ECONOMIC DEVELOPMENT IN EUROPE IN THE 19th CENTURY

Vienna, 19th century housing

The 19th century was characterised by the triumph of industrialism, especially in western Europe. Modern industry spread from Great Britain to Belgium, France, Germany and to the USA and later to other areas of the world. It greatly transformed the conditions of life and work, differently in different regions.

Population, Resources and Technology

In 1800 the European population counted around 200 million, the world’s around 900 million. In the 19th century growth accelerated to around 400 million in Europe in 1900; 1.6 billion in the world. Such high rates of growth were unprecedented. The two most industrial nations in Europe in the 19th century, Great Britain and Germany,  had growth rates in excess of 1% per year, which would result in a doubling of the population within 70 years. The least industrialised nation, Russia, even boasted 2% population growth, which shows that there is not necessarily an intrinsic correlation between population growth and industrialisation.

The agricultural production increased enormously: First, because the amount of land under cultivation was extended, fallow was abolished and former waste land was cultivated. Second, new and more scientific techniques, fertiliser, natural and later artificial, were introduced and more efficient tools and instruments could be used because of the price reduction of iron. Later in the century steam-driven threshers and mechanical reapers were invented.

Cheap transportation facilitated internal and international migration: 60 million left Europe in the 19th century; 35 million to the USA, 5 million to Canada, 12-15 million to Latin America, Australia, New Zealand and South Africa. The British Isles sent the largest number of emigrants, namely 18 million, then Germany and Scandinavia. After 1890 most emigrants left Italy, Austro-Hungary and Russia including Poland. Also substantial migration within Europe took place; sometimes only temporary. A majority of people moved in response to economic pressure at home and hopefully better opportunities elsewhere. After the Great Famine of 1845 1.2 million Irish left for the USA and many more for Great Britain. A steady stream of European immigrants to nearly empty areas overseas characterised the 19th century.

The growth of the urban population in Europe was extraordinary. Historically the chief limitation on the growth of cities had been economic, namely it was impossible to supply large urban populations. Technological innovations and transport improvements relaxed these limitations. The factory system furthermore made the concentration of the work force necessary. Some of the largest centres arose near the sites of coal, for instance the Black Country of England, the Ruhr area in Germany and the region around Lille in France.

The importance of resources was enormous in modern economic growth. Resources, which were formerly unknown or of little value, acquired enormous importance, especially coal. Plentiful coal deposits became primary sites of heavy industry, the others had to import it. In the late 19th century hydroelectricity was introduced, a new source of energy, which created an advantage for regions with lots of water power. Europe was relatively well endowed with conventional mineral resources, some of which had been exploited since antiquity, but modern industry intensified pressure. The search for new sources, better exploitation, and the search for raw materials in the colonies led the Europeans to extend political control over poorly organised areas of Africa and Asia.

Development and diffusion of technology: Until 1870 many continental industrialists, often supported by their governments, were devoted to acquiring and naturalising the technological gains of the British industry. The pace of technological change accelerated and new technologies spread to many industries not previously affected by science-influenced technology. New industries were created as a result of scientific discoveries. In the first phase of industrialisation on the continent many English and Scottish experts and workers were encouraged to come over and apply their skills and knowledge to the newly established industries; they were often even encouraged by continental governments.

The institutional framework:Some legal and social environment was more conducive to economic growth than others. The institutional setting for economic activity that produced the first industrial societies gave wide scope to individual initiative and enterprise, freedom of occupational choice, geographical and social mobility and relied on private property and the rule of law. It further emphasised the use of rationality and science. Some of these elements were wholly new in the 19th century and included in the European Law systems. In Great Britain the common law prevailed since the time of the Norman Conquest in 1066. It relied on custom and precedent as written down in legal decisions and was of an evolutionary character. The protection of private property and interest had priority, but also public interest was protected and it incorporated the customs of merchants. The common law was spread to the British colonies and forms the basis of the US and many other legal systems.

