The Beginning of the End - Divining the causes of
economic stagnation in Renaissance Italy, the
Dutch Republic and the United Kingdom.
Lewis Evans (3326721)
Master-thesis Comparative History
August 10th, 2009
Supervisor: Bas van Bavel
Acknowledgements
Without the help of the following people this thesis would never have been written.
First and foremost my thanks to my supervisor Bas van Bavel who encouraged me to
‘think!’, and tirelessly reviewed and commented on all work in progress. Medals of
bravery have been awarded for lesser feats. My gratitude also to Maarten Prak without
whose help I would still be looking for a thesis topic. Our meetings were essential to
keeping doubt and chaos at bay. And where would I be without the e-mails of Paolo
Malanima whose urbanization data served as one of the two pillars for my
methodology and whose numerous articles provided insight into the rural murkiness
of the medieval Tuscan countryside? Ewout Frankema’s consulting services in the
early stages were greatly appreciated and are an example for the powers of rigorous
academic thought.
An exhaustive list of moral, financial, editorial, technical and conceptual
supporters would require its own table of contents so I shall mention only the most
esteemed ones here. Katie Simanzik, Luise von Flotow, Craig Johnson, Felix Meier
zu Selhausen, Arjan Pomp, Lotte van der Vleuten, Pim de Zwart and Bill and Melinda
Gates. For all those left unnamed, you know who you are.
Lewis Evans
August 10th, 2009
2
Table of Contents
Acknowledgements ...................................................................................................... 2
Table of Contents ......................................................................................................... 3
Introduction .................................................................................................................. 5
Comparative History .................................................................................................. 7
Case Selection ............................................................................................................ 9
Variable Selection .................................................................................................... 10
Methodology and Evaluation ................................................................................... 11
Chapter 1: Pinpointing economic decline ................................................................ 12
Chapter 2: Northern and Central Renaissance Italy.............................................. 23
Economic Chronology ............................................................................................. 23
The Rise of Renaissance Italy .................................................................................. 23
The Effects of War ................................................................................................... 25
Interfering Measures taken by a Foreign Nation ..................................................... 26
Outdated Technology ............................................................................................... 28
Poor Organization in Sectors Important to the Economy ........................................ 30
Access to the Dominant Form of Energy ................................................................. 34
Climatic Influence .................................................................................................... 36
Rise of a Foreign Nation .......................................................................................... 38
Chapter 3: The Dutch Republic................................................................................ 41
Economic Chronology ............................................................................................. 41
The Rise of the Dutch Republic ............................................................................... 41
The Effects of War ................................................................................................... 43
Interfering Measures taken by a Foreign Nation ..................................................... 46
Outdated Technology ............................................................................................... 48
Poor Organization in Sectors Important to the Economy ........................................ 52
Access to the Dominant Form of Energy ................................................................. 54
Climatic Influence .................................................................................................... 57
Rise of a Foreign Nation .......................................................................................... 58
Chapter 4: The United Kingdom .............................................................................. 62
Economic Chronology ............................................................................................. 62
The Rise of the United Kingdom ............................................................................. 62
The Effects of War ................................................................................................... 64
Interfering Measures taken by a Foreign Nation ..................................................... 66
Outdated Technology ............................................................................................... 69
Poor Organization in Sectors Important to the Economy ........................................ 73
Access to the Dominant Form of Energy ................................................................. 77
Climatic Influence .................................................................................................... 78
Rise of a Foreign Nation .......................................................................................... 79
Chapter 5: Conclusions ............................................................................................. 82
Step-by-Step Chronologies of Decline .................................................................... 83
Italy ...................................................................................................................... 83
The Dutch Republic ............................................................................................. 84
The United Kingdom ........................................................................................... 86
Insignificant Variables ............................................................................................. 88
Outdated Technology ........................................................................................... 88
Access to the Dominant Form of Energy ............................................................. 89
Significant Variables ................................................................................................ 90
The Effects of War ............................................................................................... 90
3
Interfering Measures taken by a Foreign Nation ................................................. 92
Poor Organization in Sectors Important to the Economy .................................... 92
Climatic Influence ................................................................................................ 95
Rise of a Foreign Nation ...................................................................................... 95
Three Final Observations ......................................................................................... 97
Bibliography: ............................................................................................................ 101
4
Introduction
Few historical topics can compete with studies of decline in terms of sheer
entertainment value. Dark yet alluring images spring to mind. Decadent banquets
being celebrated while barbarians pound on splintering city gates, collapsing
triumphal arches through which a terrified population attempts to flee, and scenes of
wanton destruction as once-great cities are ransacked flash before the mind’s eye.
This is the stuff of a good story. Thankfully history has supplied us with no shortage
of cases to study. The empires of Persia, Rome, Tang China, the Mongols, the Dutch,
and the British are perhaps some of the most widely-known examples of great nations
rising and declining, but by no means represent an exhaustive list.
The topic of decline has attracted no shortage of scholarly attention. Edward
Gibbon, Immanuel Wallerstein, Paul Kennedy, Giovanni Arrighi, Mancur Olson,
Amy Chua, and many others - some of whose works will be examined in this thesis have all contributed to the substantial body of historical literature surrounding the rise
and demise of national entities.1
It should come as no surprise that a subject matter that has attracted such
attention has not failed to stimulate an equal amount of controversy. Attempts at
explaining the growth, glory and decay of nations are numerous, varied, and perhaps
most importantly as it is the raison d’être for this thesis, often contradictory.
Explanations respectively citing the effects and consequences of imperial overstretch,
war, outdated technology, institutional sclerosis, climate change, and resource
endowment as the causes of decline can be found for each and every past hegemon.
The sheer diversity of explanations for decline is due to either the broad definition of
decline – a country can decline politically, socially, militarily, economically,
artistically, etc… - or to a lack of a clear chronology. Clear definitions of when
periods of growth ended and decline set in are strangely absent in the pertinent
literature.
1
Gibbon, The History of the Decline and Fall of the Roman Empire, Wallerstein, The Modern
World System Vol I-III, Kennedy, The Rise and Fall of the Great Powers, Arrighi, The Long Twentieth
Century, Olson, The Rise and Decline of Nations, Amy Chua, The Day of Empire.
5
The aim of this thesis is threefold. The first is to discover the actual cause or
causes of economic2 stagnation in the case of Central and Northern Renaissance Italy3,
the 17th century Dutch Republic, and the United Kingdom in the context of the latter
nineteenth and early twentieth century4. The second is to determine whether a general
rule regarding the cause or causes of economic stagnation can be formulated. The
third and final goal is to draw generally-applicable conclusions regarding the longer
process of economic rise and decline.
Numerous explanations for economic decline exist for each of the three
country cases. The process of arbitrating between them to pinpoint the true causes of
economic stagnation, and the search for a universal cause of stagnation will be threefold. First, a clear chronology of growth, stagnation and decline will be established for
each of the three country cases. This will be the focus of chapter one. Second, the
effects of the seven variables thought to have caused stagnation will be examined in
each country case. These variables have been carefully chosen and represent the
principal explanations of decline and represent schools of thought that attribute
economic decline to either political, social, economic, technological or other reasons.
Having established the true causes of economic stagnation in each of the country
cases – the relevance of each cause will be determined by the timing of its appearance
in the respective country chronologies - the third and final step will involve a
comparison of these ‘true causes’ to determine whether a generally-applicable rule
regarding the cause, series of causes or conjuncture of causes for economic stagnation
can be formulated. The individual country cases are the subject of chapters 2, 3 and 4.
The plausibility of a universally-applicable theory for the causes of stagnation and
general observations of economic rise and decline will be the subject of the
concluding chapter.
Only by comparing the causes of economic stagnation of individual historical
cases can patterns be revealed that might lead to the formulation of a universally
applicable rule. Restricting our study to individual cases would provide greater insight
into their individual fates but would exclude the possibility of discovering common
To avoid somnolence-inducing repetition, the adjective ‘economic’ will not be mentioned every
time growth, stagnation, decline and hegemony are referred to. As this is a thesis in economic history,
the descriptor ‘economic’ can be considered implicit.
3
To avoid repetition, the Central and Northern regions of Renaissance Italy will from now on
simply be referred to as ‘Italy’.
4
To avoid repetition the United Kingdom will henceforth be referred to as the ‘UK’. The adjective
‘British’ shall be understood as being synonymous with the UK.
2
6
trends. This brings us to the core issues of the comparative method. Before explaining
why the country cases and variables were chosen, first a few words on comparative
history.
Comparative History
The goal of comparative history is to formulate new explanatory interpretations of
historical phenomena. Whereas traditional historians tend to describe historical
events, a comparative historian will try to explain why historical events happened the
way they did. Ideally, a comparative historical analysis of past experiences might
even provide insight into present day concerns.5 Furthermore comparative historians
hope that the comparison of similar historical phenomena will lead to the formulation
of universally-valid explanations regarding the causes and outcomes of analogous
historical events.6
Some examples of favored topics for such comparisons have been the causes
of revolutions, the origins of different typologies of political regimes, the varying
developments of social movements and the processes behind the formation of national
states.7 In these comparisons that often fall under the category ‘big history’, historical
eras and geographical location are not an immediate concern. As long as the object of
comparison is considered and can be proven to be sufficiently analogous as to warrant
a comparison, the primary restrictions to a fruitful historical comparative analysis are
the age-old curse of comparable data for all of the to-be-compared cases, and the
historian’s creativity. A Chinese and the Roman empire might be compared, both ends
of the Eurasian continent might be treated as peers around 1750, and something as
delicate as silk might be found to be at the root of the divergent development of two
once-similar nations.8 In comparative history a stimulating conclusion is often the
result of an audacious question. It helps to have chutzpah.
Two principal methodological approaches serve as the basis of these
comparisons: the case-oriented and the variable-oriented approach. In the case5
Mahoney, Rueschmeyer, Comparative Historical Analysis, 9.
Kolchin, “Comparing American History,” 64-65.
7
For ‘causes of revolutions’ see Skocpol, States and Social Revolutions, for the ‘origins of
political regimes’ see Moore, Social Origins of Dictatorship and Democracy, for ‘development of
social institutions’ see Skocpol, Protecting Soldiers and Mothers, for the ‘formation of national states’
see Tilly, Ardant The Formation of National States in Western Europe.
8
For a comparison of the Han Empire and Roman Empire during the Principate see Custers,
Balancing Acts, for ‘both ends of the Eurasian continent’ see Pomeranz, The Great Divergence, for
‘silk’ see Ma, “Why Japan, Not China”.
6
7
oriented approach a limited number of historical cases are studied within their specific
historical contexts in the hopes of reaching limited generalizations.9 Case-oriented
work tends to be qualitative, interpretive, and holistic and is characterized by a
dialogue between theory and data. A drawback of the case-oriented approach is that
the small number of cases that due to their required similarities can only be added to
with difficultly can lead to a possibly vague and impressionist conclusion.
Whereas the case-oriented approach works from historical evidence towards
establishing a generalizing theory, the variable-oriented approach works in the
opposite direction. Theories are proven or falsified based on checking them against
large amounts of cases and data.10 Abstraction is given precedence over specificity.11
Compared to the case-oriented approach, the variable-oriented approach tends to be
quantitative (i.e. statistical), theory-based, reductionist, and with the ultimate goal of
proving or falsifying a hypothesis. The variable-oriented approach is best suited for
the comparison of a large number of cases that can be chosen with much less stringent
selection criteria. For this very reason the variable-oriented approach is less suited for
historical comparisons whose intrinsic specificity encourages comparing only a small
number of cases. The variable-oriented approach tends not to explain the ‘why’ and
‘how’ of historical phenomena.
Interestingly, the most commonly-quoted advantages and disadvantages of the
comparative method revolve around the same basic concept: simplicity. Its critics
accuse it of oversimplification while its advocates applaud precisely this ability to
create clarity in contexts long obfuscated by academic hairsplitting. An example that
will serve both to illustrate the comparative method being used to arbitrate among
competing explanations until all but one have been discarded, as well as to illustrate
the controversy that it is capable of arousing is Daron Acemoglu’s study of the
colonial origins of comparative development.12 In it geography and resource
endowment, religion and culture, institutions and even history itself are declared
extraneous to the true explanation of why some former colonies are rich and others
poor. Once the regressions have been run, the factor that best explains their radically
different stages of development is early settler mortality. If the white man lived
9
Ragin, The Comparative Method, 35.
Ibid., 53.
11
Ibid., 54.
12
Acemoglu, Johnson, Robinson. “Reversal of Fortune: Geography and Institutions in the Making
of the Modern World Income Distribution.”
10
8
colonies prospered, if he died they grew impoverished. Although undoubtedly a novel
conclusion that has sparked much inherently-valuable discussion, it can only be hoped
that such extreme, mono-causal reductionism will awake suspicion, not only among
historians but in the mind of any critical human being. Examples of good comparative
history, those in which cases and variables have been carefully chosen and defined, in
which the balance between generality and complexity has been painstakingly
maintained, might, after much interpretation of the results, cautiously indicate a
general causality itself deserving further research. Any comparative study alleging to
do more should be treated with skepticism.
This thesis will make use of the case-oriented approach. It is ideally suited for
the comparison of three historically-relevant cases that become comparable through
the shared experience of economic growth, stagnation and decline. The comparison of
the effects that a small number of variables (7) had in each of the three cases will
suffice for the eventual formulation of a general rule regarding the causes of economic
decline.
Answering the question of why to use the comparative method in the specific
case of this thesis instead of the more traditional narrative approach brings us back to
the primary goal of the comparative method. Only a systematic comparison of the yetto-be-determined true cause or causes of economic stagnation in the three country
cases will permit the formulation of a generally-valid explanation of economic
stagnation. Only by comparing the individual fate of the three former economic
hegemons by the same standards can a reduction among the plethora of explanations
for economic decline be achieved. Parsimony and Ocham’s razor at work! Without
wanting to prematurely give away the details of the findings at this point, it will be
said that some astonishing surprises await the diligent reader. The validity of timetried explanations will be undermined and factors that have hereto been largely
ignored will be cast in a new light. But why these three countries?
Case Selection
The three country cases to be examined are the Central and Northern regions of
Renaissance Italy, the Dutch Republic in the period surrounding its Golden Age, and
the United Kingdom in the nineteenth and twentieth century. These three cases were
not chosen at random. From roughly the fifteenth to the twentieth century, they
9
represented the geographically shifting, yet uninterrupted epicenter of economic
activity in Europe.13 In each case the country first rose until becoming the economic
hegemon of its era, for a shorter or longer period of time conserved this position, and
then experienced first economic stagnation and then economic decline. Both
economic stagnation and decline can be either ‘relative’ or ‘absolute’. This difference
will be explained in chapter 1. Despite the differences in their respective geographical
dimensions, the size of their populations, and the manifold differences in political,
economic and social frameworks inherent to the three diverse eras in which they rose,
reigned, stagnated and declined, the three countries become comparable due to their
shared experience as once-great then stagnating and declining economic powers.
Extending the scope of such a timeline of economic hegemons both backwards
and forwards in time would locate modern-day Iraq as the economic forerunner of the
city states of Northern and Central Italy in the early Middle Ages, and the United
States as the UK’s economic successor of the twentieth century. Hence the three
selected cases could easily have been added to. Limited knowledge, time, an already
badly strained maximum number of words and my personal interest in the early
modern and modern period, are the main reason, why only these three cases and not
more shall be examined.
Variable Selection
Seven variables will be examined regarding their possible roles in causing economic
stagnation. They are ‘the effects of war’, ‘interfering measures taken by a foreign
nation’, ‘outdated technology’, ‘poor organization in sectors important to the
economy’, ‘access to the dominant form of energy’, ‘climatic influence’, and ‘the rise
of a foreign nation’. These variables were drawn from the principal theories that have
been put forward to explain decline in the three country cases by the most relevant
authors. Each variable was carefully formulated in such a way as to remain pertinent
in all three country cases despite the nearly 1700 year time span that separates the
onset of economic stagnation in Renaissance Italy from end of UK economic
hegemony at the end of the Victorian Era.
Each variable represents one facet of the basic make-up shared by all societies
regardless of their appearance in history. As listed in the paragraph above, these
13
Maddison, Explaining the Economic Performance of Nations, 102.
10
variables represent the larger categories of politics, economy, technology, society,
geography and climate. The variable of a ‘rising foreign nation’ was added last and
after much of the research had already been done. Although ultimately not as
significant as initially anticipated, it was not removed. Its importance is discussed in
the conclusion. Cultural explanations have been consciously omitted from this thesis
due to their difficult quantifiability.
Methodology and Evaluation
The proposed methodology with which those variables that caused economic
stagnation will be separated from those that didn’t is simple. First, a chronology of
periods of growth, stagnation and decline will be established in each of the three
cases. How this chronology is established, without which any proposed arbitrage
between competing theories of economic stagnation and decline would simply be a
further voice in the cacophony of competing hypothesis, is the subject of chapter 1.
Second, manifestations of each of the seven variables will be identified in the
respective country cases. Here the word ‘manifestations’ is used due to the evolving
nature of the variables over the nearly 700 year span of time in question. Although
looking for ‘manifestations’ of specific variables in evolving historical contexts might
sound like a difficult task, it will soon become clear that the bulk of this work has
already been done by the individual authors between whose theories we propose to
arbiter. Third, is the question of inserting the manifestations of each variable into the
clearly-delineated chronologies of growth, stagnation and decline in each country case
and seeing where they fall. Assigning a positive or negative value to each variable in
the respective country cases then becomes simple. Only those variables that appeared
prior to the onset of economic stagnation will be considered as possible causes of
economic stagnation and will be assigned a positive value. All variables that occurred
after the onset of economic stagnation can logically not be considered a cause of
stagnation and will be assigned a negative value. The evaluation of the variables
based almost solely on their chronological appearance – any conclusion must contain
room for interpretation – will allow cause to be differentiated from consequence.
11
Chapter 1: Pinpointing economic decline
The first step in delineating periods of economic growth, stagnation and decline is
defining indicators that accurately reflect economic activity. The period in which our
first two country cases – Italy and the Dutch Republic – rose, stagnated and declined
present a first problem. Any attempt to document economic activity in pre-industrial
economies will be bedeviled by a lack of modern statistical data that is the basis for
contemporary economics. GDP per capita, industrial output, productivity increases,
and capital accumulation are but some modern economic indicators that are the result
of statistical science that are at best available as estimates for historical case studies.14
The proposed categorization of economic periods in the case of Italy and the Dutch
Republic must therefore rely on proxy indicators of economic activity.
Such proxy indicators are manifold. Agricultural labor productivity, tax
registers, population numbers, and the construction of city walls are only some of the
indicators that have been used to deduce and document a society’s economic vitality,
lack thereof, or transition from a stage of growth to one of stagnation or decline.15
Inevitably, and as the word ‘proxy’ itself implies, these indicators are subjected to the
vagaries of approximation, missing data, inferences and outright guesswork. The risk
of using such proxy indicators is that any further argument based on such tentative
assumptions will itself suffer from a lack of credibility.
The proxy indicator for pre-industrial economic activity least prone to such
irregularities and most widely used is data on urbanization rates. Kuznets, Bairoch,
DeVries, Acemoglu and Pamuk argue than increased urbanization rates reflect an
increase in agricultural productivity, the mainstay of pre-modern economies, and
foretell the shift of employment structure from the primary to the secondary and
tertiary sectors.16 As a rule of thumb, the fewer people employed in agriculture in preindustrial societies, the greater the society’s agricultural productivity and the greater
the wealth that was accumulated through manufacturing and services. Although
14
Fei, Growth and Development, 7, 8.
Lopez, Miskimin, “Economic Depression of the Renaissance”, 408-426.
16
For urbanization rates as indicators of economic activity see Acemoglu, Johnson, Robinson,
“Reversal of Fortune”, 1232, Bairoch, Cities and Economic Development, chapter 1, DeVries, The
Economy of Europe in an Age of Crisis, 164, Kuznets, Modern Economic Growth, Van Zanden, The
Rise and Fall of Holland’s economy, 20, Pamuk, “The Black Death:, 289-291.
15
12
urbanization rates themselves are subject to estimates before 1300 they become
reliable in the European context from the mid-fourteenth century onward.17
In the case of the UK and the United States that became the world’s economic
hegemon at the beginning of the twentieth century, readily available data on GDP per
capita will be used to establish a similar economic periodization. As with urbanization
rates, GDP per capita is a reflection of the productivity of an economy. It represents
the total national income divided by the number of citizens of a country. Hence a
higher GDP per capita reflects a greater productivity of the economy. For the purpose
for which GDP per capita as an indicator of economic activity will be used in this
thesis, its possible shortcomings as an economic indicator of real per capita income
are acknowledged but will be ignored. The principal criticism is that an unequal
distribution of wages across any given population would undermine its per-capita
validity. Let us recall, however, that this is not a paper on economic wellbeing or
social equality, but on economic stagnation.
Why not simply use urbanization rates in all three cases? In the context of the
latter half of the nineteenth and early twentieth century, urbanization rates are no
longer sufficient as a proxy indicator for economic activity. Sustained, long-term
population growth during the nineteenth century across Europe led to a burgeoning of
European cities in what should be understood more as an outlet for Malthusian
pressure from the countryside than a reflection of the levels of industrialization or
economic activity of these urban death traps. Surely the sprawling slums of the
developing world are not an indicator of economic prowess. With the beginnings of
reliable data collection on industrial output and the advent of modern economic
statistics that began in the closing decades of the nineteenth century, GDP per capita
estimates will help us pinpoint the moment in which the UK fell behind its American
successor.
The economic trajectory of each of the three countries will be divided into
three phases. The first phase will be one of growth. This is when the urbanization
rates or GDP per capita grew from one time increment to the next. As economic rise
and decline is a lengthy process, small reversals of general trends that upon closer
scrutiny can be found for each of the three cases will be overlooked. The second
phase is one of stagnation. This can be either ‘relative’ when compared to a preceding
17
Maddison, The World Economy, 248, Federico, Malanima, “Progress, Decline, Growth”, 439.
13
period of substantially larger growth, or ‘absolute’ when no growth whatsoever
occurred. The final phase is one of decline. Decline too can be relative or absolute.
Relative decline is when an economy continued to grow but at a lesser rate than
another economy. Absolute decline is when in absolute numbers economic activity
decreased. Of the three phases and their relative or absolute variations, the only one
that will not be encountered in this paper is absolute stagnation.
The point of this periodization is to determine the true causes of economic
stagnation in the three country cases. In order to create clarity among the potpourri of
existing explanations of economic decline a certain discipline is called for. The logic
behind the proposed chronology-based elimination of variables is simple. If for
example country A is determined to have begun to stagnate in 1400, and variables 1, 2
and 3 all occurred between 1450 and 1550, then clearly they can be discarded as
possible causes of stagnation in the case of country A. Little is to be gained by making
exceptions of 50 or 100 years regardless of how important a certain variable that has
just missed the cut-off date might appear. It is only by rigorously adhering to the
established chronological yardsticks that any meaningful conclusions can hope to be
reached.
A compilation of European urbanization data from 1300 to 1870 results in the
following graph.
Figure 1: Urbanization Rates in Western Europe from 1000 – 1870 AD
50
45
40
35
30
25
20
15
10
5
0
Italy
Dutch Republic
Dutch Republic DeVries
UK
Germany
Europe with UK
1870
1800
1750
1700
1650
1600
1550
1500
1400
1300
1200
1100
Europe without UK
1000
Percent (%)
Urbanization Rates in Western Europe from 1000 – 1870
AD
Source: All statistics from Malanima, unpublished manuscript with the exception of ‘Dutch Republic
DeVries’ from DeVries, European Urbanization, p. 39.
14
In the case of Italy, Malanima has estimated the urbanization rate for 1000 and 1100
to be between 5 and 12%, to be 12% for 1200 and 15% for 1250.18 The lowest of
these estimates were used in the graph for Italy until 1250. Regardless of the exact
numbers the trend is clearly one of one rapid growth from 1000 to 1300. This period
of growth was followed by one of decline between 1300 and 1500, after which a
slight recovery occurred between 1400 and 1500. Despite the fifteenth century
recovery the entire period between 1300 and 1500 will be considered one of
stagnation. This is due to the marginal difference of only 1.6% in urbanization rates in
1300 and 1500 respectively. It will be recalled that phases of economic growth,
stagnation and decline are extremely long, and that in the context of this thesis longterm developments and not short-term reversals of general trends are of interest.
