During both the Second Industrial Revolution and the Information Age, new technologies brought about a wrenching reorganization of the means of production. This produced a period of extraordinary flux. Traditional jobs and social structures were undermined. Compounding the magnitude of these changes was the fact that domestic economies were becoming increasingly vulnerable to the complex and highly integrated structure of the emerging liberal international economy. In both periods, these combined forces produced contagious economic crises that hit the peripheral regions hardest, creating a political rift between the “heartland” and the privileged urban centers.
It would be an understatement to say that the Second Industrial Revolution transformed society. So monumental were the changes that Henry George, a prominent politician and theorist of the day, described the period as having “clothed mankind with powers of which a century ago the boldest imagination could not have dreamed.”1 Everything was impacted, including “Traditional family, rural social organization, religious beliefs, and systems of government, both local and national.”2 One of the most profound shifts produced was the dramatic migration of peoples—both internally and externally. As Hobsbawm observed, “The nineteenth century was a gigantic machine for uprooting countrymen.”3
Cities across Europe and the United States had largely stagnated during the eighteenth and into the early decades of the nineteenth century. But the Second Industrial Revolution’s insatiable demand for labor rapidly accelerated urbanization. After the 1860s, peasants began to pour into the expanding urban centers. In Germany, there were large-scale migrations from the countryside to the growing industrial regions, particularly to the larger cities. According to one estimate, “by 1907 only about half (31.4 million) of the total German population of 60.4 million continued to live in their place of birth.”4 In Spain, regions near ports that were connected to the early railway network experienced the greatest rural-to-urban migration, such as Barcelona, Bilbao, Valladolid, Alicante, and Gijón.5 Up until 1860, “the bulk of Americans were still rural . . . only 16 per cent lived in cities of eight thousand or more inhabitants.”6 Within two decades, that had dramatically changed.
In the more advanced economies, like the United States, Germany, and France, most rural migrants made their way to the rapidly industrializing cities in their respective countries. However, in less-developed countries, peasants were forced to cross the seas. With lower-cost steamship and rail travel, from 1870 and 1900 thousands of people journeyed abroad looking for a better future.7 Between 1880 and 1900 alone, European emigration jumped from approximately 800,000 to 1.4 million annually.8 Immigrants were coming from “south and east as far as Portugal, Russia, and Syria.”9 One of the countries that contributed the most to this movement of peoples was Italy. By the late nineteenth century, mechanization and changes to production had begun to force Italian peasants off their land. Farmers faced severe conditions: insufficiently arable land, overpopulation, and unemployment.10 Virtually every region suffered population losses. But Italian industrialization was still in its infancy. The urban and industrial regions were, therefore, unable to absorb the influx. A large portion of the rural population was forced to leave the country. “The majority of these emigrants went to other European countries and to the Americas.” Net emigration from Italy reached an astounding five million between 1871 and 1921.11 This was equally true of other less-developed countries. For example, in Finland the railways and industrialization had been introduced in the late 1800s, but they had developed at a slow pace. In the last decades of the nineteenth century, industry only made up 5 percent of gainful employment. For the bulk of the Finnish population, agriculture was still the primary livelihood. Some peasants migrated to the more populous southern parts of Finland, but the vast majority of migrations were to the United States and Canada.12
Thus, by the latter part of the century, the world’s cities were grappling with an unprecedented concentration of people. So dramatic and sudden was this demographic shift, that no nation was prepared for the upheaval. Across Europe and the United States, cities felt the “pressure on existing institutions and services, especially the provision of education, health education, transport and power.”13 However, it was not only cities that were affected; even the stability of agrarian society was profoundly shaken. The growth of the global market economy was forcing agriculture into the new industrial world order.
For centuries, agriculture had been dominated by family-run farms that sold their produce to local and regional markets. But as railroads and steamships made it possible to transport bulk produce over long distances, regions that had been “hitherto unexploitable” were brought “within the range of the world market.”14 At the same time, industrialization was creating new demands for agricultural products. Rapidly enlarging cities had a growing work force to feed. Expanding industries required an ever-increasing supply of raw materials. In country after country, farms were turned into large-scale commercial enterprises. “Sweden more than doubled its crop area between 1840 and 1880, Italy and Denmark expanded it by more than half, Russia, Germany and Hungary by about a third.”15 Even in the United States, agricultural exports rose twentyfold, from approximately five million hectoliters to more than one hundred million between the 1840s to the end of the 1870s.16
The extraordinary modernization of the productive base of the economy “could not but undermine” the social organization of the agrarian world. On the one hand, commercial agriculture “loosened the traditional ties of men to the land of their forefathers.”17 On the other hand, agricultural producers became highly susceptible to the vicissitudes of the market. Ironically, the sheer size of the new commercial farms made them vulnerable to international shocks. Traditionally, farmers had produced perishable foodstuffs that could not be transported over long distances, like dairy products, eggs, vegetables, or fruit for local markets. Hence, they had greater immunity to fluctuations in the world economy. That was not so for commercial exporters.