On the continent the old regimes had become so inflexible that the French Revolution opened new opportunities for enterprise and ambitions. It abolished remnants of the feudal order, instituted a more rational legal system which finally became the Napoleonic Codes. The French carried their revolutionary reforms to the lands they conquered and occupied. The Code Civile of 1804 was most fundamental and clearly reflected the interests of the propertied classes. It treated property as an absolute, inviolable right and the freedom of contract gave valid contracts the force of law; it further recognised the bill of exchange and other commercial papers and authorised loans of interest. The Code Civile spread throughout Europe, parts of North America and the whole of Latin America. Of particular importance for the economic development was the Code de Commerce of 1807.Before, no single comprehensive rule had governed the forms of business enterprise. Until 1825 joint-stock corporations were prohibited in Great Britain unless they had a special charter from Parliament. Limited liability for shareholders was only generally available in 1862 there. The Napoleonic Code de Commercedistinguished three main types ofbusiness organisation:

  1. Simple partnerships where partners were individually and collectively liable for all debts
  2. Limited partnerships ”commandite” where active partner/s assumed unlimited liability for the business affairs, and the silent or limited partner/s only risked the amounts they subscribed. It could be established simply by registering with a notary public and became the favoured form of enterprise.
  3. Corporations in the American sense with limited liability for all owners were anonymous (individual names need not figure) and had to be chartered by the government
  4. In 1867 free incorporation with limited liability were introduced in France.

“Commandite” and later free corporations quickly spread on the continent.

Economic thought and policy: The Napoleonic wars saw a culmination of economic nationalism and imperialism of earlier decades. In the 1760s and 1770s the Physiocrats advocated the merits of economic freedom and competition for the first time. In 1776 Adam Smith wrote “The Wealth of Nations”, in which his main concern was the abolition of unreasonable restrictions and restraint on private enterprise. This would promote competition within the economy and thus would maximise the wealth of nations. The book became very popular and was translated into all major languages. Other writers such as the reverend T.R.Malthus andDavid Ricardo contributed to this body of literature, which is called “classical political economy”. These ideas began to be implemented in Great Britain first  in the 1820s and 1830s. Jeremy Bentham and the Utilitarians, for example John Stuart Mill who represented in both schools, contributed to the changes in legislation concerning the revision of the criminal and penal laws in a humanitarian direction and the creation of a metropolitan police force and above all the repeal of the Corn Laws, which introduced a long period of free trade. The advocates of economic liberalism called for a reduction of the role of government in the economy. The system of taxation was simplified and symbols of the old regime like the Navigation Acts were repealed. According to Smith the government had only three functions to perform: protect society from outside aggression, protect the individual within the society from injustice and aggression and establish and maintain public works and institutions. This attitude gave rise to the phrase “Laissez-faire” (=let do) and meant that especially business persons should be free of all government restraint to pursue their own selfish interests. The main target of the classical economists was the old apparatus of economic regulations, full of special privileges and monopolies. Economic liberalism never achieved the same success on the continent as in Great Britain because of the long tradition of state paternalism. On the continent governments played a more active role in the process of industrialisation.

Class structure and class struggle: Europe’s old regime was organised in three orders: nobility, clergy on top and then all the other common people. The social pyramid of the 18th century consisted of the ruling class of land-owners, nobility and high clergy on top; ownership of land enabled them to live nobly without working. Then the upper middle class, “haute bourgeoisie”, namely the great merchants, high government officials, professionals such as attorneys and notaries. They frequently owned some real property, but the basis of their position was special knowledge and skills, their stocks in trade or their personal contacts to nobles. Then followed the lower middle class “petite bourgeoisie”, such as artisans, handicraftsmen, retail tradesmen and others engaged in service occupations and independent small holders. At the bottom ranked peasants, domestic workers in cottage industries and agricultural labourers and all paupers. The shift from agriculture and the growth of cities led to a rise of new social classes. At the beginning of the 19th century peasants were by far the most numerous group and they still constituted a majority in Europe as a whole at the end of the 19th century, but their numbers had drastically decreased in industrialised areas. They were characterised by a traditionalist mentality, and a great desire to obtain land. Their participation in broad social movements was rather sporadic and limited to their immediate economic interests.

The position of leadership of the aristocracy was challenged by the rapidlygrowing middle classes. By the middle of the century they had succeeded in establishing themselves in the seats of power in most parts of Western Europe. At the beginning of the 19th century urban workers constituted a small minority, but they rapidly increased in number with industrialisation. The emerging “working class” was very diverse. It consisted first of factory workers and miners. Domestic servants, artisans and handicraftsmen had existed before; now some of them sank to the status of unskilled workers as machines replaced them, others like typesetters, machinists, carpenters and masons found demand for their work in growing industries and cities. Casual labourers, like dockers or porters constituted an important group; then also transport workers and clerical workers. Their common characteristic was their dependence for a living on the sale of their labour for a daily or a weekly wage.

