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The Wealth and Poverty of Nations: Why Are Some So Rich and Others So Poor

Author(s):Landes, David S.
Reviewer(s):De Long, J. Bradford

EH.NET BOOK REVIEW

Published by EH.NET (April 1998)

David S. Landes, The Wealth and Poverty of Nations: Why Are Some So Rich and Others So Poor. New York: W.W. Norton, 1998. 544 pp. $30.00 (cloth) ISBN: 0393040178.

Reviewed for EH.NET by J. Bradford De Long, Department of Economics, University of California-Berkeley.

David Landes has studied the history of economic development for more than half a century. His look at economic imperialism and informal empire in nineteenth-century Egypt (Bankers and Pashas) tells the story of how small were the benefits (either for Egyptian economic development or for the long-run power and happiness of the ruling dynasty) bought at extremely high cost by borrowing from European bankers. His unsurpassed survey of technological change and its consequences in Europe since 1750 (The Unbound Prometheus) remains the most important must-read book for serious students of the industrial revolution. His study of clock-making as an instance of technological development (Revolution in Time) provides a detailed look at a small piece of the current of technological development. His works are critical points-of-reference for those who seek to understand the Industrial Revolution that has made our modern world.

Now David Landes turns to the grandest question of all: the causes of the (so far) divergent destinies and relative prosperity levels of different national economies. The title echoes Adam Smith, but Landes is interested in both the wealth and poverty of nations: Adam Smith lays out what went wrong as the background for his picture of how things can go right, while Landes is as interested in the roots of relative–and absolute–economic failure as of success.

He pulls no punches–of Columbus’s followers treatment of the inhabitants of the Caribbean, Landes writes that “nothing like this would be seen again until the Nazi Jew hunts and killer drives of World War II.” Landes makes no compromises with any current fashion. Readers will remember how columnist after columnist decried high-school history standards (which, truth be told, were not very good) that required students to learn about a fourteenth-century African prince, Mansa Musa, but not about Robert E. Lee; readers of Landes will find three pages on Mansa Musa, and none on Master Robert.

We are all multiculturalists now; or, rather, serious historians have long been multiculturalists.

Nevertheless, Landes’s economic history is a profoundly Eurocentric history. It is Europe-centered without apologies–rather with scorn for those who blind themselves to the fact that the history of the past 500 years is Europe-centered.

Now Landes does not think that all history should be Eurocentric. For example, he argues that a history of the world from 500 to 1500 should be primarily Islamocentric: the rise and spread of Islam was an “explosion of passion and commitment… the most important feature of Eurasian history in what we may call the middle centuries.”

But a history oriented toward understanding the wealth and poverty of nations today must be Eurocentric. Goings-on in Europe and goings-on as people in other parts of the world tried to figure out how to deal with suddenly-expansionist Europeans make up the heart of the story of how some–largely western Europe and northwest Europe’s settler ex-colonies–have grown very, very rich.

Moreover, relative poverty in the world today is the result of failure on the part of political, religious, and mercantile elites elsewhere to pass the test (rigged very heavily against them) of maintaining or regaining independence from and assimilating the technologies demonstrated by the people from Europe–merchants, priests, and thugs with guns in the old days, and multinationals, international agencies, and people armed with cruise missiles in these new days–who have regularly appeared offshore in boats, often with non-friendly intent. To try to tell the story of attempted assimilation and attempted rejection without placing Europe at the pivot is to tell it as it really did *not* happen.

Thus Landes wages intellectual thermonuclear war on all who deny his central premise: that the history of the wealth and poverty of nations over the past millennium is the history of the creation in Europe and diffusion of our technologies of industrial production and sociological organization, and of the attempts of people elsewhere in the world to play hands largely dealt to them by the technological and geographical expansions originating in Europe.

He wins his intellectual battles–and not just because as author he can set up straw figures as his opponents. He wins because in the large (and usually in the small) he has stronger arguments than his intellectual adversaries, who believe that Chinese technology was equal to British until 1800, that had the British not appeared the royal workshops of Mughal India would have turned into the nucleus of an industrialized textile industry, that equatorial climates are as well-suited as mid-latitude climates to the kind of agriculture that can support an Industrial Revolution, that Britain’s industrial lead over France was a mere matter of chance and contingency, or any of a host of other things with which Landes does not agree.

Landes’s analysis stresses a host of factors–some geographical but most cultural, having to do with the fine workings of production, power, and prestige in the pre-industrial past–that gave Eurasian civilizations an edge in the speed of technological advance over non-Eurasian ones, that gave European civilizations an edge over Chinese, Arabic, Indian, or Indonesian, that made it very likely that within Europe the breakthrough to industrialization would take place first in Britain.

And by and large it is these same factors that have made it so damn difficult since the Industrial Revolution for people elsewhere to acquire the modern machine technologies and modes of social and economic organization found in the world economy’s industrial core.

Landes’s account of why Eurasian civilizations like Europe, Islam, and China had an edge in technological development over non-Eurasian (and southern Eurasian) civilizations rests heavily on climate: that it is impossible for human beings to live in any numbers in “temperate” climates before the invention of fire, housing, tanning, and sewing (and in the case of northern Europe iron tools to cut down trees), but that once the technological capability to live where it snows has been gained, the “temperate” climates allowed a higher material standard of living.

I am not sure about this part of his argument. It always seemed to me that what a pre-industrial society’s standard of living was depended much more on at what level of material want culture had set its Malthusian thermostat at which the population no longer grew. I have always been impressed by accounts of high population densities in at least some “tropical” civilizations: if they were so poor because the climate made hard work so difficult, why the (relatively) dense populations?

It seems to me that the argument that industrial civilization was inherently unlikely to arise in the tropics hinges on an–implicit–argument that some features of tropical climates kept the Malthusian thermostat set at a low standard of living, and that this low median standard of living retarded development. But it is not clear to me how this is supposed to have worked.

By contrast, I find Landes’s account of why Europe–rather than India, Islam, or China–to be very well laid out, and very convincing. But I find it incomplete. I agree that it looks as if Chinese civilization had a clear half-millennium as the world’s leader in technological innovation from 500 to 1000. Thereafter innovation in China appears to flag. Little seems to be done in developing further the high technologies like textiles, communication, precision metalworking (clockmaking) that provided the technological base on which the Industrial Revolution rested.

It is far from clear to me why this was so. Appeals to an inward turn supported by confident cultural arrogance under the Ming and Ch’ing that led to stagnation leave me puzzled. Between 1400 and 1800 we think that the population of China grew from 80 million to 300 million. That doesn’t suggest an economy of malnourished peasants at the edge of biological subsistence. That doesn’t suggest a civilization in which nothing new can be attempted. It suggests a civilization in which colonization of internal frontiers and improvements in agricultural technology are avidly pursued, and in which living standards are a considerable margin above socio-cultural subsistence to support the strong growth in populations.

Yet somehow China’s technological lead–impressive in printing in the thirteenth century, impressive in shipbuilding in the fifteenth century, impressive in porcelain-making in the seventeenth century–turned into a significant technological deficit in those same centuries that China’s pre-industrial population quadrupled.

Landes’s handling of the story of England’s apprenticeship and England’s mastership–of why the Industrial Revolution took place in the northwest-most corner of Europe–is perhaps the best part of the book. He managed to weave all the varied strands from the Protestant Ethic to Magna Carta to the European love of mechanical mechanism for its own sake together in a way that many attempt, but few accomplish. Had I been Landes I would have placed more stress on politics: the peculiar tax system of Imperial Spain, the deleterious effect of rule by Habsburgs and Habsburg puppets on northern Italy since 1500 (and the deleterious effect of rule by Normans, Hohenstaufens, Valois, Aragonese, and Habsburgs on southern Italy since 1000), the flight of the mercantile population of Antwerp north into the swamp called Amsterdam once they were subjected to the tender mercies of the Duke of Alva, more on expulsions of Moriscos, Jews, and French Protestants (certainly the Revocation of the Edict of Nantes was an extraordinary shock to my seventeenth-century DeLong ancestors), the extraordinary tax burden levied on the Dutch mercantile economy by the cumulated debt of having had to spend from 1568 to 1714 fighting to achieve and preserve independence, and so forth.

I also would spend more time on Britain itself. I, at least, find myself wondering whether Britain’s Industrial Revolution was a near-run thing–whether (as Adam Smith feared) the enormous burden of the Hanoverian fiscal-military state might not have nearly crushed the British economy like an egg. Part of the answer is given by John Brewer’s Sinews of Power, a work of genius that lays out the incredible (for the time) efficiency of Britain’s eighteenth-century fiscal-military state. Most of the answer is the Industrial Revolution. And some of the answer is (as Jeffrey Williamson has argued) that the burden of the first British Empire did indeed significantly slow–but not stop–industrialization.