Finally from 1500 until 1870 Italy entered a period of absolute decline, when in the
final decades of the nineteenth century the urbanization rates were just slightly higher
than they had been in 1200. The roots of economic stagnation in Italy should therefore
logically be looked for prior to 1300.
Compared to Renaissance Italy, reliable urbanization data for the Dutch
Republic is more readily available. Jan DeVries’ continuation of Slicher van Bath’s
seminal work on pre-industrial Dutch population patterns allows the one hundred year
measurement increments to be shortened to fifty years for the period between 1500
and 1800.19 Although there are slight discrepancies between the estimates of
Malanima and DeVries for the period of the high Middle Ages – Malanima estimates
urbanization rates in 1500 to have reached 18.9% while DeVries places them at only
15.8% - several common trends for the period between 1300 and 1500 can be
established. First, that already in the high Middle Ages the Dutch Republic was highly
urbanized – between 1300 and 1500 it lay ca. 10% above the western European
average - and second, that there was a slow but steady increase of urbanization in the
two centuries preceding 1500.20 Then between 1550 and 1650, urbanization rates
soared from 15.3% to 31.7%.21 The 350 year period between 1300 and 1650 will be
considered one of growth.
Malanima, “Urbanization and the Italian economy”, 108.
For the Dutch Republic urbanization estimates of DeVries will be used to supplement those of
Malanima. For the original article on Dutch population estimates see Van Bath, Faber, Roessingh, Van
der Woude, Van Xanten, "Population Changes and Economic Developments in the Netherlands”.
20
Malanima, unpublished manuscript, DeVries, European Urbanization, 39.
21
DeVries, European Urbanization, 39.
18
19
15
Beginning in 1650 urban growth slowed considerably, especially when
compared to its earlier precociousness. Although the rate of urbanization increased by
1.9% between 1650 and 1700, compared to the increase of 9% between 1550 and
1600, or 7.4% between 1600 and 1650 the increase in the second half of the
seventeenth century was paltry.22 Contrary to the lore surrounding the Dutch Golden
Age, the second half of the seventeenth century will be considered one of stagnation.
In 1700 absolute decline set in and reached its nadir in 1800 with the
urbanization rate falling to 28.8%. Beginning in 1800 a slight reversal of the declining
trend began and by 1870 urbanization rates had climbed to 29.1%. What is important
to emphasize in the case of Dutch decline is that although urbanization rates did
decline in absolute terms, the decline was both very slight, varying between a high of
33.6% in 1700 and a low of 28.8% in 1800, and that even at their nadir were still
much higher than the European average. Given the above the causes of Dutch
economic stagnation must be sought before 1650.
For a similar periodization in the case of the United Kingdom we will switch
from the use of urbanization rates as a proxy indicator of economic activity to that of
GDP per capita. As has been mentioned above, by the nineteenth century urbanization
rates lose some of their significance as indicators of economic activity due to the
sustained population growth that occurred across Europe in the eighteenth century.23
When the United States surpassed the UK as the global economic hegemon at the
beginning of the twentieth century, industrial and manufacturing data was both readily
available and regularly recorded. In a heavily-industrialized age when the
manufacturing sector of a nation’s economy figured largest in its bid for economic
hegemony and increasing statistical data was turning GDP per capita estimates into
meaningful and useable numbers, using urbanization rates alone as economic
indicators would be insufficient.24
22
Ibid., 39.
DeVries, The economy of Europe in an Age of Crisis, 243, Allen, “Economic structure and
agricultural productivity”, 18.
24
Chandler, Scale and Scope, 3-4.
23
16
The compilation of GDP per capita data for Italy, the Netherlands, the United
Kingdom, Germany, Western Europe and the United States between 1820 and 1998
results in the following graph.
Figure 2 GDP per Capita for selected countries in Western Europe and the United States
GDP per Capita
1990 International Dollars
30000
25000
Italy
20000
Netherlands
UK
15000
Germany
10000
West Europe
USA
5000
0
1820
1870
1913
1950
1973
1990
1998
Source: Maddison, The World Economy, p. 264
Before discussing the UK’s economic performance in the nineteenth and twentieth
century which will be the period of focus of this thesis, first a few words on the
British economy in the early modern period. Already in the sixteenth century
innovations in agriculture increased the reliability of the food supply, mitigating
famine and increasing life expectancy.25 Based on a comparison of real wages
between 1300 and 1800, Allen argues that from 1600 onwards England was the most
successful economy in Europe.26 By 1700 only 56% of the labor force was employed
in agriculture, and by 1750 British agricultural labor had the highest per capita output
of Europe.27 Maddison estimates that British per capita income doubled between 1500
and 1700.28 Between 1700 and 1820, British population and per capita income grew at
twice the speed of the European average.29
25
Maddison, The World Economy, 91.
Allen, “Economic structure and agricultural productivity”, 3.
27
Ibid., 22.
28
Maddison, The World Economy, 91.
29
Ibid., 94.
26
17
The simultaneous growth of the population and of per capita income made the
UK a unique economic success story in eighteenth century Europe. The eighteenth
century was characterized by a substantial decline in the agricultural labor force, and
the rise of industry and services. If in 1700 British GDP was at twice the Dutch level,
in 1820 it was seven times as high.30 The UK’s productive primary and well-supplied
and innovative secondary sector guaranteed that British per capita income in the
nineteenth century increased three times as fast as it had between 1700 and 1820.31
Suffice it to say that the UK’s lead in GDP per capita at the beginning of the
nineteenth century had not developed overnight.
For the period that coincides almost perfectly with the Victorian Era (18371901) the UK enjoyed a higher GDP per capita than all other European countries as
well as the United States. Nineteenth century growth rates of GDP per capita,
however, foreshadowed the end of British economic hegemony. Already between
1820 and 1870, American GDP per capita grew faster than that of the UK.32 It might
only have been by a marginal 0.08%, but it indicated a trend that by the turn of the
century would mark the end of British hegemony. Despite the slightly higher growth
rates of American GDP per capita the period between 1820 and 1870 will be
considered one of growth. In what might be considered the tail end of the growth
period that began in the sixteenth century, the UK managed to conserve its lead in
terms of absolute GDP per capita over its closest competitors.
Around 1870, both the United States and Germany began to experience a
marked quickening of their GDP per capita growth rates. In absolute values and per
annum these are of 1.82% and 1.63%.33 The UK lagged behind its two closest
economic competitors in this period with a GDP per capita growth rate of only 1.01%.
Although the UK was able to conserve its lead in total GDP per capita until the
beginning of the twentieth century, its days of economic hegemony were clearly
numbered. In 1900, the United States overtook the UK in absolute GDP per capita
numbers, and in the next decades was to leave Europe’s GDP per capita average far
behind. Although the UK still claimed the highest GDP per capita of all remaining
western European countries until 1950, its growth rate between 1913 and 1950
Ibid. It is important to note that this is ‘total’ and not ‘per capita’ GDP. Despite the growth of the
British economy, the Dutch Republic conserved its lead in GDP per capita until the beginning of the
nineteenth century.
31
Ibid., 97.
32
Ibid., 186.
33
Ibid., 186.
30
18
remained above the western European average by only 0.09%. Because of the
comparatively poor performance of GDP per capita growth between 1870 and 1913
and its convergence with the European average between 1913 and 1950, the period
between 1870 and 1950 will be considered as one of stagnation.
Between 1950 and 1973, the growth of British GDP per capita dropped
considerably below that of its European competitors, remaining 1.49% below the
western European growth average for the entire period. Around 1960, Dutch GDP per
capita rose to a higher absolute level, and both Germany and Italy experienced GDP
per capita growth rates that were higher by 2.58% and 2.51% respectively. By 1973
British GDP per capita had fallen just below the average of Western Europe in
absolute numbers.
In the final decades of the twentieth century there was a convergence of GDP
per capita across all western European countries with the UK occupying a middle
position. The United States, as already in the first decades of the twentieth century,
had conserved its substantial lead. Given the above, the period between 1950 and
1973 will be considered as one of relative economic decline. The scope of inquiry in
the case of the UK will end in the decades after the Second World War. The causes
for British stagnation must be sought before 1870.
Although urbanization rates and GDP per capita are the two proxy indicators for
economic activity that will be used to delineate economic periods there are other
proxy indicators of economic activity that tell a complementary story. In the case of
Italy for instance, per capita agricultural productivity grew in the period between 1000
and 1300 when it reached its highest point, stagnated at a high level until 1500, and
then declined gradually but inexorably until 1861.34 Although it is not surprising that
something as fundamental to economic activity as agricultural productivity would
mirror the same up and downward movements as rates of urbanization, the identical
trajectory of agricultural productivity reinforces the periodization suggested by
urbanization rates as well as hints at the importance of agricultural developments in
solving the puzzle of Italian economic decline.
In the case of the Dutch Republic per capita income is estimated to have
grown rapidly between 1580 and 1700, when a “significant” fall of per capita GDP
34
Federico, Malanima, “Progress, decline, growth”, 439.
19
began and lasted until 1820.35 The nadir was reached at the end of the Napoleonic
Wars.36 These numbers confirm the general economic trend outlined by the
urbanization rates.
In the case of the UK ample signs of a loss of momentum can be found in its
manufacturing sector in the last decades of the nineteenth century. From 1875 to
1900, output per capita growth slowed then fell behind latter-day industrializing
economies.37 The serious loss of competitiveness linked to the failure of British
industry to match the productivity advances of other countries (i.e. the application of
science to the industrial process) was apparent between 1899 and 1913, and helped
transform the period of growth from 1820 to 1870 into one of relative stagnation that
lasted until 1950.38 Britain’s enduring failure to effectively modernize its staple
industries until after the Second World War undoubtedly contributed to making the
period between 1950 and 1973 one of relative economic decline.39 Again this
industrial data ratifies the story told by the GDP per capita comparison.
Here a few preemptive words to mollify the critics. As with any methodology
claiming to provide clarity by arbitrating between theories of acclaimed economic
historians with an ingenious, hereto undiscovered methodological artifice there are
bound to be shortcomings. The methodology proposed here is no exception. Critics
will belittle the delineation of economic periods as being chronological
approximations, and claim that the process of elimination require too rigid an
adherence to the established economic phases. Are there not grey areas? Did Italian
economic stagnation not begin in 1348 after all? Is it not presumptuous to define half
of the Dutch Golden Age as ‘stagnant’? What would Queen Victoria have said about
half her reign amounting to little more than maintaining the status quo? Hoping to
appease, these two possible inadequacies will be addressed here.
First to the accusation of arbitrarily delineating the economic periods. Given
the available data on the already discussed primary and secondary proxy indicators,
the delineation of periods was done as conscientiously as possible. Given the care
taken in the compilation and interpretation of the data, any accusation of arbitrariness
35
Maddison, The World Economy, 245.
Ibid.
37
Elbaum, Lazonick, Decline of the British Economy, 9.
38
Ibid.
39
Ibid., 10.
36
20
is unwarranted. A lack of chronological precision or using increments of time that are
too large to be meaningful are perhaps more justified as criticism. Given the nature of
the proxy indicators, however, these ills are only difficultly addressed. Urbanization
rates in the late Middle Ages were simply not recorded once every few years. It can
only be hoped that when placed in the broader context of economic rise and decline, a
process that lasts not decades but centuries, that the ability to delineate economic
trends will be sufficient an achievement to warrant forgiving potential shortcomings
that come from a too literal reading of the available data.
Second, to the point of adhering to the economic phases with excessive
rigidity. Admittedly cut-off dates are seldom a cause for joy. They figure among other
necessary evils such as punch clocks, alarm clocks and deadlines. And yet nobody
claimed that creating order was going to be a gentle affair. I am fully aware that such
strict, black and white categorization, especially in the field of the humanities, can
quickly resemble a rigid thought process that is foreign to the spirit of academic
inquiry itself. Thus is the burden of the comparative historian. In return for such an
intransigent treatment of complex contexts that over time have filled tomes that in
turn have come to occupy entire floors of libraries, this chronology based
methodology offers the luxury of clarity that comes from being able to separate the
relevant from the immaterial. It can only be hoped that the originality of the findings
and the boldness of the final conclusions will make up for the methodological
imperfections. Having addressed these here, we will move on, rigorously and without
further apology.
Based on the available urbanization and GDP per capita data the periodization in each
of the three country cases which will be used to determine the relevance of the
competing variables for the remainder of this paper is as follows. Italy’s phase of
economic growth lasted from 1000 to 1300. Economic stagnation set in in 1300, and
lasted until 1500. Absolute economic decline began in 1500 and lasted until 1870.
In the case of the Dutch Republic the phase of economic growth lasted from
1300 to 1700, although due to the comparative sluggishness of growth between 1650
and 1700, and in order to stick to the three-phase delineation, the period between 1650
and 1700 will be considered one of stagnation. Economic decline set in in 1700, and
lasted until 1800. The period after 1800 is of no interest in the context of the search
for the causes of Dutch economic stagnation.
21
In the case of the United Kingdom the economic phases need to be defined
somewhat differently. At no time in the period in question – the nineteenth and
twentieth century – did absolute economic stagnation or decline occur. In comparison
with the United States, its economic successor, and Germany its closest economic
rival in Continental Europe, it will be a question of relative economic performance. In
order to stay within our previous definitions of growth, stagnation and decline, and
basing the delineation on the available GDP per capita data, we will treat the period
between 1820 and 1870 as one of growth, the period between 1870 and 1950 as one of
relative stagnation, and the period between 1950 and 1973 as one of relative decline.
Now that the respective periods of economic growth, stagnation and decline
that will allow us to distinguish between cause and consequence have been defined, it
is time to examine the seven variables suspected of causing economic stagnation in
the respective historical and national settings.
22
Chapter 2: Northern and Central Renaissance Italy
Economic Chronology
Based on urbanization data it has been established that the northern and central
regions of Renaissance Italy experienced prodigious economic growth from 1000 to
1300, economic stagnation from 1300 to 1500 and absolute economic decline from
1500 to 1870. Further proxy indicators such as agricultural productivity and GDP per
capita estimates mirror the basic upwards and downwards movement described by the
urbanization rates, thereby seconding the above delineation of the respective
economic phases.40 Of particular interest to the investigation of the causes of
economic stagnation are the historical manifestations of the seven variables that can
be found prior to 1300. Only the variables that pre-date the onset of stagnation will be
assigned a positive value at the end of the chapter.
This chapter and the two following country chapters will be structured as
follows. First a brief outline of the economic rise of the country will be given. This
outline will help understand the economic context in which the seven decline-causing
variables were at work. Then each of the seven variables and their respective
historical manifestations will be discussed and chronologically situated in one of the
established economic phases. Each country chapter will end with a table summarizing
the positive or negative values assigned to each variable.
The Rise of Renaissance Italy
Maddison argues that especially the regions in Northern and Central Italy benefited
from the general economic re-awakening of Europe that began in the eleventh
century.41 Common trends for Europe’s most prosperous regions from the eleventh to
the sixteenth century included the gradual incorporation of technological advances
that raised agricultural productivity, an increase in the area of rural settlement and
cultivation, the beginnings of the nation state, an increased regional specialization in
food production and services that reflected expanding trade, and important advances
For ‘agricultural productivity’ see Federico, Malanima, “Progress, Decline, Growth”, 444, for
‘GDP per capita estimates’ see Maddison, The World Economy, 245.
41
Ibid., 53.
40
23
in mining, metallurgy, shipping and navigation.42 Maddison estimates that European
GDP per capita doubled between 1000 and 1500.43
The Italian city states of Florence, Genoa, Pisa, Milan and Venice were on the
forefront of this development and only Flanders with its cloth production, banking and
commerce oriented towards the north of Europe could boast similar rates of
urbanization and economic activity.44 Although undoubtedly there were important
differences between the city states compared to the rest of Europe they were united by
common characteristics. Venice will serve as an example. It is accredited with
reopening the Mediterranean economy to western European commerce as well as
developing trade links with northern Europe, both by sea and over the Brenner Pass.45
It successfully defended its status as a republic which was dominated by a capitalist
merchant elite and had political and legal institutions that guaranteed both private
property and the enforceability of contracts. Protectionist measures were instated to
shield local industries from foreign competition and a pragmatic and opportunistic
foreign policy actively intervened in matters of commercial interests with political
pressure or military action.46 The city also played a pivotal role in transferring Asian
and Egyptian technologies (cane sugar and silk production and glass blowing) to
Europe and was a pioneer in the emerging markets of foreign exchange, international
credit, banking, accountancy, and government bonds.47 Its fiscal system was efficient
and favorable to merchant profit and accumulation of capital, and as a state it was
both relatively tolerant and secular compared to the majority of its European
contemporaries.48
These technological and organizational achievements resulted in thriving
cities, a reputable manufacturing sector and a merchant class that had far-reaching
influence in both foreign markets and the international carrying trade. By the
beginning of the fourteenth century at least Northern and Central Italy appeared to be
on the verge of regaining the former glory of Imperial Rome. History, however, is
unpredictable. Only three hundred years later Italy had sunk into “insignificance”:
42
For an abbreviated overview of Europe-wide trends see Ibid., 53. Maddison summarizes the
work of Lynn White’s Medieval Technology and Social Change. Oxford Press, 1964.
43
For the ‘GDP estimate’ see Maddison, The World Economy, 51.
44
Ibid., 52.
45
Ibid.
46
Ibid.
47
Ibid.
48
Ibid.
24
poor, predominantly agricultural, over-populated and an importer of foreign
manufactures.49 What had happened?
The Effects of War
The fifteenth century, the second and final century of economic stagnation before
Italy embarked on its inexorable retreat into economic insignificance, was
characterized by a series of wars that ravaged the north of the country. First the Wars
of Lombardy (1425-1454) between the Republic of Venice and the Duchy of Milan
wreaked havoc on the economy of Lombardy, then beginning in 1494, northern Italy
would bear the brunt of being the show place of the struggle for power between
France and Habsburg Spain. The Italian Wars devastated northern Italy without a
mention worthy pause until 1559. By the end, Habsburg Spain had prevailed over
France and the states of Italy had been either destroyed or reduced to second-rate
powers.50 This long series of armed conflicts had far-reaching consequences for the
economies of the city states of Renaissance Italy. Farmland reverted to wasteland,
agricultural production was disrupted by marauding troops, the population was
decimated by famines and epidemics and declined by 20%, and urban manufacturing
and the ‘invisible exports’ of banking and shipping suffered from the disruption of
trade.51 Italy’s early-sixteenth century economy suffered grievously during the sixty
five years of uninterrupted warfare that began in 1494.52
Despite the wars’ devastating effects on all three sectors of the economy, its
chronological appearance only in the middle and then again at the end of the fifteenth
century excludes it as a possible cause for economic stagnation. This does not mean
that the wars’ prolonged duration during the first fifty years of decline as well as its
recurrence and devastating effects on the population and agriculture did not make war
a factor that cemented decline. Due, however, to where it falls in the chronology –
125 years after the onset of economic stagnation – the variable will be assigned a
negative value.
For “insignificance” see DeVries, The Economy of Europe in an Age of Crisis, 17, for other
characteristics see Cipolla, “The Economic Decline of Italy”, 196.
50
Duggan, A concise history of Italy, 47, 52, 59, 61.
51
Sella, “Two faces of the Lombard Economy”, 11, Black, Early Modern Italy, 35.
52
Cipolla, “The Economic Decline of Italy”, 202.
49
25
Interfering Measures taken by a Foreign Nation
Mercantilist policies that first spring to mind as a common method with which nations
interfered with foreign economies did not figure prominently in the inter-European
trade of the eleventh through fourteenth century and indeed did not play a role in the
Italian context until the mid-seventeenth century.53 When they did, French and
English mercantilist policies consisted of high import duties, tax cuts and royal
subsidies for national manufactures, as well as instances of price dumping.54 The
combined effects of these policies lowered the cost of foreign made goods and pushed
Italian manufactures out of domestic and foreign markets.55 In the established
chronology of decline, however, the appearance of French and British mercantilism is
of little interest. By the mid-seventeenth century the Italian economy had been
stagnating and declining for a total of 300 years.
There are, however, two other historical manifestations of this variable worth
considering. The first is the expansion of the Ottoman Empire in the second half of
the fifteenth century, and the economic consequences this had for Italy.56 In 1479, the
Ottomans shut Italian traders and merchants out of the Black Sea. In 1517, the
Ottoman’s conquest of Egypt virtually terminated the spice trade for European
traders.57 The increasing loss of control of trade and shipping in the Mediterranean
due to both Ottoman expansion and increased competition by England and Flanders
contributed to undermining Italy’s role as a Mediterranean power.58 By 1600, centuryold Venetian seaborne dominance had vanished.59
The second manifestation is related to the decline of Spain. Cipolla argues that
the secular decline of Spain in the seventeenth century led to the formation of
monopolies of primary materials such as wool, oil and dyes.60 The monopolization of
these basic commodities on which Italian manufactures depended further raised the
price of Italian finished products. DeVries argues that the decline of the Iberian
53
Ibid., 209.
Ibid.
55
Ibid., 202, Sella, “The Two Faces of the Lombard economy”, 11.
56
Andrew Hess describes the resources that became available to the Ottomans through their
seizure of Syria, Egypt and Arabia as necessary to project their power to the gates of Vienna. The
victory of Selim the Grim over the Mamluk empire are in his words “a major event in both European
and Middles Eastern history.” Hess, The Ottoman Conquest of Egypt, 55.
57
Maddison, The World Economy, 53.
58
Ibid.
59
DeVries, The Economy of Europe in an Age of Crisis, 26.
60
Cipolla, “The Economic Decline of Italy”, 210.
54
26
Empire had a “severe” impact on Italy, in particular on its “client centers” in Northern
Italy that suffered from the contraction of trade with its main trading partner.61
For Venice the loss of the spice trade as well as the loss of market leverage in
the Levant that was a further consequence of Ottoman expansion in the eastern
Mediterranean had immediate negative economic consequences. Maddison argues that
the waning trade led to a sharp decline in demand for the product of the Arsenal
shipyard; Venice’s largest employer.62 Another consequence of the declining
profitability of the Levant trade was the reorientation of a “significant portion” of
Venetian capital towards agriculture and the development of Palladian Villas from
1500 onwards.63 The shift from manufacturing and trade to agriculture is highly
significant. Lopez is quick to point out that there are fundamental qualitative
differences between these economic activities. In the context of the mid-fourteenth
century Europe-wide economic crisis that lasted until the last decades of the fifteenth
century, he questions how valuable the expansion of the North Sea herring fishing
grounds really were, when compared to the failing yet vastly more lucrative pepper
trade of the Levant.64
If trade and the ‘invisible services’ of shipping and banking were the second
and third pillars of the late Medieval Italian economy, then surely being shut out of
once-lucrative spice markets and Eastern Mediterranean commerce could only cement
Italy’s long-term path into decline.65 It seems only human that Italian investors amidst
declining demand for urban manufactures and rising prices for agricultural products
would have been enticed by the comparatively greater profitability of agricultural, and
were only too happy to ignore the long-term consequences of abandoning the
secondary and tertiary sectors of the economy to what in hindsight would be a clear
case of ‘long-term deflation’.66
For chronological reasons seventeenth century French and English mercantilist
measures have been discounted as possible causes of stagnation. A similar conclusion
must be reached for the economic consequences of a declining Iberian Empire. In the
seventeenth century Italy was already irremediably declining. Although Ottoman
expansion and the subsequent contraction of Italian trade in the eastern Mediterranean
61
DeVries, The Economy of Europe in an Age of Crisis, 250.
Maddison, The World Economy, 58.
63
Ibid., 53, 57.
64
Lopez, Miskimin, “Economic Depression of the Renaissance”, 412-413.
65
Ibid., 413.
66
Cipolla, “The Economic Decline of Italy”, 212, 214.
62
27
undoubtedly had the greatest negative consequences for those cities most involved in
the spice trade, the fact that it too falls so late in the period of stagnation, only making
its appearance on the brink of decline, warrants that the variable of ‘interfering
measures taken by a foreign nation’ will be assigned a negative value.
