We have arrived at the sixth age of globalization, the Industrial Age, the one that created the modern world. For convenience I date this from 1800 to 2000, lasting two centuries. I could perhaps have put the starting date a bit earlier, say 1750, when industrialization began to gather force in Britain, or I might have put it at 1820, after the Napoleonic Wars, when the new peace in Europe would enable a continental-scale transformation more rapid than any other in history. But no matter the details, we can be certain of the overriding point: the sixth age is a period of decisive transformation that was faster, deeper, and more extensive than ever before in history. During just two centuries, everything changed about how and where we live and how we govern ourselves.
At the start of the sixth age of globalization, around 1820, the world was still overwhelmingly poor and rural. Perhaps 85 percent of the world’s population sustained itself through farming, almost all of it at a level at or near subsistence. Around 93 percent of the world lived in rural areas. Most people never ventured far from their birthplace, often because they were enslaved, enserfed, or bonded to the land and landowner in some way. Extreme poverty was pervasive and life expectancy was short, mainly because infant and child mortality rates were extremely high. By 2000, however, all had changed. The world had become almost half urban (46.7 percent); average incomes had soared; average life expectancy had reached sixty-seven years (for 2000–2005).1 These remarkable changes are summarized in table 7.1.
Table 7.1 Population and Urbanization
World
Around 1800
Around 2000
Population
1 billion
6 billion
Rate of urbanization
7.3%
46.8%
Average GDP per person, PPP-adjusted (2018 prices)
$1,200 (1820)
$10,500
Extreme poverty rate
84% (1820)
25%
Life expectancy at birth
29
66
Sources: François Bourguignon and Christian Morrisson. “Inequality among World Citizens: 1820–1992.” American economic review 92, no. 4 (2002): 727–44; James C Riley. “Estimates of regional and global life expectancy, 1800–2001.” Population and development review 31, no. 3 (2005): 537–43; Kees Klein Goldewijk, Arthur Beusen, and Peter Janssen. “Long-Term Dynamic Modeling of Global Population and Built-up Area in a Spatially Explicit Way: Hyde 3.1.” The Holocene 20, no. 4 (2010): 565–73; Angus Maddison. “Statistics on World Population, GDP and Per Capita GDP, 1-2008 AD.” Historical Statistics 3 (2010): 1–36.
The texture of life also changed beyond recognition. From the quiet life of villages, most of humanity now lived in the tumult of cities. From the relative isolation of villages, humanity was now interconnected in a worldwide web of nonstop data. From the slow pace of technological change throughout most of human history, we arrived to a world of nonstop technological upheavals. And we arrived also to a world of ever-present existential worries, where human survival is threatened by our own creations, whether nuclear weapons or global-scale environmental threats.
Certain key aspects of this remarkable sixth age of globalization are coming to an end—most notably, the two hundred years of Anglo-American dominance of the world economy and technology. And digital technologies, discussed in the next chapter, are once again upending our patterns of production and indeed our patterns of daily life. But to understand our current era and the choices before us, we must understand the Industrial Age, and how it created the modern economy.
A good year to start our investigation of industrialization is 1776. Four remarkable events that year capture the essence of the story of the Industrial Age. The first, as you might guess, is the birth of the United States with its Declaration of Independence from Britain. That was indeed a notable event in history, as it unleashed the forces that would create America as a global power by the second half of the twentieth century. The second event is one I have already mentioned many times: the publication of Adam Smith’s Wealth of Nations. Here was a new guide to a modern economy based on global reach and the global division of labor. The third is another publication: Edward Gibbon’s Decline and Fall of the Roman Empire. Like Smith, Gibbon epitomizes the wisdom and humanity of the eighteenth-century British Enlightenment. Gibbon’s masterwork reminds us that world-dominant powers such as Rome decline, as occurred with the British Empire in the twentieth century and is happening in its own way with the United States in the early twenty-first century.
Yet in historical significance, the fourth event of 1776 is probably the most significant. This is the year when the inventor James Watt successfully commercialized his new steam engine. We have discussed many pivotal inventions throughout history: agriculture, animal domestication, the alphabet, gunpowder, the printing press, ocean navigation, and others. Yet with the possible exception of Gutenberg’s printing press, it is very hard to think of an invention by a single inventor as consequential as Watt’s steam engine (figure 7.1). The steam engine gave birth to the Industrial Age and the modern economy. While the steam engine is not solely responsible for economic modernity, without the steam engine most of the other technological breakthroughs of the past two centuries would not have been possible.2
Newton had declared “If I have seen further it is by standing on the shoulders of giants.” Watt too made his great breakthroughs by building on the innovations of worthy predecessors. Thomas Savery invented the first modern steam engine in 1699, using steam created by burning coal to pump water. The aim was to use the steam engine to pump water from coal mines to raise the productivity of the mine. Savery’s breakthrough idea was then advanced by Thomas Newcomen, who added the idea of moving a piston with steam power. Savery’s pump worked by creating a temporary vacuum that forced water through the pump. Newcomen’s 1712 steam engine used the steam to move a piston to pump the water. The coal mined with the help of these steam engines was used mainly for heating homes in Britain’s winter months. Later on, of course, the coal would be mined for the steam engines themselves, which became the source of power for Britain’s railroads, steamships, and industrial factories, and notably for use in massively scaled-up steel production.
Newcomen’s engine was deployed to pump water out of coal mines, but it was not very efficient. It required an enormous input of energy and was not economical to use for other applications. In the 1760s, James Watt, employed in a workshop at the University of Glasgow in Scotland making scientific instruments, began thinking about how to make Newcomen’s steam engine more efficient. Brilliantly, Watt made two great innovations to Newcomen’s engine. One involved the translation of the steam energy into motion. Rather than the alternating beam that Newcomen had used, Watt introduced rotary motion into a steam engine. Watt’s second change was even more revolutionary: the addition of a separate condenser. Newcomen’s steam engine involved heating and then cooling the boiler to create the alternation of hot and cold temperatures to create and condense steam. This wasted a tremendous amount of heat energy, meaning that Newcomen’s engine required a tremendous amount of coal, at high expense, to operate. By introducing a condenser separate from the boiler, Watt made the steam engine vastly more efficient, and hence much more economical. He turned the steam engine from a high-cost device for pumping water from mines to a low-cost device that could be deployed in literally thousands of uses in the future. The world economy was transformed by that single insight.
With the invention of the steam engine, Britain entered the Industrial Age. From 1700 to 1820, British output per person rose 0.26 percent per year. During 1820–1850, the growth rate increased to 1.04 percent per year; during 1850–1900, it increased again to 1.32 percent per year. The time period needed to double output per person fell from 270 years at the growth rate of the period 1700–1820 to sixty-seven years at the growth rate during 1820–1850 to just fifty-three years at the growth rate during 1850–1900.3
The British economic historian E. A. Wrigley has characterized the breakthrough as the transition from the “organic economy” to the “energy-rich economy.”4 By organic economy, Wrigley means an economy in which “all industrial production depended on vegetable or animal raw materials.” The energy used in the production of raw materials and the industrial transformation of those materials into final products came overwhelmingly from human labor and draft animals, types of organic inputs. Windmills and waterwheels provided some energy, but only a small fraction of the organic inputs. Then came coal, the first of the three fossil fuels (coal, petroleum, and natural gas) that would be deployed on a large scale after 1800. With the liberation from scarce organic-based energy, and ultimately the foodstuffs and feed grains grown to sustain the human and animal populations, the economy could take off.
Wrigley’s estimates of energy consumption in England and Wales by type of input, shown in table 7.2, are highly instructive. Total energy consumption rose by 37 percent in the first half of the eighteenth century, by 124 percent in the second half of the century, and by 255 percent in the first half of the nineteenth century. Note the high use of coal already in 1700–1709, before the steam engine. Most of this coal was likely used for home heating and cooking.