I don’t know what I think of all the issues in the interaction of the first British Empire, the British state, and British industrialization. Thus I find myself somewhat frustrated when Landes quotes Stanley Engerman and Barbara Solow that “It would be hard to claim that [Britain’s Caribbean Empire was] either necessary or sufficient for an Industrial Revolution, and equally hard to deny that [it] affected its magnitude and timing,” and then says “That’s about it.” I want to know Landes’s judgment about how much. Everything affects everything else, and when economic historians have an advantage over others it is because they know how to count things–and thus how to use arithmetic to make judgments of relative importance.

But the complaint that a book that tries to do world history in 600 pages leaves stuff out is the complaint of a true grinch.

So where does Landes’s narrative take us?

If there is a single key to success–relative wealth–in Landes’s narrative, it is openness. First, openness is a willingness to borrow whatever is useful from abroad whatever the price in terms of injured elite pride or harm to influential interests. One thinks of Francis Bacon writing around 1600 of how three inventions–the compass, gunpowder, and the printing press–had totally transformed everything, and that all three of these came to Europe from China. Second, openness is a willingness to trust your own eyes and the results of your own experiments, rather than relying primarily on old books or the pronouncements of powerful and established authorities.

European cultures had enough, but perhaps only barely enough. Suppose Philip II Habsburg “the Prudent King” of Spain and “Bloody” Mary I Tudor of England had together produced an heir to rule Spain, Italy, the Low Countries, and England: would Isaac Newton then have been burned at the stake like Giordano Bruno, and would the natural philosophers and mechanical innovators of seventeenth and eighteenth century England have found themselves under the scrutiny of the Inquisition? Neither Giordano Bruno, Jan Hus, nor Galileo Galilei found European culture in any sense “open.”

If there is a second key, it lies in politics: a government strong enough to keep its servants from confiscating whatever they please, limited enough for individuals to be confident that the state is unlikely to suddenly put all they have at hazard, and willing once in a while to sacrifice official splendor and martial glory in order to give merchants and manufacturers an easier time making money.

In short, economic success requires a government that is, as people used to say, an executive committee for managing the affairs of the bourgeoisie–a government that is responsive to and concerned for the well-being of a business class, a class who have a strong and conscious interest in rapid economic growth. A government not beholden to those who have an interest in economic growth is likely to soon turn into nothing more than a redistribution-oriented protection racket, usually with a very short time horizon.

Landes writes his book as his contribution to the project of building utopia–of building a much richer and more equal world, without the extraordinary divergences between standards of living in Belgium and Bangladesh, Mozambique and Mexico, Jordan and Japan that we have today. Yet at its conclusion Landes becomes uncharacteristically diffident and unusually modest, claiming that: “the one lesson that emerges is the need to keep trying. No miracles. No perfection. No millennium. No apocalypse. We must cultivate a skeptical faith, avoid dogma, listen and watch well…”

Such a change of tone sells the book short, for there are many additional lessons that emerge from Landes’s story of the wealth and poverty of nations. Here are five: (1) Try to make sure that your government is a government that enables innovation and production, rather than a government that maintains power by massive redistributions of wealth from its friends to its enemies. (2) Hang your priests from the nearest lamppost if they try to get in the way of assimilating industrial technologies or forms of social and political organization. (3) Recognize that the task of a less-productive economy is to imitate rather than innovate, for there will be ample time for innovation after catching-up to the production standards of the industrial core. (4) Recognize that things change and that we need to change with them, so that the mere fact that a set of practices has been successful or comfortable in the past is not an argument for its maintenance into the future. (5) There is no reason to think that what is in the interest of today’s elite–whether a political, religious, or economic elite–is in the public interest, or even in the interest of the elite’s grandchildren.

It is indeed very hard to think about problems of economic development and convergence without knowing the story that Landes tells of how we got where we are today. His book is short enough to be readable, long enough to be comprehensive, analytical enough to teach lessons, opinionated enough to stimulate thought–and to make everyone angry at least once.

I know of no better place to start thinking about the wealth and poverty of nations.

(This review is a longer draft of a review subsequently published (at 1/3 the length) by the Washington Post..)

J. Bradford De Long Department of Economics University of California- Berkeley

De Long is co-editor, Journal of Economic Perspectives; Research Associate with the National Bureau of Economic Research; visiting scholar, Federal Reserve Bank of San Francisco; and former (1993-1995) deputy assistant secretary (for economic policy), U.S. Treasury.

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Subject(s):Economic Development, Growth, and Aggregate Productivity
Geographic Area(s):General, International, or Comparative
Time Period(s):General or Comparative

The Allure of the Foreign: Imported Goods in Postcolonial Latin America

Author(s):Orlove, Benjamin
Reviewer(s):McCants, Anne E. C.

EH.NET BOOK REVIEW

Published by EH.NET (February 1998)

Benjamin Orlove, editor, The Allure of the Foreign: Imported Goods in Postcolonial Latin America. Ann Arbor: University of Michigan Press, 1997. viii + 226 pp. $42.50 (cloth), ISBN: 0472106643.

Reviewed for EH.NET by Anne E.C. McCants, Department of History, Massachusetts Institute of Technology.

One of the drawbacks of the standard geographical organization of the historical discipline (broadly defined to include economic history and historical anthropology and sociology) is that scholarship about those regions considered peripheral to Europe and the United States is little read outside of its own subfield. This isolation occurs despite the fact that such scholarship is often heavily influenced by the themes and concerns (and even the methodologies) of the dominant fields in the discipline. Not surprisingly, this unbalanced relationship impacts even the narrative content of regional studies, with primacy often automatically accorded to those historical events which specifically connect the periphery to the “center.”

This volume edited by Benjamin Orlove, on a topic- the import of European goods into Latin America during the nineteenth and early twentieth centuries- which lends itself easily to a Eurocentric analytical focus, works hard to avoid this pitfall. Moreover, this volume offers all scholars interested in the political and domestic economies of consumption an innovative methodological model to follow, one which seamlessly interweaves the work of historians and anthropologists as well as the standard economic history narrative of the postcolonial Latin American economy with a theoretically informed cultural analysis. The introduction to the volume, written by Orlove (an anthropologist) and Arnold Bauer (an historian) begins with the explicit claim that their project is committed to paying “attention to internal social factors” in explaining the “varied responses to European goods” in Latin America and other parts of the pre-industrial world (p. 1). Their goal is not to reject outright the old export-centered interpretation of Latin American development, but rather to balance it with an understanding of the “partially autonomous” nature of imports and consumption (p. 7). In particular, they want to highlight the important role played by consumption (whether of imports, domestic imitations, or “native” products) in the shaping of new national identities and the establishment and legitimation of social hierarchies within that national experience.

While not all of the individual contributions to this volume live up to the high standards set in the introduction, several are particularly interesting and worth highlighting here. Not surprisingly, the substantive chapter by Orlove and Bauer on the consumption of foreign wine, hot beverages, and houses (in fact building materials and architectural design) in Chile during the Belle Epoque nicely demonstrates the principles they set forth at the outset. They do not discount the importance of macroeconomic forces in their account of the spread (and ultimate imitation) of these foreign goods. Nonetheless, they focus their discussion on the twin issues of European goods as “status markers” and as signs of “modernity” (pp. 116 and 118). They employ both quantitative and qualitative data to tease out what they call the “contradictory pressures to use goods to demonstrate national distinctiveness and global commonality- a contradiction that expressed itself in a tension between national and cosmopolitan styles” (p. 116).

The chapter by Erick Langer on the distribution and meaning of foreign cloth imports among the Chiriguanos in the Lowland Frontier of Bolivia uses very limited source materials in an impressively creative way. His work challenges many of the standard assumptions regarding the interaction between Western goods and indigenous peoples, most notably that the latter are slow to adapt and change, and that consumption of the former will evolve in a linear (progressive) way from little use to greater dependence. He documents convincingly that in the initial period of frontier contact between the Chiriguanos and mestizo ranchers power resided disproportionately with the former; and moreover, that that power was parlayed into significant consumption of highly desired European textiles. It was only with the development of the encroaching cattle economy, the rise of a functioning labor market for nearby Argentine sugar plantations, and the mining boom which put financial resources into the hands of the Bolivian state, that the Chiriguanos lost their command over imports and saw serious reductions in their standard of living. Langer’s analysis of this development in reverse is equally sensitive to issues of ethnography, political power, and neoclassical economics.

Finally, the chapter by Josiah Heyman on the changing meaning of import consumption along the Mexico-United States border between the Porfirian 1880s and 1890s and the present is worth noting separately. Using government import statistics, household inventories, and extensive field interviews, Heyman develops a richly nuanced description of the cultural meanings attached to a variety of US-made goods, as well as to the retail sources for those goods. Most importantly, he documents the changing nature of those meanings over time, even in some cases among the same individuals. This leads him to the provocative conclusion that “neither the meaning of nationhood nor of import is constant” (p. 180); followed by the suggestion that the meanings of standards of living may also vary greatly across different political contexts. This is certainly rich food for thought for economic historians, many of whom are deeply committed to the enterprise of assessing past standards of living.