Agriculture’s newfound exposure to global trade led to tragedy in the 1870s, when a glut of American wheat on the world market caused the price of wheat to drop precipitously. A global agrarian depression hit. A number of things contributed to the global decline in wheat prices, but the major contributor was the end of the American Civil War. With the wars’ end, the combination of increased manpower from demobilized Civil War troops, and a wartime accumulation of money capital enabled American farmers to make the most of new mechanized farm machinery. At the same time, the rail networks built during the Civil War made it possible to transport wheat in far greater quantities than had been possible using the old canal system. Steam transportation technologies, furthermore, allowed the cheaper American grain to be more readily distributed to European consumers, undercutting European farmers.18 Hence, with the rise in global trade, markets around the world became flooded with American wheat and the price of this world staple crashed. The ensuing economic downturn came to be referred to as “the Long Depression.”
The Long Depression of the 1870s and 1880s was an economic crisis like none that preceded it. It was, in truth, the world’s first global economic crisis.19 That was because, although the Long Depression was caused by a wheat price shock, the scale and scope of the crisis was a direct consequence of the structure of the global economy. The deeply intricate and multilayered liaisons among banking houses and national industries had integrated independent state economies to an unprecedented degree. In fact, the Long Depression reached the proportions it did because multiple economies had been made vulnerable by the bursting of an international speculative bubble in railroad construction that had been evolving since the 1850s. Governments and banks around the world, from the United States to Turkey to South America to Austria, had accumulated vast amounts of debt to fund large-scale railroad projects. But, after a couple of decades of feverish railroad speculation, the number of railroad projects undertaken outpaced demand. Thus, economies around the globe were impacted as retracting credit and plummeting wheat prices produced stock market crashes across Continental Europe and the United States.
The first European market crash occurred in 1873 in Vienna, when European investors rushed to divest their holdings in American railroad securities. This had a domino effect. “With the first scare, commodity prices fell, bonds went into default, over-extended bankers failed, and credit began to contract.”20 Once begun, the downward spiral worsened. Divestments depressed the market, further lowering stock and bond prices. Pressure on teetering railroad firms intensified. As debts came due, many railroad firms had to default on their bank loans. Banking across Europe imploded. At roughly the same time, pandemonium broke out on Wall Street when news spread that the well-respected New York merchant banking house, Jay Cooke and Co., had been forced to close its doors. Across the United States, “Stock prices tumbled, followed by a veritable wave of insolvencies, including more than thirty brokerage houses.”21
The financial panic of 1873 was followed by a second panic only two decades later that hit the United States particularly hard. In the United States, the period from 1897 to 1899 came to be referred to as “the Great Depression.” Once again, the crisis had its origins in international finance. This time, however, the problem began with inflated investments in Argentinian infrastructure. In the 1890s, the great banks were heavily invested in what was seen as an up-and-coming economy. However, when the country’s wheat crop failed, Argentina was forced to default on its loans. In response, investors quickly pulled out, sending the banks spinning.
The Argentinian crisis was compounded by a decline in gold production, which was brought about in part because of the international adoption of the Gold Standard.22 By the 1870s, gold had been officially adopted as the international currency against which national reserves were held. But within a little more than a decade, gold supply was not able to keep up with the growing demand for the universal medium of exchange. Thus, from 1856 to 1860, “the annual average production of gold in the world had been worth $134,000,000, in the period 1881–5, it had sunk below $100,000,000.”23 Panic broke out when it was announced that the gold reserve in the United States Treasury “fell below a hundred million dollars, the amount set by law and tradition as a safe fund for the redemption of the outstanding paper currency.”24 As the news spread, there was a run on gold in the United States. The panic turned into a severe depression. In the United States, “Hundreds of thousands of workers lost jobs, and by 1894 about 4,000,000 were unemployed.”25 President Grover Cleveland was forced to borrow $65 million in gold from Wall Street banker J. P. Morgan and the Rothschild banking family of England to save the economy.