Table 7.2 Energy Consumption (petajoules)
Watt’s steam engine had applications across the economy. It was, in modern parlance, a general-purpose technology (GPT)—the kind of technology that finds applications across many sectors of the economy.5 With the steam engine, equipment of all kinds could be mechanized. Major applications came quickly in textiles production, with the mechanization of spinning and weaving and the introduction of large-scale factory production using steam power. Metallurgy soared as well, with tremendous advances in steam-powered blast furnaces for steel making. Fundamental breakthroughs were also quickly achieved in transport, with the steam-powered railroad, steam-powered river barges, and steam-powered oceangoing vessels.
As steam power drastically reduced the costs of transport, coal production, steel making, textile production, and other industrial processes, new possibilities soared across the economy. One of the most important cost reductions came in agriculture. With steam-powered ocean shipping, it became economical to ship organic fertilizers from South America, namely, the nitrate deposits from bird and bat guano off the coasts of Peru and Chile. Railroads allowed the commercial opening of new agricultural regions, such as the Argentine Pampas, with much of the new production destined for transoceanic exports. During the nineteenth century, the world’s capacity to grow food soared, bolstered by scientific breakthroughs in agronomy and the increased mechanization of agriculture.
With increased food production came rising populations. More food meant more survival and higher fertility rates. The shift from the organic economy to the energy-rich economy thus enabled a vast increase in the global population. The world’s population grew from around 600 million in 1700 to 900 million in 1800 and then to 1.6 billion by 1900. The age-old constraint on the size of the global population, limited by food production in the organic economy, was ended.
The unprecedented increases in world population and output per capita with the advent of the Industrial Age appear vividly in figures 1.1 and 1.3. The turning point around 1820 is clear enough. The long history of nearly unchanged output per person ended with the onset of industrialization. Between 1000 CE and 1820, the world average output per capita increased at the nearly imperceptible rate of 0.05 percent per annum. During the period from 1820 to 1900, the growth rate was ten times higher, reaching 0.5 percent per annum. Similarly, the global population, which grew at a miniscule 0.1 percent per year between 1000 and 1700, accelerated to 0.5 percent per year between 1700 and 1820 and then to 0.6 percent per annum between 1820 and 1920. The world economy had, in short, made the breakthrough to modern economic growth, and the global population soared along with rising incomes.
What made Watt’s invention possible? Why did Britain industrialize first and soar to the lead? Britain certainly was not the only home of scientists. Italy has to have pride of place, I would say, with Leonardo da Vinci and Galileo as prime movers of the European scientific revolution. One could cite Poland’s Copernicus early in the sixteenth century as providing one of the key insights, the heliocentric universe, that got Galileo and then Newton thinking about a new physics. And one could cite the huge advances in governance and commerce in Holland as precursors of Britain’s own commercial revolution. After all, it was the invasion of the Dutch monarch, William of Orange, in 1688 that gave Britain its Glorious Revolution and the clear path to modern capitalist institutions.
What Britain offered was an extraordinary combination of favorable conditions that, taken together, made Watt’s invention and its subsequent rapid adoption possible. The industrial revolution was not a commonplace affair. Several conditions had to align to achieve the takeoff to self-sustaining industrialization and ongoing economic growth. Britain’s uniqueness lies in putting all of the necessary pieces together for the first time. Perhaps the Song Dynasty in China, roughly one millennium earlier, offered similarly propitious circumstances, but lacked the spark to set industrialization in motion.
The first condition in Britain was the intellectual milieu, in which science and empiricism were deeply respected, even revered. It was in Britain that theologian and philosopher Roger Bacon in the thirteenth century preached a philosophy of empirical knowledge of nature, and where his namesake and perhaps distant relation Francis Bacon in the early seventeenth century put forward the modern idea of human progress through science and technology, with science based on the experimental method. This empirical approach underpinned the new physics that arrived with Galileo and Isaac Newton in the next century.
As poet Alexander Pope wrote of Newton, “Nature and Nature’s laws lay hid in night: / God said, Let Newton be! and all was light.” Newton explained the cosmos with his new physics and made possible many of the scientific breakthroughs that were to come. Newton did his work at the University of Cambridge, an institution that continues to be a pioneer in the basic sciences today. Britain’s universities were crucial for industrialization. The very fact of an instruments laboratory at Glasgow University where Watt could do his pathbreaking work speaks volumes about the intellectual basis for technological advances. And Watt was highly respected for his breakthroughs, winning membership in the Royal Society of Edinburgh and the French Academy, among other institutions.
The intellectual milieu and support were not sufficient. Italy too had a glorious scientific tradition and a great university network. Additional factors were at play in Britain. Another key point is that Watt sought to develop his technology not only as a technological concept but also as a business venture. He aimed to make money, and indeed succeeded in doing so. Britain offered an environment where market institutions were well developed and where the ownership of intellectual property in the form of patent rights had long existed. On that basis, Watt was able to attract private capital, notably from his business partner and leading manufacturer Richard Boulton. Watt and Boulton needed to defend their patent rights against infringements by others, and the courts indeed recognized their claims.
Scientific inquiry, universities, and market institutions were not sufficient either. One might say, indeed, that Holland had arrived at that combination before Britain. But Britain had something that Holland lacked: coal. Easily accessible coal was the key—and not just coal, but a coal industry. Britain had long used coal for home heating and cooking and was therefore highly experienced in mining, shipping, and marketing coal. This was an extraordinary advantage. An economist, speaking in hypotheticals, might claim, “Well, if it wasn’t coal, it would have been something else, perhaps oil or gas.” But coal had to come first in order to make the other fossil fuels possible. The far more complex internal combustion engine and gas turbine both built on the steam engine, and neither could have emerged without the decades of advances in mining, metallurgy, machine-making, and engine technologies made possible first with the coal-based steam engine.
Yet even empiricism and a scientific outlook, the universities and market institutions, and the accessibility of and experience with coal are still not the full story. The steam engine proved so profitable because Britain was part of a global trading system, backed by multinational companies (exemplified by the East India Company) that could transport commodities such as cotton for processing into textiles in Britain’s new steam-driven factories. In other words, Watt had an enormous potential market, not just an idea and access to a patent and to coal.
Self-sustaining industrialization took off just once in human history, in Britain in the eighteenth and early nineteenth centuries. All other industrialization since then are descendants of the technologies, corporate laws, and financial mechanisms of Britain’s breakthrough. Before Britain’s industrial revolution, other places had developed industry—textiles, iron-making, machinery—but none had broken free of the organic economy. Perhaps China in the Song Dynasty or the Ming Dynasty was the best placed to do so before Britain. China, too, had markets, trade, scientific and technological knowledge, and coal, albeit less accessible coal. There is perhaps no fundamental reason why Britain beat China to industrialization. Human history, like natural evolution, is subject to accidents and randomness.
A useful analogy, perhaps, is the beginning of life itself on Earth. Scientists suspect that life emerged from a unique confluence of circumstances: organic materials (notably self-replicating RNA), an energy source (perhaps the thermal vents in the deep ocean), and the self-organizing properties of the components of a first living cell (such as a lipid membrane and a self-replicating strand of RNA). Somehow the pieces of the puzzle self-assembled. It must not have been a likely process. Since all of life today apparently shares a common ancestry with the same DNA chemistry, the emergence of self-replicating life may have occurred just once.
The same seems to be true about self-sustaining economic growth. Several conditions were needed simultaneously in Britain to set off the Industrial Revolution. And all subsequent industrialization, in the U.S., Western Europe, Russia, Japan, China, and now Africa, can trace their own industrial lineage to a single common ancestor: Watt and his steam engine in Glasgow in 1776.
The steam engine was so decisive, unleashing advances in factory production, precision manufacturing, and countless applications of the new steam power, that it set off a chain reaction of further discoveries. Professor Martin Weitzman of Harvard University noted that innovations can be built upon current technologies through the “hybridization of ideas”—that is, by combining existing technologies into new patterns that in turn can be combined into still more innovative designs.6
Let me offer a very simple illustration based on his thoughts. Suppose that there are ten distinct technologies. There are then forty-five two-way combinations of the ten technologies (1/2 × 10 × 9). Suppose that 20 percent of those pairwise combinations yield a useful new technology. We would have nine additional technologies. The nine new technologies could then hybridize (combine) with each other or with the original technologies, to produce yet more innovations. Weizmann called this ongoing process “recombinant growth.”
