Darwin J. The Empire Project. The Rise and Fall of the British World-System, 1830-1970
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135 / The commercial republic
Egyptian lines to be imposed.
88
The larger aim of promoting British
commercial interests throughout China by official pressure was even
more impractical. After 1905, the more perceptive of the China hands
recognised that the future lay not in attempts at the colonial subordi-
nation of China, still less in partition, but in ‘normalising’ her relations
with the West, especially through currency reform, the greatest sin-
gle barrier to trade.
89
European financial cooperation, thought Addis,
would be the instrument of modernity.
90
It was a banker’s dream. But,
in the time of troubles that lay ahead, it was a vision to which British
leaders would return with almost desperate faith.
Latin America: the swing to the West
Up to 1914 (and long after), foreign-owned business in China remained
the step-child of diplomacy or was confined to the shelter of treaty-
ports. By contrast, Latin America was a fair field of commercial enter-
prise, offering exceptionally favourable conditions after 1880 for the
growth of a vast business empire pivoted upon London. Latin America
was far away from the great geopolitical faultline that ran from Vienna
through Constantinople to Teheran and Peking. Latin American states
were defective by European standards, but after c.1850 they were far
more robust and commerce-friendly than almost anything to be found
in tropical Africa.
91
There was neither the need nor the opportunity to
engage in the costly privatised state-building to which Goldie, Mackin-
non and Rhodes had resorted. Nor was there a great imperial bureau-
cracy, like that in China, to confine the commercial intruder to a coastal
enclave. Latin American elites, far from resisting a disruptive alien cul-
ture, eagerly embraced European models of ‘order and progress’ and
identified with Europe’s colonising drive elsewhere in the world. They
saw themselves as the vanguard of civilisation among their benighted
countrymen, especially where those countrymen were Indian or black.
92
Amid the enthusiasm with which they opened their economies to the
outside world, the clumsy apparatus of semi-colonialism erected in
China would have been an absurd irrelevance.
Three other circumstances shaped the economic connection
between Britain and Latin America. No Latin American state in 1880
remotely compared with the United States in population, accessible
resources, commercial infrastructure or industrial development. There
136 / Towards ‘The Sceptre of the World’
was neither the means nor the will to challenge Britain’s financial,
commercial and industrial superiority by building a manufacturing
base behind tariff walls. Secondly, Latin America’s mineral wealth
and its rich zones of tropical, sub-tropical and temperate agriculture
promised a huge stream of primary products at the very moment when
Europe’s urban and industrial transformation was moving into high
gear. Finally, Latin American governments, notably in Brazil, Argentina
and Uruguay, were now ready to exploit their natural resources with a
vast immigrant workforce drawn from the stagnant rural economies of
Italy and Spain.
British businessmen were perfectly placed to exploit this
dynamic new commercial frontier. They could move out from the old
mercantile bridgeheads first occupied during or before the 1820s. They
commanded an ample reservoir of commercial credit and a versatile
shipping network. They were attuned to the commodity markets in
London and well supplied with commercial intelligence. Above all, they
enjoyed ready access, through merchant banks and the Stock Exchange,
to a stream of capital. Credit, capital and commercial know-how were
their supreme comparative advantage for, though none of these was
entirely lacking in Latin American economies, local businessmen pre-
ferred familiar assets like land or housing to riskier long-term projects
subject to the ebb and flow of foreign markets.
93
As the Latin American
economies were drawn more fully into the web of international trade,
their commercial association with Britain grew closer and closer.
The results were impressive. In 1880, Britain exported goods
worth some £17 million to Latin America. By 1890, the figure had risen
to nearly £29 million, and had surged past £50 million by 1910.
94
By
that date, British purchases had grown even faster to exceed £70 mil-
lion. By the eve of the First World War, around 10 per cent of British
trade was with the Latin American states. But much more striking than
the growth of trade was the astronomical rise in British investment.
In 1875, when Latin American borrowing was already under way, the
total had been £175 million. Thirty years later, it had increased four-
fold, and by 1913 stood at nearly £1,200 million
95
(these figures must
be treated as orders of magnitude since the amount of private invest-
ment, as opposed to quoted securities is necessarily conjectural). By
1913, two-thirds of that total was invested in enterprises rather than
government bonds (the reverse had been true in 1885). Perhaps half
of all British investment was in railways, and there were British-owned
137 / The commercial republic
railways in every South American country and in Mexico, Guatemala
and Costa Rica. More British capital was poured into docks, harbours,
tramways and utilities to serve the booming cities, including Buenos
Aires, the ‘Paris of the southern hemisphere’.
