Was empire more profitable than free trade?

December 9, 2010 11:24 AM

Did the Western Powers gain more economic benefit from their 19th century/ early 20th century colonial empires, or from post-WWII trade with the more-or-less free world?

I realize that this is a terribly broad question with a million complications (how to account for Middle Eastern fossil fuel riches, say), and I realize that the ex-colonies and their people have interests that are just as valid.

However, I wonder if there are some historians and economists have tried to look as the wealth associated with empire vs. trade, and if so, I’d be interested in their take. Were the colonial empires highly economically profitable for the imperial power, or is it more a case of competing powers unwilling to yield the Great Game to their rivals? Would they have been wealthier if they had been trading with Asia and Africa?

posted by Clambone to Law & Government (14 answers total)

While the political ties may have been severed, the economic ties were not. Former colonies still provided former colonizers with markets.
posted by KokuRyu at 11:27 AM on December 9, 2010 [1 favorite]

I don't know the answer to this, but it wouldn't surprise me if everyone did better post-WWII for the simple reason that one nation (the United States) has paid the lion's share of the security costs necessary with free trade. There's got to be some savings on the administrative costs of an empire too.
posted by Hylas at 11:42 AM on December 9, 2010

Have to be careful to define benefit, especially short term benefits versus long term ones. And of course, complicating matters is the fact that short term financial gains can have significant impacts over the long term if managed properly.

If you broadly generalize that economics and politics follow the path of least resistance - you could argue that colonialism benefited the colonial powers more. What I mean to say is, it happened the way it happened because it was "the best way" as an economist might think of it.

Essentially the resources of the colonies were taken at obscenely low cost to the colonial powers; fair trade, though more sustainable in the long term, distributes the benefits of trade more equally. Therefore, the colonial powers would have benefited more from unfair trade arrangements, which is generally assumed to be the case.

And as KokuRyu points out, the changes following the ostensible collapse of colonialism didn't erase the economic relationships or even change them all that quickly.

I think you want to avoid looking at it from a U.S. point of view as well. The U.S. probably benefited more post WW2, for a number of reasons.
posted by Xoebe at 11:46 AM on December 9, 2010

Hylas, yeah, that's what I am thinking about - defining "benefit".

There was greater improvement in a number of things for a larger number of people post WW2 - but this aggregate benefit may not have been proportionately better for the colonial powers.

You'd have to isolate a lot of things and look at them individually to answer the question. I suspect that there would be a fair amount of variability in the results, and you'd have to make some sort of weighted index to resolve the question fairly.

And some people think the BCS is complicated!
posted by Xoebe at 11:53 AM on December 9, 2010

Best answer: I don't know the numbers, but I gather the consensus is that the governments of colonial powers had a net drain, but the companies and individual businesses based in colonial powers had massive benefit. That said, the influx of both raw materials and capital is considered to have bee essential to the rapid growth of the colonial powers' local economies, which the government would have seen back in tax revenue.

All the colonial powers saw a massive increase in GDP per capita in their home countries -- though I've never heard of anyone figuring out what the increase in GDP per capita would have been if you included the populations of the colonies as well, many of which (in the early empires) were slave colonies.

I'm inclined to think that there was more relative benefit to the colonial powers during colonisation -- the 19th century was the period in which the places with the most wealth in the world ceased to be the densely populated areas of Asia (China, India, where the sheer density of people generated massive amounts of wealth) for the first time since early farming, and Europe became richer. The shift is slowly going back now.
posted by jb at 12:05 PM on December 9, 2010 [1 favorite]

Best answer: During the 19th and early 20th century, the Western Powers advanced rapidly in wealth. They quickly out-classed the rest of the world.

However, it was colonialism that did it - it was the industrial revolution! Steam engines, factory production, and electric power. These things acted as multiplers in productivity ratings of western workers - and this dramatically increased productivity caused huge gains in material wealth.

In fact, the Industrial Revolution lead to the second great wave of colonialism, during the 19th century. The West could never have colonialized the old world in the 16th and 17th century - India, China, and the rest were of comparable power to the West. But with Industrial Revolution technology, like guns, patent leather boots, and steam ships - the West was able to colonialize many parts of the Old World
posted by Flood at 12:05 PM on December 9, 2010

It was not industrialisation that led to that increase in wealth. Steam engines, factory production, electricity -- these were all only a small part of the manufacturing sector in Britain before c1850.

The British population, having a somewhat delayed response to the growing economy, started to sky rocket in c1750. James Watt didn't even get his improved engines into a commmercial setting until 1776.
posted by jb at 12:10 PM on December 9, 2010 [1 favorite]

I just found that there is a book about this: The World Economy: Historical Statistics, by Angus Maddison. And an associated website.

This pdf has a table of (estimated) GDP per capita in China and Europe from the year 1000, which shows them to be very similar until c1400, and diverging significantly between 1500 and 1820. After 1820, European GDP per capita keeps growing, even faster, while Chinese declines.

Now, this isn't all due to colonialism -- the beginning of divergence around c1400 suggests that the way the Black Death played out in Europe (reduced labour, more land available, higher wages) may have contributed to some disparity, and Kenneth Pomeranz has done research on the endogenous causes of economic problems in China in the 19th century.

But c1500 is when colonialism started. The mechanisation of manufactoring is a mostly late 19th century phenomenon. (Some industries, such as textiles, were mechanised earlier - but most things were still hand-made).
posted by jb at 12:25 PM on December 9, 2010

Also, last time I checked, it's not possible to grow cotton in Britain. Britain's cotton wealth - all based on colonial production, mostly with slave labour.
posted by jb at 12:28 PM on December 9, 2010

Sorry - I really dislike the argument that the Industrial Revolution was the sole reason for the richness of the West. Before c1800, European production was not substantially technically more advanced than Asian, either in quality or productivity. But you can see from the graphs that the GDP per capita was already higher.

