but it does not explain why some of these rather than others actually become reality.

There is a further difficulty. In the course of the nineteenth century, it came to be taken for granted that a distinctive national society must correspond to
the nation-state within its political boundaries. To some extent this was indeed the case. Nation-states often developed out of older social ties; societies began by thinking of themselves in terms of national solidarity and then looked for an appropriate political form. Conversely, the political framework and the constant influence exerted by the state strongly marked the forms of society. The law is the original expression of this, insofar as it is validated by the authority of the state. “National” societies may thus be usefully characterized by their particular legal institutions. Alexis de Tocqueville underlined this point in 1835 with reference to inheritance law: provisions for the distribution of a dead person's effects “do belong, true enough, to the civil code but they ought to take their place at the head of every political institution since they have an unbelievable effect upon the social conditions of the people, while political laws only mirror what the state actually is. They have, moreover, a reliable and consistent method of operating on society since they take a hold to some degree on all future generations yet unborn.”
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So it was that quite different types of agrarian society crystallized around distinctive legal institutions regulating the passing on of property. Much depended on whether land and agricultural enterprises were kept together by primogeniture (England) or split up through the partition and distribution of real estate (China).