96
‘Nowhere in the world’,
remarked James Bryce of Buenos Aires, ‘does one feel a stronger sense
of exuberant wealth.’
97
In this benign environment, British business-
men like the Johnston family in Brazil,
98
the banker George Wilkinson
Drabble in Argentina,
99
Colonel North, the ‘nitrate king’, in Chile
100
and the great contractor Weetman Pearson (later Lord Cowdray) in
Mexico
101
could build up their interests on an imperial scale.
In fact, British interests were scattered prodigally across Cen-
tral and South America. Even in inhospitable states like Paraguay and
Venezuela, there were British-owned railways like the Paraguay Central
and the Bolivar.
102
Sixty per cent of Colombia’s network was British-
owned.
103
In Peru, where the government had defaulted on its railway
loans in 1879, a British holding company, the Peruvian Corporation,
administered the country’s railways, guano deposits and certain util-
ities under the ‘Grace Contract’ of 1890.
104
In Chile, British capital
controlled one-third of nitrates production – Chile’s principal export
and its main source of public revenue – by the 1880s.
105
In fact, British
capital was concentrated in Mexico, Chile and along the Atlantic coast
in Brazil, Uruguay and Argentina. Mexico ranked third in 1913,with
some £132 million in railways, mines and the oil concessions into which
the Pearson interests had diversified – a figure broadly equal to that of
American investment.
106
In Uruguay, British commercial predominance
was proverbial. ‘All of the industrial enterprises . . . of any importance
are in English hands’, remarked the British minister in 1881.
107
Trans-
port, communications, utilities, insurance, banking, meat-processing
and ranching were largely British-owned or managed by 1900,
108
and
the Uruguayan president ruefully described himself as the ‘manager of
a great ranch whose board of directors is in London’.
109
In Brazil, the
growth of British banks and insurance companies followed in the wake
of the large trading houses dealing in coffee and sugar. The British-
owned Sao Paulo Railway, the great trunk route into the coffee-growing
heartland, was the most profitable British railway anywhere in South
America.
110
But it was in Argentina that British interests had flourished
most of all. Argentina was the miracle economy of the age and the
most dynamic in Latin America.
111
Its seemingly boundless resources
138 / Towards ‘The Sceptre of the World’
prompted comparisons with the United States. Between 1880 and
1913, its population increased fourfold to eight million, nearly half the
increase being due to immigration. Its production of cereals grew by
forty times. In 1913, it was by far the world’s greatest exporter of maize.
It became a major supplier of frozen meat and the second largest pro-
ducer of wool. Its railway network by 1910 covered more than 17,000
miles of line
112
and was still growing rapidly. The maize and wheat
lands west of Buenos Aires were crisscrossed by the densest railway
system in South America. By 1913, Argentina had long since overtaken
Brazil as Britain’s main trading partner and dominated British trade
with the continent. Not surprisingly, this exceptional growth and the
close commercial tie with Britain were reflected in the volume of British
capital directed to the country. In 1880, British investment had stood
at £20 million; a decade later at £157 million;
113
and by 1913 at £360
million – as much as in India. More than half this sum had been placed
in the railway system, the key to export-led growth. The Buenos and
Great Southern, the Buenos Aires and Pacific, the Central Argentine,
the Western, the Central Cordoba and other British lines made up
70 per cent of Argentina’s network.
114
After 1900, the Southern
returned a consistent dividend of 7 per cent.
115
The railway compa-
nies were also linked to docks and harbour companies and to shipping
lines. Other British capital went into water, gas and tramways. And, by
the late nineteenth century, British banks like the Bank of London and
South America dominated the finance of trade.
The British stake in Argentina’s development was huge. But,
both there and elsewhere in Latin America, it was based on a tacit
accommodation with local elites. Even in Colombia, a congressman
could urge that ‘we . . . offer Europe raw materials and open our ports
to manufactures to facilitate trade and the advantages it brings’.