In short, this is a book worth reading beyond the immediate circle of scholars whose work focuses on the development of the Latin American economy and polity. Much of the source material, and the strong commitment to cultural analysis found in this volume will not be overly familiar to economic historians. But many of the questions raised, and the evidence presented to answer them, make an important contribution to areas of inquiry of long-standing interest to economic historians.

Anne E.C. McCants Department of History MIT

Anne McCants is the author of Civic Charity in a Golden Age: Orphan Care in Early Modern Amsterdam (University of Illinois Press, 1997). She is currently working on a project dealing with the emergence of consumer culture in the Dutch Republic.

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Subject(s):International and Domestic Trade and Relations
Geographic Area(s):Latin America, incl. Mexico and the Caribbean
Time Period(s):19th Century

Industrial Constructions: The Sources of German Industrial Power

Author(s):Herrigel, Gary
Reviewer(s):Shearer, Ronald A.

EH-NET BOOK REVIEW

Published by H-Business@eh.net (January, 1998)

Gary Herrigel. Industrial Constructions: The Sources of German Industrial Power. Structural Analysis in the Social Sciences Series, 9. Cambridge: Cambridge University Press, 1996. x + 480 pp. Tables, notes, bibliography, maps, and index. $54.95 (cloth), ISBN 0-521-46273-8.

Reviewed for H-Business by Ronald A. Shearer , University of British Columbia

The question, addressed in this book is: does the literature on German industrialization accurately describe the process that occurred? Alternatively, considering the long sweep of history, how did one of the most successful examples of industrialization in modern times come to pass? Readers may want to extrapolate the analysis to address a broader question: how does any economy industrialize? While Herrigel does not explicitly answer this broader question, his analysis may nonetheless be very relevant in various other contexts.

For economists, Herrigel’s analysis is at once informative and frustrating. Two aspects of this book are important for economists interested in the process of industrialization and economic development. First is the forceful demonstration of the interaction between the social environment, governmental structures, and politics on the one hand and profit seeking decisions of business firms and the supporting activities of business associations on the other. In the German case, the interaction partially shaped the course of industrialization and was partially shaped by it. Second, but equally important, is Herrigel’s careful exploration of the nature and role of regional diversity in German industrial development, an aspect of economic development that has important echoes in many countries. What economists will find frustrating is what is missing in the analysis and the exaggerated assertions made or implied regarding the relevance of “traditional” social and economic analysis. Both are reflected in the virtual neglect (perhaps better, the rejection) of very basic economics in the exploration of the behaviour of firms and industries in the various episodes considered in the book. The problem is most acute in the sections dealing with long run industrialization up to 1945 but is not absent in the post World War II material. Economists will also be concerned about the lack of verifiable quantitative evidence on the importance of the regional industrialization process so clearly described in the book for the long run growth of the German economy. If we grant the story of the development of a “decentralized industrial order,” what difference did it make, not only for the growth of regional economies but also for the growth of the national economy?

The book is well researched and carefully documented. The author’s research included an impressive number of interviews with significant people in industrial firms and associations, universities and governments, and the analysis and conclusions are carefully related to the existing literature. Indeed, some 40 percent of the pages are devoted to notes and bibliography, a rich treasure for students and researchers. The index is short but adequate. Several maps help elucidate the geographical dimensions of the analysis. Many readers will find the writing style of the opening, quasi theoretical chapter overly laden with dense, unrelenting, unfamiliar jargon and may be annoyed by the excessive repetition of some theoretical propositions. By contrast, the historical material and illustrative case studies are presented clearly and effectively. The book has the added merit of being as up-to-date as can be expected. Herrigel pursues his analysis of German industrialization into the 1990s with interesting interpretations of the problems that began to haunt German industry at the beginning of this decade.

While I find aspects of the book less than satisfactory in terms both of content and presentation, on balance, the strengths of the book vastly outweigh its defects. It is a rewarding work for anyone interested in German industrialization and the development of the German state and for anyone interested in the process of industrialization in general. It is a book that merits careful study.

The theoretical approach is presented in an Introduction (Chapter One), and the main theoretical propositions are restated at various places in other chapters. Herrigel’s bete noire is an explanation of German industrialization that focuses almost single mindedly on large, complex, largely self contained conglomerate firms (with strong links to associated banks) what he calls “autarkic firms.” He argues that an interpretation of German industrialization of which the primacy of such firms was the fundamental pillar dominated the “post World War II research agenda” on German industrial development, to the detriment of a deeper understanding of German industrialization. He attributes this agenda to Gershenkron and his disciples, building on the shoulders of Schumpeter and augmented by various later analysts of business management, industrial organization and technological invention, innovation and diffusion in capitalist economies. In this agenda, the smaller industrial enterprises, if considered at all, were seen as an appendage of the central autarkic firm sector or a minor enclave in the aggregate economy. The autarkic sector was the driver; the small business sector a passenger. To the contrary, Herrigel argues, what he calls the “decentralized industrial order” had a vibrant, independent development based in the states of western and southwestern Germany. It played an important role in German industrialization, although Herrigel is deficient in not presenting convincing quantitative indices of how important.

As befits a political scientist, Herrigel’s focus is on governance, namely on what he calls “industrial governance.” While the precise meaning of governance in this context is a bit vague, it is the emphasis on more or less independent regional industrial networks that leads to his depiction of this sector of the economy as an “industrial order.” The decentralized industrial sector is not seen as a part of a larger “industrial structure,” but as something separate in organization, ethos and production characteristics, with its own historical roots, social coherence and governance institutions. Herrigel’s analysis of the development of this sector is evolutionary, reflecting his rejection not only of the language (“which I dislike”, p. 23) but also the substance of neo classical economics. As a result, we have a picture of the development of an industrial sector without reference to underlying production economics.

In three chapters (Chapters Two through Four), Herrigel explores the history of the decentralized and autarkic sectors up to World War II, including an important chapter on the interaction between the firms and business organizations in these sectors and the political system. He finds the roots of the divergent development of the two sectors in the systems of land inheritance in different sections of Germany. Where impartible land inheritance was the rule, a landless proletariat was created, providing the necessary labor force for large scale enterprises. Where partible land inheritance was the rule, the division of the land into smaller and smaller units resulted in a population of land owners for whom cultivation of the land could not be a full time occupation. They engaged in “rural industry” while retaining their land, developing specialized skills and social traditions. The result, the substance of Chapter Two, was the development of regional concentrations of specialized, small scale, mutually supporting factories producing for domestic and eventually world markets. They cooperated in various ways, including farming out production to each other and to home producers and in the development of common services. In the process they developed a distinctive social ethos and an appropriate set of industrial institutions that became the basis for subsequent evolution of the sector.

The emphasis on the long run consequences of impartible land inheritance is interesting. It is surprising, however, that in this context Herrigel does not devote attention to the possibilities for market transactions in land which could have led to consolidation of holdings and the creation of the landless labor force that he sees as so important in the other regions. Similarly, it is surprising that he does not devote considerable space to the analysis of patterns of interregional migration (or limitations thereon) which would seem to be an important adjunct to his analysis.

Underlying it all, no attention is devoted to the economics of production of the products in question. Economic considerations intrude only so far as market conditions affected the performance of the firms and led to adjustments in products and institutions. However, there must have been more than just the ethos of the industries that made industrial production viable in these regions. I looked in vain for some consideration of traditional (“neoclassical”) location of industry considerations, including careful consideration of the nature of the products and available production techniques, including questions of potential scale economies and the optimal scale of production. Nor is there any consideration of relative factor prices in the different regions. Herrigel’s use of the concept of governance in this context is also puzzling. It is clear from his discussion that the firms were autonomous units; they made the production and investment decisions in their own self interest. The role of regional associations in facilitating production as described by Herrigel seems far from the rule making and enforcement that I associate with governance. In part, these associations provided various kinds of support for the firms (in the jargon of neoclassical economics, their activities created “external economies,” services whose benefits could not be fully captured by any individual firm but which lowered the costs or improved the competitive position of the industry as a whole). In part they were cartels, attempting to protect the firms from adverse developments in the market or to take advantage of a strong collective position in the market. As with any cartel of independent firms, when the individual firms saw a strategic advantage in diverging from cartel policy, the cartel became unstable and tended to break down. That is all familiar to economists who study industrial organization. From Herrigel’s discussion, I think the governance concept is stretched very thin in this context. The analysis would be helped immensely by incorporating relevant economics. The analysis of the autarkic sector (Chapter Three) is built around a case study of the Ruhr iron and steel industry with a shorter but still important study of the machinery industry. The analysis has the same character as the analysis of the decentralized sector; the same strength and what I see as the same weaknesses. Heavy emphasis is placed on the evolution of the institutions of the sector and the interaction among firms within the institutions and between the institutions and government, with minimum consideration for locational and production economics. About the only non institutional locational factor noted is passing mention of the availability of abundant iron and steel in the Ruhr Valley. Careful attention is given to the interaction between industry and banks, and the impulse to cartelization is carefully documented. As in the case of the decentralized sector, the analysis of the instability of the cartels could benefit from incorporation of relevant economics, but the analysis on the social and political levels is well developed and persuasive.