Outdated Technology
By the mid-sixteenth century, the once sought after Italian manufactures that for
centuries had enjoyed a reputation becoming of their high standards and quality were
no longer selling.67 The explanation for the drying up of demand is simple; English,
Dutch and French goods were cheaper.68 Cipolla argues that excessive guild control,
poorly conceived taxation and high labor costs were the main factors that contributed
to raising the price of Italian urban manufactures.69 Further he argues that guilds
obliged manufacturers to use outdated methods of production and organization,
prevented competition between associates, and were all-around “formidable obstacles
to innovation”.70 All of these reasons are organizational in nature, and yet resulted in
the continued use of outdated methods of production. They will be addressed in detail
when organizational shortcomings are examined below. The more fundamental link
between organizational shortcomings and outdated technology will be returned to in
the concluding chapter.
The imported English, French and Dutch goods that began to erode the market
share of Italian manufactures in the sixteenth century were not only cheaper but also
in higher demand. Foreign made fabrics for example were lighter and came in a
greater array of colors.71 Renowned Italian manufacturers haughtily held these ‘new
fashions’ in contempt and believed that quality and tradition would eventually
overcome a mere passing fad.72 Although the important textile industry was first to
feel the pressure of imported English worsteds, French silks and German linen and
fustions, other manufactures were similarly affected. Dutch firearms are another
example of foreign goods outpricing Italian manufactures both in Italy and in foreign
67
Ibid., 202.
Ibid., 203.
69
Ibid., 205-208.
70
Ibid., 205.
71
Ibid., 204.
72
Ibid., 207.
68
28
markets.73 Sella argues that the centuries of success that had been enjoyed by the
skilled urban craftsmen had “created complacency and blunted inventiveness and the
ability to adapt and innovate.”74
The role that outdated technology played in weakening urban economies is
highlighted by the greater resilience in times of economic hardship of the low-tech
countryside of Lombardy. Rural Lombardy had never enjoyed the “protective shields
of superior technology and skills” and specializing in foodstuffs, raw materials and
low-grade manufactured goods, was far more successful in adapting to the economic
restructuring of the early-seventeenth century.75 With a bit of imagination and
goodwill the economic structure in the Lombardy countryside with its wage laborers
and nascent cottage industry can be described as ‘flexible’. In comparison the urban
centers continued to manufacture old-fashioned products for declining markets with
outdated technology and poor organizational structures.76
The outdated technology of urban manufacturing had its equivalent at sea.
Lane and Pryor argue that important changes in ship building and naval warfare in the
fifteenth century – the rise of multiple mast sailing vessels and the increased use of
firearms - first undermined the usefulness of the Venetian style galley in shipping and
warfare, and by the sixteenth century had made it obsolete.77 With their sea-power
increasingly challenged from the mid-fifteenth century onwards, by the corsairs of the
Ottoman Empire who quickly emulated Venetian maritime technology, and finding
themselves out-priced and outmuscled by the sailing ships of England, France and the
Dutch Republic by the middle of the sixteenth century, it is safe to say that Italy had
lost its edge in trade and military control in the Mediterranean by the beginning of the
seventeenth century.78
Although Italy’s edge in maritime technology would be continually eroded
from the fifteenth century onwards until by the beginning of the seventeenth century
Italy had been reduced to a “passive role” in maritime affairs, the timing of the loss of
the technological edge in seafaring technology – one hundred years after the onset of
Sella, “The Two Faces of the Lombard economy”, 13.
Ibid.
75
Ibid., 14.
76
DeVries, The Economy of Europe in an Age of Crisis, 27.
77
Lane, Navires et Constructeurs, 15-16, Pryor, Geography, Technology and War, 185-187.
78
For ‘corsairs of the Ottoman Empire’ see Pryor, Geography, Technology and War,186-187,for
‘competition from rising nations’ see Maddison, The World Economy, 53, Cipolla, “The Economic
Decline of Italy”, 202.
73
74
29
economic stagnation – excludes it from being a cause of stagnation.79 When the
Italian economy began to stagnate Italy was still unchallenged at sea. Similarly, the
outdated technology that contributed to making Italian manufactures uncompetitive
compared to foreign-made goods by the early-sixteenth century cannot be considered
a cause for stagnation. It would have taken ten consecutive generations of urban
manufacturers to ward off all technological innovation to span the 200 years that
separated the early-sixteenth century from the onset of economic stagnation.80 Due to
the above, outdated technology, at land and at sea, will be assigned a negative value.
Poor Organization in Sectors Important to the Economy
Jan DeVries argues convincingly that it was changes in the organization of production
rather than advances in production technology that were required to succeed Early
Modern Europe.81 The cost reducing innovations of the Dutch Republic, the most
characteristic of which are the closely-linked bulk trade and the central warehouse
system, but also an increased division of labor, agricultural specialization and a rural
putting-out industry resulted in cost advantages that guaranteed the Dutch vast
international markets.82 It will be argued below that the Italian experience differed
significantly. Three sectors of the economy will be examined: manufacturing,
agriculture and sea-faring trade.
In regards to manufacturing, and as was mentioned above in relation with
outdated technology, Cipolla argues that the combined effects of guild regulation on
urban manufacturing amounted to raising production costs and stifling innovation.
The benefits reaped by the urban capital that fled to the countryside from the besieged
urban centers of Lombardy will serve as a counterexample to the restrictions and
burdens inherent to the sclerotic organization affecting urban manufacturing. Seasonal
labor mobility unregulated by guilds allowed for part-time employment of peasant
labor during low periods of the agricultural cycle and resulted in low labor costs.83
The immediate and positive effect of increased flexibility of the labor market is
telling. In seventeenth century rural Lombardy, a healthy economy developed around
79
80
For Italy being reduced to a ‘passive role’ see Cipolla, 213.
I have calculated, likely generously, that the generation length in the late Middle Ages was 20
years.
81
DeVries, The Economy of Europe in an Age of Crisis, 245.
Ibid., 27.
83
Sella, “The Two Faces of the Lombard economy”, 14.
82
30
commercial farms and a rural handicraft industry that employed a large skilled and
semi-skilled workforce.84 Rural merchants and middlemen experimented with the
largely-unexplored mechanism of trade which resulted in an upwind for silk
production, as well as the mining and metallurgical sectors. An economic structure
much closer to the proto-capitalist one that characterized the Dutch Republic allowed
the rural areas of Lombardy to flourish at the same times as the urban cities were in
their last throes in the 1630s and 40s.85 Berner stresses the link between the excessive
power of political organizations and the underdevelopment that was to characterize
early modern Italy.86
Although the cost-increasing consequences of poor organizational structures
related to urban manufacturing played an undeniable role in making Italian
manufactures less competitive by the sixteenth century and contributed to driving
urban capital into agriculture, its appearance coincides only with the onset of
economic decline. Even if one considers that organizational weaknesses were at work
long before their effects actually undercut the competitiveness and profitability of
manufacturing, there is still a two hundred year buffer period in the chronology that
separates it from being a cause of economic stagnation. Poor organization in
manufacturing can therefore not be considered a cause of economic stagnation.
In the context of agriculture and the excessive power of political entities we
turn to Italian agriculture and Italy’s version of share-cropping: the mezzadria. The
mezzadria arose in northern and central Italy in response to the land shortage and
population glut that ensued from the demographic recovery after the Black Death in
the late-fourteenth and fifteenth century. Although the sheer variety of share-cropping
agreements throughout northern and central Italy (let alone the variations across the
whole of Italy) make a universally applicable conclusion regarding the impact of
share-cropping on the economy difficult, a strong case can be made for its retarding
effects on structural change.
Black argues that with the flow of urban wealth to the countryside of Umbria
and Tuscany that rural properties were consolidated, small landholders dispossessed
and share-cropping and leasing contracts introduced that were unfavorable for the
84
Ibid.
Ibid., 11-13.
86
Berner, “Italy: Commentary”, 22.
85
31
peasants.87 Further, Black argues that urban centers used the mezzadria system to take
control of rural areas.88 Sixteenth century changes in fiscal policies that allowed urban
elites to pass the tax burden on to rural communities, and other manifestations of the
political monopoly held by the cities vis-à-vis their rural surroundings, guaranteed
urban centers an advantage of greater market information and an artificially cheap
supply of rural products.89 Although this was not the case everywhere, and in
Valpolicella and other regions of the Veronese the share-cropping system appears to
have been more balanced and involved greater participation of the land owners, Black
insists that “the expropriation and exploitation of peasants was the main characteristic
of [this] period through much of Italy.”90
Although an impoverished peasant population might hint at but does not
necessarily result in a low-performance agricultural sector, Malanima highlights the
structural side effects of share-cropping. It “inhibited the development of
manufacturing in the countryside by stimulating the rise of intensive mixed farming
which absorbed family labor throughout the year and left no time for seasonal nonagricultural employment.”91 Also addressing the secondary effects of share-cropping,
Epstein argues that the “significant redistribution of incomes between land and labor
after the Black Death that elsewhere in Europe had favored the peasantry and
stimulated demand for cheap textiles produced by domestic rural industry” remained
largely absent in Italy.92 Certainly there were exceptions as have been observed in
Lombardy, but these tended to prove the rule.
Belfanti argues that the beginnings of structural change in the regional
economy of Tuscany only occurred at the end of the seventeenth century when a
strong demographic recovery after the severe mortality crisis of 1630 created a pool of
cheap labor that could be employed in rural manufacturing.93 Only in the eighteenth
century did the Tuscan cities lose their grip on the countryside which with more
diversified economies and specialized niches (Livorno’s maritime trade, Prato’s
woolen industry) challenged the political and industrial hegemony of urban centers.94
87
Black, Early Modern Italy, 32.
Ibid., 45.
89
Malanima, ‘Teoria economica regionale e storia”, 145, Belfanti, “Town and country in central
and northern Italy”, 296.
90
Black, Early Modern Italy, 34.
91
Malanima, La decadenza di un’economia cittadina, 64.
92
Epstein, ‘Cities, regions and the late medieval crisis: Sicily and Tuscany compared’, 40.
93
Belfanti, “Town and country in central and northern Italy”, 297.
94
Ibid.
88
32
Despite the regional differences within the mezzadria system its direct
economic and indirect structural consequences for the Italian economy would prove to
be negative and long-lasting. Plagued by low investment, low productivity, and
outdated technology share-cropping absorbed labor that elsewhere in Europe was
being employed in rural proto-industries. As long as the urban elites were able to
conserve their political leverage, the mezzadria remained a reflection of the badly
needed yet successfully postponed structural change that characterized Italy’s mature
and rigid economy. The dominant form of agricultural organization in Italy from the
fifteenth to the eighteenth century was a far cry from the diversified and marketoriented agricultural that was developing in the Dutch Republic and England.
Although mezzadria guaranteed that agriculture would be plagued by low productivity
until the beginning of the nineteenth century, in the context of our economic
chronology the institution of share-cropping as a reflection of poor organization must
be assigned a negative value.95 At the time of its introduction Italy’s economy had
been stagnating for nearly a century.
Poor organization in agriculture and manufacturing had its equivalent at sea.
Cipolla argues that seventeenth century Italian shipping was characterized by
“conservatism and excessive labor costs.” 96 The resulting waning competitiveness
contributed to the expansion of foreign shipping as can be seen in the rapid rise of the
free port of Livorno. English sailors who were paid by the voyage and not by the day
as were their Italian counterparts regularly made twice the number of voyages in the
same amount of time.97
The economy-wide lack of technological and organizational innovation is a
clear indication of the ‘internal rigidities’ that plagued Italy’s economy. Its persistent
and prolonged absence made Italy a prime victim for the destructive effects of the
European-wide economic readjustment of the early modern period.98 Whereas the
countries of northwestern Europe invested in new technologies and sought out new
markets, Italy’s cities were “abandoned to long-term deflation.”99 Regarding the
search for the variables that caused economic stagnation, however, the variable of
For ‘low productivity in Italian agriculture’ see Allen, “Economic structure and agricultural
productivity”, 4, 12, Federico, Malanima, “Progress, Decline, Growth”, 444, 448, 449.
96
Cipolla, “The Economic Decline of Italy”, 213.
97
Ibid.
98
DeVries, The Economy of Europe in an Age of Crisis, 250.
99
Cipolla, “The Economic Decline of Italy”, 214.
95
33
‘poor organization in sectors important to the economy’ must be given a negative
value. None of its manifestations appeared prior to the onset of economic stagnation.
Access to the Dominant Form of Energy
In the case of Renaissance Italy the primary source of energy to be considered is the
size of the population in terms of sheer manpower. The population pattern of Italy
between 1000 and 2000 can be divided into three phases. Following the Europe-wide
decline in population between the fourth and tenth centuries, the first phase is one of
growth that coincided with the period of sustained economic growth between the
eleventh and early fourteenth century that witnessed late medieval Italy become one
of Europe’s economically dominant hubs.100 The second phase is one of decline
followed by stability that lasted from the mid-fourteenth until the seventeenth century.
The third phase, which is of least interest in context of this thesis, lasted from the
middle of the seventeenth century until present and is characterized by sustained
population growth.
The beginning of the second phase of population development, the ca. 300 to
350 year period of population decline and stagnation between the early-fourteenth and
mid-seventeenth century, missed the beginning of economic stagnation by a mere half
century. The initial sudden drop in population was caused by the Black Death of
1348-49, when Italy lost circa 1/3 of its population.101 It was not until 1600 that the
population regained pre-plague levels. The interim period of 250 years was
characterized by recurring wars (First in Lombardy 1425-1454, then the Italian Wars
1494-1559) as well as sporadic outbreaks of the plague.102 Together they undermined
a rapid demographic recovery. Although classical economic theory welcomes a
sudden loss of population with the good news of an increase in per-capita
productivity, and indeed this was the case in Italy where per capita agricultural output
rose by more than a third in the decades after the Black Death, it is important not to
forget that agricultural output in absolute terms declined by a third by the end of the
For ‘population information between the 4 th and 10th century’ see Malanima, “Urbanization and
the Italian Economy”, 99, for ‘population growth and economic rise’ see Maddison, The World
Economy, 53.
101
Pamuk, “The Black Death and the origins of the Great Divergence”, 294.
102
Federico, Malanima, “Progress, Decline, Growth”, 447.
100
34
fourteenth century.103 It would not be until the beginning of the eighteenth century
that gross agricultural output was again at the level of 1300.
Although the Central and Northern regions of Italy were economically among
the most advanced and diverse in Europe at the beginning of the fourteenth century, it
is important to recall that agriculture still employed 60-70% of the population and
accounted for 45-60% of the GDP.104 Malanima argues that Italy’s plummeting then
stagnating population and the ensuing absolute decline then stagnation of its
agricultural production meant that Italy would experience no growth at all in the
period of Modern European Growth.105 Although later increases in population would
never fail to undermine per capita productivity in Italian agriculture until by the end
of the nineteenth century per capita productivity had fallen below the level of 1300, a
large population at the beginning of the early modern period was a crucial ingredient
for a productive agricultural sector.106
A final verdict on this variable is complicated by the controversy surrounding
the relation between population size and economic productivity. In the case of
stagnant technology an increasing population will diminish the returns on labor and
result in lower productivity.107 As can be seen in the case of Italy every decrease in
population led to an increase in per capita productivity.108 This inverse relationship is
interrupted only when technological advances or organizational innovations allow a
growing population to find productive employment. This was the case in the Dutch
Republic and England where the innovations described by the term ‘agricultural
revolution’ freed an ever growing percentage of the workforce from the need to work
in agriculture, creating a pool of labor available to rural manufacturing or urban
industries.109 Unlike northern and western Europe where the mid-fourteenth century
plague epidemics ultimately resulted in an increased market orientation of their
economies, the success of which can be measured in their rapidly recovering
populations, the mezzadria in Italy further undermined both the productivity of
agriculture as well as the chance of structural change. By the time Italy’s population
103
Ibid., 444, 448.
Ibid., 437.
105
Malanima, “Measuring the Italian Economy”, 280.
106
Federico, Malanima, “Progress, decline, growth”, 444.
107
Capasso, “Economy and Population”, 19.
108
Federico, Malanima, “Progress, decline, growth”, 444.
109
Allen, “Economic structure and agricultural productivity”, 18.
For ‘rapid British population growth’ see DeVries, The Economy of Europe in an Age of Crisis, 8.
104
35
had finally recovered from plagues and warfare at the beginning of the seventeenth
century, sheer size of population was no longer a required ingredient to economic
growth as it had been in the late and high Middle Ages. Far from it. Over-populated
and underemployed, by 1600 Italy was well on the way to becoming a backwater of
Europe.
Although the radically diminished population and ensuing reduction of
agricultural output in the mid-fourteenth century happened close to the onset of
economic stagnation, a careful observation of per capita productivity and gross
agricultural output reveals that both were declining already before the Black Death.
The cause of this must be sought elsewhere. For chronological reasons the variable
‘access to the dominant type of energy’ must be given a negative value.
Climatic Influence
In regards to climate, or more precisely the impact of climate on agricultural
productivity, one occurrence of undeniable importance must be recorded. In the final
decades of the 1200s, the so-called ‘Medieval Climatic Optimum’, a combination of
climatic conditions that were conducive to high agricultural yields that had
characterized the period of sustained growth from 800 onward came to an end.110
Malanima estimates that the ensuing ‘Little Ice Age’ reduced the cultivable surface of
Italy by ca. 6% and caused a food shortage for 1-2 million people.111 In an economy
where agriculture constituted 45-60% of the GDP, such a blow to the foundation of
the economy could only have been devastating.112
The pressure on natural resources caused by the reduction of the surface of
cultivable land that stemmed from a cooling of the climate was exacerbated as Italy’s
population embarked on a long phase of growth from the mid-seventeenth until
present. If in 1300, 2.9 hectares arable land were available per worker, and in the
period after the Black Death this temporarily rose to 4.5 hectares due to the decreased
population, by 1700 available land per worker had shrunk to 2.6 hectares and by 1870
had dwindled to a mere 1.2 hectares.113 The timing of the end of the ‘Medieval
Climatic Optimum’ and the onset of the ‘Little Ice Age’ best explain the decline in per
Capasso, “Economy and Population”, 24-25.
Ibid.
112
Federico, Malanima, “Progress, decline and growth”, 437.
113
Capasso, “Economy and Population”, 19.
110
111
36
capita productivity and gross agricultural output that can already be observed by the
beginning of the fourteenth century.
Compared to Italy, the more diversified economies of northwestern Europe
fared better. In what was to become the Dutch Republic the end of the Medieval
Climate Optimum led to an increase in flooding in the beginning of the fourteenth
century and prompted the famine of 1314-1317 that killed 5-10% of the population.114
Although hugely destructive and tragic, the catastrophes also prompted a series of
preventive measures. Tol argues that the recurring floods and famines of the
fourteenth century acted as a catalyst for formalized water control, and that “by 1350
the Dutch river delta had closed dike systems along all major rivers.”115 In a similar
vein Van Zanden argues that the ecological degradation and ongoing agricultural
crisis of the late Middle Ages was met with concerted communal efforts to stem
ecological decline and also closed off the prospects of subsistence farming that with
the demographic and agricultural crisis of the fourteenth century was spreading across
much of the rest of Europe.116 With the introduction of cattle farming on land no
longer suitable for agriculture, a rural population looking elsewhere for work as day
laborers, and the prosperous cities of the Southern Provinces looking for luxury
livestock products, the economy of what would become the Dutch Republic
experienced a jumpstart towards commercialization and by 1500 was already
characterized by “proto-capitalistic” economic structure.117
England was not exempt from the climatic downturn. With a growing season
shortened by 1-2 months, recurring sheep and cattle epidemics, the spread of malaria,
and the general decline in health of the population due to malnutrition that quickly led
to flu, the times when English farmers had considered growing vines were definitely
over.118 Snook argues that British farmers pursued a number of strategies that allowed
them to temper to effects of the climatic downturn. These were crop variation and
increased land settlements to extend the arable surface in the fifteenth and sixteenth
century, and colonization, trade, industrialization and emigration in the seventeenth
Tol, “Concise History”, 360-361.
Ibid., 361.
116
Van Zanden, The rise and decline of Holland’s economy, 30-31.
117
Ibid., 20, 31.
118
Snook, Ice Age Extinction, 120-122.
114
115
37
and eighteenth centuries.119 By the time the Little Ice Age was over in 1850, England
was at the height of its economic and political power.
The effects of the end of the ‘Medieval Climate Optimum’ on agricultural
output in Italy at the end of the thirteenth century coincides perfectly with the onset of
Italian economic stagnation. Due to the importance of agriculture to Italy’s preindustrial economy and the timing of this climatic downturn, this variable will be
assigned a positive value.120
Rise of a Foreign Nation
Italy had lost its economic leadership in the Mediterranean by 1600, when the spice
trade was lost for good to the English and Dutch who had penetrated the Indian Ocean
and the carrying trade between the Mediterranean and northern Europe was being lost
to English, French and Flemish shippers.121 Cipolla argues that other nations began
developing new industrial, banking and maritime methods on a “large scale” between
1550 and 1600.122 This helps explain the appearance of cheaper and more sought after
English, French and Dutch products that displaced Italian manufactures from both
domestic and foreign markets. As a result of foreign competition the Italian textile
industry had withered away by 1650.123 For the economy in general the turning point
came quickly. Already by the early-seventeenth century Italy was a net importer of
foreign manufactures and an exporter of primary products or partially worked goods.
The seventeenth century would see Italy reduced to a passive role in Maritime affairs
and its economy left with nothing but the function of regional distribution.124
In regards to the rise of the Ottoman Empire in the eastern Mediterranean from
the mid-fifteenth century onwards that impinged on Italy’s Mediterranean shipping,
commerce, spice trade, and seaborne supremacy, it has been established that the
earliest manifestations of this development occurred at least a century after the onset
of economic stagnation and can therefore be discounted as its cause.
119
Ibid.
For the ‘importance of agriculture to pre-industrial societies’ see Wrigley, Continuity, Chance
and Change, 7
121
For ‘economic leadership’ see DeVries, The Economy of Europe in an Age of crisis, 26, for
‘carrying trade’ see Maddison, The World Economy, 53.
122
Cipolla, “The Economic Decline of Italy”, 202.
123
DeVries, The Economy of Europe in an Age of crisis, 26
124
For ‘passive role’ see Cipolla, “The Economic Decline of Italy”, 212, for ‘regional distribution
function’ see DeVries, The Economy of Europe in an Age of crisis, 26
120
38
By the seventeenth century Italy had been outpaced by England, France, and
the Dutch Republic. In the context of rising foreign nations, or perhaps more fittingly
in the case of Italy in the context of a general shift in patterns of trade, the discovery
of the Americas played a crucial role in cementing Italy’s decline and buttressing the
rise of the Atlantic economies. Columbus’ accidental discovery of the Americas, the
first circumnavigation of the globe and the continued lure of oriental riches
guaranteed that trade would both become more global and irretrievably move away
from the Mediterranean.125
Although it can be argued that Spain’s colonies were as much a curse as a
blessing, that France and the Dutch Republic had only limited overseas territories and
that England would only really begin to reap the benefits of its colonial ghost acreage
in the eighteenth century, Pomeranz argues convincingly that Europe’s new world
colonies “primed the pump” of its most advanced economies.126 The growing demand
for the ‘luxury’ consumer goods that paved the way for DeVries’ “Industrious
Revolution”, the slow amassment of commercial capital, and Europe’s slow
acquaintance with the practice of militaristic capitalism are unimaginable without
Columbus’ fortuitous discovery.127 And whereas Italy saw its hectare to worker ratio
diminish continually from the seventeenth to the nineteenth century, the landintensive imports from the New World in the form of fuel, fiber and food allowed first
England and then the rest of Europe to hold open the “ecological window” and
experience first sustained proto-industrial growth and later industrialization.128
By the time these New World benefits were revolutionizing northwestern
Europe in the late-seventeenth and eighteenth century, Italy had for all intents and
purposes disappeared from the radar. Nevertheless, and for the by now well-known
reasons of chronological late coming, the variable of the rise of a foreign nation must
be assigned a negative value. When Columbus first sighted what he believed was
India, Italy had been stagnating for almost 200 years.