The basic idea is that innovations beget innovations. We can view this dynamic from a related perspective, the opportunity to make profits. Suppose that each technological breakthrough causes the economy to grow. To stay with simple numbers, suppose that each fundamental technological breakthrough doubles the size of the economy. If we set Britain’s GDP to 100 units before Watt, then we might say the steam engine raised GDP to 200. With a larger GDP, the incentive to invent is also greater. Each invention is likely to earn more revenues and thereby cover the costs of R&D and the early implementation of new ideas. With GDP equal to 200, more potential Watt-like inventions are explored, and eventually another one is developed that boosts the GDP to 400, causing still more R&D and further innovation. Economists label this self-sustaining process (innovation → larger market size → innovation → larger market size) as “endogenous growth.” The economist Paul Romer provided a rigorous mathematical account of endogenous growth in the 1980s and received the Nobel Prize in Economics for his achievement.
The steam engine and the breakthrough to an energy-rich economy set off such a process of endogenous growth that it has so far lasted for more than two centuries. Global GDP per capita, which hardly budged for centuries before the age of industrialization, has been rising rapidly and fairly consistently since 1820. The fuel for that long-term growth has been a continuing wave of technological advances, many building on previous technologies through hybridization and others introducing fundamentally new ideas and approaches.
These waves of technology are often bundled into distinct phases, much like bundling the ages of globalization. The earliest theory of technology waves came from the Russian economist Nikolai Kondratiev, writing in the 1920s. He identified major waves of technology arriving roughly every fifty to sixty years. Each wave generates a new era of business investments that boost the economy and continues the path of economic growth. One rendition of such “Kondratiev waves” is shown in figure 7.2, due to Wilenius and Kurki.7 In this depiction, the steam engine gives rise to the first wave, 1780–1830. This is followed by a second wave of investments in railways and steel, 1830–1880, both depending on the steam engine, as well as other new technologies. The third wave is the era of electrification (building on Faraday’s discoveries of electromagnetic induction) and modern chemistry, 1880–1930. The fourth wave builds on the automobile (and the internal combustion engine) and petrochemicals, the age of oil, one might say, 1930–1970. This is followed by a fifth wave, based on information and communications technologies (ICTs), to around 2010. Finally, Wilenius and Kurki identify a sixth wave of “intelligent technologies,” including robotics and artificial intelligence, for the years 2010–2050. The columns in red measure the ten-year annual return on equities using the S&P 500. The argument is that each technological wave gives rise to an increase in stock market prices, signaling future profitability and incentive to invest. At the end of the technology cycle, the returns fall back to zero, awaiting a new technological innovation to set off the next investment cycle. Another recent usage identifies four rather than six stages of industrialization: (1) water and steam power; (2) electricity and the internal combustion engine; (3) information and communications technologies; and (4) the fusion of technologies, combining ICTs, biological technologies such as genomics, and new materials (e.g., nanotechnologies).8
7.2 Kondratieff Waves, 1823–2019
Source: Rolling 10-year return on the S&P 500 from Jan. 1814 to June 2019 (in % per year). Data from Datastream, Bloomberg, Helsinki Capital partners (illustration), Markku Wilenius.
British industrialization started in the mid-1700s with Newcomen’s steam engine and other innovations in textiles and metallurgy. Yet full-fledged industrialization only took off with the end of the Napoleonic Wars. As of 1820, Britain and Holland were in the lead of Europe in per capita GDP (measured at a consistent set of international prices, according to data developed by historian Angus Maddison), but the gap was modest. Table 7.3 summarizes the story over the nineteenth century. Each country’s income per person is shown relative to Britain’s, which is given an index value of 100. A value of 70, therefore, signifies a per capita income that is 70 percent of Britain’s. As of 1820, Britain led the rest of Europe, with the exception of the Netherlands, which stood at 108. Between 1820 and 1850, Britain and countries close to Britain (such as France and the Netherlands) generally grew more rapidly than countries more distant from Britain (such as Spain, Italy, Greece, and Finland). By 1900, there was a rather clear distance gradient. On average, the closer a country was to Britain (measured as direct distance between national capitals), the higher was its per capita income in 1900.
Table 7.3 GDP per Capita, PPP adjusted, Selected Countries and Years (UK = 100)
What we are observing is a geographical diffusion process. Industrialization started in Britain and then gradually over time moved to the rest of Europe, with those regions farthest away generally industrializing at a later date. It’s a bit like dropping a stone in water. The ripples go outward in concentric circles, so the impact is felt earliest near where the stone hits the water and only later at greater distances.
What is the reason for this gradual diffusion? Remember that Britain’s industrialization had several foundations, including a market for industrial products, access to coal, access to transport, industrial skills, and technological know-how. These were the prerequisites as well for the later arrivals to industrialization. They needed a market for their output. Britain often provided that market. They needed access to coal, which might come from their own mines or from shipments from Britain or other mining sites. They needed transport, which tended to be higher in cost over land routes in Central and Eastern Europe than the sea routes of coastal economies. And they needed industrial skills (beginning with literacy and numeracy) and technological know-how. For every one of these prerequisites, proximity to Britain, the home of big industry, was helpful. The result was a spreading wave of industrialization, starting with Britain’s near neighbors, including Belgium, the Netherlands, and France in the years 1820–1850, extending to more distant countries (Scandinavia, Germany, Italy, Spain) in the second half of the century, and finally reaching Eastern Europe and Russia late in the nineteenth century.
Of course, national specificities mattered as well. Some countries had coal; others did not. A country like Switzerland could tap into hydroelectric power once the technology became known. Some had national markets from the start (France, the Netherlands) while others (Italy, Germany) were not yet unified nations until around 1870. And some parts of Europe, particularly in Eastern Europe, still had pre-capitalist institutions of serfdom that had to be eliminated before market-based industrialization could get underway. Yet for all these countries, Britain set the pace and served as the role model. It provided the technologies, financial capital, know-how, and marketplace to boost the incomes of the laggard nations.
The age of industrial globalization dramatically increased the gap between the North Atlantic—Western Europe and the United States—and the rest of the world in terms of incomes, industrial production, and military power. Since 1500, Western Europe had made important advances on many fronts, including military power, global conquests, scale of industry, and multinational production and trade in many sectors, including cotton, sugar, tobacco, and others. By 1820, according to Maddison’s estimates, a significant gap in production per person had already opened between Western Europe and Asia. China, India, and Japan each had incomes per capita of around $600 (in 1990 international dollars) compared with Western Europe’s average of around $1,200 and Britain’s global lead at around $1,700. With the industrialization that followed, that gap widened dramatically in the nineteenth century.
Figure 7.3 summarizes the dramatic story by comparing the two most dynamic industrializing nations—the United Kingdom and the United States—with several other world regions. We see three groups of outcomes. The UK and the United States held the global lead, with soaring economies that reached a per capita income of roughly $5,000 by 1913. Latin America and Japan constituted a middle group, with much more limited economic growth beginning in the second half of the nineteenth century and incomes rising to around $1,400 by 1913. The laggard group included Africa, China, and India, which experienced essentially no rise in output per person, each with a GDP per capita of around $600 in 1913. Thus, by 1913, the two leading nations had roughly eight times the per capita income of Africa, China, and India! The United States alone, with around 100 million inhabitants, has greater production than China and India combined, with roughly 750 million inhabitants.
7.3 Economic Divergence of Major Countries and Regions, 1820–1913
Source: Angus Maddison. “Statistics on World Population, GDP and Per Capita GDP, 1–2008 AD.” Historical Statistics 3 (2010): 1–36.
The story of the great divergence between Europe and Asia is the great drama of the nineteenth-century world economy. This is the period when the world fell into the hands of the North Atlantic powers, first Britain and the other European empires, and then in the twentieth century the United States, especially after World War II. Only with the rapid growth of China and India toward the end of the twentieth century would Asia begin to narrow the huge gaps in relative income and power that opened in the nineteenth century.