The third chapter in this group (Chapter Four) is a stimulating analysis of the interaction between the industrial structure and the political system. Careful attention is given to the role of industries in affecting public policies and the effects of the structure of government on industrial development in Imperial Germany, the Weimar Republic and the Nazi era. The strong message emerging from the analysis is the importance of a federal system of government in promoting the development of the decentralized industrial order and the prevention of its domination by the autarkic industrial order. There are also interesting conclusions about the inconsistency of the centralized Weimar Republic with the established pattern of decentralized industrialization and the roots of the attraction of members of the decentralized sector to the Nazi movement. The period since World War II is the substance for the third part of the book (Chapters Five through Seven). The organization is the same as in the second part: a chapter on the decentralized sector (Chapter Five), one on the autarkic sector (Chapter Six), and one on the interrelations between business and government in the process of industrialization (Chapter Seven). The latter includes the unduly brief conclusion to the book. The analysis of the decentralized and autarkic sectors is in three phases, the period of the economic miracle from 1945 to the mid 1970s, the struggle for restructuring through the 1980s, and finally some relatively brief but nonetheless insightful observations on the pressures that appear to be emerging in the 1990s.

Given the longer run argument developed earlier in the book, the central issue in the analysis of the early part of the post war period is the apostasy of a number of firms in the decentralized sector. Penetration of the autarkic form of organization into the regional domain of the decentralized industrial order occurred as some producers “adopted mass production strategies … by breaking out of the institutional and practical framework that governed production and administration” in the decentralized industries (p. 148). The informative case study is of the Daimler Benz AG automobile manufacturing firm, but it is said to be representative of a number of firms in the decentralized regions. The Daimler Benz process of conversion from specialized production of luxury vehicles to mass production of standardized vehicles is carefully documented. A strong measure of vertical integration of production relationship replaced what Helliger refers to as the horizontal relationships among firms in the decentralized order. The lesson is clear: technology and markets changed and the reality of the production economics of the modern automobile industry intruded. Once again, a healthy dose of economic analysis is called for. While hinted at, it is never adequately developed.

The 1980s brought another major shift in German industrial behaviour. Through cases studies of steel, machinery and automobile manufacturing, Herrigel traces the renewed development of the large scale industrial conglomerates in the postwar period and their amazing production performance during the economic miracle. Intensified international competition in the 1980s induced a reconsideration of the merits of centralization. A search for flexibility and reduced costs led to some decentralization with positive effects on the decentralized industrial sector. However, in this instance, decentralization created dependency in the sense that it involved the use of decentralized firms as sources of supply. As Herrigel argues, the organizational problems of large scale industry seemed to intensify in the early 1990s.

The final chapter (Seven) returns to the themes of Chapter Four, the interaction between industry and government in the postwar period. Not surprisingly, the influences flow both ways as pragmatic adjustments in government fostered and accommodated necessary adjustments in the industrial structure. In the early postwar period, the federal structure of government imposed by the allies provided support for both the decentralized industrial system and autarkic firms. Both sectors flourished. As centralization of industry spread through the economy, greater centralization of economic policy also occurred, particularly in labor relations and in the management of aggregate demand. The reversal of the centralization movement in the 1980s also saw some relaxation in the centralizing governmental arrangements. The mutual adjustment and adaptation of government and industry was not always smooth and trouble free, but it occurred and is an essential element in the Herrigel story. What are the broader lessons that can be abstracted from this analysis? It would be interesting to have an extended discussion of this question by Herrigel, but I carry away three points from his work. First is the proposition that regional diversity is likely to be a basic element in any industrialization process and that radically different forms and scales of industrialization are likely to be appropriate in different regions. It follows that industrialization policies should not pursue as a single-minded objective the creation of large scale, vertically integrated manufacturing firms. A mixture of types of firms and industries is more likely to be appropriate. Second, over time, the relative balance among types of industries is likely to change as technology, external competition and market conditions change. Flexibility and the capacity to adapt to fundamental changes are vitally important if crises are to be avoided. But perhaps the most basic lesson of all is the third one. To be successful, industries have to be compatible with the social and economic characteristics of the regions in which they are located. They are best cultivated by a governmental structure that is sensitive to regional aspirations, possibilities and concerns. I read Herrigel’s work as an argument for a decentralized federal structure of government that adapts pragmatically to changes in fundamental economic conditions. I have criticized Herrigel for the lack of economics in his analysis of German industrialization. Perhaps I am unfair. Within its own terms of reference, Herrigel has written a remarkably good book. He explicitly disavows any intention of presenting a general theory of German industrialization, and he does not present himself as an economist. Indeed, he abruptly rejects the approach of the economist. However, in an age that values interdisciplinary studies, there has to be a happy medium somewhere. What I would like see as the ideal is a Herrigel paired up with an equally well prepared and research-minded economist to produce a definitive work on German industrialization which carefully integrates the political and social institutional analysis with appropriate production, locational and organizational economics (probably in a game theoretic context).

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Subject(s):Industry: Manufacturing and Construction
Geographic Area(s):Europe
Time Period(s):General or Comparative

John Stewart Kennedy: The Man Who Found the Money

Author(s):Engelbourg, Saul
Bushkoff, Leonard
Reviewer(s):Churella, Albert J.

EH.NET Book Review

Published by H-Business (August 1997)

John Stewart Kennedy: A Transitional Financier

Reviewed by Albert Churella, Department of History, The Ohio State University, for H-Business

Saul Engelbourg and Leonard Bushkoff. The Man Who Found the Money: John Stewart Kennedy and the Financing of the Western Railroads. East Lansing: Michigan State University Press, 1996. xiv+257pp. Maps, notes, bibliography, and index. ISBN 0-87013-414-0 (cloth).

During the second half of the nineteenth century, financial intermediaries became more specialized and more professionalized in response to the vastly increased capital requirements of the rapidly growing railroad network, and of other industries as well. The Man Who Found the Money describes the personal journey of one mid-level financier who played an important role in the American economy, although he was never so powerful or well known as Jay Gould, Jay Cooke, or J. P. Morgan. During his career, John Stewart Kennedy (1830-1909) moved from early efforts as a commission agent to later involvement in railroad finance, and finally to a retirement devoted to carefully tailored philanthropy. As his professional abilities matured in tandem with American financial markets, Kennedy became both more successful and more focused on specific types of financing. In the process, Kennedy–like contemporary J. P. Morgan–was always acutely aware that trust was far more important than adherence to any rigidly defined code of professional conduct. Still, despite Kennedy’s almost paranoiac efforts to maintain the trust of his business associates, he often engaged in financial transactions that, in the eyes of later financial professionals, seemed to indicate serious conflicts of interest. Kennedy, like most transitional financiers, would have been puzzled by this notion, believing that so long as the relatively informal financial arrangements of the time worked in the best interest of all concerned, then investors could earn profits, financiers could maintain public trust, and “conflict of interest” was a matter of no great consequence.

Kennedy spent much of his childhood in Glasgow, Scotland, and received there a solid education that enabled him to rise quickly from a shipping clerk to a salesman of rails and other iron products. In 1856, he became a junior partner in M. K. Jesup & Co. and subsequently spent most of his time in the United States. Kennedy served primarily as a commission merchant for various U.S. railroads, performing a wide variety of financial transactions that ranged from procuring rails and other supplies to paying interest on bonded debt to arranging for additional capital. These activities were hardly routine or specialized–instead, Kennedy relied on personal knowledge and on a carefully cultivated network of contacts in Europe and the United States, all of whom were bound together by mutual trust.

In 1868, Kennedy became a private commercial banker when he established J. S. Kennedy and Co. in New York City. (His growing financial independence may well have been influenced by the American Civil War, which had provided countless business and financial opportunities, but the authors do not mention this pivotal event in their book). Like most such banks, Kennedy’s was a small operation, with only a few partners and clerks to assist him. Kennedy still served as a commission merchant, often representing both railroad buyers and equipment sellers–hence concern over the issue of conflict of interest. Increasingly, however, Kennedy became more involved in the management of new or financially weak railroads. As a representative of the Scottish-American Investment Company, for example, Kennedy not only helped funnel Scottish capital into the U.S., he also helped rescue Scottish investors from some of their unwise investments. During the late 1870s, Kennedy helped to restore the City of Glasgow Bank to financial solvency; an activity that brought him scant financial reward, but that increased greatly the respect and trust accorded him by his financial contemporaries.

During the 1870s and 1880s, Kennedy helped to arrange financing for components of what later became the Great Northern Railway, bringing him into close association with “Empire Builder” James Jerome Hill. Kennedy’s new role as “James Hill’s emissary to the world of high finance” (p. 104) caused him to dissolve J. S. Kennedy and Co. in 1883, although he still continued to serve as a commission merchant for the procurement of two specialized items–steam locomotives and rails– for Hill. As a director and officer of the Minneapolis and Manitoba (the chief precursor to the Great Northern), Kennedy helped to shape that railroad’s policies. Kennedy and Hill had very different visions for the road’s future, however, since the former favored a conservative financial strategy that emphasized slow long-term growth as the territory served by the railroad became more developed, while the latter favored operational cost savings and frequent short-term financial offerings that would provide the railroad with just enough capital to make a rapid push to the Pacific.