Maddison, The World Economy, 44, Cipolla, “The Economic Decline of Italy”, 210.
Pomeranz, The Great Divergence, 192.
127
For ‘militaristic capitalism’ see ibid., 207, for ‘growing European consumer demand’ see ibid.,
153, for ‘European overseas coercion’ see ibid., 188, for ‘industrious revolution’ see ibid., 218.
128
Ibid., 241, 264.
125
126
39
The variables that have been discussed in detail above are summarized in the table
below.
Italy
War
Interfering
Measures
Outdated
Technology
Poor
Organization
Access to
Dominant
Energy
Climate
Rising
Foreign
Nation
0
0
0
0
0
1
0
40
Chapter 3: The Dutch Republic
Economic Chronology
The following economic phases will be used as chronological benchmarks in the case
of the Dutch Republic. The period from 1300 to 1650 will be considered one of
growth, the fifty years between 1650 and 1700 one of relative stagnation, and the
century between 1700 and 1800 one of absolute decline. Of particular interest are
variables that appear before 1650.
The Rise of the Dutch Republic
Competing theories explaining the rise of the Dutch economy point to either the rare
absence of medieval feudalist structures that did not interfere with the development of
a free market economy, or a combination of favorable exogenous factors in the Early
Modern Period. These include religious wars in surrounding countries, the resulting
influx of highly-skilled human capital from the southern provinces, and the
spectacular rise of the Baltic grain trade after 1570.129 As a result of the absent feudal
system, the substantial expansion of commerce and industry, and the massive
demographic growth of the late Middle Ages, the area that was to become the Dutch
Republic was already by 1500 highly urbanized and characterized by a ‘protocapitalistic’ socio-economic structure.130 With this is meant the coexistence of smallscale agriculture and non agricultural wage labor-based employment.131 In regards to
its economic structure, the Dutch Republic was 200 years ahead of its economic
successor the United Kingdom, and represented an anomaly within the economic
realities of early modern Europe.132
The possibility of supplementing agricultural incomes with wage labor freed
the Dutch countryside from Malthus’ preventive check of conscious fertility and
resulted in an extraordinarily fecund pattern of reproduction. Until the midseventeenth century, and largely exempt from the plague epidemics of the 1620s and
Van Zanden, The rise and decline of Holland’s Economy, 19, Van Bavel, Van Zanden, “The
jump-start of the Holland economy”, 503.
130
Van Zanden, The rise and decline of Holland’s Economy, 29-30, Van Bavel, Van Zanden, “The
jump-start of the Holland economy”, 504,509.
131
Van Zanden, The rise and decline of Holland’s Economy, 20, 29-30, 32.
132
Ibid., 40.
129
41
30s that reduced the populations of Central Europe by 25%, the Dutch countryside
was capable of supplying its growing urban centers and their industries with an almost
unlimited supply of cheap labor.133 Dutch population growth until the midseventeenth century can be considered the antithesis of the Italian experience where a
severe population loss after the plagues of 1348 and 1349 led to a general labor
shortage, high wages and a reduction of gross agricultural output.
The European economy that emerged in the fifteenth century was very
different from the fragmented localized economy of the medieval world and
fundamental shifts in economic structures and modes of organization were required to
adapt to the new economic parameters.134 The city states of Northern and Central
Italy, as was outlined in the previous chapter, had reached their economic maturity by
the fourteenth century and were displaying the “internal rigidities of a mature
industrial economy” had proven incapable of reinventing themselves.135 Jan DeVries
provides a checklist of what was required for economies to succeed in the early
modern period. Declining industries and markets had to be abandoned for ones in
expansion, livestock was preferable to arable farming, new and lighter draperies and
cotton held more promise than linen and heavy cloth, fledgling key industries had to
be protected with subsidies and most importantly costs had to be reduced through
organizational innovation.136 This meant manufacturing based on putting-out systems,
entrepôt commerce and an agriculture of convertible husbandry.137 The Dutch
Republic excelled in all of the above.
The Dutch Republic’s dominance of international trade was sealed with the
sack of Antwerp in 1576 by Spanish troops which marked the decline of the cities of
Flanders. The cities and merchants of what was to become the Dutch Republic did not
hesitate to fill the resulting void. Van Zanden describes a “natural transition” to the
carrying trade (freightage) from the humble beginnings of inland waterway fishing,
via North Sea herring fishing to sea-going trade.138 With its own merchant fleet that
could buy commodities at the source and cut out intermediaries, the growth of the
Ibid, 20, Van Bavel, Van Zanden, “The jump-start of the Holland economy”, 506.
For ‘plague epidemics’ see DeVries, The Economy of Europe in an Age of Crisis, 4.
134
Israel, Dutch Primacy in World Trade, 405.
135
Allen, “Economic structure and agricultural productivity”, 21, DeVries, Economy of Europe in
an Age of Crisis, 250, previous chapter, 33.
136
DeVries, The Economy of Europe in an Age of Crisis, 248-249.
137
Ibid.
138
Van Zanden, The rise and decline of Holland’s economy, 33.
133
42
Baltic grain trade in the sixteenth century and the escalation of the rich trades in the
sixteenth and seventeenth centuries, the Dutch Republic was to become the center of
world commerce and Amsterdam its central warehouse.139 Dutch hegemony in global
commerce would last for two centuries, when finally they were forcefully swept from
the seas by England at the end of the eighteenth century.140
By 1570 the carrying capacity of the Dutch Merchant fleet was at par with the
combined carrying capacity of Germany, England and France, and in 1670 it was still
more than twice the size of that of England, its closest rival.141 The Dutch State had
few qualms about using naval might when a competitive edge couldn’t be attained by
organizational innovation. Blockading the Scheldt estuary after 1585 which sealed the
irremediable decline of Antwerp, repeatedly forcing Denmark to keep the Sound open
and passage tolls low, and the support of armed commercial operations in Asia, Africa
and more sporadically the Caribbean and Brazil are only some examples of the Estates
General advancing commerce by all means.142
For the first half of the seventeenth century, its Golden Age, the Dutch
Republic enjoyed unprecedented control of international trade, political clout far
surpassing that corresponding to its size and population, and Amsterdam an
unchallenged position in banking, trade and finance. Only a hundred years later,
however, Dutch economic decline was rampant and visible to all. Between 1750-1800
the cost of living rose to dizzying heights, the once-egalitarian society was
characterized by a growing rift between rich and poor and contemporary observers
told of ravaged and desolate inland towns that had in recent memory still been
thriving centers of manufacturing.143 What had happened?
The Effects of War
The Dutch Republic gained diplomatic recognition in 1609, as part of the 12-year
cease fire that marked the halfway point of the Eighty Years’ War. The war that
would end with the Peace of Westphalia in 1648, and permanently divide the former
Habsburg Netherlands into the seven rebel provinces that became the Dutch Republic
139
Israel, Dutch Primacy in World Trade, 405-407.
O’Brien, “Mercantilism and Imperialism”, 477, Israel, Dutch Primacy in World Trade, 411.
141
Maddison, The World Economy, 77.
142
Israel, Dutch Primacy in World Trade, 411.
143
Boxer, “Dutch Economic Decline”, 262.
140
43
and the Spanish-ruled southern provinces of Brabant and Flanders, initially benefited
the Dutch Republic. The northern provinces experienced a large-scale migration of
capital and skilled workers from the Spanish-ruled provinces to the south and were
able to expand their international networks of trade and shipping to the detriment of
Portugal and Spain.144 The once-thriving cities of the southern provinces that were
already suffering from the disruptions of war and draconian Spanish rule were dealt a
final blow when the Dutch blockaded the Scheldt estuary in 1585, sealing the decline
of Antwerp and the rise of Amsterdam.145
The cost of maintaining Dutch Independence, however, was high. A chain of
fortresses was constructed in the east to defend the heartland of the Province of
Holland in response to the pending threat of a French invasion. Rising army and naval
expenditures, and a series of wars against England and France in the seventeenth
century burdened the Dutch Republic with a growing debt.146 The reputation of the
Dutch Government for quickly and regularly repaying loans allowed it to easily
borrow money with which to fund military measures, but also saddled it with an
enormous debt.147 The debt rose from 960 000 guilders in 1579, to 5.5 million
guilders in 1599 and to 10 million guilders in the first decades of the seventeenth
century.148 The upward spiral of debt and interest repayment led to an increase in the
excise duty, which in turn raised the price levels for daily goods as well as wages to
levels that soon became uncompetitive in an international comparison.149 In the laterseventeenth century the repeated land invasions by the French under Louis XIV
forced the Dutch Republic to expand its troops to a staggering 93 000 men by 1693.150
Spain by comparison had 70 000 men under arms, down from a maximum of 300 000
in the 1630s, and France 120 000.151 In the eighteenth century, France would have
400 000 men under arms!152
In the Spanish War of Succession (1701-1714) the Dutch Republic
experienced heavy losses of human lives for a wartime population of only two
144
Maddison, The World Economy, 79.
Israel, Dutch Primacy in World Trade, 405, 411.
146
Maddison, The World Economy, 80.
147
Kennedy, Rise and Fall, 101.
148
Ibid., 87.
149
DeVries, Economy of Europe in an Age of crisis, 112.
150
Ibid.
151
Maddison, The World Economy, 81.
152
Ibid.
145
44
million.153 In comparison France in the eighteenth century had one fifth of Europe’s
total population. During the eighteenth century the steady drain of manpower became
apparent. The difference of Dutch military strength between the Nine Year’s War that
began in 1689 and the Fourth Anglo-Dutch War in 1780 is telling. Between 1689 and
1697, the Dutch Republic sent out 24 000 men every year on 100 ships. One hundred
years later it struggled to staff 17 ships with a total of 3000 men.154 The shortage of
manpower was also apparent in the fisheries that in the eighteenth century had
increasing difficulties to man deep-sea fishing voyages.155 Between 1688 and 1748
the Dutch Republic was spending three quarters of its defense budget on its land
forces.156 This meant that its merchant fleet and navy were underfunded. Whereever
they could, the British stepped in to pick up the slack.
The massive diversion of money into military expenditure represented an
ongoing drain on possibly productive resources.157 Although this was true for all
European countries – Kennedy likens Spain and France at the Peace of Westphalia to
two “punch drunk boxers” reeling from the efforts of ongoing warfare – the odds were
increasingly stacked against the tiny Dutch Republic in the run of the seventeenth
century.158 Although only the second half of the seventeenth century would become
synonymous with ongoing warfare for the Dutch Republic against both England and
France, the precipitous increase of expenses linked to war already in the closing
decades of the sixteenth century is an early indicator of the trend. The long-term and
devastating effects of war on the Dutch Republic would increase in the seventeenth
and eighteenth centuries until it had effectively been ground to a pulp between the
rising powers of England and France.159 As Maddison is eager to stress, when at war
with either Britain or France in the seventeenth and eighteenth century, the Dutch
Republic felt “the concentrated energy of the modern nation state” that was very
different from the way that Spain had dissipated its energy during the Eighty Years’
153
Although the great majority of the dead were foreign mercenaries, the financial burden of
paying the mercenary’s wages underlines the challenges that the population-poor Dutch Republic faced
when at war with vastly more populous neighbors. Not to be forgotten in the context of a population
drain are the voyages of the V.O.C from which two-thirds of the crew did not return.
154
Boxer, “Dutch Economic Decline”, 243.
155
Ibid., 242.
156
Kennedy, Rise and Fall, 113.
157
DeVries, The Economy of Europe in an Age of crisis, 112.
158
Kennedy, Rise and Fall, 75.
159
Ibid., xviii.
45
War.160 Compared to its two behemoth neighbors of France and England, the Dutch
Republic already midway through its Golden Century was simply too small. Due to
the astronomical increase in military expenditure already at the end of the sixteenth
century and the coinciding of the onset of Dutch economic stagnation with the long
series of wars against England and France (the first Anglo-Dutch War began in 1652),
this variable will be assigned a positive value.
Interfering Measures taken by a Foreign Nation
After reading the above section on the effects of war it would seem only logical that
the Dutch Republic would not pass through the mercantilist era unscathed. Indeed this
is not only the case but without much doubt the principal explanation of Dutch
economic decline in the pertinent literature.161
The first deeds of foreign economic intervention in the case of the Dutch
Republic are the English Navigation Acts of 1651. Designed to undermine Dutch
shipping by restricting the access of Dutch ships to British ports and barring the Dutch
from trading with English colonies, the Navigation Acts should be understood as part
of the larger effort of England under Cromwell to curb Dutch economic activity.162
This in turn must be seen in the wider context of England’s growing economic and
political aspirations. From 1550 to 1700 England actively sought to grab ever bigger
shares of overseas opportunities through diplomacy or, and more frequently, war.163
The three Anglo-Dutch Wars in the quarter century after 1652 can be considered the
military equivalent of the Navigation Acts. Together English economic sanctions and
war resulted in the Dutch Republic losing its monopolistic trading privileges with
Britain and France, the “significant contraction of Dutch trading opportunities in
America and Africa”, and a gradual reorientation of its economy from manufacturing
to agriculture.164
French economic provisions designed to aid French industry and agriculture
began around 1600 under Henry IV, were first overseen by his Huguenot minister the
Duke of Sully, and later given new impetus by Colbert under Louis XIV. These
160
Maddison, The World Economy, 80.
DeVries, The Economy of Europe in an Age of Crisis, 252.
162
Maddison, The World Economy, 80.
163
Ibid., 94.
164
Ibid., 82.
161
46
measures reduced the taille, increased spending on infrastructure, and encouraged
cloth production through sheltering tariffs and the establishment of royal factories.165
In the 1640s fully one third of Dutch textiles were exported to France.166 By the earlyeighteenth century this amount had shrunk to less than 10 percent.167 Furthermore,
French ministers succeeded in fostering fledgling French industries by luring skilled
Dutch workers to France.168 Of all Dutch finishing industries the most important was
by far the textile industry. Between 1650 and 1700 England and France increased the
import duties on Dutch textiles until these had reached prohibitive levels.169 In the
first decades of the eighteenth century, similar mercantilist policies were introduced
by Russia, Prussia, Denmark, Norway and Spain.170 In the 1720s and 1730s the Dutch
textile industry declined accordingly.171
The Great Northern War (1700-1721) led to a heightened sense of competition
among northern powers and by the 1740s most northern European countries had put a
“systematic industrial mercantilist policy” into place.172 All countries made vigorous
attempts to stimulate domestic cloth and silk production, as well as sugar refining,
tobacco processing and sail cloth weaving.173 The spread of such a pan-European
form of organized interventionism coincided with the decisive decline of the Dutch
world-trade system and had disastrous consequences for Dutch manufacturing.174 By
the 1740s Dutch manufacturing had declined irreversibly.175
The pan-European mercantilist policies also changed the nature of trade.
Almost overnight the nature of Dutch exports shifted from the export of manufactures
to the export of raw materials and spices.176 Although still a major player in the
carrying trade as late as the beginning of the nineteenth century, the mere volume of
unfinished goods that were still being shipped could not compensate for the loss of
former markets for Dutch processed goods. Shipbuilding, the paper industry, tobacco
processing, sail canvas weaving, salt-refining and the Delftware industries all
165
Kennedy, Rise and Fall, 73.
Israel, Dutch Primacy in World Trade, 384.
167
Ibid.
168
Ibid.
169
Boxer, “Dutch economic decline”, 256.
170
Ibid.
171
Israel, Dutch Primacy in World Trade, 386.
172
Ibid., 384.
173
Ibid.
174
For ‘pan-European interventionism’ see ibid., 386, for ‘consequences for Dutch manufacturing’
see ibid., 384-389.
175
Ibid., 399.
176
Ibid., 386.
166
47
experienced severe decline or collapse in the decisive years between 1713 and
1750.177 By 1750 a new era dawned in which the British, French, Danes, Swedes and
northern Germans also shipped and stored goods that fifty years earlier would had
been reserved for the warehouses of Amsterdam.178 The Dutch had lost their grip over
the essential mechanism of international trade of controlling supply and creating
demand.179 The most glaring example of this loss of control is Britain’s early
dominance of the Triangular Trade of the Atlantic already by the 1720s from which
the Dutch were almost wholly excluded.180 By 1740 the Dutch Republic was a mere
transit point for unprocessed tobacco and raw sugar.181 Although outside of Europe
the Dutch fared better and could still rely on a network of forts, colonies, and political
backing, here too there was a marked deterioration in Dutch competitiveness in face
of growing competition from the British, French, Danes and others.182
The English Navigation Acts, the first and most serious act of foreign
intervention, were enacted simultaneously with the onset of Dutch economic
stagnation in the middle of the seventeenth century. A small parenthesis must be made
here to prove that we are not deviating from our methodology that demands that
possible causes of stagnation predate the onset of stagnation to be considered a true
cause of stagnation. As is made apparent by the urbanization data, the transition from
growth to stagnation in the Dutch Republic was very abrupt. From a 7.4% increase in
urbanization between 1600 and 1650, to a 1.9% increase between 1650 and 1700. It is
very plausible that the tenacity of the British resolve to undermine Dutch commercial
supremacy that is reflected in the Anglo-Dutch Wars, and the less vehement but
nonetheless persevering French actions to bolster national production at the expense
of the Dutch manufacturing and exports, were causes of this abrupt transition to
economic stagnation. Due to this, this variable will be assigned a positive value.
Outdated Technology
To begin with, it is worth stating that outdated technology is not frequently mentioned
in the discussion surrounding Dutch economic decline. On the contrary there is
177
Ibid., 388, 391.
Ibid., 401.
179
Ibid., 401.
180
Ibid., 393.
181
Ibid., 397.
182
Ibid., 391.
178
48
considerable unanimity among historians that the Dutch were particularly
technologically innovative.183 Here a few examples of Dutch inventions and
innovations must suffice. What is now known as ‘new husbandry’, a “set of
modifications in agricultural practice” at the close of the Middle Ages first appeared
in the Low Countries from where they radiated outwards, first to England, and
eventually across the rest of Europe.184 Allen and DeVries both attribute
overwhelming importance to the role that the ‘agricultural revolution’ played in
allowing certain countries to experience fundamental shifts of their economic
structure.185 Only greatly increased agricultural productivity could support a
secondary sector, free rural labor for industry and allow some countries to break away
from the inherent growth constraints of agricultural economies. Italy and southern
Europe largely missed out on the ‘agricultural revolution’, thereby conserving both
their economic structures of traditional agrarian societies, and the minimal economic
growth inherent to an agrarian economy until the end of the nineteenth century.186
At sea the Dutch displayed a similar tendency to innovate. In the latefourteenth century the technique of salting fresh herring was introduced by Dutch
fishermen. This allowed Dutch ships to spend more time at sea than their competitors
as well as conserve their catch for distant markets. Drift nets that greatly increased the
catch were subsequently introduced in 1415.187 The dominance of Dutch busses in
North Sea fishing that processed their catch on board, also dates from the earlyfifteenth century and was to last for several centuries.188 The Fluytschip, “the
crowning achievement of a century of continuous rationalization and improvement”,
first built in 1595, was cheap to build, required only a skeleton crew, could carry large
cargoes, and until French and English imitations eventually mimicked them, were
capable of undercutting foreign carrying trade by 30-50%.189
183
Maddison, The World Economy, 75, DeVries, The Economy of Europe in an Age of Crisis, 20,
Van Zanden, The rise and decline of Holland’s Economy, 20, 29, Allen, “Economic structure and
agricultural productivity”, 4, 12, Israel, Dutch Primacy in World Trade, 407-409, Kennedy, Rise and
Fall, 85, 87, Davids, “Shifts of technological leadership”, 340.
184
Mokyr, The Lever of Riches, 58.
185
Allen, “Economic structure and agricultural productivity”, 22, DeVries, The Economy of
Europe in an Age of Crisis, 7.
186
Allen, “Economic structure and agricultural productivity”, 21.
For a discussion of the decreasing returns inherent to predominantly agricultural economies see
Malanima, “Measuring the Italian Economy”, 272.
187
Mokyr, The Lever of Riches, 70.
188
Ibid.
189
For ‘crowning achievement’ see ibid., 69, for ‘undercutting of carrying trade’ see Derry, A
Short History of technology, 209-210.
49
After the floods of 1421, Dutch hydraulic engineers, the “leading practical
hydraulic engineers of the time”, incrementally reclaimed land by using power-driven
scoop wheels and screw pumps.190 Maddison argues that Dutch hydraulic engineering
was indispensable for the early success of Dutch agriculture when land reclamation
relied on wind power.191 By the seventeenth century Dutch windmills were a source
of cheap, clean and inexhaustible energy.192 Until the invention of the steam engine
windmills also remained the most powerful pre-industrial prime mover.193
Although at the forefront of groundbreaking technologies during the late
medieval period, in the late-seventeenth and eighteenth century the Dutch began to
fall behind the technological frontier.194While the Dutch herring industry remained
advanced, by 1750 the whaling industry had fallen behind that of the British who had
heavier boats and mechanical harpoons.195 These innovations allowed British ships to
hunt whales in ice flows that remained inaccessible to the lighter Dutch ships.
Similarly in maritime cartography, navigational techniques and in new methods of
ship building the Dutch began to fall behind their English and French rivals.196 Until
the 1670s haughty reports of the directors and servants of the VOC (The Dutch East
India Company) reflected a deep-seated belief in Dutch superiority in “energy and
ability, as well as capital and in material resources.”197 Eighty years later such airs of
arrogance had been replaced by complaints of English superiority.
Boxer argues that technological improvements in eighteenth century
agriculture were introduced both “tardily and incompletely as compared with
contemporary France and England.”198 Despite lagging behind in the newest
agricultural technologies Dutch agriculture fared much better in the eighteenth
century than either manufacturing or shipping.199 In terms of manufacturing, Israel
states that by the 1720s French fine cloth was available in more sought-after colors
than that of Dutch production, a fashion faux-pas that is perhaps more indicative of
the gradual disappearance of Dutch merchant colonies in important trading hubs
190
Mokyr, The Lever of Riches, 66.
Maddison, The World Economy,75.
192
Mokyr, The Lever of Riches, 60.
193
Smil, Energy in World History, 226.
194
Davids, “Shifts of technological leadership”, 354, 361.
195
Boxer, “Dutch Economic Decline”, 244-245.
196
Ibid.
197
Ibid.
198
Ibid., 254.
199
Ibid., 252, 254.
191
50
abroad than of a true technological or aesthetic falling behind.200 After all, in the
general process of economic renewal that took place after the Great Northern War
(1700-1721), the Dutch played a key role in the diffusion of technologies and skills
that in many parts of northern Europe were still considered groundbreaking.201
In regards to the Dutch falling technologically behind in the late-seventeenth
and eighteenth century, it seems plausible this process was a consequence of the
general political and economic challenges that the Republic faced from the midseventeenth century onwards. Foreign mercantilist policies shutting Dutch
manufactures out of foreign markets, increasing competition at sea in both the fishing
and freightage industries, rising wages due to a growing labor shortage, and an
absence of coal are only four factors that might have deterred Dutch entrepreneurs
from investing in new technologies.202 Mokyr underlines the close link between the
rise of the nation state and the increasingly systematic approach to the development
and fostering of technology.203 He also argues that 1750 might be considered a
watershed in terms of the pace of technological change.204 Although already in the
200 years prior to 1750 technology more than anything else in the preceding seven
millennia had radically reshaped the way humans lived, technological advance during
the Industrial Revolution would accelerate again until reaching an unprecedented
pace.205
It is only after 1750 that the Dutch Republic began to seriously lag behind the
UK in terms of technology. Mokyr argues that this was nothing to be ashamed of. For
roughly a century after 1760, the UK was able “to generate and diffuse superior
production techniques at a faster rate than the Continent, and serve as a model that all
European nations wished to emulate.”206 Despite the Dutch Republic clearly losing its
technological lead in sectors important to its economy, the variable of outdated
technology will be assigned a negative value. By the time the Dutch Republic began
to fall behind technologically in the mid-eighteenth century, its economy had been
stagnating for a full century.
200
Israel, Dutch Primacy in World Trade, 383.
Ibid., 384.
202
For ‘factors related to the decline of Dutch technological leadership’ see Davids, “Shifts of
technological leadership”, 354-361.