Thus, the advances of the 1870s and 1880s, from railroads and steam operated machinery to the gold standard, ironically brought about these serial catastrophies. The global depressions of the late nineteenth century stemmed from the high levels of monetary interconnectivity these new technologies had created. And both depressions produced economically disastrous consequences that destabilized already floundering social structures, paving the way for the reactionary politics that was to develop at the turn-of-the-century.
An equally enormous transformation in the productive base of the economy occurred during the Digital Age, producing similar effects. The new forms of production and interconnectivity, made possible by modern transportation and communications technologies, transformed everything from migration patterns to banking. The paradigm of economic organization that had characterized the Industrial Age began to teeter. By the 1980s, a new era of capitalist development emerged; and as one hundred years earlier, these cumulative changes produced a series of global economic panics.
Among the factors that contributed to the dramatic shift in economic organization of the developed world was the combination of containerization and computers. Together, containers and computers made shipping so much more efficient that companies no longer needed to locate their factories near a port. They could “choose the cheapest location in which to make a particular item.”26 As a result, the Fordist model of production that had been the hallmark of twentieth-century industrialization was made obsolete. Vertically integrated firms, in which everything from parts to packaging to assembly was done in-house, was rapidly coming to an end. The system that was emerging in its place was characterized by a much greater flexibility of supply chains, personnel, and products.27 In the new mode of production, which was to be dubbed “Flexible accumulation,” everything became organized globally. In effect, small countries were turned into suppliers for wealthy countries and subcontracting and consultancy were internationalized. The change turned small and large industries upside-down. Even multinational corporations, which had already achieved global distribution, were dramatically impacted. Now, not only their distribution of goods, but their very organization had to be internationalized.
All this rapid-fire change allowed for an explosion of new products and services. Where the Industrial Revolution had produced phones, cars, and other devices available in a few colors and styles, the Digital Revolution was technicolored. Everything from lattes to search engines could be personalized to meet the needs of individual users. An indication of the dramatic changes occurring in the structure of the economy was the rise of the service sector. In the early 1990s almost “50 percent of the global stock of FDI [foreign direct investment] was in services activities.”28 In the United States alone, employment in services, which had traditionally accounted for 56 percent of workforce employment, jumped to approximately 73 percent by the 1990s.29
The shift was not only from goods to services. The “acceleration in the rate of technological change” made technology itself “the most crucial factor in economic growth and international competitiveness.”30 “Information” became one of the most dynamic and profitable commodities of the world economy.31 Firms from all sectors, whether manufacturing or marketing, came to rely on technological innovation for their competitiveness. Corporations that could “produce knowledge, respond to knowledge, generate brands and market them” were able to “establish breathtaking market power.”32 “Fortunes [came to] rest on the prospect of inventing, selling, and competing with new ideas and creative products.”33 To put it simply, where the Fordist model of production was based on productive integration, flexible accumulation was made possible by instantaneous, globalized information.
There were other ways that technology was transforming the organization of production. The increased flexibility in operations spelled doom for many traditionally organized businesses. As market access and integration were internationalized, firms were no longer tied to domestic funding, domestic labor, or even domestic consumers. There followed “a wave of bankruptcies, plant closures, [and] deindustrialization.”34 By the 1990s, even white-collar workers were finding that their pensions were no longer guaranteed, and their secure jobs had become endangered. The hardest hit were the regions associated with heavy-industry or resource-based industries like coal. Indeed, in “the 23 most advanced economies, employment in manufacturing declined from about 28 percent of the workforce in 1970 to about 18 percent in 1994.”35 One of the more dramatic consequences was that labor unions began to steadily lose power. “Faced with strong market volatility, heightened competition, and narrowing profit margins, employers . . . [pushed] for much more flexible work regimes and labour contracts.”36
In the process, once thriving industrial centers were transformed into peripheral cul-de-sacs “suffering from loss of infrastructure, disappearance of jobs, erosion of skills, increasing inequality of income and sheer human misery.”37 Whole communities in Europe and the United States became exiled from the new economy. In the United Kingdom, it was the West Midland, the North West, Yorkshire-Humberside, the North, Wales, Scotland, and Northern Ireland that suffered most from manufacturing decline; in Germany it was the older, resource-based industrial heartland such as Nordrhein-Westfalen; in France, the formerly prosperous industrial northeast; in Italy, de-industrialization hit both new and old industrial regions in the North, from Veneto, Emilia Romagna, Liguria, to Peimente, Lombardia, and Toscana.38 No industrial region was left unscathed.