Karl Marx predicted in the middle of the century that the polarisation in the then advanced industrial societies would continue until only two classes would be left: the ruling class of the capitalists, who would replace the aristocracy, and the industrial proletariat. Gradually all the intervening classes would be forced down into the proletariat until its numbers were so great that it would rise in revolution and overthrow the ruling class of the capitalists. But the spread of industrialisation has greatly swollen the middle classes of white-collar workers, skilled artisans and independent entrepreneurs. Successful revolutions as the one in Russia in 1917 were the work of small groups of militant and intellectual professional revolutionaries making use of the weaknesses of their societies. The usual forms of working-class solidarity and self-help were trade unions and later working class political parties. Trade unions have a long history running back to the journeymen’s associations of the late Middle Ages. The modern movement began with the rise of modern industry. In the first half of the century unions were weak, local and short-lived in the face of strong opposition of the employers and repressive legislation. Western governments’ attitudes towards trade unions developed in three phases: First outright prohibition and suppression, then limited toleration and finally full legal rights to working men and women to organise and engage in collective activities, usually not before the 20th century.

In Great Britain in the 1830s the trade union movement became involved in a broader political movement. The purpose of “Chartism” was to achieve suffrage and other political rights for the disenfranchised workers. This led to the failure of the movement in 1848. Trade union organisation deteriorated in England afterwards. In 1851 the “Amalgamated Society of Engineers” was formed, which became one of the “New Model Unions”. The distinctive feature of the “New Model Union” was that it organised skilled workers only on a craft basis, so to say the “aristocracy of labour”. Unskilled workers and workers in the new factory industries remained unorganised until towards the end of the century. “New Model Unions” aimed modestly at improving the wages and working conditions of their own members who were already the best paid in British industry via peaceful negotiations with employers and mutual self-help. They grew in strength, but membership was low. Attempts to organise the large mass of semi-skilled and unskilled workers were rare, but successful strikes of the “match girls” (young female workers in the match industry) took place in 1888, and of the London dockworkers in 1889. In 1913 trade union membership had reached 4 million, more than 1/5 of the total work force in Great Britain.

On the continent trade unions made slower progress. French unions were closely associated with socialism of St. Simon and similar political ideologies from the beginning, but the French labour movement remained decentralised, highly individualistic and therefore rather ineffective. Also German labour movement was associated with political parties and political action from its start in the 1860s, but it was more centralised and cohesive. There were three main divisions; the liberal trade unions of skilled craftsmen, the socialist or free trade unions with a larger membership and finally the Catholic or Christian trade unions which developed later, founded with the blessing from the pope in opposition to “godless” socialist unions. By 1914 the German unions had 3 million members, 5/6 of them socialist union members, the second largest in Europe. In economically backward countries in southern Europe, French influence dominated working class organisations, savagely repressed by employers and the state. Austro-Hungary and the Low Countries followed the German model with moderate success at local levels, but religious and ethnic differences and opposition from the government hindered membership growth. In Scandinavian countries the labour movement developed its own traditions, closely related to social democratic parties and the cooperative movement. By 1914 Scandinavian unions had done more than any other trade union movement to improve the living and working conditions of its members. In Russia and eastern Europe trade unions remained illegal until after World War I.

Education and literacy: A marked growth of literacy and education can be seen in the 19th century. Countries of North Western Europe show the best results both in effort and attainment. Great Britain is not at the top, although there is a correlation between levels and rates of industrialisation and educational effort and attainment. Southern and Eastern Europe are least impressive. There is a high standing of Sweden already in 1850 which is surprising because it was a poor country until the middle of the 19th century, but had one of the highest growth rates in the second half. Religious, cultural and political factors are responsible for the early high literacy rates. So Sweden already had an educated workforce at the onset of industrialisation. Similar tendencies can be noted in other Scandinavian counties and Scotland.