One of the factors in determining the global patterns of industrialization was the presence or absence of coal, and then in the twentieth century, the presence or absence of petroleum and natural gas. Places close to coal deposits tended to industrialize earlier, while regions far from coal tended to industrialize much later. As seen in figure 7.4, the world regions that are best endowed with coal include Western Europe, the United States, Australia, Russia, China, India, Indonesia, South Africa, the Andes, and southeastern Brazil, while most of tropical Africa and much of tropical America are bereft of coal deposits. The first phase of coal-based industrialization began in Western Europe in the first half of the nineteenth century, following Britain’s early lead. Coal mining and coal-based industrialization followed some decades later in the United States, Australia, Japan, and Russia in the second half of the nineteenth century, and eventually spread to other coal regions in the twentieth century. In the twentieth century, following the inventions of the internal combustion engine and the gas turbine, the presence of hydrocarbons became advantageous not only for oil and gas production but also for the development of petrochemical industries and other energy-intensive sectors.
7.4 Major Geological Deposits of Coal, 2017
Source: “World Coal Deposits Map,” mapsofworld.com. Reproduced with permission.
The story of Asia in the face of European and U.S. industrialization is vital to understand because it made the world that we inherited, one that is now being rapidly reordered. China, a proud empire with an astounding 37 percent of the world’s population in 1820, found itself humbled by countries less than a tenth its size. While China avoided direct colonization during the nineteenth century, it did not avoid chaos, military defeat, or European imperial encroachments on its sovereignty. India, with 20 percent of the world’s population, fared even worse. From the mid-1700s onward, India was absorbed step by step by the East India Company, and in 1858, it fell entirely into the clutches of the British Empire, which formally took over the job of colonial rule from the East India Company. Japan was the relative success story in Asia, not only preserving its sovereignty but successfully embarking on a path of industrialization at the end of the nineteenth century, albeit at an income level far below that of Europe. By dint of its industrialization, Japan became Asia’s military powerhouse from the end of the nineteenth century until Japan’s defeat in World War II. Accounting for these distinctive pathways is one of the great tasks of economic and political history.
China’s nineteenth-century story actually begins in 1793, when the Chinese emperor rebuffed a British mission that sought to open British-Chinese trade. The Qing emperor could see no advantage in the request and sent the mission home without result. Another such mission failed in 1816. When Britain next returned, it did so with a vengeance, launching the infamous Opium Wars with China in 1839. This time Britain would not accept no for an answer. China would be forced to open to British trade—not just normal trade, but also opium from India peddled by British merchants. When the Chinese authorities refused and tried to confiscate the opium brought into Chinese waters, the British responded with war. A British expeditionary force launched several assaults on coastal cities and ports, culminating in the Nanjing Treaty of 1842, which opened four ports, including Shanghai, to trade and transferred Hong Kong Island to Britain “in perpetuity.” When Britain increased its demands in the 1850s, the Second Opium War (1856–60) broke out; this time, Anglo-French forces entered Beijing and burned the Summer Palace.
The incursion of the European imperialists put China into an economic tailspin from which it would not recover for more than a century. With the Qing Dynasty humiliated and weakened by the losses of the First Opium War, an internal rebellion broke out between 1850 and 1864. Known as the Taiping Rebellion, it pitted the Qing Dynasty against the followers of a self-declared brother of Jesus. The rebellion eventually turned into a total war with the staggering death toll of many tens of millions of people. China would try to recover from the mass bloodletting and adopted reforms in the later part of the nineteenth century as part of a “self-strengthening movement” to resist the Europeans, but the Qing Dynasty was never able to formulate a coherent reform program nor to resist the ever-growing demands of the European imperialists. Yet another rebellion broke out in 1899 against concessions to the Europeans, and this so-called Boxer Rebellion led once more to a massive show of force by the European powers. The Boxer Treaty, imposed by the European powers in 1901, allowed the foreign powers to station troops in Beijing and called on Beijing to pay reparations to the Europeans.
The authority of the Qing Dynasty finally collapsed in 1912, and Sun Yat-Sen declared the Republic of China, but once again the chance for order, reform, and economic development gave way to internal disorder within a few years. The Chinese state fragmented, and warlords competed for territory and power. In 1927, the Nationalist government launched attacks on the Chinese Communist Party, igniting a civil war that would last until 1949. Japan invaded China in 1931, brutally occupying parts of China until Japan’s defeat in 1945 at the end of the Second World War. The Communist forces under Mao Zedong defeated the Nationalist forces under Chiang Kai-shek in 1949 and proclaimed the People’s Republic of China.
Even then, China’s turmoil did not end. The new state embarked on a Soviet-style centrally planned economy in the 1950s, but Mao became impatient with the results by the end of the 1950s and launched the Great Leap Forward to accelerate industrialization. The result was chaos and starvation, as farmers were required to leave the fields and devote their meager resources and physical labor to Mao’s illusion of building a nation with backyard steel mills. As many as 45 million people may have starved. Yet Mao was not finished with upheaval, as he then launched the Cultural Revolution, which created another decade of chaos from 1966 to his death in 1976. Only in 1978—130 years after the First Opium War—did China finally embark on market-based economic reforms and transformation. By then, China was an impoverished rural economy with a per capita income well below one-tenth of Western Europe’s.
India’s saga is also one of long-term decline. In the seventeenth century, India was a unified state under Mughal rule. It was home to around one-fourth of the world’s population and produced roughly one-fourth of the world’s output. India was by far the largest manufacturing nation in the world, with textiles widely admired and sought after by European consumers. Yet from that lofty position, India, like China, experienced a catastrophic and continuous decline in per capita income relative to the industrial nations and in India’s share of the world economy until the beginnings of recovery in the second half of the twentieth century.
India’s decline began with multiple challenges to Mughal rule in the late seventeenth century. In western India, Mughal rule was challenged by several powers, including Persia, a Sikh confederacy in the Punjab, and the rising Maratha Empire in the Deccan Plateau. The Maratha defeated the Mughals in several wars and extended their control over much of India. In Bengal, to the east, the British East India Company, with its own private army, defeated the ruling state in the Battle of Plassey in 1757, which gave the company effective control and tax authority over Bengal. The company also successfully defeated France in battles along the southeastern coast as part of the global Seven Years’ War. Mughal rule was effectively at an end.
From the Battle of Plassey to the Indian Rebellion of 1857, the British East India Company fought countless wars of conquest, including three wars with the Maratha Empire between 1775 and 1818, to take control over all of India. British rule was harsh and profoundly disruptive, marked by famines and administrative ruthlessness that contributed to the deaths of millions. The gaudy corruption of company officials led the British government to assert partial control over company affairs and policies toward the end of the eighteenth century, so that British rule in India in the first half of the 1800s was under the mixed authority of the company and the Crown. In 1857, an Indian rebellion against British rule was decisively defeated, and the British government took over direct control of India, creating the British Raj that was to rule India until its independence from colonial rule in 1947.