As a century earlier, the rapid globalization of finance and radical restructuring of the productive organization of the advanced industrial nations produced a number of economic crises. One of the worst came in 2008. And once again, the United States was at the root of it all. As was true in the previous era, the genesis of the 2008 financial crisis was a American speculative bubble—this time a housing bubble driven by exceedingly lax mortgage lending policies. With the unfettered expansion of global finance, the American banking crisis impacted the world, weakening domestic economies and furthering tensions between urban and peripheral areas.
It all began in the 2000s, when American banks, having too much cash on hand (too much liquidity), began to look for ways to move their money so they could earn interest on it. The banks began to issue “subprime mortgage loans,” offering people, who under normal circumstances would not have been regarded as a viable credit risk, variable low-interest or no-interest loans. Once banks began implementing these subprime lending policies, shady actors quickly realized they could make a killing by preying on people who did not understand the complexity of the loans. An ever-increasing number of unsuspecting victims fell into the hands of pop-up mortgage companies, who roped in people with limited funds to take out loans, not explaining that having a variable mortgage meant their zero-percent mortgage rate could be inflated overnight. The subprime lending market ballooned.
The coming storm was compounded by the fact that in the 1980s, with the neo-liberal turn, the United States had loosened regulations on banking. One of the most consequential changes was the relaxation of the Federal Reserve’s monitoring of investment banks’ reserve funds. Regulatory laws, some dating back to the 1800s,39 mandated that banks keep a percentage of the capital they had as reserves, rather than using it for lending or investment, in case of market volatility. These regulatory laws were put in place to protect bank depositors from losing everything in the event that there were a run on the banks, as happened so spectacularly in 1929. But, in the 1980s, government regulations were relaxed across the board. Through the 1990s the policy environment continued to soften.
Taking advantage of the loose regulatory environment, in 1997 J. P. Morgan Chase introduced a strange financial entity they called “Credit Default Swaps” (CDS). These were financial derivatives40 that allowed an investor to “swap” or “offset” their credit risk by selling them to someone else. Worse still, these CDSs were “off-balance sheet affiliated entities.” In other words, these financial instruments41 were off the books (hence the name “off-balance sheet”), so they were not subject to the normal rules. The seller of a swap—unlike a normal bank, or even an insurance company—was not required to maintain a specific level of reserves in the event that there was a default. The risk was therefore much greater.
Using these questionable accounting practices, in the 2000s the banks were able to make high-risk, high-return investments in worthless subprime mortgages, with no capital reserves to back them. Using Credit Default Swaps, “bundles” of risky subprime mortgages were sold. In other words, the banks holding these risky mortgages sold them to speculators who were hoping to make money on the lucrative housing bubble, but who were also promised that if sometime in the future the loans went into default, the bank or financial company selling the loan would pay the buyer a previously determined sum. As a Brookings Institute report explains, these “new financial innovations thrived in an environment of easy monetary policy by the Federal Reserve and poor regulatory oversight.”42 In no time, Wall Street jumped on the subprime lending bandwagon. After 2000, they began promoting and channeling intuitional investments into subprime-mortgage markets. As bad mortgages were bundled together and repackaged as Credit Default Swap products, and then pushed by rapacious traders to investors across the board, trade in Credit Default Swabs grew into a trillion-dollar market.
In the process, financial institutions took on trillions of dollars of worthless, unbacked subprime-mortgage securities. When the speculative bubble burst and the housing market came crashing down, so too did Wall Street and several American banks. The spectacular banking failure in the United States reverberated across the world. The fall of so many American financial institutions produced a liquidity crisis that impacted global money markets. Soon the crisis hit Europe as well.
Making the situation more combustible, across the United States and Europe the financial crisis destabilized depressed rural areas and small cities and towns already reeling from the broader changes to production. The growing rift between peripheralized communities in decline and the thriving metropolitan areas, where technology and service-oriented firms had agglomerated, was widened. Thus, once again in history, changes to the global economic system of production in conjunction with higher levels of financial integration compounded already widening social dislocations. All of this was to fuel the anti-liberal, anti-globalization movements of the 2010s.
Comparing these turn-of-the century periods, it is clear that parallel displacements transformed societies across the developed world. In both epochs, globalizing technological revolutions destroyed traditional forms of economic organization and made national economies extremely vulnerable to international speculation. As a result, within a few decades contagious economic crises hit Europe and the US. The impact on the rural and peripheral areas was particularly catastrophic. All of this set the stage for the anti-international, defensive nationalist movements that would envelop the developed world in the new century.