Disagreements with Hill, while never terribly acrimonious, nonetheless helped to persuade Kennedy to retire. Other issues contributed to this decision. These included growing conflicts with other railroads in the Northwest (including the Chicago, Burlington & Quincy, the Chicago, Milwaukee & St. Paul, and the Northern Pacific) and stress-related illnesses stemming from involvement in several lawsuits over the course of his career and from continual efforts to defend his reputation against charges that conflicts of interest had undermined his trustworthiness. Even after his 1888 resignation from his position as vice president of the Minneapolis and Manitoba, Kennedy remained active in railroad finance. He moved gradually from professional activities to philanthropy during the 1890s, giving away a large portion of his $67 million fortune to museums, libraries, hospitals, and other charitable institutions.

The life and career of John Stewart Kennedy is certainly a fitting choice for a book. His financial dealings spanned two continents and encompassed a period that began with the first tentative railroad consolidations and ended with the Northern Securities Case of 1904. He helped to finance one of the most important railroads to be built in the United States, and served as a close adviser to railroad magnate J. J. Hill. His career reflected the broad nineteenth-century transition from the diversified activities of general commission merchants to the emergence of private commercial banks to the development of specialized financiers.

One of the most frustrating aspects of this work, however, is that Kennedy has not been effectively integrated into these larger developments. The brief segments at the beginning and end of each chapter do provide a broad overview (occasionally too broad, giving information that is almost self-evident), but these passages are often poorly integrated with the body of the text–possibly an artifact of the dual authorship of the book. The book is also somewhat disjointed, with an abundance of short chapters, one-sentence paragraphs, and awkward transitions; all indicative of a merited condensation of a much longer work–a condensation that was not, unfortunately, accompanied by a thorough rewriting. More specifically, sharper editing would have helped to reduce the frequency of cliches, jargon, and (often mixed) metaphors; for example: “In effect, events were in the saddle, and men could only ride.” (p. 142)

Without question, this is a thoroughly researched and highly detailed work. The authors (primarily Engelbourg) have marshaled an impressive array of information from a wide variety of manuscript collections and published secondary sources. While earlier works, such as Dolores Greenberg’s pioneering study of Morton, Bliss & Company, offer a more comprehensive and better-integrated overview of mid-level finance during the nineteenth century, The Man Who Found the Money is still of value to historians of nineteenth-century railroad finance for its encyclopedic coverage of an important individual financier of that era.

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Subject(s):History of Economic Thought; Methodology
Geographic Area(s):Europe
Time Period(s):19th Century

Farm and Factory: Workers in the Midwest, 1880-1990

Author(s):Nelson, Daniel
Reviewer(s):Sundstrom, William A.

EH.NET BOOK REVIEW

Published by EH.NET (August 1997)

Daniel Nelson, Farm and Factory: Workers in the Midwest, 1880-1990. Bloomington, IN: Indiana University Press, 1995. 258 pp. Includes tables, bibliographical references, and index. $29.95 (cloth), ISBN: 0-253-32883-7.

Reviewed for EH.Net by William A. Sundstrom, Department of Economics, Santa Clara University.

Daniel Nelson’s latest book delivers both more and less than it promises. On the plus side, the book is actually more general than the title would suggest, providing a useful survey of much of the literature on twentieth-century American labor history. Although many of the book’s examples are drawn from midwestern industries and cities, much of the literature cited is not geographically specific. In this sense, the book is a worthy sequel to the author’s Managers and Workers (University of Wisconsin Press, 1975), updating, extending, and broadening that book’s coverage. The greatest virtue of Nelson’s work in the past has been his attention to both the management and labor sides of the employment relationship, as well as the political context of industrial relations. Farm and Factory shares these virtues, synthesizing a wide range of secondary sources from labor, social, and economic history. The book contains less original historical research than many of Nelson’s previous efforts, although it makes extensive use of his own work on such topics as company unions and rubber workers.

On the minus side, Nelson (Department of History, University of Akron) never makes a compelling case for the distinctiveness of the Midwest’s labor history, which would justify the book’s regional focus. Admittedly the region’s industrial composition was unlike that of other regions, with its unusual mix of agriculture and heavy industry. But Nelson claims that these quintessential midwestern sectors had relatively little influence on each others’ labor history. Thus it might be argued that the evolution of the institutions and politics of labor in the Midwest was largely shaped by industry rather than location. Contrast this implication of Nelson’s book with Gavin Wright’s Old South, New South, (Basic Books, 1986) another book about a regional labor market during the twentieth century. In it, Wright depicts a southern labor market that was truly unique in its institutions and development, in large part because of its isolation.

This is not to deny that Nelson has identified some aspects of the midwestern labor experience that had a unique regional character. The socialist and farm-labor political coalitions associated with such names as Robert LaFollette, for example, appear to have been a homegrown midwestern phenomenon; but at the same time, Nelson notes that such coalitions were short-lived and had little lasting influence. Nelson also notes that union density was higher than average in the Midwest, which became the crucible of the twentieth-century industrial union movement. Again, however, it is not clear whether this was the product of some peculiarly midwestern predisposition toward unionism or merely an accidental consequence of the region’s industrial structure. Such a question could be sorted out with careful comparative analysis, contrasting the industrial union movements in the Midwest and, say, the Middle Atlantic regions for similar industries. But Nelson’s book provides very little in the way of comparative research.

Farm and Factory is arranged in sections chronologically. The first period covered, 1880-1900, sets the stage. In 1880, about half of midwestern workers were engaged in farming, and farm employment increased in numbers over the next two decades. At the same time, the period witnessed a dramatic increase in the relative importance of industry. Because the demand for agricultural labor continued to grow, the industrial labor market depended largely on immigrant workers for its supply, rather than rural-urban migrants. The immigrant character of industrial employment was not, of course, unique to the Midwest at this time.

The book’s first chapter, on farming, includes the first installment of what was for me one of the book’s most fascinating recurring themes: the nature and evolution of women’s work. Nelson’s book demonstrates how much scholarship over the past two decades has been devoted to the area of women’s labor history. In the case of farming, Nelson describes the gender division of labor, how it differed across different farm products, and how by the second half of the century the increased complexity of the farming business (and perhaps the increased educational attainment of farm women) resulted in many farm wives assuming the role of business manager. Later in the book he examines the feminization of clerical work, and the postwar growth of women’s labor- force participation.

Nelson’s attention to clerical and service-sector labor is welcome, given the traditional emphasis of labor history on industrial work, but after a promising discussion of office work near the turn of the century in Chapter 3, the remainder of the book devotes only a handful of pages to the service sector and clerical or white-collar employment. No doubt this lacuna reflects shortcomings in the secondary literature that Nelson draws upon, as well as Nelson’s view that the character of office work was subject to less dramatic technological and institutional changes over the course of the century. Be that as it may, “farms and factories” are indeed the book’s central focus; the rest of the midwestern labor market is treated as a residual category that soaked up a growing share of the work force as employment in agriculture and industry shrank relatively and, eventually, absolutely.

Nelson’s history of labor and labor management in the mass production industries of the Midwest is fairly conventional. He highlights the role of the federal government in creating a political and legal environment that facilitated the rise of industrial unionism: the protective legislation of the NRA and NLRA and the subsequent wartime boost given to unionism by war production demand and government intervention. Nelson’s narrative of the sit-down strikes, the escalation of hostility between labor and capital during the thirties, and the rivalry between the AFL and CIO also suggests the importance of historical contingency in creating the system of labor relations that would persist over the decades that followed.

The book’s final chapters describe the brief postwar “golden age” of economic prosperity and relatively stable industrial relations between Big Business and Big Labor. Nelson provides a multifaceted picture of the demise of this golden age. Economic change was clearly one challenge: competition from lower-cost regions and foreign producers placed pressure on the region’s bread-and-butter manufacturing industries. To this conventional deindustrialization story Nelson adds another critical factor in the demise of union influence in the Midwest: rising racial tensions as the Great Migration brought large numbers of black workers into northern cities. The generally progressive stance on racial issues of the CIO unions alienated a large portion of the rank and file during the tumultuous sixties, with the consequence that “[r]ace, more than any other issue, undermined the unions’ carefully nurtured influence outside the workplace” (p. 187).

In his concluding chapter, Nelson traces the roots of the Midwest’s woes during the 1970s and 80s to various “institutional constraints” put into place beginning in the 1930s, which served to reduce the regional economy’s flexibility and innovativeness. “By the 1970s midwestern workers faced the worst of both worlds: some producers had become obsolete, while others continued to innovate in traditional ways (mechanizing operations, for example) that limited employment opportunities” (p. 203). This claim is provocative, and echoes some of the criticisms of U.S. institutional rigidities to be found in the work of authors like Sabel and Piore or Lazonick. But Nelson provides only the sketchiest defense of this view. Is it not possible that the Midwest was just a victim of bad luck, its economy more dependent on Rust Belt industries than other regional economies for largely unavoidable historical reasons? To shore up his claim of institutional failure, Nelson would have to show what other regions did differently to avoid the Midwest’s difficulties. Again, the absence of a comparative approach precludes his doing this.

