Trade and the British Empire


The foundations of empire

At the dawn of World War I, Britain ruled over a quarter of the world’s land mass, comprising over four hundred million subjects belonging to an empire with, broadly, four types of British rule. Firstly, the five settler colonies or ‘Dominions’ of Canada, Australia, New Zealand, South Africa and Newfoundland. These were granted significant self-government in all but foreign and defence policy. Secondly, and a special case, the 200 million subjects of India were under the direct control of a British Viceroy and London, the period of British rule called the ‘Raj’. Thirdly, other colonies were categorised as ‘Dependencies’ (or Crown Colonies) and benefited from the direct protection of Britain. And fourthly, Britain held ‘informal rule’ over a number of territories (protectorates), by means of treaties and commercial loans (e.g. Argentina, Egypt, and Hong-Kong) (Darwin 2008: 1-4).

Britain, and the empire it spawned, was built on the early discoveries of pioneers like John Cabot (who claimed Britain’s first overseas colony, Newfoundland in 1497) and Hugh Willoughby (who discovered the Northeast Passage to the Far East in 1554). In the 1560’s John Hawkins was among the early ‘pioneers’ of the trade in humans between Africa and the Spanish West Indies. Richard Grenville, Francis Drake and Martin Frobisher each sailed to South America on several voyages between 1574-8, seeking to replicate the success of the Spanish discoveries of gold and silver, but to no avail. And Walter Raleigh; the adventurer who founded Virginia, the first North America colony, in 1614 (Ferguson 2003: 6-8).

The rise of the empire is attributed to many factors. Principal among these were military victories over Spain (Armada in 1588), defeat of the Dutch (by the French) and subsequently the defeat of the French by the British in the Seven Years War (1756-63) and finally victory after the Napoleonic Wars (1803-1815) at Trafalgar (1805) and Waterloo (1815).

The ‘merger’ with the Netherlands in 1688 (the Glorious Revolution) transferred skills in Dutch banking practice and the concept of a national debt, with which England funded the building of a huge navy. (Ferguson 2003: 33). Costly support to the thirteen British revolutionary colonies in America by the French during the Wars of Independence (1776-83) – and the consequent impoverishing of France that was a catalyst of the French revolution – weakened our historic foe.

The British inventions for harnessing steam power in manufacturing, agriculture and transport, a complex network of telecommunications, peace ‘Pax Britannica’ (compared to turbulence and war throughout the rest of Europe between 1830 and 1870) and even its large deposits of coal all enabled Britain to become the largest and most successful economy the world had, and relatively has, ever seen (Darwin 2009: 4-5). The telegraph, steamship and railways all helped to integrate the empire and ‘speed the flows of goods, information and people between the imperial centre and its outlying parts’ (Darwin 2009: 25).

Newfoundland was Britain’s first colony in 1497, followed by Virginia (the first of the thirteen US colonies before independence in 1783), India, Caribbean islands and the Gold Coast. In the eighteenth century Britain annexed Gibraltar, Minorca, Ceylon, and Malaya and settled in the new territories of Australia, New Zealand and South Africa (Cape Colony) (Lapping 1985: 1-2). The reasons for colonization were either religious (escaping persecution at home), to protect markets of supply and demand or the key trade routes. Britain colonised South Africa to safeguard the routes to the East and ‘prevent foreign powers from acquiring bases on the flank of those routes.’ (Gallagher and Robinson 1953: 3).

During these early days of imperialism, trade was based on mercantilist principles. The objective being to ‘diminish imports (for home consumption) and maximise exports of domestic industry’ – a form of protectionism. Britain introduced the mercantilist Navigation Acts (in 1651) which required colonial producers to ship their products to Britain (for re-export) and to use only British shipping for that purpose (the merchant navy was born in these times). The mercantilist rules ‘seemed the price of security in a dangerous world’ (Darwin 2008: 5). It would be 1849 before the Navigation Acts were fully abolished.

Discoveries of sugar (Caribbean), tobacco (S. America), coffee (Arabia), spices and textiles (India) and tea (China) gave the British an insatiable taste for the exotic. Entrepreneurs and traders satisfied the demand by creating plantations, trading posts (‘factories’) and shipping lines (Ferguson 2003: xxv, 13). A global supply-chain protected by the empires navy.