203
Mokyr, The Lever of Riches, 78.
204
Ibid., 81.
205
Ibid.
206
Ibid., 239.
201
51
Poor Organization in Sectors Important to the Economy
For the purpose of this thesis the work of Jan Luiten van Zanden on the social and
economic structure of the Dutch Republic between the late Middle Ages and the end
of the sixteenth century is of great interest.207 Van Zanden explains the rise of the
Dutch economy between 1350 and 1600 with the proto-capitalistic structure of the
countryside.208 Rural inhabitants combined agricultural activities with wage labor and
due to an extraordinarily fecund pattern of reproduction represented an “almost
inexhaustible reservoir of cheap labor” for urban industries.209 Particularly after 1350
this, along with the proximity of the rich markets of Flanders and Brabant, contributed
to the rise of export industries such as textiles and beer.210 This cheap labor fueled
late-medieval economic expansion is clearly reflected in the urbanization data that
confirms a doubling of urbanization rates between 1400 and 1650.211
If readily available and cheap labor was a key ingredient of early Dutch
economic growth, lasting economic growth also hinged on labor’s ability to
sufficiently reproduce itself. It is precisely in this point that Van Zanden argues that
an organizational shortcoming, one that put an end to the supply of cheap labor to
urban industries, undermined the possibility of sustained economic growth. Although
economic development accelerated in the period after 1580, to such an extent that it
has been labeled as an economic ‘take-off’ phase, the socio-economic structure
underpinning the sustainability of cheap labor was simultaneously and irrevocably
being undermined.212 Van Zanden describes this erosion as an interrelated process of
increases of scale and concentration of capital on the one hand and increasing
proletarianization on the other.213 With the “remarkable tendencies towards
concentration” in the most important economic sectors (export industries, agriculture,
trade, and shipping), the rural existence of small-scale craftsmen, putter-outers and
unspecialized small landholders began to lose its economic viability.214
207
For a concise overview of earlier work on Holland’s socio-economic development see Van
Bavel, Van Zanden, “The jump-start of the Holland economy”, 507 – 509.
208
Van Zanden, The rise and decline of Holland’s economy, 19, 34.
209
Ibid., 34.
210
Ibid.
211
From 15% in 1400, to 31% in 1650. Maddison, World Economy, 248, Malanima, unpublished
manuscript, DeVries, European Urbanization, 39.
212
Ibid., 35.
213
Ibid., 36.
214
Ibid.
52
The concentration of wealth in the hands of urban merchants and the growth of
urban manufacturing drew workers from the countryside to the cities. In the cities the
working population’s living standards decreased until they represented a forerunner of
the miserable living conditions of England’s eighteenth century industrial proletariat.
In the sixteenth century small farmers began to disappear from the countryside as did
semi-proletarian craftsmen from important export industries. By ca. 1580 mortality
rates in cities – that were not fortuitously called ‘death traps’ – and the urban
proletariat’s deteriorated standard of living had begun to undermine labor’s hereto
prodigious reproduction pattern, curtailing the elastic supply of labor that was
required by the growing Dutch economy.215 One example for such a shortage of
manpower can be seen in the VOC having to recruit “louts from the heart of
Germany” for their voyages to Asia.216 Despite these foreign recruits the VOC’s
voyages to the East Indies, during which two thirds of the sailors died, represented an
ongoing “demographic leak”.217
The problems caused by seventeenth century demographic stagnation were
compounded by changes in the redistribution of profits that increasingly favored the
relatively inefficient but highly-paid sector of non-tradables that benefited from a
favorable tax structure as well as from other social and political measures arising from
the entwinement of the regent oligarchy and craft industry.218 Swart argues that the
overwhelming influence of Amsterdam merchants on national policies was based on
the fact that they paid half of the provincial and one quarter of the federal taxes.219
Such fiscal responsibilities went hand in hand with considerable political influence.
Where commercial and industrial interests conflicted, mercantile interests were
favored. Protective legislation for industry was “rare and unenforced”, and fiscal
policies that ultimately increased industrial production costs were a common
occurrence.220 The political influence of the merchant class ensured that industryadverse policies were pursued far into the eighteenth century when it was long clear
that Dutch commercial preeminence belonged irrevocably to the past.221
215
Ibid., 20.
Boxer, “Dutch economic decline”, 245.
217
Van Zanden, The rise and decline of Holland’s economy, 37-38.
218
Ibid., 139.
219
Swart, “Holland’s Bourgeoisie”, 45.
220
Ibid.
221
Ibid.
216
53
This group of rentiers who profited from holding the state’s debt that was paid
for by the excise tax and did not offset their parasitic presence with any productive
activities, grew much larger in the eighteenth century as other sources of income from
manufacturing and trade dwindled. The resulting upward pressure on the cost of living
and wages through the increased tax burden was carried primarily by entrepreneurs of
labor intensive export industries, and led either to their relocation or disappearance.
And so as the sixteenth century drew to a close, processes of capital
concentration and skewed profit redistribution were beginning to undermine the very
proto-capitalistic socio-economic structure that had fueled the growth of the Dutch
Republic’s domestic industries. By the middle of the seventeenth century the Dutch
Republic was suffering from labor shortage and was forced to obtain workers from
increasingly far away.222 The variable ‘poor organization in sectors important to the
economy’ can be seen as an endogenous cause of economic stagnation and will be
assigned a positive value.
Access to the Dominant Form of Energy
In this context there is one easily identifiable and significant difference between the
Dutch republic and the UK; coal. Put simply the UK had it and the Dutch Republic
didn’t. In the period leading up to its Golden Age, the Dutch had used their abundant
peat supply as a source of heat required by numerous industries. Among others these
included brick making, madder production, kiln firing, salt refining, baking,
bleaching, and tile making.223 Coal, however, produces twice the amount of heat that
is won from burning the equivalent quantity of peat.224
Wrigley argues that it was primarily the substitution of coal for traditional
organic fuels (primarily wood, but also peat) that allowed England’s advanced organic
economy to break its energy constraints and become the first fossil fuel based
economy of Europe.225 In a similar vein Malanima argues that the rising use of fossil
fuels was the main innovation of the new energy system that evolved in early modern
Europe and replaced that of the late Middle Ages. Despite the late medieval
innovations - the large scale introduction of draught animals and the increased use of
Van Zanden, The rise and decline of Holland’s economy, 171.
Mokyr, The Lever of Riches, 62.
224
Wrigley, Continuity, Chance and Change, 59.
225
Ibid., 70-71.
222
223
54
wind and water power - already by the early-thirteenth century the energetic limit of
the medieval energetic system had been reached.226 The increased use of coal in
England beginning in the early-sixteenth century symbolized the second and crucial
step - the exploitation of peat was the first step - towards the fossil-fuel based
economies of the nineteenth and twentieth century. Although abundant fossil fuel did
not in itself guarantee that pre-industrial, organic fuel-based economies would
industrialize, the key role of massively increased energy consumption in sustaining
the extensive growth of per capita production in Britain’s budding secondary sector is
undeniable.227
In the UK a growing demand for energy and an increasing scarcity of fuel
(primarily wood) led to dramatic increase in the mining of coal. It rose from 210,000
tons in 1551-60, to almost 3 million tons in 1681-90, to more than 10 million tons in
1781-90.228 In an era of a growing Europe-wide ‘ecological bottleneck’, the energy
windfall that coal represented for the UK cannot be sufficiently stressed. In 1815
British coal was providing British industry with the energy equivalent of 15 million
acres worth of forest.229
Comparing the energy output of prime movers illuminates the importance of
coal in the age of industrialization. Around 1000 AD a waterwheel, by far the most
powerful prime mover at the time, produced an equivalent of 5000 watt.230 In
comparison a steam engine around 1800 produced 100 000 watt.231 Although peat had
supplied the Dutch Republic with a cheap supply of energy from the sixteenth to
eighteenth century, peat would prove “inadequate for truly sustained large-scale
industrial growth.”232 By the end of the eighteenth century, the usefulness of Dutch
peat was petering out and along with the rest of Europe deficient in its own coal
reserves, the Dutch Republic became an importer of British coal.233
Clearly the increasingly important role of coal in the process of economic
growth in the seventeenth century put the Dutch Republic at a marked disadvantage
Malanima, “The energy basis for early modern growth, 1650-1820”, 57. For a discussion of the
energy system of the Late Middle Ages see ibid., 58.
227
Ibid.
228
Van Zanden, “A survey of the European Economy”, 83-84, for alternative figures on coal
mining see Smil, Energy in World History, 159.
229
Pomeranz, The Great Divergence, 276.
230
Smil, Energy in World History, 228.
231
Ibid.
232
Pomeranz, The Great Divergence, 221.
233
For ‘waning use of peat’ see Wrigley, Continuity, Chance and Change, 104, 115, for ‘import of
coal’ see Pomeranz, The Great Divergence, 222.
226
55
compared to England where the spin-off industries that developed around coal and the
positive feedback of a fossil fuel-based economy positively affected large sectors of
the economy.234 As coal was employed in an ever-growing variety of uses – primarily
as a source of mechanical energy but also as a source of heat that lessened the burden
on English agriculture to produce both food and fuel – eighteenth century England
was able to hold open the ‘ecological window’ and gradually but successfully
transition to an industrialized fossil fuel-based economy.235
Although the significance and precise definition of the Industrial Revolution
remains controversial, increased energy consumption played an undeniable and
characterizing role.236 The increased availability and use of energy led to a surge of
technological inventions and improvements in the UK in the period after 1750. In the
words of Mokyr, “a clustering of macro inventions occurred, leading to intensified
work in improvement and adjustment, and thus creating a complementary flow of
micro inventions.”237
The Dutch experience from the mid-eighteenth century onwards couldn’t have
been more different from that of the UK. Although Pomeranz argues that it was the
demand side that hampered Dutch economic growth and not a lack of cheap energy –
in the nineteenth century there were still peat fields left unexploited and coal could be
imported from England at competitive prices - both Boxer and DeVries argue that
Holland was at a marked disadvantage compared to the UK due to a poor natural
resource endowment and little access to land-intensive raw materials.238 By
comparison, in 1830 Britain was importing 25 and 30 million acres worth of cotton,
sugar and timber from its colonial ghost acreage.239 That represents a surface close to
twice the arable surface of land in England! Had the Dutch Republic developed
industries similar to those of England in the eighteenth and nineteenth century it
For ‘positive feedback’ see Wrigley, Continuity, Chance and Change, 30, for ‘spin-off
industries’ see ibid., 70-71, 75; Wong, China Transformed, 56,57; Smil, Energy in World History, 160.
235
Pomeranz, The Great Divergence, 207.
236
For a survey of competing definitions see Van Zanden, “Early Modern Growth”, 69-70, for
‘importance of mineral sources of energy for the industrialization process’ see Wrigley, Continuity,
Chance and Change, 32, 75, Malanima, “The energy basis for early modern growth” 63,85, Wong,
China Transformed, 50, Pomeranz, The Great Divergence, 241.
237
Mokyr, The Lever of Riches, 82.
238
For ‘Dutch energy’ see Pomeranz, The Great Divergence, 221, for ‘poor natural resource
endowment’ see Boxer, “Dutch Economic Decline”, 245, for ‘Britain’s superior access to landintensive raw materials’ see DeVries, Economy of Europe in an Age of Crisis, 253.
239
Pomeranz, The Great Divergence, 276.
234
56
would have been at a great disadvantage for lack of coal, iron and timber.240 In this
context Davids argues that it was precisely the Dutch Republic’s lack of coal that
undermined the interest in the application of science to technology which was a key
ingredient to the many innovations of Britain’s manufacturing sector.241
Although with the advent of the Industrial Revolution the Dutch Republic was
at a marked disadvantage due to a lack of coal and otherwise poor access to the land
intensive natural resources that billowed the sails of the British economy from mideighteenth century onwards, the importance of coal as a source of energy that would
revolutionize western economies in the latter-eighteenth and nineteenth centuries
appears too late in our established chronology to be considered a cause of Dutch
economic stagnation. It is for this reason that it will be assigned a negative value.
Climatic Influence
In the context of our chronology it is the ‘Little Ice Age’ of the mid-sixteenth to
nineteenth century that is of interest. In the Dutch Republic the ‘Little Ice Age’
expressed itself in “weather extremes” in the 1560s and 70s, frequent “severe winter
weather” in the seventeenth century, and otherwise recurring episodes of “highly
variable” climate.242 Although short-term crises based on harvest failures ensued, the
highly diversified economy “open to international markets, farmers, merchants, and
other affected parties” mitigated the effects of an unfavorable climate to the point that
DeVries describes its economic consequences to have been “marginal.”243
The ‘Little Ice Age’ also coincided with the ‘regression phase’ of the sea level,
and marked the end of the destructive inundations of the fifteenth and sixteenth
centuries.244 The sixteenth century cooling of the North Sea drove the herring closer
to England, making them more accessible to Dutch fishermen. Similarly, in the first
half of the seventeenth century the migratory patterns of the Greenland whale
adapting to colder polar summers, drove it into the arms of Dutch whalers.245
For different versions of the Dutch Republic’s disadvantages see: Wrigley, Continuity, Chance
and Change, 25,104, Ormrod, “Dutch commercial and industrial decline”, 35, Boxer, “Dutch
Economic Decline”, 256.
241
Davids, “Shifts in technological leadership”, 361.
242
DeVries, Van der Woude, The First Modern Economy, 21.
243
Ibid.
244
Ibid.
245
Ibid., 22.
240
57
On the topic of the ‘Little Ice Age’ DeVries and Van der Woude tentatively
conclude that by the sixteenth and seventeenth century the Dutch Republic possessed
the “technical powers and social organization that were sufficient to diffuse and
dampen the adverse influence of climatological shocks.”246 Despite the apparently
negligible impact on the Dutch economy the timing of the climatic changes related to
the ‘Little Ice Age’ require that they be assigned a positive value. The contradiction of
an unimportant variable being assigned a positive value due only to its chronological
appearance points to the possible shortcomings of the methodology and will be
addressed in the conclusion.
Rise of a Foreign Nation
DeVries attributes the Dutch Republic’s rise to economic leadership to its successful
implementation of “cost-reducing measures” in agriculture, industry and
commerce.247 Maddison stresses the advantages of the Dutch Republic’s fortuitous
geographic position, and Van Bavel a set of endogenous factors that put the Dutch in
an ideal position to exploit the new economic possibilities that emerged in Europe in
the early modern period.248 Indeed, until it was confronted with competitors that could
not be either outmuscled (the cities of Flanders), bullied into submission (Denmark)
or underbid (France and England), the Dutch Republic enjoyed an economic heyday
that lasted from the mid-fourteenth to the mid-seventeenth century.249 In regards to the
rise of a foreign nation it is precisely the rise of England and France in the midseventeenth century, the consolidation of power of their centralized governments, and
the latter’s growing political and commercial ambitions that would first undermine
then put an end to unhampered Dutch economic growth.
In the case of France the successful military action against Spain under Henry
IV (1589-1610) already hinted at the latent wealth and power of this populous
246
Ibid.
DeVries, The Economy of Europe in an Age of Crisis, 251.
Van Bavel makes a similar argument regarding the endogenous factors of Holland’s economy that
allowed it to benefit from the increasing market integration of the early modern period. Van Bavel, Van
Zanden, “The jump-start of the Holland economy”, 528.
248
For ‘geographic advantages’ see Maddison, The World Economy, 75-79, for ‘endogenous
factors’ see Van Bavel, Van Zanden, “The jump-start of the Holland economy”, 526-528, for the ‘new
economic framework emerging in Early Modern Europe’ see DeVries, The Economy of Europe in an
Age of Crisis, 6,27,245-249.
249
Israel, Dutch Primacy in World Trade, 411, 412.
247
58
country.250 The rise of France was postponed by the period following Henry IV’s
assassination in 1610 that was characterized by the Thirty Years’ War, poor political
leadership, aristocratic intrigue, peasant and worker uprising, recurring plague
incidents and a general decline of the population.251 Despite this internal turmoil,
France – with the help of England under Cromwell - succeeded in decisively defeating
Spain at the Battle of Dunes in 1658. The Treaty of the Pyrenees, signed in 1659,
reinforced the tenets of the Treaty of Westphalia (1648) and with the Spanish
Habsburg bid for political hegemony in Europe defeated once and for all, confirmed
the political plurality of Europe.252 Kennedy speaks of the “maturing of a genuinely
multi-polar system of European politics” in which the balance of power was
maintained by short-term and shifting alliances.253
England’s intervention in European affairs had been largely undermined by
the ongoing conflict between crown and parliament between 1603 and 1643.254 When
it finally reemerged in the 1650s under the tutelage of Cromwell, and emboldened by
its New Model Army, it challenged Dutch trade hegemony in the First Anglo-Dutch
War (1652-54). Although siding with France against Spain had caused the English to
lose much of the profitable Spanish trade to the neutral Dutch as well as burden
English tax payers with the huge costs of its rapidly expanding navy (it doubled
between 1649 and 1651), the growth of inland and overseas commerce, the growing
benefits from the colonies and the consolidation of a market economy set England on
a solid economic footing.255
Kennedy argues that the period between 1660 and 1815 was characterized by
the decline of certain states (the Ottoman Empire, Spain, the Dutch Republic,
Sweden) and the rise of others, most notably the continental trilateral equilibrium of
France, Prussia and the Austrian Habsburgs as well as the two peripheral powers of
England and Russia.256 Viewed from this perspective the period of Dutch economic
hegemony had coincided with a period in European history where shifts in the balance
of power had become frequent compared to the period between 1500 and 1650 that
had been characterized by the Spanish Habsburg’s stubborn bid for political power.
250
Maddison, The World Economy, 72-75.
Ibid., 74.
252
Kennedy, Rise and Fall, 39.
253
Ibid., 94.
254
Ibid., 79.
255
Ibid., 80, for ‘huge cost of standing armies’ see ibid., 109-110.
256
Ibid., 95.
251
59
The height (and abrupt end) of Dutch economic power coincided with a new era of
fierce interstate competition.
If the geographical location of the Dutch Republic had until the earlyseventeenth century provided the Republic with many ingredients for economic
growth (a river network that acted as a barrier to Spanish forces, access to the North
Sea’s rich herring fisheries) its location within Europe had become a liability by the
mid-seventeenth century. Locked between England and France it suffered under the
mercantilist policies of Cromwell and Colbert that aimed at undermining its
commerce and shipping.257 At sea it was increasingly challenged by England in the
Indies trade, North Sea fishing, and entrepôt commerce, and at land it was threatened
by France from the 1660s onwards.
As has been outlined in the section on mercantilist measures, the last decades
of the seventeenth and the first half of the eighteenth century were calamitous for
many sectors of the Dutch economy.258 Such comprehensive mercantilist measures are
unthinkable in the absence of centralized governments, precisely those that arose first
in France under Louis XIV and in England under Cromwell, and later spread across
Europe, until by 1740 “most states of Northern, Central and Eastern Europe had
adopted powerful mercantilist strategies shutting out most manufactures and Dutch
processed goods.”259 Israel argues further that the treaties, alliances, blockades,
restrictions, monopolistic devices and other trade engrossing factors that had
underpinned Dutch supremacy, where irremediably lost after 1740.260
The contemporaneous rise of England and France and the decline of Spain
after the signing of the Treaty of Westphalia has led O’Brien to date the beginning of
Dutch economic decline to the year 1648.261 With Spain defeated and bankrupted,
first France and then England would demand growing shares of the commerce that
had hereto been largely controlled by the Dutch.262 Mercantilist measures, commercial
and military wars, industrial espionage, and import tariffs in the later-seventeenth and
early-eighteenth century ensued. The Dutch did not sit idly by as their commercial
hegemony was challenged and developed into a formidable defensive military power
257
Ibid.
For a step by step outline of the effects of foreign mercantilist measures, as well as an overview
of the competing views of Dutch economic decline see Israel, Dutch Primacy in World Trade, 377-402.
259
Ibid., 399.
260
Ibid., 401.
261
O’Brien, “Mercantilism and Imperialism”, 483.
262
Ibid., 485, 490.
258
60
on land and naval power at sea.263 But even the colossal Dutch surplus capital proved
inadequate in the face of such crushing odds and behemoth neighbors, and by the time
of the Napoleonic struggle the Dutch Republic its commerce, industry and political
clout had been reduced to “wretchedly low levels”.264
In terms of assigning the variable of the ‘rise of a foreign nation’ a positive or
negative value, we find ourselves in the same predicament as when evaluating the
variable of ‘interfering measures taken by a foreign nation’. If any true cause of
economic stagnation must predate the onset of economic stagnation, then the
significance of the Treaty of Westphalia (1648) as defined by O’Brien does indeed
satisfy this criteria (unlike the Navigation Acts (1651) and the First Anglo-Dutch War
(1652-54) that both post-date the onset of stagnation) but only by a historical hair’s
breadth of a mere two years. However, given the Dutch Republic’s fast and furious
transition from growth to stagnation and finally decline – in a mere fifty years its luck
had turned – and the role that England and France now unencumbered by the
responsibility of keeping Spain at an arm’s length played in curtailing the Dutch
Republic’s economic heyday by a barrage of economic and military measures, this
variable will be assigned a positive value.
The variables that have been discussed in detail above are summarized in the table
below.
War
Dutch
1
Interfering
Outdated
Poor
Access
Measures
Technology
Organization
Dominant
Foreign
Energy
Nation
1
0
1
0
Climate
Rising
1
1
Rep.
263
Kennedy, Rise and Fall, 85.
For ‘surplus Dutch capital’ see Israel, Dutch Primacy in World Trade, 114, for ‘wretched state
of the Dutch Republic during the Napoleonic Wars’ see ibid., 402.
264
61
Chapter 4: The United Kingdom
Economic Chronology
The economic phases that will be used in this chapter are as follows. The period
between 1820 and 1870 will be considered one of growth, the period between 1870
and 1950 as one of relative stagnation, and the period between 1950 and 1973 as one
of relative decline. As has already been mentioned British economic growth that can
be considered extraordinary in the European context began as early as the sixteenth
century.265 It is the search for variables leading to economic stagnation that makes the
UK’s economic performance of the nineteenth and twentieth century the focus of this
chapter.
The Rise of the United Kingdom
An unknown European backwater as late as the fifteenth century, Maddison argues
that England began its gradual transformation into a modern nation state after the end
of the civil war in 1485.266 Fragmented feudal power was centralized under Henry
VII, whose son’s schism with the papacy in the first half of the sixteenth century and
the ensuing seizure of monastic lands greatly enhanced the wealth and power of the
state.267 The seventeenth century saw royal power curtailed by the creation of the
House of Lords controlled by a secular elite of landlords and merchants.268 Royal
expenditures became dependent on approval of the House of Lords and a general
overhauling of the state’s finances resulted in a robust system of public finance.269
The Glorious Revolution (1688) and the reign of William III and Mary Stuart marked
the successful consummation of the England’s institutions’ attempts to emulate those
of their seventeenth century nemesis; the Dutch Republic.270
Allen, “Economic structure and agricultural productivity”, 3.
Maddison, The World Economy, 91.
267
Ibid., 91.
268
Kennedy, Rise and Fall, 102-106.
269
Ibid.
270
Maddison, The World Economy, 90-91.
265
266
62
The geography of the British Isles encouraged both the expansion of its
domestic market and the development of its merchant fleet.271 The exploitation of
land-rich resources from the American colonies, control of the Triangular Trade of the
Atlantic, and the imports of the new industriousness enhancing and consumption
encouraging drugs (sugar, tobacco, tea, coffee) went hand-in-hand with a series of
wars prompted by a desire to grab increasingly bigger shares of overseas commercial
opportunities.272 By the eighteenth century trade, colonies and the navy formed a
virtuous and reciprocally interacting triangle in the mind of British policy makers who
did not hesitate to fund a large war fleet.273 The severely deleterious effects of this
expansion of English trade on the Dutch economy have already been noted.