In sum, Farm and Factory would serve as a solid textbook in twentieth century U.S. labor history, in spite of its regional focus. The coverage of union and nonunion developments, the evolution of personnel management, the role of politics and government, and nontraditional sectors and workers (including women and minorities) is, to my knowledge, unavailable anywhere else. This breadth of coverage, of course, comes at the cost of diminished depth. One particularly misses a compelling account of how the Midwest’s sad economic fate at the end of the century was the product of the region-specific historical evolution of its labor institutions and politics.

William A. Sundstrom Department of Economics Santa Clara University

William A. Sundstrom is Associate Professor of Economics at Santa Clara University. He is the author of numerous articles on the history of U.S. labor markets, including, most recently, “The Racial Unemployment Gap in Long-Run Perspective” (with Robert W. Fairlie), American Economic Review Papers and Proceedings (May 1997).

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Subject(s):Labor and Employment History
Geographic Area(s):North America
Time Period(s):20th Century: WWII and post-WWII

Everyday Things in Premodern Japan: The Hidden Legacy of Material Culture

Author(s):Hanley, Susan B.
Reviewer(s):Honda, Gail

EH.NET BOOK REVIEW

Published by EH.NET (July 1997)

Susan B. Hanley. Everyday Things in Premodern Japan: The Hidden Legacy of Material Culture. Berkeley: University of California Press, 1997. xiv + 213 pp. $35.00 (cloth), ISBN: 0-520-20470-0.

Reviewed for EH.Net by Gail Honda, Department of Sociology, University of Chicago.

What do the objects which surround us–the food we eat, the clothes we wear, the homes we live in–tell us about how well we are living? How are they indicative of our health and physical well-being? Can we gauge our progress as a society by observing and analyzing the material world around us?

Susan B. Hanley, in her latest book on Tokugawa (1600-1868) Japan, culls a dazzling array of material evidence to argue that the level of physical well-being of the Japanese rose throughout the Tokugawa period, and that life in Tokugawa Japan was healthful relative to that in industrialized Europe. This high level of physical well-being, which existed on the eve of Japan’s industrial revolution (1868-1945), gave rise to a robust and literate labor force which enabled the Japanese to build a powerful industrial nation. Moreover, she argues, what we have come to know as everyday “traditional” Japanese material life, which was cultivated during the 250 years of the Tokugawa period, persisted through the middle of the twentieth century, and provided a foundation of stability which eased the often turbulent transition in government, the economy, and social structure.

With the discerning eye of a master novelist, and an equally engaging literary style, Hanley, Professor of Japanese Studies and History at the University of Washington, takes the reader on a tour of everyday life in Tokugawa Japan, all the while analyzing the objects of consideration and carefully piecing them together in her cogently honed argument. One can almost smell the rough-hewn walls and bare earthen floors of the early Tokugawa one-room commoner homes as she describes their cool, dark interiors and central gathering area for cooking and heating. By the end of the Tokugawa period, she writes, the typical commoner home had several rooms, raised foundations, wooden or tatami (rush mat) floors, and sliding paper doors which enabled the residents to open the interior to the sunshine and warm breezes of the outdoors. All of these changes, Hanley argues, led to a more healthful living environment which raised the level of physical well-being of the Japanese.

She defines the level of physical well-being as “the standard of living [defined as per capita income] plus ‘quality factors’ that can be positive or negative. . .Examples of quality factors are the quality and level of nutrition, incidence of disease, level of general health, number of children per family, the percentage of dependent persons, the size and quality of housing, the kind of heat available, and the many other aspects of life that affect our physical well being” (pp. 10-11). Hanley then analyzes the quality factors by examining what she calls material culture, or “physical objects that people use or consume in their everyday lives, most of which are either made or else natural objects put to specific use by people. . . [She] concentrate[s] on what are considered the basics: food, clothing, and shelter, and concomitant aspects such as hygiene and sanitation. The artifacts of daily life reveal use of resources, the level of technology, how people cooked, what kind of houses they lived in, and levels of comfort, sanitation, and health–in short, how people lived” (p. 12).

Specifically, Hanley finds that Tokugawa Japan’s material culture gave rise to many positive quality factors which elevated the the Japanese people’s physical well-being to a level higher than the standard of living alone would indicate. To cite a few examples of quality factors from the many intriguing ones she presents: the daily 1900-calorie Tokugawa diet of grains, vegetables, and soybean products was probably not only adequate for the body stature of people at the time (army recruits had an average height of 5’4″ in the late-nineteenth century), but was comparable to the late-nineteenth century English commoner diet of bread, porridge, biscuits, vegetables, milk, cheese, and lard. With regard to personal hygiene, Hanley points out that regular bathing was not an important part of Western culture until the nineteenth century, whereas in Japan accounts of public baths and references to bathing regulations indicate that bathing was a widespread custom by the eighteenth century. The Tokugawa water supply and sewage system were also quite healthful relative to systems in Europe because of the custom of collecting urine and night soil for fertilizer. Rather than allow human waste to collect in cesspools where excrement could seep into the subsoil, or to be flushed into rivers which fed into the drinking water supply, as was commonly done in the West, the Japanese assiduously collected, then bought and sold human waste and thereby avoided the problem of water supply contamination. As a result of many of these positive quality factors, life expectancy in Tokugawa Japan, Hanley demonstrates, was similar to that of nineteenth century Europe.

Thus, Hanley’s book is a valuable contribution to the literature in economic history, Japanese history, and historical demography in four primary ways: first, it offers plausible reasons and solid evidence for Japan’s success in industrializing beginning in the late nineteenth century; second, it stimulates cross-cultural comparisons by presenting evidence which can be reasonably compared across countries; third, it provides insight into and information on the everyday life of Japanese commoners during the Tokugawa period; and fourth, it discusses life expectancy, fertility control, and family structure, all important gauges of the level of physical well-being in Tokugawa Japan. Thoroughly researched and highly readable, Everyday Things in Premodern Japan will not only be widely used as a reference book, but will surely be savored by many whose interest will be held from cover to cover.

Gail Honda Department of Sociology University of Chicago

Gail Honda is author of “Differential Structure, Differential Health: Industrialization in Japan 1868-1940,” in the forthcoming book, Health and Welfare during Industrialization (University of Chicago Press), edited by Richard Steckel and Roderick Floud. In August 1997, she will move to the Department of History at the University of Hawaii where she will teach Japanese history and continue her research on economic development and health.

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Subject(s):Social and Cultural History, including Race, Ethnicity and Gender
Geographic Area(s):Asia
Time Period(s):19th Century

The Evolution of International Business: An Introduction

Author(s):Jones, Geoffrey
Reviewer(s):Taylor, Graham D.

H-NET BOOK REVIEW Published by H-Business@cs.muohio.edu (July 1996)

Geoffrey Jones, The Evolution of International Business: An Introduction . London and New York: Routledge, 1996. xii + 360 pp. Bibliographical references and index. Cloth, ISBN 0-415-10775-X; paper, ISBN 0-415-09371-6.

Reviewed for H-Business by Graham D. Taylor, Professor of History/Dean of Arts and Social Sciences, Dalhousie University, Halifax, Nova Scotia

During the 1960s multinational enterprises emerged as a focus of interest (and much controversy) both for economists and for the general public. Much of the literature of that era (leaving aside the important pioneering works of Raymond Vernon, Charles Kindleberger, and John Dunning) provided a very time-bound perspective on this phenomenon. Economists tended to treat multinationals as byproducts of post-World War II international financial integration and improvements in communications and transport technologies. To the broader public, in the United States and elsewhere, they were associated with U.S. economic expansion and indeed were perceived as reflecting a particularly “American” form of business organization.

Since that era, the international economy has changed dramatically: multinational enterprises became truly “multinational” as East Asian and European firms expanded (or, perhaps more properly in many instances, reappeared) in global markets and new cross-national “strategic partnerships” of firms emerged. During the same period, the historiography of multinational enterprise was vastly enriched by scholars such as Mira Wilkins, D. K. Fieldhouse, Peter Hertner, Shin’ichiYonekawa, and many others, who not only probed well into the pre-twentieth-century origins of multinational activities, but also linked their work with broader reinterpretations of the dynamics of business evolution and organization.

Geoffrey Jones has been very much a part of that international community of scholarship on multinationals, and in this book he has undertaken to synthesize that literature. Jones far too modestly designates the study as a “text book” or “introductory survey.” It is in fact a substantial contribution to our understanding of the historical significance of multinational business, broadly defined to encompass more than the conventional category of “foreign direct investment” (FDI). His book provides a needed overview of the global dimensions of this phenomenon and a coherent framework for analysis of major historical trends and central issues emerging from the literature.