British economic policies decisively weakened the economy and society. As told vividly by historian Prasannan Parthasarathi, trade protectionism by Britain throughout the eighteenth century kept India’s famed textiles out of the British market, eventually driving millions of spinners and weavers to penury in the nineteenth century. Far from a victory of the free market, Britain defeated the Indian textile industry in the eighteenth century through a series of measures including progressively tighter bans on imports of Indian textiles. Parthasarathi summarizes the sequence of policies as follows:
From the late seventeenth century, British cotton manufacturing expanded in tandem with state policies of protection. The ban on imports of Indian painted and printed cloth in 1700 gave a great boost to a British cloth-printing industry, which was given the exclusive right to supply the home market. The ban on imports of Indian white calico in 1721 led British manufacturers to search for and develop a locally made substitute for what had formerly been imported from the sub-continent. This search was successful in the 1770s with the invention of Arkwright’s water frame and then Crompton’s mule. But the era of protection was not over. Tariffs on Indian muslin imports in the 1780s helped British muslin manufacturers to expand and improve their manufacturing capabilities. Trade policies were integral to the development of the British cotton industry.9
From 1858 until India’s independence, British policy aimed to turn India into a supplier of raw materials for the British market rather than a competitor of British industry producing finished textiles. Britain ruthlessly governed the countryside, standing idle in the face of multiple famines that reflected the combination of nature and Britain’s neglect of Indian lives. Basic services of health, education, and food relief were shirked, leaving a vast population of impoverished and largely illiterate peasants. While there were pockets of industrialization, such as in steel, in the first half of the twentieth century, India’s industrialization and development had to await its political independence. Around the time of independence, India’s illiteracy rate stood at 80-85 percent, and its life expectancy during 1950-55 average 37 years.10
Industrialization occurred in only one place in Asia in the nineteenth century: Japan. Japan alone was able to avoid subjugation to European rule and to undertake internal reform measures to propel an early industrialization. Japan’s success reflected a combination of its history, geography, and effective reforms in the face of imperialist threats from Europe and the United States. Japan’s early modern history can be dated to 1603, when one clan ruler, Tokugawa Ieyasu, was able to unite Japan under his feudal rule. The Tokugawa Shogunate ruled from 1603 until 1868. The shogun, or military ruler, governed from Edo (today’s Tokyo), while the emperor ruled symbolically in Kyoto. In 1635, Japan sharply curtailed international contacts and trade to stop the rising influence of Christianity and Western powers on Japanese politics and society. Trade was limited to a few ports and to inbound ships only from China, Korea, and the Netherlands.
The Tokugawa era was a period of internal peace and extraordinary development of culture, basic education, agricultural intensification, urbanization, and proto-industry, albeit highly labor-intensive industry. According to Maddison’s estimates, Japan’s population rose from 18.5 million in 1600 to 34.4 million in 1870. By the late Tokugawa era, an estimated 40–50 percent of men and 15–20 percent of women were literate, a remarkably high rate for the time. As early as 1750, Edo (Tokyo) had a population of some 1.2 million, and four other cities (Osaka, Kyoto, Nagoya, and Kanazawa) each had populations above one hundred thousand.
The developments that ensued after 1853, when U.S. naval vessels under Commodore Perry entered Edo Bay, are among the most striking in history. Perry was demanding trade rights for the United States in the same way that the European powers had demanded access to the markets of China and India. Japan, like China and India, faced the decisive threat of Western imperial rule, but only Japan was able to respond internally with the speed and coherence that enabled it to keep the outsiders mostly at bay, protect Japan’s sovereignty, and embark on a period of successful industrialization.
Geography played a role in Japan’s success. As an island archipelago, Japan was better able to defend itself from invasion. Agricultural productivity ensured food sufficiency. Locally available coal provided the basis for early industrialization. And as a densely settled, partially urbanized society, Japan was able to institute economic, political, and social reforms far more decisively and effectively than either China or India. By dint of good luck and good strategy, Japan maintained a united front vis-à-vis the European and U.S. threats during the second half of the nineteenth century, and by the early twentieth century had successfully reformed and modernized.
The decisive event occurred in 1868, when a group of clans under the Tokugawa feudal system successfully revolted in the name of the emperor against the ruling Tokugawa clan. The Meiji Restoration, as it is known, sought to respond to the Western challenge by modernizing Japan. The feudal structure was ended and the feudal lands (daimyo) were converted into prefectures under the control of a new centralized government. The four-class structure of the feudal society was ended, including elimination of the warrior (samurai) class. A most remarkable diplomatic initiative, known as the Iwakura Mission, was launched. Senior Japanese diplomats voyaged around the world to establish new diplomatic relations with Europe and the United States and to study best practices abroad as the basis for Japanese reforms in many key areas, including the structure of government, central banking, the military, higher education, and industrialization.
The result was a successful transformation, almost entirely peaceful (save for one short-lived uprising, the Satsuma Rebellion in 1877). The result might be called a “capitalist revolution” against the feudalism of the Tokugawa era. Industry began to grow, infrastructure was established, foreign experts brought to Japan the new machine technologies, imperial universities were created, and by the 1890s, Japan had become Asia’s industrial powerhouse. Between 1870 and 1890, Japan’s GDP per capita grew at an annual rate of 1.6 percent. The results in terms of military strength were demonstrated by Japan’s defeat of China in the First Sino-Japanese War of 1894–95, which established Japan’s imperial control over Taiwan. Japan next defeated Russia in the Russo-Japanese War of 1904–5 and established imperial rule over Korea in 1905. While Japan still lagged far behind Europe and the United States in per capita income, by 1913 Japan’s per capita income was roughly 2.5 times that of China.
Though Africa was the poorest and least industrialized part of the world, and though Europeans had been enslaving Africans for centuries, Africa was the last continent to face the full onslaught of European colonial domination. Until the end of the nineteenth century, Europe’s imperial foothold in Africa consisted of colonies in the north and south of Africa and a few trading outposts and forts along the coasts of East and West Africa. The interior of Africa was largely beyond European control or even knowledge. The most important reason was the biogeography of disease.
With a tropical climate and countless animal reservoirs of disease, tropical Africa was home to many fatal and debilitating diseases both for humans and farm animals, including horses. Falciparum malaria, transmitted by the human-biting mosquito Anopheles gambiae, created a disease barrier to European conquest. African trypanosomiasis, otherwise known as sleeping sickness, transmitted by the tsetse fly, struck down horses and cattle throughout central Africa. It was only with the discovery of a prevention and cure for malaria in particular that Africa fell prey to Europe’s ravenous imperial competition.
That cure for malaria was discovered in Peru. Indigenous Peruvians drank a mate, or tea infusion, of the bark of the cinchona tree as a cure for fever. The British learned of this mate, stole the seeds of the cinchona tree, and began to cultivate it in England. The active antimalarial agent in the mate was quinine, a bitter substance with the capacity to prevent and cure malaria. Even better, quinine could be combined with gin for the perfect beverage on the colonial veranda. Gin and tonic not only soothed the European palate but smoothed the way for Europe’s conquest of the interior of tropical Africa beginning in the 1880s. That and improved guns, including the newly developed machine gun, enabled the rapid dismemberment and conquest of Africa by the European powers.11
By the 1880s, European imperialism was highly developed, even refined. In order to divide up Africa without instigating clashes among the European powers, the Conference of Berlin in 1885 gathered diplomats to divide up Africa among the competitor empires. Depictions of the conference show a roundtable of European diplomats, a map of Africa on the wall, but no Africans in sight. Imperialism was a one-way affair. By 1913, all of Africa, with the notable exceptions of Ethiopia in the Horn of Africa and Liberia in the west, was under European imperial control, as seen in figure 7.5.
By the end of the nineteenth century, Britain was first among the imperial powers, with Queen Victoria reigning over the British Isles, India, Burma, Ceylon (Sri Lanka), Malaya, much of Africa (“Cape to Cairo”), New Guinea, and dozens of islands and smaller possessions around the world. Many of these served as fueling stations for the Royal Navy, which had unrivaled dominance over the oceans. The British navy, by far the most powerful in the world, policed the sea lanes of the Indian Ocean that connected Britain and India through the Suez Canal (which opened in 1871). Britain maintained de facto control of Egypt after 1882 in large part to ensure the sea routes to India. Interestingly, China’s GDP remained the largest in the world until 1888, when it was finally overtaken by the United States, but China was impoverished. In 1870, with a population around 358 million, China’s per capita income was just $530 (Maddison data, 1990 international prices); the UK, with 31 million people, had a per capita income of $3,100, roughly six times that of China.12
Britain, of course, also gave rise to the major English-speaking offshoots, most importantly the United States, as well as Canada, Australia, and New Zealand. The last three remained subordinate to the British Crown until the Westminster Act of 1931. The United States soared in economic development, overtaking Britain in total GDP around 1872, and in GDP per person around 1905, according to Maddison’s estimates.
Let’s consider the size of the combined Anglo-American economy as a share of the world (figure 7.6), adding together the British Empire and the United States. For this purpose, I define the British Empire to mean Britain and sixteen colonial possessions for which Maddison provides estimates of GDP during the nineteenth century. The largest of the colonial possessions were Ireland until 1922, Canada and Australia until 1931, and India until 1947. As of 1820, the British Empire accounted for around 6 percent of the world’s output. By 1870, by dint of Britain’s own industrialization and its expanded imperial holdings, the British Empire accounted for around 23 percent of the world economy, of which the United Kingdom itself was around 9 percent. The British Empire remained around 20 percent of the world economy until 1918, then began to decline with the independence of various colonial possessions, beginning with Ireland in 1922.