As important as the expansion of trade was to Britain’s economy, its economy
remained fundamentally agricultural until well into the eighteenth century.274 Postplague land enclosures, yeoman, important advances in technology and technique
(four-field crop rotation, early mechanization, selective breeding) and the increasing
market orientation of English agriculture allowed it to break the typical pattern of
stagnating per capita output after 1600.275 By 1750 output per agricultural worker had
surpassed that of all other European countries.276 The ability of agriculture to sustain
both a growing population while freeing an increasing portion of the population for
non-agricultural activities led to a steady rise in urbanization rates from the beginning
of the seventeenth century.277 From the sixteenth to the eighteenth century agricultural
surpluses fueled urban industries in an era when the city of London increased in size
fourteen times!278
The Victorian Era was symbolic for a triumphant England. The fruits of
industrialization that were first reaped by England accelerated the rate of
technological progress until England became known as the ‘workshop of the
world’.279 In the nineteenth century English per capita income grew three times as fast
271
For ‘expansion of merchant fleet’ see ibid., 92, for ‘trade enhancing geography’ see Pomeranz,
The Great Divergence, 66.
272
Maddison, The World Economy, 92.
273
Kennedy, Rise and Fall, 124.
274
Ibid., 125.
275
Allen, “Economic structure and agricultural productivity”, 22.
276
Ibid.
277
Maddison, The World Economy, 248.
278
Kennedy, Rise and Fall, 91.
279
Friedberg, The Weary Titan, 27-30.
63
as it had between 1700 and 1820, and the domination of global commerce resulted in
an accumulation of wealth at a rate greater than that of any other European country.280
Not to be left unmentioned in an age when ecological constraints loomed perennially
in the form of either a Malthusian crisis or as a restraint to economic growth were the
UK’s imports of cotton, sugar and timber from the four corners of its vast empire. By
the 1830s the land-intensive imports from this ‘ghost acreage’ were equivalent to a
cultivated area of twenty-five to thirty million acres.281 Almost twice the size of the
British Isles themselves!
In 1914 the British Empire encompassed a quarter of the world’s land and
population. As with the Habsburg Empire of the sixteenth century it was an empire on
which the sun never set. A mere four years later the revision of the status quo of
empire prompted by the devastation of the First World War had laid bare serious
cracks in the imperial edifice.282 Although the UK was able to conserve its position in
international politics in the interwar years, this was due more to the isolationism of the
United States and Russia than to its own economic performance.283 By the end of the
Second World War the British Empire had all but crumbled away, and new economic
realities had relegated the UK to the secondary ranks of political and military power.
How had this happened?
The Effects of War
Both Maddison and Kennedy argue persuasively that the stability of the nineteenth
century characterized by an “absence of significant military conflict” and a
“consensus among governments in the decades after 1815 to deal with domestic
instability” helped the UK rise to the zenith of its power in “naval, colonial and
commercial terms.”284 Unlike the period between 1688 and 1815, when six major
wars lasting a total of 63 years had put a “considerable strain” on economic
development, the stable international scene allowed the UK to interact favorably with
its virtual monopoly of steam driven production.285 As shall be seen below, the
stability of the nineteenth century also allowed the United States and Russia to expand
280
Ibid., 28, Maddison, The World Economy, 97.
Pomeranz, The Great Divergence, 276.
282
Douglas, Liquidation of Empire 2-10.
283
Kennedy, Rise and Fall, xxi.
284
Maddison, The World Economy 97; Kennedy, Rise and Fall, xix.
285
For ‘six major wars’ see Maddison, The World Economy, 97, for ‘steam driven production’, see,
Kennedy, Rise and Fall, xix.
281
64
across their landmasses and begin work on their economic foundations as future
superpowers.
The First World War marked the definitive end of this period. Douglas argues
that the war was a “great misfortune” for Britain and her Empire.286 The new
acquisitions from the Ottoman succession as well as those obtained from Germany
would prove to be more of a curse than a blessing, the constitutional advances in India
of 1917 were disrupted by the aftermath of the war, Ireland had embarked irrevocably
on a path that would drive it out of the empire and in South Africa old wounds had
been re-opened.287 Kennedy argues that Britain had been “irretrievably weakened” by
the First World War.288 Early twentieth century shifts in the global balance of power –
the rise of the United States and Russia as imminent superpowers, of Germany and
Japan as revisionist, militaristic powers and the decline of France, Austria-Hungary
and Italy – that had eclipsed the three century-old Eurocentric world system and had
been held in limbo in the interwar years by Russian and American isolationism, had
by the end of the Second World War once again caught up with the global distribution
of economic resources.289 When seen in a global comparison of economic resources
and set alongside the emerging superpowers of the United States and Russia, the UK
with its smaller population, outdated manufacturing technology, comparatively
limited access to natural resources and shrinking market shares seemed hopelessly
out-classed.
Although the UK emerged victorious from the Second World War, it
ironically did not benefit from the rebuilding and economic restructuring in the
decade following the war as did the vanquished Axis powers or its equally devastated
European allies. As indicated in the graph comparing GDP per capita, it is precisely in
the period following the Second World War that the UK began to lose its lead to
Germany and France who experienced rapid growth after 1945.290 Olson argues that
the sustained political stability and victory in the two World Wars allowed special
interest groups to consolidate their position in Britain.291 In a similar vein Hall argues
286
Douglas, Liquidation of Empire 10.
Ibid., 5, 10.
288
Kennedy, The Rise and Fall, xxi.
289
Ibid., xix-xx, xxi.
290
Only after 1950 was the UK’s GDP per capita growth rate hopelessly outpaced by that of all
other major western European economies. For the period between 1950 and 1973 the UK lay 1.49%
below the western European average. Maddison, The World Economy, 186.
291
Olson, The Rise and Decline, 141.
287
65
that in the era of rapid economic change in the latter half of the twentieth century, the
very stability of Britain’s political system which for so long had been a valued asset,
had become a liability.292 The low levels of investment in British industries, a
widespread reluctance to innovate or expand and poor forms of organization and
management characterize Elbaum and Lazonick’s ‘institutional sclerosis' that they
argue resulted partly from the absence of a shaking up of Britain’s economy in the
twentieth century.293
In the section above it was argued that the relative peace and stability of the
nineteenth century was crucial to the rise of Victorian England. It is of no surprise that
the bloodshed and widespread physical destruction of the two World Wars in the
twentieth century and the ensuing contraction of world trade, reduced international
migration, loss of overseas assets and the dismantling of its overseas’ empire would
have severe contrary effects on the British economy. 294 Ironically, the British
economy suffered not only from the devastation of war, but also from the
consequences of its stability as victor. Britain’s victory in both World Wars was at
least economically speaking undoubtedly a pyrrhic one.
Nevertheless, in terms of our chronology, the variable of the negative impact
of war on the economy must be assigned a negative value. By the time the British
Empire began to wobble and sway in the years following the First World War, the
British economy had already been stagnating for nearly 50 years.
Interfering Measures taken by a Foreign Nation
What is interesting about this variable in the context of the nineteenth century UK,
and more specifically in the period of its economic heyday between 1820 and 1870
where the seeds of economic stagnation are being sought, is that any Englishman
would have scoffed at the mere thought of a foreign nation being able to undermine
British commercial and manufacturing supremacy.
Friedberg very convincingly conveys the smugness of the Victorian era. A
high level of technological advancement, the ability to draw coveted raw materials
from the far corners of its empire and the fabrication and export of “low-cost, high
quality machinery and consumer goods” had earned British manufacturing the
Hall, “The State and Economic decline”, 289.
Elbaum, Lazonick, The Decline of the British Economy, 2.
294
Maddison, The World Economy, 101.
292
293
66
reputation of being the ‘workshop of the world’.295 Due to its economic significance
British manufacturing was widely viewed as crucial to British political and military
power. The virtuous and reciprocally interacting triangle of “trade, colonies and navy”
that since the eighteenth century had been a priority of British power politics, had by
the closing decades of the nineteenth century resulted in Britain’s dominance of
global commerce.296 Similarly Elbaum and Lazonick argue that the boom the British
economy experienced in the third quarter of the nineteenth century was not only the
culmination of the first Industrial Revolution, but also a culmination of three centuries
of global conflict for control of world markets as well as seven decades of intense
capital investment in British productive capacities.297
Changes in the UK’s commercial policy in the nineteenth century reflect its
dominant position in international commerce. In 1846 protective duties on agrarian
imports were removed, in 1849 the navigational acts were terminated, and in 1860
trade and tariff restrictions were unilaterally removed.298 Although on the surface free
trade was the basis of the British Empire from the mid-nineteenth century onwards,
colonialism favored British “exports, shipping, banking and insurance”, ensuring it a
“de facto monopoly in Asia and Africa”.299 As long as Britain reaped the benefits of
free trade, it would remain its greatest advocate.300 Friedberg argues that as the true
reason for Britain’s early economic success was actually its industrial head start over
other countries its unwavering belief in free trade was misinformed.301
And indeed as the nineteenth century drew to a close British manufacturing
began to lag behind that of the United States and Germany in terms of both growth of
output per capita and international competitiveness.302 The inevitable consequence of
this “unencumbered exchange” - a definition for ‘free trade’ favored by Britain likely
because it glossed over the fact that for most of the nineteenth century Britain
benefited more from this ‘exchange’ than any of its trading partners – as a growing
number of nations jockeyed to stay closest to the technological and organizational
295
Friedberg, The Weary Titan, 27-28.
Kennedy, The Rise and Fall, 124, Friedberg, The Weary Titan, 28.
297
Elbaum, Lazonick, The Decline of the British Economy, 3.
298
Maddison, The World Economy, 97.
299
Ibid.
300
Friedberg, The Weary Titan, 29.
301
Ibid., 30.
302
For ‘industrial competitiveness’ see Elbaum, Lazonick, The Decline of the British Economy, 1,
for ‘output per capita’ see ibid., 9.
296
67
frontier was to prove ineluctable in the first decades of the twentieth century. 303 The
UK, resting smugly on the laurels of its early accomplishments, had lost its lead.
Kennedy argues that one of the historical macro developments at the end of
the nineteenth century was the redistribution of shares in world manufacturing output
away from Western Europe and to America.304 With its vastly greater natural
resources, largely untapped domestic market and new corporate forms of business
organization, the United States were set to reap the benefits of backwardness.305 In
continental Europe it was Germany, although not until the first decades of the
twentieth century, that monopolized key industries of the Second Industrial
Revolution and with its national variant of corporate capitalism labeled ‘organized
capitalism’ by Chandler was set to undermine the UK’s hegemonic role within
Europe.
The UK’s dedication to free trade became problematic when the economies of
these late-industrializing countries began to gather steam in the late-nineteenth and
early twentieth century. With British markets small and already saturated for the
staple commodities of textiles and steel, English manufacturing’s dependence on
much larger and untapped foreign markets forced Britain to keep its own markets
open to foreign products that were often of higher quality and cheaper.306
By the end of the nineteenth century Britain’s ‘first mover advantages’ were
beginning to be outweighed by the advantages of the latecomers.307 These enjoyed
more secure and expansive domestic markets, more modern and capital-intensive
technology and better organization.308 Initially British manufactures still enjoyed the
competitive edge that stemmed from the higher quality and craftsmanship of their
products, but as shall be seen in the section on technological falling behind,
manufacturing in the twentieth century would increasingly be characterized by
methods of mass production. Suffering from outdated technology and lacking the
requisite control of product and input markets, stoically sluggish in adapting to new
market opportunities, and faced with emerging competitors whose more successful
experiences have been qualified as the ‘antithesis’ of the British model, all major
303
Friedberg, The Weary Titan, 30.
Kennedy, Rise and Fall, xxiv.
305
Elbaum, Lazonick, The Decline of the British Economy, 6.
306
Ibid.
307
Chandler, Scale and Scope, 34.
308
Elbaum, Lazonick, The Decline of the British Economy, 7.
304
68
staple industries of British manufacturing eventually went into decline.309 Even after
the Second World War when Britain’s competitors were fostering technical education
and research, enforcing a public utility policy that favored manufacturing, forcing
firms dependent on government orders to buy from national sources, and introducing
specific protectionist measures for certain key infant industries, Britain, which failed
to do any of the above, remained committed to an economic policy of laissez-faire.310
The spread of indigenous industrialization and the accompanying protective
tariffs towards the end of the nineteenth century, as well as the contraction of global
trade in the interwar years clearly undermined the manufacturing and commercial
advantage that Britain had enjoyed for the first three quarters of the nineteenth
century. In terms of the UK’s chronology of decline, however, this variable must be
assigned a negative value. Restrictive trade tariffs, the rise of foreign manufactures,
their appearance on foreign and the British domestic markets as competitors, and the
full momentum of the Second Industrial Revolution in which British firms were noted
for their absence did not begin to negatively affect the British economy until the
decade before the First World War. By then the British economy had already been
stagnating for almost 40 years.
Outdated Technology
There is considerable agreement among historians that Britain enjoyed many
advantages derived from being the first country in the world to industrialize.311 Britain
enjoyed firm linkages between its advanced industrial sector and its efficient
commercial and foreign trade sectors that allowed it to undercut foreign manufactures,
experience a rapid growth of its physical and capital stock, enjoy unparalleled
overseas investment opportunities in technologies in which the British played a key
role, and reap many indirect benefits from being at the head of the expanding liberal
economic order that saw per capita income grow three as fast as it had between 1700
and 1820.312 These factors - some fruits of British efforts, other gratuitous
consequences of greater historical forces at work - amounted to a lasting economic
309
Chandler, Scale and Scope, 236.
Kirby, “Institutional Rigidities”, 654.
311
See authors in footnote for the paragraph below, but also Friedberg, The Weary Titan, 28.
312
For ‘firm linkages’ see DeVries, The Economy of Europe in an Age of Crisis, 253, for ‘physical
and capital stock’ see Maddison, The World Economy, 97, for ‘overseas investment opportunities’ and
‘benefits of expanding liberal economic order’ see ibid., 100.
310
69
boom in the first three quarters of the nineteenth century that marked the culmination
of the First Industrial Revolution, gave the U.K an unparalleled competitive advantage
and until the end of the nineteenth century ensured it a largely unchallenged position
in the global economy.313
Unsurprisingly for any seasoned historian accustomed to fair weather
inevitably giving way to foul, such rosy circumstances could not be expected to
endure. In the last decades of the nineteenth century, the Second Industrial Revolution
that brought major innovations in the chemical, electrical, petroleum and steel
industries, was to be dominated by American and German firms.314 As the advantages
of the late-industrializers began to have effect and foreign competition increased, the
obstacles to technological innovation in Britain proved numerous.315
An atomistic market organization with many firms holding small market
shares was a deterrent for large-scale investment.316 Similarly Britain’s already
saturated market characterized by heterogeneous consumer demand did not provide an
incentive to create “modern integrated and centrally administered industrial
enterprises” as was the case in the United States after 1880.317 Unlike Britain, the
American domestic market was largely untapped and its consumers characterized by
homogenous tastes. British banks lacked direct involvement in industry and with
ample investment opportunities overseas were more interested in maintaining the
value of the pound than investing in new technologies.318 Britain’s education system
hampered industry by failing to provide appropriately trained managerial and
technological personnel, and higher education imbibed a disdain for business and
applied sciences in England’s elite.319 Finally, British trade unions proved an enduring
obstacle to technological and organizational innovation on the shop floor and found
their position strengthened by the emergence of the Labour Party and the emergency
conditions of the two World Wars.320
For ‘lasting boom’ see Elbaum, Lazonick, The Decline of the British Economy, 3, for
‘workshop of the world’ see Friedberg, The Weary Titan, 27.
314
Cameron, Concise Economic History of the World, 220-224; Coffin, Stacey, Western
Civilization, 679.
315
For ‘late-comer advantages’ see Elbaum, Lazonick, The Decline of the British Economy, 6.
316
Ibid., 7.
317
Kirby, “Institutional Rigidities”, 647.
318
Elbaum, Lazonick, The Decline of the British Economy, 5.
319
Cameron, Concise Economic History of the World, 223, Elbaum, Lazonick, The Decline of the
British Economy, 5.
320
Elbaum, Lazonick, The Decline of the British Economy, 4, 6.
313
70
By the beginning of the twentieth century British manufacturing was using
outdated technology to manufacture traditional products for an increasingly
competitive global market.321 The 1907 Census of Production indicates that the largest
industries (coal, iron, steel, textiles and ship building) accounted for 50% of net
British industrial production and 70% of all British exports.322 Although the period
between 1875 and 1900 was characterized by a “rapid increase in British output per
head which drew on an important impetus from growth and technological advances in
staple industries”, British growth in output per capita was slowing and beginning to
lag compared to the United States and Germany.323
From 1899 to 1913 British manufacturing suffered from a serious loss in
competitiveness that was linked with the failure of its industry to match the
productivity advances of other countries, primarily in the development of mass
production methods.324 By the time of the interwar years, Britain’s staple industries
that bulked so large in its economy seriously lagged behind international standards of
technology and managerial practices and contributed considerably to Britain’s
relatively poor international growth performance.325 In the 1920s and 30s British
market shares contracted massively, but even then government-sponsored
rationalization programs failed to address the fundamental causes of Britain’s lagging
behind and are qualified by Elbaum and Lazonick as being “half-hearted and with
limited effectiveness.”326
By the First World War British manufacturing technology had clearly fallen
behind that of the United States and Germany. When overseas nascent industries were
protected by tariffs which the UK were forced to tolerate given their own dependence
on overseas markets, the decline of Britain’s major staple industries, although with
varying pace and timing, were sealed.327 Pollard argues that even after the Second
World War a “sustained failure to invest in new technology and manufacturing
capacity” remained a cause of relative economic decline after 1950.328
321
Ibid., 6.
Ibid., 7.
323
Ibid., 9.
324
Ibid.
325
Ibid., 10.
326
Ibid., 8, 11.
327
Ibid., 7.
328
Kirby, “Institutional Rigidities”, 651.
322
71
Compared to the nineteenth century, the speed of technological change in the
twentieth century increased greatly. Measured in the response of output to the
combined inputs of labor and capital, the speed of technological change between 1870
and 1913 was less than 0.4% per year.329 Between 1913 and 1950 this increased to
1.6% per year. In an era when technological innovation was removed from the hands
of the rogue inventor and increasingly a result of institutionalized applied scientific
research, it was not the UK but the United States and to a lesser extent Germany that
developed the key technologies of the twentieth century.330
In any industrial economy there is a link between the level of technology and
levels of per capita productivity.331 For the period of British economic stagnation –
the last quarter of the nineteenth century and first half of the twentieth century – there
is also an undeniable link between manufacturing output and economic strength.332
Between 1820 and 1890, as the first country in the world to industrialize, the UK had
the highest labor productivity.333 When the catch-up advantages of the late
industrializing nations began to make themselves felt at the turn of the twentieth
century, specifically in this case the use of more modern technology and better
organizational structures, Britain’s days as the ‘workshop of the world’ were
numbered.
Despite the glaring absence of Britain’s role in the Second Industrial
Revolution and its technological falling behind even in those staple industries that
were once synonymous with its reputation as a manufacturing powerhouse, the
variable of outdated technology must be assigned a negative value. It was not until the
first decades of the twentieth century that Britain’s manufacturing suffered visibly
from outdated technology. As with interfering measures by foreign nations, when
Britain began to feel the stinging economic consequences of technologically falling
behind, its economy had been stagnating for close to 40 years.
329
Maddison, The World Economy,102.
Ibid., 101.
331
Ibid., 102.
332
Chandler, Scale and Scope, 3, 4.
333
Maddison, The World Economy, 102.
330
72
Poor Organization in Sectors Important to the Economy
In the specific case of the UK, more so than for either of the other two country cases,
the literature on organizational shortcomings abounds. ‘Institutional rigidities’,
‘institutional sclerosis’, the absence of Chandler’s ‘three-pronged investment’, and an
‘institutional legacy’ associated with the atomistic organization of the nineteenth
century are some of the buzzwords frequently used in the discussion of the role of
Britain’s institutions in its economic decline.334
The gist of the argument is as follows. In the nineteenth century, when Britain
was the world’s leading economic power, economic and social institutions developed
that were consistent with Britain’s role as economic hegemon.335 Along with the
already discussed belief in free-trade, which was revealed to have been less free than
an expression of Britain making use of its dominant position in global commerce,
Adam Smith’s ‘invisible hand’ of market forces was the main arbiter for resource
allocation among British firms.336 Kirby argues that the resulting “atomistic economic
organization” and its manifold implications that are discussed below, were already
“well entrenched” by the beginning of the nineteenth century.337 The argument closes
with the idea that this form of organization was consistent with the UK’s pre-1890
competitive advantage as the First Mover of the First Industrial Revolution, but
largely excluded long-term technological and organizational innovation.
To highlight the differences in organization and character between British,
American and German firms, the national context in which each existed will be
briefly outlined. It shall become clear that the respective national variant of capitalism
had far reaching consequences on firms’ organizational structures.
First the UK. Relying primarily on market mechanisms to coordinate
economic activity, nineteenth century British firms were often family-owned and
operated, relatively small, and comparatively simple in internal organization
compared to their overseas competitors.338 The managerial staff tended to be small,
334
For ‘institutional rigidities’ see Elbaum, Lazonick, The Decline of the British Economy, 2, for
‘institutional sclerosis’ see Kirby, “Institutional Rigidities”, 638, for ‘three-pronged investment’see
Chandler, Scale and Scope, 12, for ‘institutional legacy’ see Elbaum, Lazonick, The Decline of the
British Economy, 2.
335
Elbaum, Lazonick, The Decline of the British Economy, 2.
336
Kirby, “Institutional Rigidities”, 638.
337
Ibid.
338
Elbaum, Lazonick, The Decline of the British Economy, 3, Kirby, “Institutional Rigidities”,
638.
73
methods of cost accounting and production control were primitive or non-existent and
the development of new techniques and products relied on trial and error rather than
systematic in-house research.339 There was a marked absence of vertical integration in
the production process, and different stages of production were not linked by
managerial hierarchy but by market forces. Shop floor organization and the final
decision regarding the introduction of new technology were firmly in the hands of the
highly-unionized work force. These organizational traits were common to the major
industries of cotton, textiles, iron, steel, ship building and motor vehicles.340
The eventual consequences of Britain’s nineteenth century ‘competitive
capitalism’ proved to be growth inhibiting.341 On the one hand, independent, familyowned firms with small market shares were reluctant to adopt new forms of
management and standardize products and their lack of control of product and input
markets was an obstacle to adapting to new market opportunities.342 On the other
hand, British labor used its considerable control of the shop floor to oppose any
radical change in technology, and even amidst industrial decline fought tooth and nail
to save even low wage jobs.343 Any substantial alteration to the routine of the shop
floor bore in it the seeds of a major conflict and any compromise had to be bought by
the management – if it could be bought at all - at a high price.344
Among the other growth-inhibiting institutional factors in Britain were the
vested interests of the treasury-dominated civil service “obsessed with macroeconomic issues”, and an obstinate elite commitment to a “socio-economic culture
that was antipathetic to an industrial spirit”.345 Further, a lack of corporate
management skills and opportunities resulted in little broader entrepreneurial
perspectives.346 As already briefly mentioned, British banks lacked direct involvement
in industry, and due to their concentration in London and shared goals wielded greater
political clout than the industrial capitalists who were divided on national policy.
After the financial crisis of the 1870s, banks largely abandoned industrial financing
and turned their attention to the many other investment opportunities that presented
339
Elbaum, Lazonick, The Decline of the British Economy,3
Kirby, “Institutional Rigidities”, 638.
341
Chandler, Scale and Scope, 235.
342
Elbaum, Lazonick, The Decline of the British Economy, 6.
343
Ibid., 7, Kirby, “Institutional Rigidities”, 654.
344
Ibid.
345
For ‘treasury-dominated civil service’ see Kirby, “Institutional Rigidities”, 637.
346
Elbaum, Lazonick, The Decline of the British Economy, 5.
340
74
themselves in large-scale projects overseas such as railways.347 Portrayed in the same
unfavorable light as in the discussion surrounding outdated technology, Britain’s
poorly-adapted education system is another favorite scapegoat in the discussion
surrounding the absence of English firms in the Second Industrial revolution. It is
widely characterized as having failed to provide appropriately trained managerial and
technical personnel, as well as having suffered under the social cleavages between
classes that hampered communication and teamwork between generalists and
specialists and thwarted all hopes for managerial coordination.348 When at the
beginning of the twentieth century British products faced increasing competition on
both domestic and foreign markets, the above-outlined characteristics of Britain’s
‘competitive capitalism’ represented a severe challenge to Britain’s own
competitiveness.