116
The
‘open economy’ favoured the political, commercial and cultural aspira-
tions of a dominant landed class, nowhere more so than in Argentina
where estanciero supremacy had been consolidated in the pampas war
against the Indians – the sordid prelude to the economic miracle. Import
substitution occurred and capital was accumulated locally. But any
deliberate policy of large-scale industrial development faced insupera-
ble difficulties in the transitional phase. It could hardly be undertaken
without the protection of tariffs. But tariffs would produce a slack-
ening of trade, reducing exports and foreign income. The inflow of
capital would tail off threatening an adverse balance of payments and
139 / The commercial republic
destabilising the whole economy and its fragile superstructure. Hence,
while development ‘towards the interior’ had its advocates and appealed
to important local interests, they were rarely strong enough to challenge
the agrarian class and its commercial allies before 1914.
Even so, in a region of such rapid economic and social change,
where political institutions were relatively weak, foreign interests could
not escape the side-effects of instability and sometimes faced frontal
attack. The Peruvian Corporation representative in Lima, Clinton
Dawkins, complained bitterly of breaches of the 1890 agreement under
which the loan default was being paid off: the Peruvian president was
‘bestially stupid’.
117
With its guano running out, its nitrates lost and
silver’s value in steep decline, Peru was going to ruin ‘not by degrees
but by sheer strides’.
118
In Chile, the civil war of 1891 threatened
British nitrate interests with a government take-over. In Brazil, politi-
cal upheaval in the 1890s and a policy of industrialisation choked off
foreign capital and wrecked the exchange rate.
119
Worst of all was the
great crisis of 1890 in Argentina. Reckless over-investment by the great
banking house of Barings crashed into the reckless inflation of its paper
currency by the Argentinian government. As Argentina’s ability to meet
its fixed payments on railway and government loans (payable in gold
not paper) came into question, panic spread in London about the value
of British holdings, the solvency of Barings and the stability of the City’s
whole enormous stake in international lending.
120
The instinct to punish default by diplomatic intervention and
a blockade of cruisers had not entirely disappeared, but on the British
side it was widely recognised as clumsy and inappropriate. Diplomatic
pressure in Chile was abandoned when it was realised that local British
opinion was as divided as the Chileans over the rights and wrongs of the
civil conflict.
121
In Peru, Dawkins (an ardent imperialist) jeered at the
‘absurd notions’ of his London board ‘about diplomatic interference,
British squadrons, Johnny Atkins and all that fustian’.
122
In the after-
math of the Barings crisis, Lord Salisbury curtly dismissed the idea of
official involvement in a stabilisation agreement as ‘dreams’.
123
In fact,
political coercion was redundant, if not counter-productive. Subtler
means lay to hand. The British could exploit their ‘structural’ advan-
tages as the source of credit, capital and information.
124
Nationalisa-
tion in Chile was resisted as fiercely by Chilean as by British owners.
125
Elsewhere, the penalties of financial default were felt as keenly by the
South American elites as by their British creditors. It meant an indefinite
140 / Towards ‘The Sceptre of the World’
stoppage of new capital whose inflow had become essential not just to
the growth of the export economy but to the efficient working of the
export-import cycle, with its dependence on credit and its exposure to
volatile price movements. Credit starvation heralded a total breakdown
of the commercial economy, with a revolution close behind. Hence the
focus of South American diplomacy in London in the troubled 1890s
was not the Foreign Office but New Court, the Rothschild offices in the
City. It was Rothschilds who negotiated the Romero agreement with
Argentina in 1893,
126
and a loan to stabilise the Brazilian exchange in
1898.
127
For both countries, the price was a sharp deflation, and the
strengthening of British-based banks and railway companies over local
competitors. The adoption (or re-adoption) of the gold standard with
its fixed parities by Peru (1897–9), Argentina (1899), Mexico (1904)
and Brazil (1906)
128
was further evidence that they were willing to
accept the financial discipline imposed by the City.
To the official classes in Britain, Latin America was the dark
side of the moon. ‘South America . . . is quite out of the currents of
the world’, wrote Dawkins wistfully, hankering after official prefer-
ment in Egypt or India.
129
The continent was a diplomat’s graveyard.