7.6 The Rise and Decline of British-American Economic Dominance, 1820–2008
Source: Angus Maddison. “Statistics on World Population, GDP and Per Capita GDP, 1-2008 AD.” Historical Statistics 3 (2010): 1–36.
During the nineteenth century, the United States became the world’s largest economy, with the U.S. share of world output rising from 2 percent in 1820 to 9 percent in 1870, 16 percent in 1900, and 19 percent in 1918. At the end of World War I, therefore, the United States and the British Empire were about the same size. From that point, the U.S. share continued to rise, reaching more than 25 percent at the end of World War II, while the British imperial share continued to decline, falling below 10 percent of the world economy by 1950, following India’s independence in 1947. If we consider the British-American world combined, this English-speaking hegemonic duo accounted for around 40 percent of world production as of 1900, and sustained that remarkable share until World War II, after which India and other British colonies gained their independence. By 1980, the British Empire was basically gone, and the UK itself accounted for less than 4 percent of world output.
Until World War I, Britain was undoubtedly the conductor of the Anglo-American orchestra. Britain was an industrial powerhouse, the City of London was the indisputable financial center of the world, and the pound sterling reigned supreme over the world’s currencies. The British navy ruled the seas. As late as 1913, one could hardly imagine a twentieth-century world in which Britain would not be the dominant power, or at least a coequal with the United States. Of course, France had its long-standing empire, and Germany too had acquired imperial possessions in Africa. The United States was the single biggest country in the world, but a latecomer to overseas empire building.
On the eve of World War I, the world was linked together by trade, empire, and the Pax Britannica. Britain can rightly be considered the world’s first hegemonic power. Though Spain had acquired the first global empire, it never commanded the oceans as did Britain. In his post–World War I masterwork, The Economic Consequences of the Peace, John Maynard Keynes vividly described this interconnected prewar world from the vantage point of London just before the onset of World War I.
The inhabitant of London could order by telephone, sipping his morning tea in bed, the various products of the whole earth, in such quantity as he might see fit, and reasonably expect their early delivery upon his doorstep; he could at the same moment and by the same means adventure his wealth in the natural resources and new enterprises of any quarter of the world, and share, without exertion or even trouble, in their prospective fruits and advantages; or he could decide to couple the security of his fortunes with the good faith of the townspeople of any substantial municipality in any continent that fancy or information might recommend. He could secure forthwith, if he wished it, cheap and comfortable means of transit to any country or climate without passport or other formality, could despatch his servant to the neighboring office of a bank for such supply of the precious metals as might seem convenient, and could then proceed abroad to foreign quarters, without knowledge of their religion, language, or customs, bearing coined wealth upon his person, and would consider himself greatly aggrieved and much surprised at the least interference.13
Yet stunningly, the world soon crashed upon Europe and the British Empire. As Rome was defeated by the German tribes, the Byzantines by the Ottomans, the Chinese by the Mongols, and Asia by Europe, so too Europe experienced a decisive shock as of 1914 that again changed the world and dethroned Europe’s empires from the apex of global power.
One must account the thirty-year period from 1914 to 1945 as one of the greatest disasters ever to afflict humanity. It was Europe’s second Thirty Years’ War. The first, from 1618 to 1648, was a war within the Holy Roman Empire, mainly between different branches of Christianity. The second Thirty Years’ War was a prolonged struggle between the German-speaking nations, notably Germany and Austria, with the rest of Europe, including Britain, France, and Russia.
The war from 1914 to 1945 was a war among the mightiest industrial powers of the world. And it was a war that had no fundamental purpose. The world had never been so prosperous for the very countries that ended up nearly destroying themselves and killing tens of millions of people. At the core, the two European bloodlettings show the madness of violence and self-destruction, not wars as means to any rational ends.
The second Thirty Years’ War began with World War I. At the end of World War I, the Treaty of Versailles was supposed to be the peace to end all wars. To later historians, it has become known as the peace to end all peace. The agreements reached in Versailles were so cynical and destabilizing that Europe failed to recover its economic vitality, and the political, diplomatic, and economic conflicts within Europe remained intense. The resulting instability was a major cause of the Great Depression, an economic collapse so devastating and destabilizing that it brought to power the most villainous and heinous regime of modern history, perhaps of all history: the Nazi regime of Hitler’s Germany. Germany’s aggression, in turn, led to the Second World War, which devastated much of the world and lasted until Germany’s defeat in 1945.
We are now more than a full century past the onset of World War I, yet there is still no real explanation of this war. There is a chronology, to be sure, but no explanation. The reason is this: World War I was a war without any real purpose. It was a war that surely could have been avoided.
We know, of course, the basic chronology. In July 1914, the archduke of the Habsburg Empire was killed by a nineteen year-old separatist, Gavrilo Princep, in a terrorist act in Sarajevo, a city of the Habsburg Austro-Hungarian Empire. In response to the attack, Germany prodded the Habsburg Empire to make impossible demands on Serbia, which was viewed as the main state harboring anti-Habsburg terrorists. When Serbia predictably rejected those extreme demands, the Habsburg Empire declared war. Russia, as a protector of Serbia and a fellow Slavic nation, mobilized to protect Serbia against the oncoming clash with the Habsburgs. Germany, antagonistic to Russia and defending Austria, launched the war. This, in turn, brought in Russia’s allies, Britain and France. Many historians argue that the German military command actively sought the war as a preemptive strike against Russia, out of fear that Russia was gaining too much economic and military power in the early years of the twentieth century, and would soon overshadow Germany unless Germany attacked Russia first.
Europe was suddenly engulfed in war, and not just war but the first fully industrial war, with aerial bombings, machine guns, tanks, and submarines—the full miracle of industrialization put to the nightmarish destruction of human beings. Some 20 million people perished in the war.
In the third year of the war, the United States got pulled in as well, through the coaxing of President Woodrow Wilson. Wilson naively believed that he would make this “the war to end all wars.” Wilson’s vision proved to be a failure in practice. With America’s entry into the war, what might have been a stalemate within Europe, and thereby possibly a return to long-term peace, ended up as the complete defeat of Germany by the United States and its allies. With that defeat came the overthrow of the Prussian monarchy, the overly harsh terms imposed on Germany in the Versailles peace settlement, and the profound destabilization of Germany in the 1920s, leading to Hitler’s rise to power in early 1933.
In fact, World War I broke so much pottery you could say that it had destroyed the basis for a return to normal life not only in Europe but also in Russia and the Middle East. Western and Central Europe saw the collapse of the Habsburg and Prussian empires. Russia experienced the overthrow of the Romanov Empire by the Bolsheviks and the launch of seventy-five years of brutal Soviet rule. The Ottoman Empire was defeated and dismantled, opening the way to new European imperialism in the Middle East and North Africa led cynically by Britain and France.
The war, in short, achieved nothing except the dislocation of the political organization of Europe, the former Ottoman lands, the Middle East, and Russia. Trade within Europe and the gold standard of prewar Europe never recovered. Instead, Europe experienced a decade of profound monetary instability in the 1920s followed by economic depression in the 1930s.