While Britain basked in the glory of its early industrialization and enjoyed the
benefits of empire, important innovations in business management and production
processes were occurring in the United States, Germany and Japan. ‘Corporate
capitalism’ with its industrial oligopoly, hierarchical managerial bureaucracy, vertical
integration of production and distribution, managerial control over job content and
production standards, integration of financial and industrial capital and systematic
research and development might be considered the antithesis of Britain’s ‘competitive
capitalism’.349 The economic consequences of this new form of business organization
were manifold. Long-term planning facilitated investment especially when required
on a huge scale.350 Managerial coordination and control over job content and
production standards led to the introduction of new, high throughput technologies
which reduced the unit cost. The integration of financial and industrial capital and
managerial bureaucracy made large amounts of capital geographically flexible and
capable of easily exploiting new or growing markets. Systematic research would
become the mainsprings for technological innovation, especially in the field of
electrical and mechanical manufacturing.
The speed with which the US, Germany and Japan overtook Britain in terms
of per-capita productivity highlights the importance of the ‘visible hand’ of corporate
347
Ibid., 3.
Ibid., 5-6.
349
Ibid., 4.
350
For this and other consequences of ‘corporate capitalism’ see ibid., 5.
348
75
business management.351 Chandler’s ‘Modern Industrial Enterprise’ - a result of the
prerequisite ‘three pronged investment’ in production facilities, a marketing and
distribution network and professional management – was responsible for the major
innovations in processes of production of the last quarter of the nineteenth century,
exploited unprecedented cost advantages of economies of scale and scope, and
quickly benefited from first mover advantages in the industries of the Second
Industrial Revolution.352 Once such a firm was sufficiently large to exploit economies
of scale or scope, it tended to acquire or merge with enterprises producing for the
same market, take on units involved in earlier or later stages of production, expand
geographically and make new products.353 Furthermore, there was little turnover
among the leading firms and the main industries remained oligopolistic or
monopolistic.354
Already before the First World War, the United States dominated the market
for light machinery (sewing machines, office, agricultural machines, elevators,
printing presses and later automobiles).355 In the same period Germany established its
dominant position in the field of dyes and pharmaceuticals. By 1913 the United States
was producing 36% of the world’s industrial output, compared to Germany’s 16% and
Britain’s 14%.356
Developments in Germany were similar to those taking place in the United
States, but with two main differences. First, its industries concentrated primarily on
industrial goods, and second, its managerial capitalism was more ‘cooperative’ than
the ‘competitive’ American variation.357 Nevertheless it was the first continental
European country to adopt the organizational principles of ‘corporate capitalism’
which allowed it to swiftly surpassed Britain as Europe’s leading industrial nation in
the first decade of the twentieth century, and quickly recover from the ravages of the
First World War.358
351
Ibid., Chandler, Scale and Scope, 3.
For ‘Modern Industrial Enterprise’ see Chandler, Scale and Scope, 3-4, for ‘Three-pronged
investment’ see ibid., 8, for ‘economies of scale and scope’ see ibid., 21, for ‘First Mover advantages’
see ibid., 34.
353
Ibid., 36-37.
354
Ibid., 36.
355
Ibid., 40.
356
Ibid., 47.
357
Ibid., 12.
358
Ibid., 393-394.
352
76
The legacy of Britain’s ‘institutional sclerosis’ and its failure to foster modern
industrial enterprises resulted in British firms’ meager involvement in the Second
Industrial Revolution, as well as the prolonged period of relative economic stagnation
that characterized the British economy from 1870 until 1950.359 Its share of world
exports of manufactures decreased steadily in the twentieth century – from 31% in
1913 to 8% in 1983 – at which point its per capita productivity was the second lowest
of the ten largest Western economies.360 It was not until the heavily-interventionist
government policies after the Second World War took effect that Britain began to
close the gap to the western European countries by which it had been overtaken, and
in turn enjoy the benefits of being a late-comer.361 As the roots of Britain’s growthimpeding institutional structures can be found already at the beginning of the
nineteenth century, this variable will, with more conviction than any other, be
assigned a positive value.
Access to the Dominant Form of Energy
The dominant type of energy for the greater part of the nineteenth century was coal.
Britain, as was seen in the previous chapter’s discussion on its energetic advantage
over the Dutch Republic and most other Western European countries, had coal in
abundant supply.362 Whereas the rest of Europe only saw the slow diffusion of coal in
the course of the eighteenth century, Britain’s copious and easily accessible coal
deposits provided its industries with the energy required to exploit first-mover
advantages.363 Towards the end of the nineteenth century, however, crude oil and
natural gas slowly began to emerge as future coveted sources of energy. With a fuel
density 50% higher than coal, crude oil was extracted on a large scale beginning in the
late nineteenth century.364
The twentieth century marked an increase in the consumption of energy that
was unparalleled in human history.365 The mutually reinforcing relationship of coal
359
Ibid., 253.
Hall, “The State and Economic Decline”, 266.
361
For a discussion of the ‘Opportunities of Backwardness’ in the 20 th century see Maddison,
Explaining the economic performance of Nations, 56.
362
Smil, Energy in World History, 160.
363
For diffusion of coal see ibid., 161, for Britain’s coal related ‘First Mover advantages’ see ibid.,
164.
364
Ibid., 167.
365
Ibid., 185.
360
77
and technological innovation of the nineteenth century continued to gather momentum
in the more abstract relationship between energy availability and per-capita
productivity in the twentieth century.366 To give an idea of scale, Smil estimates that
coal consumption in Western Europe and the United States increased 100 fold
between 1810 and 1910.367 The consumption of crude oil increased 300 fold between
1880 and 1980, and the consumption of natural gas rose 1,000 fold in the same period.
In total the consumption of fossil fuels in the western world rose from under 10
million tons in 1700, to over 8,000 million tons in 1990. This enormous increase in
energy consumption was also characterized by a “riotously unfairly distributed rise in
available and consumed energy.”368 The twentieth century would only reinforce these
trends of rising consumption and unequal availability and use.
Although Britain unlike the United States did not in the period in question
possess its own oil reserves and was forced to grudgingly accept America’s growing
international influence in global affairs due its own dependence on first American and
then Venezuelan oil, difficulty of access to the dominant type of energy cannot be
considered a cause of British economic stagnation.369 Despite the clear advantage that
the United States enjoyed because of its vastly richer endowment in natural resources
–especially in regard to its domestic oil supplies that would gain great economic
significance after the First World War - when the UK’s economy began to stagnate,
oil was little more than a rumor of things to come. In the context of the chronology of
economic rise and decline, this variable will be assigned a negative value.
Climatic Influence
Although the end of the ‘Medieval Climatic Optimum’ at the end of the thirteenth
century, and again the ‘Little Ice Age’ that lasted from the mid-sixteenth to the
nineteenth century were capable of negatively impacting the agrarian economies of
Europe, by the end of the Victorian Era industrialized economies had become largely
immune to weather.370 Indeed, already in the case of the Dutch Republic it was noted
366
Wrigley, Continuity, Chance and Change, 81, Smil, Energy in World History, 232-234.
Smil, Energy in World History, 185-186. See the same two pages for similar numbers in same
paragraph.
368
Ibid., 187.
369
McBeth, British Oil Policy, 148-149.
370
For ‘Medieval Climatic Optimum’ see Capasso, “Economy and Population”, 24-25, for
‘seventeenth century Ice-Age’ see DeVries, Van der Woude, The First Modern Economy, 21.
367
78
that its level of technology and social organization as early as the sixteenth and
seventeenth allowed it to mollify the economic repercussions of the ‘Little Ice Age’.
In the specific case of the UK, and as if to provide further evidence with which to
discard this variable, the latter-half of the nineteenth and twentieth century were
characterized by a stable and warming climate.371
The more fundamental reason, however, for which the variable of climatic
influences will be attributed a negative value in the case of the UK, is the immunity of
its industrialized economy to weather fluctuations compared to the susceptibility of
earlier agrarian societies to climatic influences. Although Zhang’s study of the preindustrial era provides us with evidence for a causal relationship between a worsening
of the climate, economic decline and social unrest, the immediate, drastic and possibly
lethal effects of climate change had already been greatly diminished by the most
varied economies of sixteenth and seventeenth century.372 The massive imports of
cheap North American grain, beef and other primary products to Britain from the midnineteenth century onwards, and the sharp increase in agricultural production with the
advent of mechanical farm implements and natural and artificial fertilizer greatly
reduced the impact of climate change on industrialized economies.373
Rise of a Foreign Nation
After exhibiting a marginally higher GDP per capita growth rate than the UK between
1820 and 1870, the United States relieved the UK as economic hegemon at the
beginning of the twentieth century.374 As much as the combination of the UK’s once
enviable access to raw materials (wool and coal), and its “highly efficient commercial
and foreign trade sector” at the end of the eighteenth century found its economy of all
the western European nations “best poised for rapid growth in the nineteenth century”,
a similar confluence of geographic, organizational and social factors already from the
late-eighteenth century onwards allowed the United States’ economy to slowly but
surely gather steam.375
Jones, “The Evolution of Climate over the Last Millennium”.
Zhang, “Global climate change, war.”, DeVries, The Economy of Europe in an age of crisis, 7.
373
Pomeranz, The Great Divergence, 192, 224.
374
Maddison, The World Economy, 264.
375
DeVries, The Economy of Europe in an age of crisis, 253-254.
371
372
79
Maddison argues that the initial economic dynamism of the United States
came from a “comparatively greater advantage in natural resources, higher investment
rates, higher levels of education and research and the larger scale of the economy.”376
Already by the mid-eighteenth century the American colonies occupied a “significant
place in the pattern of maritime commerce”, by 1776 produced more pig iron than
Britain, and by the 1830s were the sixth industrial power worldwide.377
In this chapter the ample evidence that supports the ‘head start’ hypothesis of
Britain’s nineteenth-century economic success has already been discussed. Early
industrialization, a high level of technological advancement, and enviable access to
the land-intensive resources of its empire helped the UK achieve dominance in global
commerce.378 As industrialization began to spread to other western countries in the
latter half of the nineteenth century and tilt the international balance of power, the
advantages that Britain had derived from its ‘head start’ began either to dwindle or, as
‘path dependency’ set in, become outright liabilities.379
Among the ‘opportunities of backwardness’ enjoyed by those nations who
during the reign of one hegemon find themselves lagging behind, Maddison lists the
considerable range of technologies that followers can emulate without significant
expenditure, a higher rate of capital formation per worker that will not run into
diminishing returns until the technological frontier has been reached and rapid
structural change.380 As latter-day industrializing countries experienced “augmenting
yields of factor inputs” based largely on their hereto underdeveloped status, Britain’s
position as the hegemonic power closer the ‘best practice’ situation increasingly
became tantamount to diminishing returns, outdated technology and saturated
markets.381
American per capita productivity overtook that of the United Kingdom in
1890, its GDP per capita surpassed that of Britain around 1900 and by 1918 it was
indisputably the greatest economic and military power in the world.382 Kennedy
argues that only the anomalous disconnect between political and economic power in
376
Maddison, Explaining the Economic performance of Nations, 56.
Kennedy, Rise and Fall, 120.
378
Friedberg, The Weary Titan, 27-28.
379
Kennedy, Rise and Fall, xix.
380
Maddison, Explaining the economic performance of Nations, 56.
381
Ibid., Elbaum, Lazonick, The Decline of the British Economy 6.
382
For ‘per capita productivity’ see Maddison, Explaining the Economic Performance of Nations,
102, for ‘GDP per capita’ see Maddison, The World Economy, 264, for ‘greatest economic and military
power’ see Kennedy, Rise and Fall, xxi.
377
80
the interwar years allowed Britain to conserve its position in international politics, but
by the end of the Second World War in which the Allies’ combined productive
resources ultimately led to the defeat of the Axis powers, the military balance of
power had “once again caught up with the global distribution of economic
resources.”383 The bi-polar world that had been forecast in the decades prior to the
First World War was confirmed by the end of the Second World War. In the period
between both wars the UK had been “irretrievably weakened.”384 Economically
speaking, the rest of the twentieth century would belong to the United States, followed
by the laboring behemoth of the Soviet Union until its delayed collapse, and in the
closing decades also to the economies of Western Europe and Japan that benefited
from the tabula rasa effects of war.385
Although American economic hegemony would not become a reality until the
beginning of the twentieth century, its uninterrupted economic growth already from
the first decades of the nineteenth century that ate away at Britain’s lead warrant a
positive value for the variable of a rising foreign nation.
The above findings are summarized in the table below.
UK
War
Interfering
Measures
Outdated
Technology
Poor
Organization
Access to
Dominant
Energy
Climate
Rising
Foreign
Nation
0
0
0
1
0
0
1
383
Ibid.
Ibid.
385
For ‘US and Soviet Union’ see ibid., xxi-xxiv, for the ‘tabula rasa effects of war’ see Hall, “The
State and Economic decline”, 289.
384
81
Chapter 5: Conclusions
The following table summarizes the findings of this thesis.
War
Interfering
Measures
Outdated
Technology
Poor
Organization
Access to
Dominant
Energy
Climate
Rising
Foreign
Nation
Italy
0
0
0
0
0
1
0
Dutch
Republic
1
1
0
1
0
1
1
UK
0
0
0
1
0
0
1
Before interpreting the results, the following conclusions can be made:
1. No single variable caused economic stagnation in all three country cases.
2. The variables ‘outdated technology’ and ‘access to the dominant form of
energy’ proved to be irrelevant in all three cases.
3. The Italian economy began to stagnate because of the effects of a climatic
downturn.
4. The economy of the Dutch Republic began to stagnate because of the
consequences of war, interfering measures, poor organization, rising foreign
nations, and climatic change. Why the climatic variable has been assigned a
positive value despite having had a negligible economic impact will be
explained below.
5. The economy of the UK began to stagnate because of poor organization and
the rise of a foreign nation.
The first goal of this thesis was to discover the true causes of economic stagnation
in the three country cases. Conclusions 3, 4 and 5 are the result of this inquiry.
Conclusions 1 and 2 will be returned to below when the evolving nature of the
variables is discussed. But first the rather schematic results in the table above will be
fleshed out by putting the variables in chronological order of their appearance. This
will allow possible patterns in the conjuncture of variables to become visible.
82
Step-by-Step Chronologies of Decline
Italy
The following table summarizes Italy’s step-by-step chronology of decline.
Italy
War
Interfering
Measures
Outdated
Technology
Poor
Organization
Access to
Dominant
Energy
Climate
Rising
Foreign
Nation
3
7
5
4
2
1
6
A deterioration of the climate occurred first. The end of the ‘Medieval Climate
Optimum’ at the end of the thirteenth century irremediably weakened the agricultural
sector. This caused gross and per capita agricultural output to decline even before the
ravages of the Black Death and the wars of the fourteenth and fifteenth century
devastated the countryside, decimated the population, and disrupted agriculture, trade
and urban manufacturing. As agricultural activity accounted for 45-60% of the GDP,
the climatic blow to the basis of Italy’s late medieval economy ended the 300 year
long growth phase in 1300, and marked the beginning of economic stagnation.
Then in 1348 the Black Death swept across Italy killing one third of the
population. This resulted in a serious shortage of manpower. Brief per capita gains in
productivity were reversed as soon as the population began to recover while gross
output in all sectors of the economy continued to decline. The introduction of
mezzadria share-cropping at the beginning of the fifteenth century hinted at the
‘internal rigidities’ that characterized Italy’s economy, for instance the prevailing
imbalance of power between urban centers and their rural surroundings. Until the
nineteenth century the organizational shortcomings of the mezzadria system would
contribute to the low productivity and gradual impoverishment of the Italian
countryside.386 The fifteenth century also marked the height of power of urban guilds.
When they were gradually excluded from politics in the sixteenth and seventeenth
century they grew increasingly hostile to “innovative techniques and entrepreneurial
capitalism”, which contributed to undermining Italy’s chances of adapting to the
changed economic parameters of the early modern period.387
386
387
Blim, Made in Italy, 25-26.
Black, Early Modern Italy, 72.
83
Following closely on the heels of these two manifestations of Italy’s
economy’s ‘internal rigidities’, were the wars of the mid-fifteenth and sixteenth
century. These ensured that the recovery of the population would happen only slowly
and that trade and industry would be interrupted for decades at a time. Fifteenth
century changes in shipbuilding marked the beginning of the end of Italy’s edge in
maritime technology. This technological lagging behind at sea had its equivalent in
urban manufacturing, where outdated technology contributed to making Italian
manufactures less desirable than foreign imports by the mid-sixteenth century.
Between 1300 and 1500, the Italian economy was characterized by the
ineluctable decline of gross agricultural output, a plummeting then stagnant
population, an ever-increasing distance from the technological frontier, and various
manifestations of organizational shortcomings. It is not hard to imagine that the
confluence of these factors formed a solid foundation for prolonged and absolute
decline that began in 1500 and was to last for more than 400 years.
From the mid-sixteenth century onwards other European countries
increasingly interfered in the economic realm where Italy had once been dominant.
Whether in the spice trade, Mediterranean freightage, the export of subsidized
manufactures or import restriction on Italian goods, already at the beginning of the
early modern period the days of Italy’s economic hegemony were numbered.
The Dutch Republic
The following table summarizes the Dutch Republic’s step-by-step chronology of
decline.
Dutch
Republic
War
Interfering
Measures
Outdated
Technology
Poor
Organization
Access to
Dominant
Energy
Climate
Rising
Foreign
Nation
2
4
6
1
5
N/A
3
First the climatic variable must be addressed. Although severe and unpredictable
weather in the mid-sixteenth century resulted in harvest failures, the diversified nature
of the Dutch economy and the Republic’s technological accomplishments and social
84
organization largely diffused the economic consequences of the ‘Little Ice Age’. The
contradiction between an ultimately insignificant variable being assigned a positive
value for purely methodological, in this case chronological reasons, underlines the
importance of a final interpretation of the findings in which such paradoxes can be
explained and rectified. Given the evidence climate can be discounted as a cause of
Dutch economic stagnation.388
The four variables that did contribute to transforming the Dutch Republic’s
three hundred and fifty year period of growth into one of relative economic stagnation
can be divided into two groups of two factors. Those that predated the onset of
stagnation by a time span of between fifty to seventy years, and those that appeared
simultaneously with the onset of stagnation. Why those factors that coincided with the
onset of economic stagnation were assigned a positive value was explained in chapter
three.
The two factors that pre-dated economic stagnation by a comfortable margin
are the parallel processes of capital concentration and proletarianization that from the
end of the sixteenth century undermined the Republic’s unique proto-capitalistic
socio-economic structure and represent an organizational shortcoming, and the burden
related to war that was apparent already in the closing decades of the sixteenth
century. The next two stagnation causing variables – ‘interfering measures’ and
‘rising foreign nations’ – are strongly interconnected. The rise of England and France
in the early decades of the seventeenth century found expression in the foreign
interventionist measures and wars that would dominate the second half of the
seventeenth century. The Peace of Westphalia (1648) and the Treaty of the Pyrenees
(1659) marked the end of Spain’s bid for European hegemony and confirmed political
plurality in Europe. In the ensuing multi-polar system characterized by short-term
shifting alliances designed to maintain the precarious balance of power, France,
Prussia, the Habsburg Empire and England emerged as key players. The Dutch
Republic was increasingly forced to face the inevitable consequences of its small
geographic size and population, and its dependence on foreign markets. England’s
Navigation Acts and France’s mid-seventeenth century protectionism marked the
beginnings of the purposeful undermining of Dutch hegemony in trade and
388
DeVries, Van der Woude, The First Modern Economy, 21.
85
manufacturing that help explain the Dutch Republic’s sudden transition from growth
to stagnation.
By the time coal had replaced peat as the primary source of energy and Dutch
industries and fisheries were characterized by outdated technology in the mideighteenth century, the Dutch economy was already in a state of absolute decline.
The United Kingdom
The following table summarizes the United Kingdom’s step-by-step chronology of
decline.
United
Kingdom
War
Interfering
Measures
Outdated
Technology
Poor
Organization
Access to
Dominant
Energy
Climate
Rising
Foreign
Nation
4
3
5
2
6
N/A
1
Evidence of the latent potential and steady growth of the American economy already
in the last decades of the eighteenth century warrants that the variable ‘rising foreign
nation’ is listed first. America’s comparative advantage in natural resource
endowment, investment rates, levels of education and sheer scale of its domestic
market, resulted in faster economic growth than the UK even while the latter was
experiencing its economic heyday of the Victorian Era.389 It is not to be forgotten that
a nation’s economic performance is relative to that of others countries. When the
British economy did begin to stagnate it did so relative to that of its closest
competitors.
The second cause of economic stagnation is the manifestation of poor
organization in sectors important to the economy. As has been observed these can
largely be traced back to the UK’s atomistic nineteenth century economic
organization.390 Although the consequences of this ‘institutional sclerosis’ would be
varied and endure well into the twentieth century, the absence of British firms in the
Second Industrial Revolution indicates that institutional shortcomings were already
389
390
Maddison, Explaining the economic performance of Nations, 56.
Elbaum, Lazonick, The decline of the British Economy, 2.
86
present in the latter half of the nineteenth century. Only these two variables can be
considered causes of economic stagnation.
A confluence of variables in the last decades of the nineteenth and first
decades of the twentieth century would ensure that Britain’s phase of relative
economic stagnation would be long-lasting. The rise of indigenous industrialization
and protective tariffs overseas highlighted the UK’s dependence on foreign markets as
well as British industry’s increasingly substandard production technologies and
products. The two World Wars did away with Britain’s empire ending its
monopolistic advantages in trade and its once-enviable access to resources. In terms
of access to the dominant form of energy, it was the First World War that hinted at the
revolutionary effects oil would have on western economies in the later twentieth
century. Lacking its own supply, the UK as a First World economy would always be
at a disadvantage compared to those nations with domestic supplies.
The economic problems resulting from the effects of these four variables
culminated in a twenty-five year phase of relative economic decline that began in
1950. The root cause of the remarkable lack of innovation that characterized the most
important sectors of British industry even after the Second World War might be found
in the adjective ‘relative.’ Although Britain’s economy stagnated and then declined
for an entire century, at no point was it reduced to a level of poverty that might have
forced it to adopt new methods of organization and production. For the duration of the
period in question, the British economy grew. Others economies simply grew faster.
Due to its utter insignificance in the context of the UK’s industrialized
economy of the nineteenth and twentieth century, the climatic variable will be
declared ‘not applicable’.
A comparison of the individual chronologies of decline demonstrates that there is no
recurring order among the variables that led to economic stagnation in all three cases.
Negative climatic influences are listed first in one case but are discarded in both
others. Poor organization is listed in first and second position in two cases but as a
variable could not be more different from the negative climatic influences and poor
access to the dominant form of energy which in the case of Italy occupy first and
second place. Although the effects of war that are third and second in line for Italy
and the Dutch Republic respectively might at first seem closely related to the
87
interfering measures of a foreign nation that rank third in the case of the UK, eventual
parallels between the two variables lose their significance due to the fact that they
contributed only to cementing and not causing economic stagnation in the case of
Italy and the UK.
In short, if the country comparison proved that no single variable caused
economic stagnation in all three cases as was stated in conclusion 1, a comparison of
the variable-by-variable chronologies of decline indicates that no recurring sequence
of variables caused decline. This finding addresses the second goal of this thesis
which was to formulate a generally-applicable rule regarding the cause or causes of
economic stagnation. The findings of this thesis suggest that no such generallyapplicable rule can be formulated.
In an attempt to explain the absence of any pattern among the individual
country chronologies that would be required to formulate a general rule regarding the
causes of economic stagnation, and to establish why certain variables emerged as
being significant while others did not, each variable will be briefly evaluated in the
evolving historical context of the time frame covered in this thesis. The variables will
be divided into two groups: significant and insignificant variables.
Insignificant Variables
The variables whose role in causing economic stagnation was insignificant in all three
cases are ‘outdated technology’ and ‘access to the dominant form of energy’.