Under British rule, the colonies were not allowed to promote tariffs aimed at protecting domestic industry or to export any goods which may compete with Britain’ (Kiely 2010: 45). (This mercantilist approach to trade was one of the causes of the American Wars of Independence).

Ferguson notes that by the end of the eighteenth century, Britain had ‘robed the Spaniards, copied the Dutch, beaten the French and plundered the Indians’. Now they ruled supreme (Ferguson 2003: 51).

Formal Imperialism (1780–1840)

The industrial revolution of the late eighteenth and early nineteenth century was propelled by the invention of steam powered engines. The designs of Thomas Savery (1698), Thomas Newcomen (1712) and James Watt (1765) were formative. And by 1829 Robert Stephenson had produced an early steam locomotive design for use on the Liverpool to Manchester Railway; the so-called Rocket.
To meet the demand from home and colonial markets, factories with thousands of workers toiled under one roof, employing the latest designs in steam power, fuelled by Britain’s significant deposits of coal.

Darwin notes the impact that power-weaving machines had in the 1830’s, meaning the British could undercut competition as much as two hundred times cheaper than local supply (Darwin 2009: 37). Through this supremacy Britain became the lowest cost producer in many commodities. The stage was set for Britain to become the world’s leading trading economy for more than one hundred years, and the work-shop of the world (MacLeod 2014).

After the US won its independence in 1783, trade between the two nations followed. From around this time, many in Britain campaigned vigorously against slavery. Britain eventually abolished the international slave trade in 1807 and enforced the law with British Navy gunboats patrolling the coast of West Africa – lest our international competitors should seek to exploit an advantage. Slavery in British colonies was eventually abolished in 1837.

After the Seven Years War (1756-63), Britain was the largest global power. Britain was undisputed in India, and she gave Britain a huge market for British-made products and an ‘inexhaustible reservoir of military manpower’. The value of India to Britain, economically and strategically, cannot be over stated; ‘India was much more than the jewel in the crown. It was literally and metaphorically the whole diamond mine’ (Ferguson 2003: 34-35).

Free Trade (Informal Imperialism) (1840-1880)

The germs of free-trade thinking (i.e. zero tariffs on imports) can be traced back to the second half of the eighteenth century. The beliefs of economists David Hume, Adam Smith and David Riccardo laid the way. These scholars concluded that nations would benefit if they would ‘specialise’ in production (Smith), exploit ‘comparative advantage’ (Ricardo) and trade goods freely. For them, free trade made good economic sense (Kiely 2010: 32-34).

As the lowest-cost producer under the conditions of free trade, Britain exploited market opportunities around the world. Such was the success of free trade, that colonies were argued to be an unnecessary expense – and with it by definition imperialism (Kiely 2010: 43). Richard Cobden (1804-65), the Liberal statesman and campaigner, believed that colonies were persisted in ‘only to enable the English upper classes to find jobs for their younger sons as governors and generals’ (Porter 1996: 13). Later in the nineteenth century, the export of surplus capital was to become a massive influence on later theories of imperialism, both non-Marxist (Hobson) and Marxist (Lenin) (Kiely 2010: 36).

An impediment to free trade were the Corn Laws (taxes on imports of foreign food and grain), introduced in 1815 to protect domestic production. Throughout the early 1800’s factory owners became particularly resentful of these laws, which they were convinced raised food prices, leading to higher factory pay rates and a lack of international competiveness reducing exports (Semmel 1970: 133). Free trade had for some decades been presented to the working classes as a solution to England’s poor prosperity (the ‘stomach taxes’) and industrial crises (Semmel 1970: 164). Even the City of London was split on the Corn Laws. At a City by-election during this period, the free trade candidate won his seat, albeit marginally (Kynaston 2011: 58). The repeal of the Corn Laws in 1846, gave a political imperative to enlarge on the principles of free trade. The Navigation Acts were also abolished in 1849 and all remaining protectionist regulations had disappeared by 1860 (Cannon and Crowcroft 2015: 381-2). Richard Cobden’s ‘cosmopolitan’ thinking also contributed to the abolition of the Corn Laws. The first free trade treaty was the Cobden-Chevalier Treaty, made between Britain and France in 1860 (Kiely 2010: 31).