Jones’s study opens with a review of the major interpretive approaches to analyzing multinationals, including concepts of ownership advantage, internalization/transaction cost, and Dunning’s “eclectic model,” all of which are well integrated into the historical chapters that follow. He also links the study of multinational evolution to the themes of organizational development associated with Alfred Chandler and the literature on the firm and national competitiveness.

This section is followed by a general overview of the major trends in multinational operations since the mid-nineteenth century, highlighting the distinctiveness of different periods in that evolution (1880-1914; the interwar period; the 1940s to 1960s; and the period since 1971). This periodization indicates both the continuities of growth of international business and the volatility of that history, reflecting shifts in external factors (“the business environment,” encompassing the impact of wars, shifts in global trade and monetary arrangements, nationalizations and other governmental regulatory measures) and consequent changes in the strategies of firms.

The next chapters review the role of multinationals in specific industrial sectors: natural resources, manufacturing and services. There is a certain degree of repetition in these sections, as Jones works through each period for the different sectors. But it is also clear that very different patterns can be discerned in the forms and motivations underlying international direct investment in each sector, as well as in the internal dynamics of firm organization, relations among firms, and between multinationals and governments.

The final chapters focus on particular issues that have emerged in the literature. These include: the variations among nations and cultures in the propensity of their business enterprises to engage in foreign investment; the relationship between foreign direct investment and economic development, in terms of both home economies (of the multinationals) and host economies; and the relationships of multinationals and governments.

Despite its relative brevity, this is a dense book that covers a wide range of topics relating to the history and theory of multinational business, each in a balanced but succinct manner. Consequently, it would be an oversimplification to suggest that it embraces a particular set of themes or line of argument. But there are certain general characteristics of the history that emerge from the study.

From the late nineteenth to well into the twentieth century, most foreign direct investment was focused on the development of natural resources, with some spinoff growth of ancillary services. Latin America and Asia were particularly notable recipients of this investment. FDI in manufacturing expanded slowly through the early twentieth century and more dramatically in the period after World War II, and the geographic center for such investment shifted to Western Europe. This trend in turn was overtaken by developments in the service sector (particularly in finance) in the past two decades, with East Asia and Western Europe, along with the United States, as major areas of investment activity.

Although there have been periods of single-country dominance in outward investment (the United Kingdom between the 1880s and 1914, and the United States in the 1950s and 1960s), perhaps more significant has been the consistent growth of multinational operations over the past century. As noted earlier, Jones’s approach embraces a range of international business activities. During the pre-World War I era, investment flows were tied to some extent to the “imperial” territories of various European nations (with regions such as Latin America becoming a battleground for European and American investors), and occurred through a peculiar (and primarily British) form called “free-standing companies” (local enterprises owned by foreign syndicates) as well as the more familiar home-and-branch operations.

In the interwar period, as national governments imposed a variety of constraints on international trade and capital flows, international cartels flourished, in part as a means of circumventing them. In the period since the 1970s, a new form of “strategic partnership” among firms of different nationalities has emerged, reflecting both the diverse origins of enterprises in global markets and the effects of financial integration coupled with the growth of regional trade blocs. In each era multinational businesses have altered their forms of operation to suit contemporary conditions, while sustaining a general trend toward growth and integration.

The strength of the book lies in its coherence, its ability to provide a clear framework for a complex process of development over a fairly long time-span. Some of this coherence might have been lost had Jones extended his analysis even further back in time, but it might have been a useful exercise to provide a broader historical perspective on the evolution of international business (as opposed to the evolution of multinational enterprise). Jones does devote a section of his chapter on “Multinationals and Services” to a discussion of the large international trading companies of the seventeenth and eighteenth centuries; but generally he focuses on the period after 1880, with an emphasis on improvements in technology (enhancing the internal management of firms in international markets) and financial integration, accompanied by nationalistic trade policies, in shaping a business environment congenial to multinationals.

But, as studies by Larry Neal (on international capital markets), James Tracy and Jonathan Israel (on the Dutch and British “merchant empires”), and Ann Carlos and Steve Nicholas (on the internal organization of trade companies) indicate, by the eighteenth century the international economy had developed strong financial and logistical links, and businesses such as the Hudson’s Bay Company and the East India companies were developing mechanisms for internal communication and management.

Jones’s chapter on multinationals and natural resources understandably gives pride of place to the “nonrenewable” resource sector (mining and petroleum) and does not ignore the “renewable” area. But a review of multinationals in the forest products industry could reinforce some of the points he makes in other contexts. As a capital-intensive industry, forest products (especially pulp and paper) has been a field with a number of multinational actors, such as the British firm Bowater, the Swedish Stora, the U.S. Weyerhaeuser, and Canada’s MacMillian-Bloedel. The intricate links between publishing companies and paper manufacturers in international markets provide another interesting feature of this industry, ranging from direct-investment ventures (such as the Chicago Tribune‘s Canadian pulpmills) to Bowater’s “strategic partnerships” in the 1920s-1940s (not without endless friction) with the British newspaper barons, Rothermere and Beaverbrook, to exploit the forestry resources of North America.

These are minor caveats, however, and do not detract from the general quality and significance of Jones’s study. As noted earlier, the book represents a well-organized synthesis of the state of the historiography of international business today, which at the same time can provide a basis for future research in the field, by identifying major lines of argument and the areas of uncertainty and controversy that still must be addressed.

Graham D. Taylor Dalhousie University

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Subject(s):Business History
Geographic Area(s):General, International, or Comparative
Time Period(s):20th Century: WWII and post-WWII

Opening America’s Market: U.S. Foreign Trade Policy Since 1776

Author(s):Eckes, Alfred E. Jr.
Reviewer(s):Khula, Bruce A.

Alfred E. Eckes, Jr. OPENING AMERICA’S MARKET: U.S. FOREIGN TRADE POLICY SINCE 1776. Chapel Hill: University of North Carolina Press, 1995. xi + 402 pp. Illustrations, tables, bibliography, and index. $34.95 (cloth); ISBN 0-8078-2213-2.

Reviewed by Bruce A. Khula, The Ohio State University, for H-BUSINESS November, 1995. bkhula@magnus.acs.ohio-state.edu

Historians of American business and foreign policy will benefit from a careful reading of Alfred E. Eckes’s newest book, OPENING AMERICA’S MARKET. As an historian at Ohio University and a former commissioner for the U.S. International Trade Commission, Eckes provides an insider’s knowledge coupled with the nuance and analysis that one expects of a seasoned historian. Although Eckes is clearly not the first to examine the economic dimensions of American foreign policy, his contribution nevertheless stands out. Much of the history written on American foreign economic policy has focused on the efforts of policymakers to open foreign markets for American goods. Eckes’s book is concerned instead with policymakers’ efforts to open the American market to foreign imports. The story Eckes tells is a fascinating one, and his conclusions necessitate a reexamination of America’s current obsession with the doctrine of free trade.

In OPENING AMERICA’S MARKET, Eckes has three principal arguments. First, he claims that American trade policy was explicitly and consciously protectionist from the early days of the Republic until the New Deal, when it underwent a dramatic shift toward free trade. Second, Eckes argues that before the New Deal, U.S. trade policy was designed to achieve domestic objectives but that, over the course of the 1930s, trade policy was ordered to fit the needs of American diplomacy. Eckes’s final, implicit argument is an observation and a warning that free trade may not be the only, or even the best, route to economic growth and national prosperity. As Eckes forcefully contends, a great deal of American economic growth came during years of high tariff barriers.

Eckes hopes his book will benefit policymakers as well as scholars. Having served on the International Trade Commission from 1981 to 1990, from 1982 to 1984 as chairman, Eckes laments the paucity of historical knowledge that American officials bring to trade negotiations. Policymakers and historians alike would do well to read this book. Eckes’s writing is smooth, his arguments are compelling, and the subject is both timely and important.

Eckes begins his analysis of American trade policy by examining its origins in the years following 1776. Early American leaders like Benjamin Franklin and Thomas Jefferson were strong proponents of free trade. Influenced by the writings of Adam Smith, these leaders believed that the peace and prosperity of the young nation depended on unrestricted access to foreign markets. If the United States was willing to offer reciprocal and open access to all nations, policymakers reasoned, American consumers would gain access to desired manufactured goods even as foreign consumers were enjoying American agricultural products. Accordingly, when the Tariff Act of 1789 was passed, it embraced universal nondiscrimination by utilizing a single-schedule tariff. Eckes notes that, although this act emphasized the American commitment to equality among nations, it also handicapped the president by depriving the executive branch of the ability to bargain during trade negotiations.