John Maynard Keynes, the greatest economist of the twentieth century, served as a young expert on Britain’s negotiating team at the Versailles peace conference. He was profoundly disheartened by the narrowness of the perspective of the major powers and the punitive nature of the settlement imposed on Germany. In a remarkable piece of analysis and protest, Keynes’s Economic Consequences of the Peace, written at the end of the negotiations in 1919, warned that the harshness of the settlement, and especially the heavy reparations payments levied on Germany, would lead to economic disarray in Europe and the likelihood of another disaster to follow. His words were stark, and prophetic:
If we aim deliberately at the impoverishment of Central Europe, vengeance, I dare predict, will not limp. Nothing can then delay for very long that final civil war between the forces of Reaction and the despairing convulsions of Revolution, before which the horrors of the late German war will fade into nothing, and which will destroy, whoever is victor, the civilization and the progress of our generation.14
At the end of January 1933, in the midst of the global Great Depression and with Germany suffering 25 percent unemployment and unpayable foreign debts, the aged German president Hindenburg appointed a new chancellor, Adolph Hitler. Hitler remilitarized Germany and set out to conquer the lands to the east, while ridding Germany of its Jews. World War II broke out on September 1, 1939, with the invasion of Poland by both Germany and the Soviet Union. The full onslaught of war ensued, including the Holocaust of the Jews and others groups. At the same time, Japan’s fascist regime, an ally of Nazi Germany, waged war on the United States and throughout Asia. The world was in flames.
In one of the most notable statements of modern history, the remarkable UK prime minister Winston Churchill called for the New World, “with all its power and might,” to step forth “to the rescue and the liberation of the old.” Franklin Roosevelt, arguably the greatest president in American history, heeded that call. The industrial power of the United States came to the rescue. While the Soviet Union was fighting and suffering millions of deaths on the battlefield, America’s industrial might soared and provided the munitions for victory. By the end of the war, the United States was by far the world’s dominant economy. America was spared any attacks on the homeland after the one-day attack on the Pearl Harbor naval base in Hawaii on December 7, 1941. The industrial sector thrived, growing some 60 percent between 1940 and 1945. As of 1950, the United States accounted for around 27 percent of global output.
We have arrived at the moment of America’s global hegemonic leadership. In 1941, the publisher of Time magazine, Henry Luce, declared the American Century. He correctly intuited that when the war ended, America would be the world’s dominant economic, technological, and geopolitical power. Not only did the United States possess by far the world’s largest economy, but that economy had benefited from, and would continue to benefit from, the massive advances in technology developed in the course of the war. The wartime effort contributed to fundamental technological advances in many sectors: aviation, computers, cybernetics (human-machine interactions), public health, electronics (including semiconductors), radar, communications, and of course nuclear power and nuclear weapons. Just as important, the experience of the war contributed to the idea of science-led economic growth. In 1944, Roosevelt asked his science adviser Vannevar Bush for a plan to transfer the wartime advances in technology to peacetime use. Bush’s 1945 response, Science: The Endless Frontier, brilliantly laid out a strategy for mobilizing science for social and economic development.
The pace and scale of America’s economic rise from the early nineteenth century to Luce’s declaration of the American Century were unprecedented in economic history to that point. Total output rose from $12.5 billion in 1820 to $929 billion in 1940, a rate of 3.7 percent per annum (in international 1990 dollars). The population rose from 10 million in 1820 to 133 million in 1940, an annual increase of 2.2 percent, while output per person rose from $1,257 to $7,000, an annual increase of 1.4 percent. Most importantly, the United States became a continental-scale industrial power, the only one on the planet. (The Soviet Union tried to emulate the industrial scale of the United States, but consistently lagged far behind.). In 1820, there were twenty-three states, all but one (Louisiana) east of the Mississippi River. By 1940, there were forty-eight states linked coast to coast by a rail network, which spanned the continent after 1869, and by enormous enterprises that also operated at the continental scale. The continent was fabulously rich in natural resources: vast midwestern plains with fertile soils, minerals, coal and oil, timber, navigable rivers and waterways, and a mostly temperate climate. The European settlers and their descendants were prepared to take any steps to clear the way for settlements, profits, and industry, including mass slavery until the Civil War, the war with Mexico in 1846–48, and the genocidal wars against the Native American populations throughout the nineteenth century. Protected by two oceans, the United States built its industry during two world wars while other industrial nations suffered horrendous losses of productive capital.
U.S. dynamism was exemplified from the start by infrastructure development—the building of canals, railroads, and roads—and by the rapid uptake and development of new technologies, including the frequent stealing and copying of superior British technologies. In the first half of the nineteenth century, American inventors improved the steam engine, modified the railroad, improved the cotton gin, developed the steamboat, invented the telegraph, and much more. Up until the Civil War of 1861–65, the U.S. economy as a whole remained mostly rural and agricultural, and based heavily on slave labor in Southern cotton production. The United States was around 20 percent urban as of 1860. Following the Civil War, industrialization soared; by 1910, the country was 46 percent urban, reaching 57 percent by 1940. U.S. GDP surpassed that of the UK in 1872 and China in 1898, and U.S. per capita income overtook that of the UK around 1905.
The United States used its post–World War II geopolitical leadership and economic weight to establish a set of institutions to help govern the postwar order. Most consequential was the new United Nations, established in 1945 as a bulwark for peace and economic development, a successor to the failed League of Nations that had been created after World War I. Two new economic institutions, the International Monetary Fund and the World Bank (formally called the International Bank for Reconstruction and Development), were established under the UN umbrella to foster financial stability and to finance postwar reconstruction and development. A new set of trade rules, the General Agreement on Tariffs and Trade (GATT), aimed to reestablish market-based trade after its collapse during the Great Depression and World War II. Other institutions, such as the Food and Agricultural Organization (1945) and the World Health Organization (1948), were added to the “UN family” to help provide critical global public goods such as food security and disease control.
While the United States stood unequaled in economic might and technological prowess, it faced security challenges, most importantly the struggle with the Soviet Union over the postwar order. The Soviet economy was only a small fraction of America’s, perhaps around one-third, but the Soviet Union was a vast country, with nuclear weapons after 1949, an enormous army in Central Europe, and a commitment to one-party state socialism and central planning. The two countries faced off in Europe, almost coming to blows several times over the future of Germany, and also competed internationally for allies, resources, and military advantage. Worst of all, the two countries launched into a massive nuclear arms race, amassing enough nuclear armaments to destroy all human life on the planet many times over. By dint of various accidents, missteps, and misunderstandings, the two countries came to the brink of global nuclear annihilation in October 1962, and at least close to the brink on several other occasions.
The U.S. geopolitical leadership has shown two faces to the world. One was the U.S. interest in building law-based multilateral institutions, including the global institutions of the UN system and regional institutions such as the European Community (and later European Union), of which the United States was a champion from the start. The other was the cynical exercise of power for narrow U.S. interests. While the United States did not directly colonize countries after World War II, it used its vast military power and economic leverage repeatedly and often brutally to put into power governments that would favor U.S. business and security interests and to remove from power governments that opposed U.S. prerogatives. “Regime change” operations, meaning U.S.-led invasions, coups, and subterfuges to bring down foreign governments that U.S. officials deemed hostile to U.S. interests, became a mainstay of U.S. foreign policy. In the 1960s, the United States fought wars in Vietnam, Cambodia, and Laos aimed at installing noncommunist governments. In the 1960s and 1970s, the United States supported military coups throughout Latin America to bring down democracies deemed by U.S. strategists to be too far to the left. In the 1980s, the United States funded wars against left-wing governments in Central America and the Caribbean. From the 1990s to the 2010s, it fought several wars in Central Asia, the Middle East, and North Africa against Russian allies or other governments it disfavored (e.g., Iraq, Syria and Libya).
Most remarkably, the United States created a network of military installations and bases around the world that was in scale unrivaled in history. It is estimated that the United States has military bases in around seventy countries and military personnel in well over 100 countries. Because of the secrecy in which they are shrouded, the precise number of U.S. overseas bases is not known, but expert sleuthing by scholar David Vine and investigative reporter Nick Turse has been a huge help in uncovering the remarkable extent of the bases.14 Data compiled by the Defense Manpower Data Center list more than sixty countries worldwide with twenty or more active duty U.S. military personnel as of March 2019, as shown in figure 7.7.16
7.7 Countries with Active Duty U.S. Military Personnel (20 or more)
Source: Map created using data from: Defense Manpower Data Center, “DoD Personnel, Workforce Reports & Publications,” DMDC.osd.mil: USA.gov, 2019.