There are still few examples of any country following entirely free trade. Victorian Britain was a notable exception. As the preferred trade policy with foreign nations, it led to a view that Britain had turned its back on imperialism during this period. In 1953, two economic historians blew apart the perceived wisdom that Britain’s free trade period was benign and anti-imperialist. In their seminal paper; The Imperialism of Free Trade (1953), Gallagher and Robinson proposed that free trade did not mean not operating an imperial system. According to them, what many historians called the ‘anti-imperial’ period between 1840 and 1880 was a fallacy. They pointed to colonial acquisitions between 1841 and 1851 when ‘Britain occupied or annexed new lands in New Zealand, the Gold Coast, Labuan, the Punjab, Sind and Hong Kong’. And over the next twenty years further territorial gains were made throughout Asia, Africa, Australia and British Columbia. So it was quite the reverse according to these scholars. Free trade was, in fact, the goal of imperialism (Gallagher and Robinson 1953:2). Mercantilist techniques of formal empire were being employed to develop India in the mid-Victorian age at the same time as informal techniques of free-trade were being used in Latin America for the same purpose (Gallagher and Robinson 1953: 6). Their views were paradigm changing.

Gallaher and Robinson highlighted areas of direct political control, through economic means, that included: ‘government promotion of products produced by British industry, manipulation of tariffs to help British exports and railway construction to open the continental interior in India and Africa’. Free trade treaties were made with Persia (1836 and 1857), Turkey (1838 and 1861), Japan (1858), Zanzibar, Siam and Morocco. Countries were often ‘hustled’ into signing treaties in exchange for British support against common enemies (e.g. Russia).

Immense amounts of British capital (with high rates of return guaranteed by the British government) were sunk into Argentina and Brazil from the 1850’s on railway networks and rolling stock – all built and operated by British companies. In Latin America and the Balkans, British policy was to encourage stable governments as good investment risks and to make them dependant on British trade. This policy of seeking ‘offshore’ investment opportunities would be challenged by later historians, who argued that British capital could have been better spent modernising British industry in preparation for the more competitive international environment that arrived in the 1880’s (Ferguson 2003: 244).

Britain attained industrial supremacy by exploiting its supplies of low cost (colonial) raw materials, highly productive manufacturing operations, captive (imperial) export markets and ‘enforced’ free trade treaties with the rest of the world (Dalziel 2006: 43). Britain produced more than half the world’s iron, coal and cotton cloth as well as capital equipment, textiles, metal goods, homewares, arms and munitions (MacLeod 2014).

The most common political technique of British Informal Imperialism was the treaty of free trade and friendship made with or imposed upon a weaker state (Gallagher and Robinson 1953: 11). According to one estimate, the period of free-trade could have benefitted Britain by as much 6.5 per cent of gross national product. (Ferguson 2003: 367). If other counties used free trade to dump low-priced products on Britain, or if exports dipped, Britain could rely on its invisible exports (e.g. interest on loans, shipping and insurance payments) to maintain a healthy Balance of Payments.

If other nations declined British ‘free trade and friendship’ Britain might enforce its will. When Britain attempted to export Indian-grown opium to China (to pay for the tea trade with China), an illicit cargo of opium was seized by the Chinese in 1839 – and Britain declared war on China. After two Opium Wars (1839 and 1856) China was coerced into permitting British opium imports, largely on British terms, codified in the Treaties of Nanking (1842) and Peking (1860), the former resulting in half a dozen ‘treaty ports’ (including Hong Kong) (Darwin 2008:7). Thus the practitioners of free trade during this period were mostly weaker countries that had been forced into, rather than had voluntarily adopted it, as a result of colonial rule, or unequal treaties.