But, by 1913, it was the brightest jewel in the City’s crown, the rich-
est province of its business empire and the great white hope of the
investing classes. It was the perfect illustration of the third dimension
of British power, springing not from conquest or settlement but from
collaboration in the pursuit of wealth. By 1913, Latin America was
providing around a quarter of Britain’s overseas property income. It
employed nearly a quarter of Britain’s long-distance shipping fleet
130
and contributed heavily to her invisible earnings. Its expanding railways
were the perfect vehicle for British financial, technical and managerial
expertise, as well as being large consumers of British coal – whose bulk
export was the key to the profitability of British shipping: 85 per cent
of outward cargoes to Brazil were coal.
131
The British commercial and
professional communities in Latin America were small in numbers, but
wealthy, well-educated and influential.
132
In a continent (increasingly)
of European immigrants, and in cities like Buenos Aires where foreign-
ers made up three-quarters of the adult population by 1914,
133
their
cosmopolitan origins and outlook were no handicap. In Buenos Aires in
1909, there were 7,113 British among 7,444 Germans, 27,000 French,
277,000 Italians and 174,000 Spanish.
134
141 / The commercial republic
In a wider perspective, the remarkable florescence of British
commerce in Latin America around 1900 can be seen as part of a
‘swing to the West’ – a subtle rebalancing of Britain’s global interests
and commitments between Europe, the Americas and the Eastern world.
The huge flow of capital towards Argentina had its counterpart in the
great migration of men and money to Canada in the decade before 1914
and the dramatic growth of Anglo-Canadian trade. British investment
in the United States also surged upwards from £500 million in 1899
to £800 million by 1914.
135
The Anglo-American rapprochement and
the careful accommodation of British interests in Central America to
American regional predominance
136
was part of this new Atlantic pat-
tern. By 1913, the Americas accounted for one-fifth of Britain’s exports,
one-third of her imports, more than half of her overseas investment and
almost three-quarters of her oceanic shipping. Here, far away from the
cockpits of imperial rivalry, was a vast zone of safety, stability and
wealth: some compensation for the strain of defending British interests
in Asia or, after 1910, for the strategic burden in Europe.
Of course, in Latin America at least, this happy conjuncture
could not be taken for granted. The growing size and scale of British
enterprise bred resentment.
137
The nativist reaction of the early 1900sin
Argentina and elsewhere revealed the strains of nation-building under
conditions of hectic growth and foreign influence.
138
Ultimately, the
‘order and progress’ in which the British had invested so heavily rested
upon the primacy of the local agro-commercial elites. In turn, their
fate and their readiness to comply with external financial discipline
depended on the booming demand for their commodity exports and
London’s ability to supply the capital on which growth and stability
relied. In 1914, with appalling suddenness, this great experiment in
business empire came to a grinding halt.
Commerce or empire?
The union of commercial and imperial muscle was the foundation of
the British world-system. The vast scale of British trade, the fleets of
merchant shipping, the treasure chest of overseas investment and the
resources it commanded were widely seen as the real embodiment of
British world power. They supplied the economic energy to sustain
142 / Towards ‘The Sceptre of the World’
the show of empire and pay for its defence. They formed the invisible
chains that bound the visible empire of dependencies and settler states to
their far-off metropole. They provided the means to expand the sphere
of British influence and turn the ‘undeveloped estates’ of empire into
imperial assets. In a world in which a handful of imperial ‘superstates’
was expected to hold sway, they were the guarantee of premier status,
and of independence.
Yet the project of a free-standing commercial republic, no
longer reliant on political, diplomatic or military support, had made
little headway outside the favoured zones of South and Central Amer-
ica. Even there, it depended to a degree upon British political and cul-
tural prestige. ‘The educated Englishman who arrives in Latin America’,
remarked a traveller in 1913, ‘must generally assume the prestige as
well as the burden of his empire.’
139
Elsewhere, beyond the developed
world of the United States and the ‘white dominions’, commerce needed
empire more than ever. This was especially true in the Eastern world
south and east of Suez where a large proportion of British trade and
investment was still to be found. Eighteen per cent of British investment
was in India and East Asia: the total for Asia, Africa and Australasia
was 41 per cent. In India, the largest market for Britain’s largest export,
cotton textiles, colonial rule pegged open a market that would otherwise
have been snapped shut by tariffs and homemade competition. It was
decisive in the early and rapid construction of railways, underwritten
by colonial revenues and pressed forward at London’s command. The
contrast with China, whose disorganised network was barely one-sixth
the length of India’s by 1913, was telling. Indeed, there, the security of
British investment, the organisation of foreign trade and the prospects
for commercial development seemed to require the enforcement of the
‘unequal treaties’ and the defence of the colonial and semi-colonial
enclaves scattered the length of the China coast. To its British residents,
treaty-port Shanghai was as much a part of the Empire as Sydney or
Cape Town and entitled to the same protection
140
– a claim which the
policy-makers acknowledged down to the 1930s. To the champions
of tariff reform after 1903, it was precisely this reliance on force to
open new markets in Asia and save old ones that condemned free trade.