I'm not saying that industrialisation did not contribute to economic growth in the 19th century - of course it did. But by talking about industrialisation and not talking about the colonialisation that was its backbone - producing the cotton to be spun and woven, for example - we are whitewashing the history of economic development in the colonial period.
posted by jb at 12:37 PM on December 9, 2010 [3 favorites]

It is far cheaper to exploit a country than to govern it.
posted by twblalock at 12:58 PM on December 9, 2010

Best answer: This covers an earlier period, but Kenneth Pomeranz's The Great Divergence is an astonishing book (and a classic in its field) that might clarify some of these issues for you. I don't really do imperial stuff, but based on the stuff I hear in my department this is a really central question for a lot of the scholarship being done now.
posted by nasreddin at 1:01 PM on December 9, 2010 [1 favorite]

After the 1970s oil crisis, most of the newly decolonized world took a major economic dive, wound up taking loans from the IMF, and was subject to the IMF's "structural readjustment programs."

These programs required the newly-decolonized nations to concentrate their energies on preparing raw materials for export. Which was pretty much what they were doing when they were colonies: producing raw materials and sending them to the industrialized nations, where the materials would be used in factories. (And worked and sold back to the ex-colonies at a markup.)

Now, with super-free trade, many of the factories have left the "industrialized" world. I know this has impoverished workers in the developed countries, but I'm not sure what effect it's had on the developing ones.

None of this exactly answers your question but yeah, I agree with twblalock.
posted by hungrytiger at 7:52 PM on December 9, 2010

Best answer: This being MetaFilter, let me point out a couple of problems with your question as currently posed. But I don't mean to be, well, mean: we're dealing with some of the biggest questions in global history right here, so it's not surprising if we need to think through and refine our ideas a bit.

One is that there's not necessarily a contradiction between colonial empire and free trade. Sure, by the 1930s most of the colonial empires were protected trade zones, but this wasn't the case earlier. It's not coincidental that perhaps the most influential academic article ever written about the British Empire is entitled The Imperialism of Free Trade.

Another question we should probably ask is whether the enormous post-WWII economic growth of western Europe, North America, and Japan was down to free trade. The period between 1945 and the recession that followed the oil shock of 1973--what they call the 'glorious thirty [years]' in France--was characterized by tariff barriers, currency restrictions... and massive state investment in the economy, both directly (infrastructure spending, expansion of state-owned industry) and indirectly (boosting consumption by supplementing or supporting the earnings of workers). This applies to the USA, too, though America tended to do it by indirect means: think of the enormous expansion of the university system, including private universities, that was federally funded through the GI Bill (supporting students) and the allocation of Cold War research grants (supporting research). Or take the culturally and socially more significant expansion of the suburbs, carried out by private property developers selling homes to private citizens--who paid for them with federally-backed mortgages (a model originally established in the 1930s).

Free trade is definitely a prominent factor in economic growth today, but I think it's probably questionable (to say the least) to attribute the post-WWII boom in western Europe and elsewhere to free trade, or for that matter freer trade than the colonial powers had had in the 19th century. I'd lay a bet that Britain in the 1950s was a less open economy than Britain or any part of its empire in the 1850s.

As for whether the colonial empires were profitable or not for the colonial powers, this was something that was acrimoniously debated at the time--certainly in Britain, and before WWI in France too. People's answers were and are often determined in advance by their political position. An excellent place to get an understanding of some of the complexities you run into when you ask this question is John Darwin's big recent book on the British Empire, The Empire Project [disclosure: he was internal examiner for my PhD, though I don't work on the British Empire]. This gives a remarkable picture of the whole system from the 1830s to the 1930s, with a solid understanding of the economics of it all (including those bits that weren't strictly 'imperial', like Britain's overseas investments in the Americas) and how being an imperial power provided certain strategic economic benefits that didn't necessarily show up on the balance sheet for Britain itself. Examples would be having vastly reduced military costs because of being able to raise troops in India and deploy _them_ elsewhere in the empire at the cost of the Indian taxpayer; or the boost to the financial sector (and Britain's economic stability) that came from the Dominions (Canada, Australia, NZ, South Africa) banking their gold in London, though they were self-governing.

For France, Jacques Marseille (died, quite young, a year or so ago) argued that the empire cost France money--but apparently he reaches this conclusion by ignoring a lot of the intangible (but enormous) benefits of the kind I've just mentioned for Britain.

I think jb's made a lot of useful points here too, especially the bit about not writing the awkward colonial truth out of the glorious history (!) of European industrialization. I'd take issue with a couple of them, though. For example, about cotton: in the 19th century most of Britain's cotton didn't come from the British Empire. It came from a certain rebellious ex-colony named the United States of America (where, yes, it was grown by slaves). When the supply was cut off by the Civil War, one of the big alternative sources was Egypt, where there was a massive cotton boom that busted once the American supply came back onstream. But Egypt was technically part of the Ottoman Empire in the 1860s and actually pretty much self-governing: it didn't come under British rule until 1882. Cotton is a great example, in fact, of the complexity of the question: it's definitely part of Britain's colonial history (in America before the 1770s, in Egypt after 1882), but it's obviously not _just_ a 'colonial raw material'. Sugar, now--you might be nearer the mark with sugar.

And, yes, if you're interested in economic history, Pomeranz. Total dude.
posted by lapsangsouchong at 9:56 PM on December 9, 2010 [4 favorites]