Porter notes that ‘free-trade represented the interests of the already powerful states (Porter 1996: 48). When Britain took colonies, she took them because they ‘would not or could not play the free-trade game fairly’ (Porter 1996: 73). Gallagher and Robinson argued there was ‘a fundamental continuity in British expansion throughout the nineteenth century’ and that the period of free-trade was ‘imperial in its nature’ (Gallagher and Robinson 1953: 5). Their views have been adopted as the virtual orthodoxy; Hopkins summarises that the ‘underlying aim of British supremacy remained constant. It was the means, not the motive which changed’ (Hopkins 1988: 5).

During the free trade period most other European countries (i.e. Germany, France and Italy) were distracted with wars, revolts and unification – so were unable to complain at British free trade. When Britain took colonies, she took them on behalf of other European countries – and they were invited to benefit from free trade too. It was around this time that British Imperial history was becoming an interesting subject to scholars. A turn toward imperial history was marked by a series of lectures entitled The Expansion of England, by John Seeley in 1882 (Seeley 1971).

A slump in the German market in the early 1870’s, started a long depression that eventually gave rise to protectionism. Semmel notes the use of informal techniques of empire were seriously undermined by international competition for colonies and therefore a greater reliance of policies of war and annexation – whence came the view that anti-imperialism had been replaced by imperialism once again. (Semmel 1970: 206). In Europe, when the unification and fighting were finished it would be a different story; ‘the myth of free trade would be shattered and a new era of competitive imperialism would succeed this happier period’. (Porter 1996: 73).

Formal (New) Imperialism (1880-1914)

Up to 1887 there was no enthusiasm for further colonisation. But by 1888 the sentiment had changed. Prime Ministers Lord Salisbury (2nd term 1886-92), the Earl of Roseberry (1895-95) and the charismatic Joseph Chamberlain (Colonial Secretary 1895-1903) all accepted further annexations as a painful necessity in order to secure markets and uphold British paramountcy. This eventually resulted in annexing Sudan in 1898 to protect Egypt (and so protect the Suez Canal and British trade routes to India). Trade with the colonies were regarded as a ‘vital part of the national strength’ (Semmel 1970: 6).

American was fast industrialising and had reduced its reliance on British manufacturers. Britain had also failed to establish Texas, Mexico and Central America as ‘informal dependencies’ (Gallagher and Robinson 1953: 10). British industry also made vigorous demands on government to ‘force an entry into markets closed by the power of foreign monopolies’ (Gallagher and Robinson 1953: 8-9).

Furthermore, by the 1880’s, the US, Germany, France and Russia had all adopted highly protectionist policies to nurture their own emerging industries whilst railways opened up the supply of cheap Russian and US grain onto the world markets. Foreign powers would reference the ‘Principles of Political Economy’ written by Britain’s John Stuart Mill in 1848. He argued that protectionism was valid for supporting infant industries (Kiely 2010: 37-38). With its reliance on imported food, Britain maintained free trade to keep food prices low.

With the US and European markets reducing their imports of British goods, Britain was forced to retreat into the unprotected and more easily exploited markets. In the 1880’s the African interior remained one of the last unexplored (and untapped) continents. Here, Britain sought to exhaust all informal means to secure regions of British trade, before admitting that further annexations were ‘unavoidable’ (Gallagher and Robinson 1953: 13). The so called ‘Scramble for Africa’ was, in effect, a race among the European powers to annex Africa. The 1884 Berlin Conference was convened to divide Africa into ‘spheres of influence’ among the powers – and set some ground rules for territorial acquisition. Britain surrendered some gains in British West Africa to France and areas of East Africa to Germany.

British territorial acquisition in Africa was largely down to the entrepreneurism of a few people in the field. When government took action, it was to defend and consolidate economic gains already made. London relied heavily on local information and the ‘men on the spot’ but the governors, traders, settlers and missionaries ‘all tended to exaggerate’ (Porter 1996: 62). Cecil Rhodes, the British businessman and future Prime Minister of Cape Colony in South Africa and George Goldie the soldier turned administrator who played a major role in founding Nigeria, were two of the biggest men on the spot. Ferguson notes that, ‘Cecil Rhodes worked north from the Cape, George Goldie worked east from the Niger whilst British politicians were working south from Cairo’. (Ferguson 2003: 230). The granting of a charter to George Goldie’s Royal Niger Company (much like more than two centuries ago in India) was an admission of seeking to do imperialism on the cheap.