‘Not feeling quite strong enough to keep the door open in Europe by
threat of force’, Leo Amery told Milner, ‘[England] tries to do so else-
where by forcibly retarding the expansion of other powers. The policy
143 / The commercial republic
has increased our armaments and our territory enormously in the last
twenty years.’
141
Experience of India, China, the Middle East and Africa also
kept alive, in the heyday of laissez-faire, a variant of political or imperial
capitalism that had little in common with the rational entrepreneurship
imagined by Joseph Schumpeter in his Imperialism and Social Classes
(1919). To businessmen like Goldie, Mackinnon, the Liverpool traders
on the Niger, the taipans of the China coast and railway promoters like
Bland, it was self-evident that political power should be used if neces-
sary against the threat of monopolistic rivals and to clear the path of
local ‘obstructions’. To them, commercial development, local progress
and the imperial interest were bound up inseparably, and the cavils of
diplomats and administrators either myopic or self-serving. It was a
short step from this to the harder face of political capitalism in those
parts of Afro-Asia where resources were scantier, the resistance tougher
and the environment harsher. In sub-Saharan Africa, especially, coer-
cion became the fastest means of accumulating wealth. Force was used
to uphold a commercial monopoly against local competition (on the
Niger); and to appropriate land and cattle (in East and Central Africa).
Coercion ensured the supply of labour from African societies whose
manpower was scarce and valuable. The threat of collective vengeance
became the shield behind which traders, settlers and miners could prac-
tise a quasi-coercive production system with remarkable security and
at negligible cost.
142
With the rise of a vulgar ‘ethnic Darwinism’ in
the later nineteenth century, these cruder forms of political capitalism
could also be dignified as instruments of ‘moral and material progress’.
In all these ways the commercial republic was heavily depen-
dent upon the well-being of the British world-system as a whole. To its
fiercer critics it seemed ever more reliant on profits extracted by coer-
cive methods and regions exploited by political power. This was too
pessimistic. What was beyond doubt was the extent to which the vast
commercial system pivoted on London needed the support of its British
host: to guard its long lines of communication and the vulnerable instal-
lations of trade; to preserve free trade, the magnet of commerce and
finance; and to maintain the advanced industrial base whose products
it traded. In return, it supplied much of the influence and wealth that
late-Victorian opinion had come to see as its birthright.
4
THE BRITANNIC EXPERIMENT
Perhaps the most striking feature of Britain’s global expansion was the
limited influence exerted over its course by the imperial government
in London. Most of the energy behind British expansion was private,
not public. Of course, it was true that it usually needed a mixture
of private and public resources: capital, manpower, but also protection
against external and sometimes internal opponents. Governments could
withhold that protection and refuse to annex when the political risks
they entailed seemed out of proportion. They could also strike bargains
with rival imperialists that frustrated the plans of British settlers, mer-
chants or missionaries. But only up to a point. The promoters of British
expansion could usually mobilise both public and private ‘investment’
at home (both material and emotional), and use it to leverage additional
resources on the local or colonial ‘spot’. It was this combination that
made them so versatile; and that versatility was what made the British
presence so ubiquitous.
The result by the later nineteenth century was the creation of
a British world-system. Its system-like character can be seen in two
ways. First, private and public activity had combined (most visibly in
the strategic and technological achievement of long-distance sea-lanes)
to encourage the growth of a single vast network centred on Britain, to
distribute credit, capital, goods, information, manpower and protection
on a global basis, and not into a set of closed ‘mercantilist’ zones each
with its own rules. The result was to lower the cost of defence and
reduce the transaction costs of a global pattern of trade. Secondly,
by a series of incremental adjustments, the main spheres of British
enterprise came to play different but complementary roles in the larger
process of British expansion. The shipping and property empire, much
of it active in non-British territory, provided an income that sustained