Outdated Technology
Given its ranking as last and penultimate variable in the individual country
chronologies, there is reason to believe that outdated technology is a consequence and
not a cause of economic stagnation. In the case of Italy, outdated technology had its
root in the institutional rigidities best portrayed by the excessive conservatism and
bureaucracy of urban guilds. In the case of the Dutch Republic, the waning
profitability of manufacturing and fishing in the face of rising foreign competition, the
increased burden of taxation that fell predominantly on the shoulders of entrepreneurs,
and the lack of an indigenous coal supply undermined investment in new
technologies. In the case of the UK, the widespread and sustained lack of
technological innovation in the late-nineteenth and first half of the twentieth century
88
was a result of the economy’s ‘institutional rigidities’ as outlined by Elbaum and
Lazonick. Although outdated technology doubtlessly contributed to transforming the
periods of economic stagnation into ones of economic decline in each of the country
cases, this variable clearly remains a consequence of the real causes of stagnation.
Access to the Dominant Form of Energy
What helps explain the waning importance of this variable – from second, to penultimate and finally last place in the cases of Italy, the Dutch Republic and the UK
respectively – is the increased availability of energy and the greater diversification of
modern economies compared to their pre-industrial predecessors. Of the three
economies in question Italy’s had the least available energy and was the least
diversified. Relying almost solely on manpower as mechanical energy, the drastic
population decline caused by the Black Death lowered gross agricultural output and
raised wages for workers further undermining the competitiveness of urban
manufactures. With few alternative sources of power – Malanima carefully outlines
the energetic limitations of the late medieval energy system - the economy of
fourteenth century Italy relied largely on the sheer size of its population.391 Indeed
only the rigid adherence to the established chronological benchmarks – the Black
Death occurred a mere forty eight years after the onset of Italian economic stagnation
– prevents this variable from qualifying as a cause of economic stagnation.
Compared to that of Italy, the economy of the Dutch Republic was both more
diversified and with its ample peat endowment well supplied with the era’s dominant
form of energy. It was not until mercantilist measures and foreign competition both in
manufacturing and at sea had undermined the profitability of manufacturing and trade
and prompted a reorientation towards agriculture in the eighteenth century that the
Dutch economy with its greatly reduced scope of economic activities was set to suffer
the consequences of its lack of coal in the industrialized era.
As with peat in the case of the Dutch Republic, the UK’s rich endowment in
coal supplied it with abundant energy well into the twentieth century. It was not until
oil gradually began to relieve coal as the primary energy carrier after the First World
War that the UK would begin to feel the economic consequences of its dependence on
foreign oil. These consequences might have meant having to make political
391
Malanima, “The energy basis for early modern growth”, 59.
89
concessions that were capable of leaving a bitter and lingering aftertaste, but were by
no means comparable to the disastrous effects that Italy’s loss of manpower had on its
economy.
As the total amount of energy available to national economies gradually
increased in the time span that has been the focus of this thesis, the link between
energy and economic activity lost some of its immediacy. The Dutch Republic’s use
of its abundant peat to fuel domestic industries in the early modern period, and the
UK’s exploitation of its fortuitously located coal fields from the mid-seventeenth
century onwards explains the waning importance of this variable in these two cases.
With the advent of oil and natural gas exploitation the twentieth century would
experience an energy glut unparalleled in human history. Simply put and limiting the
statement only to the most successful First World economies, from roughly the latenineteenth century onwards the availability of energy was no longer the prime
variable that limited economic growth.392
Significant Variables
Variables that caused economic stagnation in one or more cases are the ‘effects of
war’, ‘interfering measures taken by a foreign nation’, ‘poor organization in sectors
important to the economy’, ‘climate’ and the ‘rise of a foreign nation’.
The Effects of War
Although war is intrinsic to human history, the nature of war evolved considerably in
the time period in question. Granted that the economic consequences of the national
and dynastic rivalries that characterized the late Middle Ages are not to be
underestimated, the economic implications of the ‘military revolution’ of the sixteenth
century and the ongoing military conflicts to maintain the balance of power within
Europe from the late-seventeenth to early-nineteenth century greatly increased the
cost and destructiveness of war.393 The Dutch Republic had the ill fortune of being an
object of envy of neighbors with much greater military capacities in the period in
which the economic consequences of warfare increased dramatically. Maddison
392
393
Smil, Energy in World History, 185, 187, 232-234.
Kennedy, Rise and Fall, 55-58, 94.
90
carefully distinguishes between the Eighty Years’ War in which the Dutch Republic
was but one theater of war for Habsburg Spain, and the Republic’s seventeenth
century conflicts against England and France in which it felt the “concentrated energy
of the modern nation state.”394 If the economic consequences of the Eighty Years’
War were already sufficiently grave to be considered a cause Dutch economic
stagnation, the seventeenth century wars against England and France would
fundamentally contribute to turning the Republic’s period of relative economic
stagnation into one of absolute decline.
Although the effects of war did not play a role in triggering economic
stagnation in the case of the UK, Kennedy argues that the UK was “irretrievably
weaken[ed]” by the First World War.395 The economic consequences of the
destructive capacity of twentieth century militarized warfare are clearly exemplified
by Germany. In the forty years leading up to the First World War the German
economy grew at an average rate of 1.63% per year, 0.3% above the Western
European average.396 In the period between 1914 and 1950 in which Germany was at
the heart of two World Wars its growth rate was reduced to 0.17%, well below the
Western European average of 0.83%. In the period between the two World Wars the
Western European average growth rate dropped from 1.3% to 0.8%. Had the UK’s
economy not already been outpaced by that of the United States at the end of the
nineteenth century, it is not hard to imagine that the First World War would now be
known as the turning point from growth to stagnation in British economic history.
In the context of this thesis the issue of assigning a value to the variable
‘effects of war’ remains fundamentally one of timing. In all three cases the variable
occupies a mid-field position in the country-specific chronologies. It is beyond the
scope of this thesis to decide whether the drawn out conflicts of the late Middle Ages
in Italy and the ongoing wars in which the Dutch Republic found itself embroiled
caused more or less damage than the shorter but vastly more destructive World Wars
in which the UK was involved. What is clear is that where war did not lead to
economic stagnation as in the case of the Dutch Republic, it helped cement economic
decline.
394
Maddison, The World Economy, 80.
Kennedy, Rise and Fall, xxi.
396
Maddison, The World Economy, 186. The numbers from the next two sentences are also from
page 186.
395
91
Interfering Measures taken by a Foreign Nation
Although often not more than a hodgepodge of measures motivated as much by a
malicious desire to do harm than by any verifiable economic rationale, mercantilist
measures dominated national economic policies in the seventeenth and earlyeighteenth century.397 While tariffs designed to protect fledgling national industries
appeared sporadically in the nineteenth and twentieth century, especially in
economically difficult times, it is safe to say that by the end of the eighteenth century
mercantilist measures were being replaced by policies intended to foment free trade.
Of the three cases the Dutch Republic’s short-lived existence as economic hegemon
comes closest to coinciding with the age of mercantilism and indeed the introduction
of British and French mercantilist measures contributed to ending its growth phase.
The spread of comprehensive mercantilist measures in the adjacent countries in the
first decades of the eighteenth century contributed significantly to transforming the
Dutch Republic’s relative economic stagnation into absolute decline. Given the timing
of the heyday of economic measures willfully designed to interfere with foreign
economies, the insignificance of this variable in the case of Italy’s fourteenth century
and the UK’s late-nineteenth century stagnation is made plausible. Of the seven
variables this one travels least well through the ages. Discounting its manifestations
that were seen to have been irrelevant to causing economic stagnation in Italy and the
UK, this variable was clearly at its zenith in the mercantilist era of the seventeenth
and eighteenth century. That it contributed to causing economic stagnation only in the
case of the Dutch Republic can therefore largely be explained by its chronological
specificity.
Poor Organization in Sectors Important to the Economy
This variable was a cause of economic stagnation in the case of the Dutch Republic
and the UK. In the case of Italy, the unresolved ‘internal rigidities’ of its mature
industrial economy – that can be considered a manifestation of this variable –
contributed to turning economic stagnation into almost five centuries of absolute
economic decline. The comments here will be limited to the cases of the Dutch
Republic and the UK.
397
Cameron, Concise economic history, 128-130.
92
Israel argues that the economy of Europe that emerged in the early modern era
was very different from the fragmented localized economies of the medieval
period.398 DeVries argues that the increasingly integrated markets characterized by a
convergence of prices and emerging albeit imperfect factor markets allowed for
innovation in the organization of production that would have been unthinkable in
earlier centuries.399 Successfully implemented cost-reducing measures could mean
success in vast international markets.400
‘Innovation’ is the recurring theme and many states fell victim to their own
inability to evolve and adapt to the new economic parameters. Habsburg Spain was
blinded by the glory of its enormous but ultimately unprofitable territorial and
administrative empire and clung to its imperial policy instead of pursuing measures
that might have redressed the sclerotic tendencies of its economy.401 Similarly, Italy’s
urban industries’ continued commitment to products and markets that were in relative
decline contributed to driving capital and labor into agriculture - Cipolla’s ‘engine of
decline’ – further exacerbating the regressive structural trends of Italy’s ailing
economy.402 The Dutch Republic that thrived amidst these economically turbulent
times did so precisely because of organizational innovations in agriculture, industry
and most importantly commerce.403
The decline of the UK and the rise of the United States are further examples
that can be used to highlight the increasing importance of innovation and efficiency in
the organization of vital economic sectors. The combined consequences of the UK’s
stubborn adherence to the principles and practices of ‘competitive capitalism’ are at
the heart of the explanation of its absence in the Second Industrial Revolution and its
comparatively poor economic performance in the twentieth century. The nineteenth
and twentieth century equivalent of the seventeenth century cost-reducing innovations
in which the Dutch excelled, were the mass-production techniques, marketing and
distribution networks and professional management that characterized American
‘corporate capitalism’.
DeVries argues that the marked differentiation in land use, the increased social
stratification and the new powers of markets that were emerging in early modern
398
Israel, Dutch Primacy in World Trade, 405.
DeVries, The Economy of Europe in an Age of crisis, 247, 248.
400
Ibid., 27.
401
Ibid., 250.
402
For ‘urban industries’ see ibid., for ‘engine of decline’ see Cipolla, “The Italian Failure”, 10.
403
DeVries, The Economy of Europe in an age of crisis, 251.
399
93
Europe caused the “long-established locational pattern of industry and commercial
activities [to undergo] a dramatic revision.”404 As has been observed the innovation in
the organization of production allowed the Dutch to fill the void that was left by Spain
and Italy as they retreated into economic insignificance. The rise of the UK over the
Dutch Republic is at least as much a military as an organizational victory, but here too
innovative forms of organization contributed to the UK’s seventeenth and eighteenth
century rise. A firm linkage between its industrial and highly efficient commercial and
foreign trade sectors lowered transaction costs by making merchants and industrialists
sensitive to mass markets and encouraged the shift of productive resources towards
expanding markets.405 As the UK’s economic success of the Victorian Era was largely
attributed to the early-nineteenth century principles of ‘competitive capitalism’ these
remained unchallenged and unchanged despite growing evidence of the organizational
advantages of ‘corporate capitalism.’ The UK’s slowly developing ‘institutional
sclerosis’ eventually led to a loss of competitiveness in the later nineteenth and early
twentieth century as progressive globalization opened up competition for domestic
and foreign market shares to a greater number of players.
In the two country cases whose periods of stagnation and decline occurred in
the modern era – the Dutch Republic and the UK - a lack of flexibility and innovation
in the key sectors of the economy played a decisive role in causing economic
stagnation. In the case of Renaissance Italy, where it can only be assumed that the
fragmentation of the late medieval economy attenuated the effects of international
competition and postponed the inevitable consequences of Italy’s economic rigidities,
similar organizational shortcomings might not have led to economic stagnation but
were fundamental to buttressing half a millennium of absolute decline. The
‘institutional’ factor which is commonly acknowledged to encompass the totaled and
multifarious aspects of human agency continues to elude a succinct and useful
definition. Despite its dubious definition and across-the-board applicability the fact
that all three economies in question failed to successfully adapt to the inevitably
evolving economic parameters of their times only serves to pique the interest in the
workings of this ‘institutional’ factor.
For ‘dramatic revision see’ ibid., 27, for ‘marked differentiation in land use, increased social
stratification and powers of markets’ see ibid., 245.
405
DeVries, The Economy of Europe in an age of crisis, 253-254.
404
94
Regardless of troublesome issues of definition, one cautious conclusion can be
drawn. If with increasing globalization an economy’s ability to stay flexible and adapt
to emerging trends had become at least if not more important to its enduring economic
success than its geography, natural resources or access to the dominant form of
energy, then the responsibility for ensuring economic growth and staving off
economic stagnation clearly lies with no one other than its citizens. In a study of
economic history this is a clearly anthropomorphic finding with undeniable cultural
undertones! Does this warrant renewed interest in Max Weber’s difficultly quantified
protestant ethic? The effects of culture on the economy that have been excluded from
this thesis because of difficult quantification might deserve further investigation after
all.
Climatic Influence
In the case of Italy the consequences of the sudden climate change are clear. The
economy had an important agricultural component and the end of the ‘Medieval
Climate Optimum’ had severe, economic stagnation-causing consequences. In the
case of the Dutch Republic the variable’s initial positive value is misleading. It has
been explained that the positive value was due solely to chronological and
methodological thoroughness and does not accurately represent the actual economic
impact of the ‘Little Ice Age’ of the mid-sixteenth century. Two and a half centuries
after the end of the ‘Medieval Climate Optimum’ wreaked havoc on Italy’s
agricultural sector, the diversified Dutch economy with its technological
achievements and social organization was largely immune to the effects of climate
change. Two and a half centuries later we encounter the UK’s industrialized economy
of the Victorian Era characterized by food and grain imports and mechanized
agriculture. By the nineteenth century weather was little more than a topic of polite
conversation.
Rise of a Foreign Nation
In the country specific chronologies of decline this variable is listed in sixth, third and
first place for Italy, the Dutch Republic and the UK respectively. The argument that
can be made for the growing importance of this variable is as follows: with the
increasing globalization of the world economy competition for market shares was
95
opened up to a greater number of competitors and became fiercer. The economic
consequences of a nation successfully or unsuccessfully competing in this now
international economic theatre became more immediate. A similar logic underlies the
increased importance of good organization in important economic sectors.
Globalization increased the speed with which the consequences of waning
competitiveness were felt. If Venetian cloth exports took one hundred years to fall
from 25 000 cloths to a paltry 200 cloths, there is considerable unanimity that Dutch
manufacturing collapsed in the twenty seven years between 1713 and 1740.406 And if
in 1870 only England and Belgium could be described as “highly industrialized
countries”, by 1900 this was no longer the case with the United States, Germany,
France, Russia and Japan also vying for a similar designation, but also the year in
which the UK lost its GDP per capita lead to the United States.407 By the twentieth
century the unprecedented capital and labor flows and booming commodity trade of
the late-nineteenth century had led to a general convergence among the Atlantic
economies.408 On a wider geographical scale the increased pace of technological
development and its subsequent international diffusion led to a similar convergence in
levels of GDP per capita among the major western economies by the end of the
twentieth century.409
Given the increased pace of globalization of the past century one is tempted to
ask whether the world of the twenty-first century is indeed ‘flat’ as Thomas Friedman
tirelessly argues.410 ‘Flat’ refers to the level playing field upon which all competitors
in the global economy presumably enjoy an equal opportunity. Thankfully this view is
not uncontested.411 Regardless of one’s political views on the pros and cons of
globalization there is little point in denying that the globalized economy of the twenty
first century has pitted nations against one another in a competition for domestic and
foreign market shares that is unprecedented in the history of mankind. The increasing
speed and intensity of this globalization process that has made first neighboring
406
For ‘Venetian cloth production’ see Cipolla, “The Economic Decline of Italy”, 203, for
‘consensus on the collapse of Dutch manufacturing’ see Israel, Dutch Primary in World Trade, 377.
407
Friedberg, The Weary Titan, 24.
408
O’Rourke, Jeffrey, Globalization and History, 5.
409
For ‘increased pace of technological development’ see Kennedy, Rise and Fall, xix, for
‘convergence of levels of GDP per capita’ see Maddison, The World Economy, 132.
410
This point is reiterated throughout his book The World is Flat.
411
In Making Globalization Work, Nobel Prize winning economist Joseph Stiglitz concedes that
although there have been drastic changes in the world economy, the world is far from flat and in many
ways is getting less flat.
96
countries and then all countries regardless of their geographic location potential
economic competitors can be clearly observed in the time span covered in this thesis.
It can be concluded that the economic impact of each factor varied over time. The
importance of climatic influence and the access to the dominant form of energy
declined over time due to having been made redundant by a combination of modern
technology, transport and increased market integration or being momentarily
irrelevant due to the sheer abundance of available energy. The fact that the end of
cheap fossil fuel has given the energy variable renewed importance is an indication
that variables might temporarily lose their significance but can be returned to the
foreground by unforeseeable developments. The variables of poor organization and
rising foreign nations have gained in importance as a result of the increased
competition of the globalizing world economy. Of the three remaining variables,
outdated technology has been identified as a consequence and not a cause of the true
causes of economic stagnation, interfering economic measures were more era-specific
than any other variable and since the seventeenth and early-eighteenth century have
become somewhat of a political anachronism and the economic effects of war remain
negative.
Three Final Observations
The final goal of this thesis was to formulate general observations regarding the wider
process of economic rise and decline.412 All good things come in threes.
First, some words of warning regarding the potentially massive consequences
of unforeseeable or unalterable developments. Examples of such epoch-delineating
events that proved central to cementing their economic decline can be found for each
of the three country cases. In the case of Italy it was the discovery of the Americas
and the subsequent shift in focus of world trade from the Mediterranean to the
Atlantic. In the case of the Dutch Republic it was the end of Spanish Habsburg’s bid
for dominance in Europe and the subsequent and irreversible rise of England and
412
The three general conclusions listed here are based above all on the study of the three specific
historical cases that have been the subject of this thesis. Any further inspiration, hunch or gut feeling
has resulted from reading the works of the authors listed in the bibliography. Although as much as
anyone else I would like to formulate universally-applicable rules of thumb regarding the labyrinthine
process of economic rise and decline, I would imagine that any hypothesis resulting from such a study
would require a much greater number of historical cases to bolster its applicability and credibility.
97
France. For the UK it was the fortuitous geographical, geological and cultural makeup of the North American continent that together represented unparalleled ingredients
for economic growth.
Although it is unlikely that an unknown continent lingers somewhere waiting
to be discovered and exploited, there is no lack of possible contemporary equivalents
of such meta-historical developments that can be envisioned. The discovery of a
hereto unknown source of energy, a sudden technological breakthrough or the
colonization of a distant planet might suddenly and irrevocably alter the existing
economic status quo. Although seemingly unlikely, history is nothing if not
unpredictable.
Less far-fetched but with similar implications for national economies is
increasing globalization. With global container trade averaging double-digit growth
since 2003 and every modern container ship carrying 560 times the cargo of a single
Dutch fluyt ship, geographic location, resource endowment, and climate have become
secondary to guaranteeing economic growth to what Maddison, ever fearless in the
face of complex topics, defines as the ‘less tangible layers of causality’.413 Listed in
no particular order they are the ‘character of institutions’, the ‘degree of social
conflict’, ‘international order’, ‘ideology’ and the ‘nature of economic policy’.414 A
nation’s efforts to manipulate these until they are respectively as efficient, minimal,
stable, tolerant, and sustainable as possible might not guarantee that economic
stagnation and decline can be staved off indefinitely, but will likely position the
nation most successful in addressing these issues more favorably in an international
comparison than those countries that fail to address these elusive social and political
agendas.
Second, a few observations on the evolving nature and everyday ramifications
of economic stagnation and decline. In a few words, economic decline is not as bad as
it sounds, and over time its implications for everyday life have grown less serious. In
this thesis it has been observed that the epicenters of economic activity were able to
conserve a large portion of their wealth and even during or after extended phases of
absolute economic decline still fared better than many of their less developed
contemporaries. Although perhaps least true in the case of Renaissance Italy where
For ‘growth of container trade’ see www.shipsandboxes.com
Own calculation for the comparison of cargo capacities. The average carrying capacity of a Dutch
fluyt ship was averaged at 250 tons, that of a modern container ship 140 000 tons.
414
Maddison, Explaining the economic performance of nations, 91.
413
98
the city-states were nevertheless able to conserve their status of being the richest areas
of Europe until the seventeenth century, the thesis of the softening of the implications
of decline gains validity with increasing temporal distance from the late Middle Ages.
The Dutch Republic declined in absolute terms from 1700 to 1800, but even during
this period remained far above the European urbanization average and only lost its
lead in GDP per capita to the UK at the beginning of the nineteenth century.
Kossmann argues that even at its economic nadir the Dutch Republic benefited from
its proximity to the much larger markets of England and France, the experience of its
service sector, and its capital accumulation and colonial possessions that would have
made a lasting farewell into poverty and backwardness unthinkable.415 The UK is a
further case in point. Although losing its lead in per capita productivity to the United
States around 1870, its economy continued to “prosper as it had never done
before.”416 Between 1870 and 1900 the gross national income grew from 1.3 billion to
2.08 billion pounds, London remained the world’s financial center and “Britain
continued to dominate world trade.”417 Even after seventy years of relative economic
stagnation British GDP per capita remained above the European average and not even
a quarter century of relative economic decline could dislodge it from among the most
powerful economies of the world.
The topic of economic stagnation and decline easily conjures up images of
deserted villages, a disease-riddled population clad in rags, or a post-industrial
wasteland leaking poisonous substances into the groundwater. Although the end of an
economic heyday need by no means be pleasant, it is important – and comforting – to
know that this study of economic rise and decline indicates that phases of stagnation
and decline by no means imply destitution, nor that economic downturns are
necessarily a lasting condition. If nothing else, this conclusion can be seen as a
consolation for declining hegemons.
This brings us to our third and final point. If above it was concluded that
stagnation and decline are only ever relative to the economic performance of other
nations and even the most severe manifestations of absolute decline needn’t
necessarily imply hunger, indigence and a return to the Dark Ages, it must also be
mentioned that there is strong historical evidence that economic decline, be it relative
Kossmann, “Some Meditations on Dutch 18th century Decline”, 52.
Friedberg, The Weary Titan, 24.
417
Ibid.
415
416
99
or not, is inevitable. In the history of mankind there has yet to be a political entity or
nation that has sustained its economic hegemony indefinitely. In her search for ‘hyper
powers’ in human history, Chua lists only six candidates over a time span of two and
a half thousand years that can claim such a title.418 All of them, including the myriad
of lesser powers that dotted the time spans between the reigns of these behemoths
declined eventually.
The technological accomplishments of the modern era and the creature
comforts they have bequeathed to the First World can easily create a false sense of
security. Satellites orbit the earth indefatigably, stock markets rest only grudgingly on
weekends, experts tell us how much longer global oil reserves will last with such
seemingly scientific precision that we are tempted to believe that technology will
provide the solution to any future predicament, and the highways of Belgium can be
seen from space. In terms of technological development, available energy, and
scientific knowledge our world could not be more different from that of a Renaissance
peasant hoeing under the sun, an East India Company seaman falling out of the
lookout nest and disappearing into the sea, or a British petty bureaucrat shuffling back
into his bamboo hut in the far flung reaches of the empire to refill his tumbler with
gin.
Despite the innumerable accomplishments of our age fundamental parallels to
our most humble beginnings remain to remind us of our human condition. We
continue to wage war, to interfere in the affairs of others, and to be exposed to the
whims of our increasingly fragile and depleted ecosystem. What then should be done
if economic stagnation and decline are indeed inevitable? This study suggests that the
most any nation can do is to tend to its own affairs, in this case the ‘deeper, less
tangible layers of causality’ known to economic historians as ‘institutional’ variables,
and, and this is said in all academic earnestness and sincerity, hope for the best.
418
They are in order the Achaemenid Empire, the Roman Empire, the Tang Dynasty of Imperial
China, the Mongol Empire, the 17th century Dutch Republic and the British Empire. Chua, Day of
Empire.
100
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