The ‘scramble for Africa’ (and all colonial annexations) brought with it greater territorial obligations. Britain expanded territorially in order to defend vulnerable interests and frontiers, but ‘every inch of expansion extended her frontiers and so multiplied her vulnerable points’ (Porter 1996: 370). Gallagher and Robinson comment that this last formal stage of empire was of negligible importance – the scramble for Africa was ‘merely scrapping the bottom of the barrel’ (Gallagher and Robinson 1953: 15).

By the end of the century, the conservative Prime Minister Lord Salisbury (1995-1902 3rd term) and Joseph Chamberlain campaigned to introduce protective tariffs – and to plough the money into industrial modernisation and old age pensions. Kynaston notes that ‘it was the imperial dimension that appealed to the City – not the modernisation of British industry’ (Kynaston, 205). Salisbury and Chamberlain lost the election to Arthur Balfour, Salisbury’s nephew, who campaigned for free trade – people were never going to vote for an increase in food prices.
Imperialism and empire were an anathema to some historians of the period. In Hobson’s seminal work: Imperialism: A study, he wrote that the ‘economic root of imperialism’ was ‘surplus capital’ seeking more profitable investments abroad than were available at home. (Semmel 1970: 213). Hobson believed that attacks on Imperialism were idle, unless ‘the axe is laid at the economic root of the tree and the classes for whose interest Imperialism works are shorn of the surplus revenues which seek this outlet’ (Hobson 1961: 93).

Hobson concluded that Trade Unionism and Socialism are therefore the natural enemies of Imperialism, for they take away from the ‘imperialist’ classes the surplus incomes which form the economic stimulus of Imperialism. (Hobson 1961: 90). Hobson was a strong influence on Lenin and future generations of Marxist historians. However, Lenin’s interpretation of Imperialism being ‘the highest stage of Capitalism’ was criticised as being too simplistic. Britain preferred not to engage in formal imperialism – when free trade was more profitable. Kiely believes the reason imperialism occurred was due to ‘specific vested interests in the metropolitan countries, such as arms trade, armed forces and the export and shipping trade’ (Kiely 2010: 56). Imperialism was held to be immoral because it was ‘paid for by British taxes and fought for by British soldiers, but benefited only a tiny elite of fat-cat millionaires’ (Ferguson 2003: 283).

Meanwhile British industry was suffering from a lack of international competitiveness and investment across a range of commodities from engineering and chemicals to automotive. The new economies of Germany and the US had invested in discovery, modern equipment and actively focused their efforts on industrial and managerial processes; whilst Britain sought to manage its old industries and trade throughout its empire.

Since the seventeenth century, Britain had developed a cadre of professionals to administer the empire. Status, rewards and culture were all advanced in administration careers of one form or another. The British aspired to work in the law, the City or the Civil Service – and not necessarily in industry. Those that did choose industrial careers presided over old plant whilst our competitors, coming later to the game, had newer facilities.

Cain and Hopkins describe how ‘gentlemanly capitalists’ were the elites who controlled the machinery of central government and economic policy’. Provincial industry was ‘unable to influence imperial policy’ and the interests of provincial manufacturing were ‘not in the political mainstream’ (Cain and Hopkins 2002: 52-3). Kiely notes that British capitalism was driven more by the need for commercial transactions and not by the needs of industrial capitalism (Kiely 2010: 85). In other words, trading and deal making (based on the utilisation of existing assets) were preferred over making new capital investment. Britain allowed its sunk costs to influence future investment decisions and once Europe caught up, Britain could no longer compete.