The initial free trade goals of Franklin and Jefferson fell into disrepute as the United States entered the nineteenth century. Alexander Hamilton had questioned them from the beginning. His “Report on Manufactures” was openly protectionist, endorsing a comprehensive system of tariffs and subsidies designed to enhance and protect American manufacturing. Hamilton took issue with Adam Smith’s free trade doctrine, claiming that it failed to promote the long-term interests of the nation. The strengths of Hamilton’s critique were underscored by the experiences of the War of 1812, which Eckes credits with generating “a major shift away from the idealistic policy of promoting equality and reciprocal access” (p. 18). Repeated European violations of American shipping demonstrated the economic vulnerability of the nation. Swelling nationalism provided figures like Henry Clay with a political foundation to promote a strong domestic manufacturing base. Clay’s “American System” consciously put the interests of the nation and its producers before the interests of its consumers. According to Eckes, Clay’s protectionism became the clear consensus of American policymakers until the Great Depression. They realized that free trade did not serve the interests of the young nation, and they were not afraid to erect high tariff barriers. After all, before the Civil War, American diplomats were not terribly concerned with winning access to foreign markets, and until the 1930s, “diplomacy remained an instrument of commerce” (p. 27).

In the years between the Civil War and the New Deal, the Republican Party emerged as the champion of protectionism. As pre-Civil War policymakers had, Republicans considered the short-term consumer gains promised by free trade less important than the long- term gains of increasing employment, industrial maturation, and economic diversification. Republicans dismissed State Department claims that reciprocity served American interests. If a nation lacked a consumption-oriented society, Republican politicians argued, offering that nation reciprocal access to the American market in no way secured the interests of the United States. Therefore, under Republican guidance, American trade policy established low tariffs on necessary raw materials but kept tariffs high on value-added manufactured goods.

According to Eckes, this selective tariff policy had several impressive results. It provided the national government with a steady and substantial source of revenue. In addition, American consumers were not seriously harmed by high tariff barriers; as a result of competition and the rise of big business, prices actually declined. Finally, contrary to the expectations of modern-day economists, economic growth was not retarded by protectionism but expanded during this period. Eckes asserts that his research uncovered “no significant negative relationship between high tariffs and real economic growth” (p. 55).

Clearly, the most contentious argument in this book is Eckes’s claim that the 1930 Smoot-Hawley Tariff was not the disaster that most historians consider it to have been. In a spirited attack on the conventional wisdom, Eckes attempts to prove that politicians and ideologues have “transformed a molehill into a mountain” (p. 139). Eckes dismisses claims that Smoot-Hawley raised tariffs to unprecedented levels. The highest rate on ad valorem goods applied to only about one-third of American imports, and even then it was actually lower than the rate of the 1828 “Tariff of Abominations.” Furthermore, Eckes argues that the impending tariffs of Smoot-Hawley had little to do with the 1929 Stock Market Crash, and he insists that the act was not as singularly damaging to world trade as critics suggest. Finally, Eckes demonstrates that few formal protests by foreign nations were filed against Smoot-Hawley: foreign retaliation was more mythical than real. Concluding his effort to revise the history of Smoot-Hawley, Eckes writes that Congress was looking out for American interests and in passing the tariff act was in fact acting “prudently” (p. 137)

The single most important individual in Eckes’s book is unquestionably Cordell Hull. Devoted to free trade, Hull took advantage of the Democratic Congress and used his influence as Secretary of State to engineer a “revolution in U.S. trade policy” (p. 98). Abandoning its 120-year old protectionist legacy, the United States embraced free trade. Under the auspices of the Reciprocal Trade Agreements Program (RTAP), the United States unilaterally slashed its high tariff barriers to encourage foreign nations to do the same. Hull promised to reverse the worsening pattern of global trade without injuring American producers. This “no-injury” pledge was to be policed by the State Department, which the RTAP empowered with negotiating authority. By minimizing congressional interference with tariff-making and packing the U.S. Tariff Commission with free traders, Hull advanced a series of policies that provided virtually unimpeded access to the American market for all nations. Eckes points out that U.S. officials had the power to enforce American commercial rights, but that they consciously avoided doing so. Not only did these steps fail to promote American exports, but they also demonstrated that trade policy had finally been subordinated to foreign policy. Hoping to promote peace and stability through international economic cooperation, American diplomats ignored domestic interests. The long-term negative consequences of such a policy were not immediately apparent, however, for the artificial economic environment of World War II kept both employment and production high.

As the Second World War came to a close, Hull’s vision received a new lease on life with the coming of the Cold War. Trade policy became a key component of containment. Once again subordinating domestic needs to foreign policy, American officials promoted free trade to reconstruct and integrate Western Europe while isolating the Soviet Union and its satellite states. As the Republican Party began to emerge from the political wilderness, its membership initially moved toward a traditional pro-tariff position. The Republicans were soon co-opted by President Harry Truman’s strident anti-communism, however, and they reluctantly accepted Hull’s trade revolution. One result of foreign policy preoccupation and Republican acquiescence was an emerging “pattern of tolerance for discrimination against American exports” (p. 164). Not only did the government encourage American companies to invest abroad, but it also used taxpayers’ dollars to promote importation of foreign manufactured goods. President Dwight Eisenhower contributed to the trade revolution by concluding an excessively-generous trade agreement with Japan in 1955, and his successors, presidents John Kennedy and Lyndon Johnson, made even more radical changes.

Focusing on the Kennedy Round of the General Agreements on Tariffs and Trade and the Trade Expansion Act of 1962, Eckes illustrates the shortcomings of American trade policy in the 1960s. The executive branch was granted unprecedented levels of discretionary authority, yet it failed to obtain significant foreign tariff concessions, abandoned the “no-injury” pledge, exacerbated balance-of-payments problems, and created the first American trade deficit since 1893. As Eckes sees it, Japan was the “real winner” of 1960s American trade policy. Providing minimal concessions and receiving maximum access to the American market, the Japanese received a “phenomenal deal” (p. 200). Responding to growing public suspicion of trade liberalization, President Richard Nixon and Congress initiated a shift toward protectionism in the 1970s by adopting rigorous enforcement of trade laws and congressional oversight of trade negotiations. Yet this reaction was too little, too late. Focusing on the loss of American industrial employment and the trade deficit, Eckes writes that “the Kennedy and Johnson administrations unwittingly made a series of policy decisions that contributed to the domestic economic dislocations of the 1980s and 1990s” (p. 218).

Eckes is sharply critical of American trade policy following Cordell Hull’s revolution. Not only did American officials fail to promote exports, but they also made no effort to enforce the terms of trade negotiations. Theoretically, the existence of “escape clauses” allowed the United States to absolve itself of treaty obligations if it were being treated unfairly, but in practice such clauses were empty concessions on the part of foreign governments; to minimize international conflict, the State Department refused to invoke them even in the face of blatant discrimination. Escape clauses were not actually used until the mid-1970s, but by 1985, however, they had once again fallen into disuse, victim of the Ronald Reagan administration’s zeal for free trade.

By the 1930s, American trade negotiators were also failing to prevent “dumping” and to enact effective countervailing duties. Antidumping legislation in the United States was limited in nature and provided broad executive discretion. The result, not surprisingly, was its subordination to larger foreign policy goals. Prior to the 1930s, the U.S. government employed countervailing duties to protect domestic industry against products made from industries subsidized by foreign governments. Like antidumping and the escape clause, the strategy of applying countervailing duties was set aside for foreign policy goals.

OPENING AMERICA’S MARKET is an ambitious book. In attempting to explain trade policy since 1776, Eckes has made a major contribution to the existing scholarship on American foreign economic policy. His treatment of trade policy during the Cold War suggests that historians who accuse the United States of self-aggrandizement have ignored a key piece of the puzzle. Eckes is, however, by no means uncritical of American Cold War trade policy, which he argues “imposed unnecessary burdens on U.S. producers and workers, severely harmed long-term U.S. economic performance, and circumvented the authority and will of Congress” (p.177).

For all its merits, the book is not without a few problems. As a former trade commissioner, Eckes occasionally attributes excessive importance to trade officials or tariff acts. Although Eckes explicitly backs away from asserting that trade policy was the primary stimulus for American economic growth, there are places in the text that seem to belie this distancing. One section of the book finds Eckes comparing a period of high tariffs (1890-1910) to a period with dramatically reduced barriers (1972-1992). He finds that the growth rate of Gross National Product (GNP) and per capita GNP during the high-tariff period was actually greater than that of the low-tariff period. This comparison seems fraught with problems. The second industrial revolution, the rise of big business, and the 1895-1905 merger wave make the period from 1890 to 1910 a tough act to follow. Whatever the trade policy had been during this period, these other factors would clearly have generated dynamic and substantial growth. From 1972-1992, on the other hand, American business buckled under the pressures of major corporate restructuring, an aging industrial base, and the reemergence of foreign competition. Regardless of existing trade policy, the economic growth of this period would likely have been stifled.

It would be wrong to belabor this point further, however. Eckes has not demonstrated the primacy of trade policy (and indeed he has not attempted to), but he has provided a needed corrective to historians who fixate on the firm as the source of economic growth. Along with politicians and trade negotiators, business and diplomatic historians must take Eckes’s arguments into account: his research is thorough, his knowledge of the issues impressive, and the questions he raises cannot be ignored.

Bruce A. Khula, The Ohio State University bkhula@magnus.acs.ohio-state.edu

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Subject(s):International and Domestic Trade and Relations
Geographic Area(s):North America
Time Period(s):20th Century: WWII and post-WWII