World War II sounded the death knell of European empires. A process of European colonization that began in the early 1500s rapidly unraveled after 1945. The European powers were exhausted by war, heavily indebted, and without the legitimacy in the colonies to maintain their rule. Local independence movements either convinced the imperial power to withdraw peacefully, as in India in 1947, or eventually forced that outcome through wars of liberation, as in Indonesia, Algeria, Vietnam, Angola, and elsewhere. As newly independent countries joined the world stage, UN membership rose rapidly. An initial UN membership of fifty-one at its founding in 1945 rose to 117 by 1965, 159 by 1985, and 193 by 2015.
The end of the colonial era led to a fundamental change in the process of industrialization. Suddenly, independent countries could pursue their own destinies, promoting industrialization rather than serving merely as a source of primary commodities for the imperial nations. Moreover, and crucially, they could invest in their own people by introducing programs of mass literacy, public schooling, and public health. While poor countries were constrained by meager budgets in pursuing their ambitions to scale up education and health care, the intentions were clear. The newly independent countries around the world wanted to make up for lost time, by building the human capital and infrastructure needed to create new industries and to attract domestic and multinational capital.
They had a lot of catching up to do. The European imperial powers had left most of their African and Asian colonies in a desperate condition of very high illiteracy and dreadfully low life expectancy. Table 7.4 shows the conditions of selected countries in 1950: three industrialized countries and three countries long under colonial rule (Kenya and India, UK; Indonesia, the Netherlands). As of 1950, illiteracy had been almost eliminated in the high-income countries and life expectancy was around sixty-eight years, but in the long-time colonies, illiteracy was around 80 percent and life expectancy was around forty years.
Table 7.4 Illiteracy and Life Expectancy in 1950, Selected Countries
By and large, with decolonization the development process began to work, though unevenly. Newly independent countries that opened to global trade and investment, maintained peace, and carried out public investments in health, education, and infrastructure were able to begin a process of convergent growth, that is, growth per capita faster than in the high-income countries. Illiteracy fell sharply and life expectancy rose as education and health care were scaled up. By 2000, illiteracy fell to 18 percent in Kenya and just 10 percent in Indonesia. Life expectancy rose to fifty-three years in Kenya, sixty-three years in India, and sixty-six years in Indonesia—still far behind the rich countries, but with a smaller gap.
The greatest development success stories by far were in East Asia, where the “four tigers” of early postwar industrialization—Hong Kong, South Korea, Singapore, and Taiwan—achieved spectacular growth rates and dramatic declines of poverty. China followed a generation later, with a takeoff to industrialization and rapid growth beginning in 1978. India began an era of rapid growth even later, in 1991, after shaking off lackluster economic development strategies of the early decades of independence.
One of the ramifications of convergent growth is that overall global growth accelerated after World War II. In the first half of the twentieth century, worldwide growth, according to Maddison’s estimates, amounted to around 2 percent per year. In the second half of the twentieth century, from 1950 to 2000, aggregate global growth was on the order of 4.6 percent per year, more than doubling the rate of the first half-century.
Broadly speaking, the world shifted from a long era of divergence, in which the early industrializers—Europe, the United States, Canada, Australia, Japan, and a few others—pulled ahead of the rest of the world, to an era of convergence, in which the laggard countries, notably in Asia but also in other parts of the developing world, began to narrow the proportionate income and technology gaps with the early industrializers.
Decolonization accelerated convergence on a global scale. During the period from 1820 to 1950, the rich North Atlantic countries grew faster than the poorer rest of the world. The gap between rich and poor countries widened, and an increasing share of world output and income originated in Europe and North America. Starting with decolonization after World War II, the newly independent countries began to catch up. The share of world income produced in Asia, Africa, and Latin America began to increase (figure 7.8). The relative low point of those countries was the year 1950, when Latin America, Asia, and Africa together constituted just 30 percent of world output but 70 percent of the world’s population.
7.8 The Share of World Output Beyond the North Atlantic (Asia, Latin America, and Africa), 1820–2008
Source: Jutta Bolt, Robert Inklaar, Herman de Jong, and Jan Luiten van Zanden. “Rebasing ‘Maddison’: New Income Comparisons and the Shape of Long-Run Economic Development.” GGDC Research Memorandum 174 (2018).
Since 1950, the world has been on an unprecedented path of technological and economic convergence, and the gains have been much broader than income alone. Throughout the developing world, life expectancy has been rising, years of schooling have increased, rates of extreme poverty have been falling, and employment has been shifting away from manual labor to more remunerative, higher skilled, and less arduous work than the traditional jobs in smallholder subsistence agriculture and mining. The task of development is by no means complete: there are still around 700 million people trapped in extreme poverty, and hundreds of millions more who are just one step ahead of destitution. Nonetheless, the progress against poverty is real and substantial.17
There is more convergence to come, as the benefits of technological advance are increased by the digital revolution. If well harnessed by developing countries, the new wave of technologies—artificial intelligence, smart systems, robotics, high-speed wireless broadband—are likely to spur further convergent economic growth. And with convergence has come a rising geopolitical weight of the developing countries in global affairs.
The United States, as the global leader between 1950 and 2000, had a complex and ambiguous attitude toward decolonization, convergence, and the rising voice of developing countries in world affairs. In the early post–World War II period, the United States championed decolonization. This fit well with the U.S. aim of replacing Britain and France at the helm of global affairs. During the 1960s and 1970s, the United States continued generally to champion the economic interests of the developing countries—in part to lure them into the U.S. alliance against the Soviet Union—but as the developing countries gained economic strength and political voice, the U.S. position began to change. When developing countries at the United Nations called for a “New International Economic Order” in the 1970s, with the aim of rebalancing global power and wealth between the developed and the developing countries, the U.S. attitude turned hostile, insisting that the developing world get in line behind U.S. leadership—or else. With the presidency of Donald Trump, the U.S. position had become “America First,” a stark declaration of U.S. self-interest over internationalist objectives. Many American strategists began to see convergence, especially China’s convergence, as a direct threat to U.S. interests rather than an objective of U.S. policy.
The Industrial Age marks a distinct and remarkable phase in the history of globalization. For the first time in history, technological progress was rapid enough and broad enough to create sustained and rapid increases in material living standards. For the first 150 years of the new age, the economic gains went overwhelmingly to a small part of humanity: Western Europe, the United States, and a few other industrializing countries. Much of the world fell into deeper misery, with unabated poverty combined with political subservience to the industrial empires.
Britain, the first mover of the industrial era, also became the world’s first superpower—indeed, the world’s first hegemonic power. Yet as we have learned at every phase of history, even seemingly impregnable power can quickly dissipate. In the case of Britain, this rapid loss of power occurred as the result of tragedy: two world wars and an intervening Great Depression. The great lasting legacies of British leadership include the spread of parliamentary democracy to many of the former colonies, the shared institutions of global commerce, and perhaps most consequentially, the use of English as a lingua franca of global business, government, tourism, and science. No other language rivals English as a global second language—that is, as a language spoken in addition to one’s mother tongue. It is estimated that around 1 billion people today speak English, of which around 500 million speak English as their second language, and English has become the global language of science, finance, and diplomacy.
After World War II, the United States claimed the mantle of global hegemon, but the U.S. position too now looks increasingly tenuous as power spreads more widely in the world. The end of European imperial rule in Africa and Asia set loose a process of sustained growth in the former colonies—growth that has not been even, to be sure, but rapid enough to bring significant increases in output per person, reductions in extreme poverty, rapid urbanization, and structural shifts away from arduous physical labor, with more opportunities for schooling and leisure. The most remarkable case of convergent growth is China. Over the course of roughly forty years, from the beginning of market reforms in 1978 until now, China has eliminated extreme poverty and created a technologically dynamic economy. Geopolitical power and technological prowess are no longer the privileged preserve of the North Atlantic.
Thus we have arrived at the seventh age of globalization, in which digital technologies are reshaping global economics and geopolitics. Every sector of the economy will be affected by the digital technologies, and global power relations are once again shifting as well. The new complex global scene is made even more complicated by the ecological crisis that has accompanied global economic growth. From a global perspective, the world’s main challenges are clear: to continue the process of economic convergence while addressing rising inequalities within nations, shifting geopolitics, and increasingly dire environmental threats. This is the drama to which we now turn.