There was also a problem with the distribution channels. Wilson comments that whilst the indirect method of selling abroad (i.e. that of using local merchants) was attractive for ‘cash-starved industrialists’ it had a ‘dangerous tendency to sub-contract the vital function of marketing, reducing the ability of individual firms to detect and follow customer requirements’. (Wilson 1995: 59). The needs of industry to modernise production and managerial practices (e.g. marketing) were never properly addressed (Kiely 2010: 85). Wilson concludes that the bias in favour of relatively risk-free overseas investments could have potentially affected the supply of money into domestic business (Wilson 1995: 123). American (and German) businesses were quicker to adopt professional management that took responsibility for strategic investment decisions as well as operational matters. The dominance of American corporations achieved in high growth sectors came as a direct consequence of the strategies and structures adopted from the 1880’s in their home market (Wilson 1995: 70).

By 1900, most foreign competitors had tariffs and Britain found free trade foreign markets increasingly difficult to get. As a consequence Britain concentrated more on its ‘soft’ colonial markets of Canada, Australia and India – but all these markets had foreigners moving in.

The clouds of economic and geo-political change were gathering. Darwin notes that the fate of the world-system in which the British Empire was embedded was largely determined by geopolitical forces over which the British had little control. It first created ‘the openings and then closed off the freedoms that the British had exploited with striking success’ (Darwin 2009: 649). Furthermore, lack of investment in new industries had left the British much too dependent upon the comparatively simple and labour-intensive technology of textile making and she also depended too much on coal as an export and a fuel (Darwin 2009: 285). The empire was also starting to show signs of fragmentation (Irish Home Rule was being formally discussed by 1912) and Britain was heading towards war with Germany.

Interwar (1918 to 1939)

World War I severely eroded the wealth of Britain. Overseas investments were sold to pay for war loans and earnings from shipping were much reduced. The war so handicapped Britain’s finances that the economist John Maynard Keynes commented ‘by 1919/20 we shall have forfeited the claim we had staked out in the new world and the country shall be mortgaged to America’ (Darwin 2009: 322). Directly after the war, contagion from The Russian Revolution of 1917 was also feared. Strikes by 70,000 workers in Glasgow and riots by 25,000 ‘Red Clydesiders’ in 1919 made that all too apparent (Marr 2009: 231). Britain avoided revolution largely down to patriotic mood, a programme of social changes introduced by Lloyd George and success at the ballot box in 1924 by Britain’s first Labour Prime Minister; Ramsay Macdonald (Marr 2009: 233).

In 1925, Churchill (newly back in the Conservative Party as Chancellor of the Exchequer) returned Sterling to the Gold Standard. Maynard Keynes deplored the pegging of the currency to a standard amount of gold and he correctly predicted it would have a devastating effect on British exports. In order to reduce prices, public sector wages were reduced and working hours lengthened. The General Strike of 1926 ensued, but was short-lived. A show of military force and logistical organisation by Baldwin’s Conservative government broke the strike after nine days (Marr 2009: 267). Britain was finally forced off the Gold Standard in 1931, following the economic collapse and the Great Depression (1929-32). The experiment was blamed for ‘causing slump and misery’ (Marr 2009: 238).

In the post-war period there was world-wide economic pressure to protect and raise trade barriers. In 1927, to counter protectionism, the post-war League of Nations set out a Multilateral Trade Agreement, but the Great Depression would result in it having little effect. In 1932 at the Ottawa Conference, Britain introduced tariffs of ten per cent for non-empire trade, but preferential for colonies in return for concessions on British exports. Darwin notes that Britain ‘seemed to bury the old landscape of free trade imperialism, the commercial foundation of British world power’ (Darwin 2009: 651).

Two world wars, economic depression, international competition and social change had caused the sun to set on the British Empire. Darwin notes that for ‘various partisan reasons, expectant Marxists, frustrated nationalists and embittered imperialists all wrote its obituary’ (Darwin 2009: 419). The formation of the Irish Free State (1922) and the Republic of Ireland (1949) would trigger other Dependencies into action; from the Caribbean to Africa to India.

By the 1960’s a transformation had taken place on a world-wide level and ‘the colonial empire was no longer a legitimate or viable form of political organisation’ (Cooper 2005: 54). Darwin imagines that when Whitehall ‘rolled up the map of the world in the late 1960’s, only the ghost of the British world-system remained to acknowledge its passing’ (Darwin 2009: 655).

(c) Essential London

References

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