Before the 19th century publicly supported educational institutions hardly existed. The well-to-do hired tutors, religious and charitable institutions and fee-charging proprietary schools provided elementary education for a small part of the population, mostly in towns. Much influential opinion even opposed literacy for the labouring poor. Technical education was mostly provided through apprenticeship. Secondary and higher education was reserved for the sons of the privileged classes and aspiring members of the clergy. Ancient universities had ceased to be centres of advancement of knowledge, except in Scotland and the Netherlands. They stuck with a traditional curriculum, emphasising the classics, they trained bureaucrats and gave the semblance of a liberal education to the sons of the ruling classes.

The French Revolution introduced the principle of free publicly supported education. So countries with a tradition of wide spread primary education established such institutions, such as Scandinavia and Germany, where it did not become compulsory until the end of the century. In England the Factory Act of 1802 required owners of textile mills to provide elementary education for apprentices, but the law was poorly enforced, So the law of 1833 required instruction of all child workers. In the first half of the century many artisans and skilled workers attended “Mechanics’ institutes”, a kind of evening classes supported by fees or charitable institutions. But Britain lagged behind in the provision of public education, also Southern and Eastern Europe.

The French Revolution further introduced the important specialised schools for science and engineering “Ecole Polytechnique” at university level, but outside the university system.  They offered advanced instruction and research and were widely imitated throughout Europe except in Great Britain. In Germany the old universities were revived and new ones created. Scientific training was borrowed from the French model, but was available to a much larger number of students. As science became more and more the foundation of industry, Germany could take advantage soon. American educators later turned to the German model, then also French and British universities.

Early Industrialisers: Great Britain, Belgium, France, Germany

Great Britain

It was the first industrial nation. By the end of the Napoleonic wars it was the world’s leading manufacturing nation, producing ¼ of the world’s industrial production, the world’s leading sea power, the leading commercial nation, comprising 1/4 – 1/3 of total international commerce. Great Britain retained its dominance as industrial and trading nation for most of the century. Then the USA overtook it in total industrial production in the 1880s and Germany in the first decade of the 20th century. But before World War I it was still the leading commercial nation, yet closely followed by Germany and the USA. Britain reached its peak of industrial supremacy from 1850-1870. Entrepreneurial shortcomings and the backwardness of the educational system may be blamed for the industrial slowdown. Great Britain was the last western nation to introduce universal public elementary schooling and the few great English universities paid little attention to scientific and engineering education, which the Scottish did. British society was regarded less fluid and open than during the century before.

Of all large nations Great Britain was most dependent on both imports and exports for its material well-being. It depended on the international economy; thus commercial policies like tariffs of other nations were greatly felt. It had by far the largest merchant marine and the largest foreign investment of any nation, which were important earners of foreign exchange. The central role of London in international banking and insurance businesses added to these invisible earnings. Income distribution became slightly more equal and the proportion of the terribly poor fell. An average Briton in 1914 enjoyed the highest living standard in Europe.

Belgium

The first region of continental Europe to adopt fully the British model of industrialisation was the area that became the kingdom of Belgium in 1830. In the 18th century it had been part of the Habsburg Empire with the exception of Liege (a Prince-Bishopric), then it formed part of the French empire, followed by the kingdom of the United Netherlands. Despite these frequent and upsetting political changes, the area showed a remarkable degree of continuity in economic development.

The proximity to Britain was one factor in the early and successful adoption of the British industrialisation pattern. But there were other, more fundamental reasons:

The region had a long industrial tradition: cloth production in Flanders in the Middle Ages, metal wares in the Sambre-Meuse valley. Bruges and Antwerp were the first Northern European cities to adopt Italian commercial and financial techniques in the late Middle Ages. The region’s economy suffered under Spanish rule, but recovered during the more benign Austrian government in the 18th century. An important hand-powered rural linen industry grew up in Flanders and coal mining developed in Hainaut and Sambre-Meuse.

Belgium’s natural resources resembled Britain’s: easily accessible coal deposits. Despite its small size it produced the largest output on the continent until after 1850. Further it had iron ore in proximity to the coal deposits plus lead and zinc.

Due to its location, tradition and political connections the region received important infusions of foreign technology, entrepreneurship, capital and had a favoured position in several foreign markets, e.g. in France.

The coal mines were the largest users of steam engines and also attracted the greatest amount of French entrepreneurship and capital. During the French domination connections of great importance developed between the Belgian coal industry and the French industry in general, which survived the end of the French domination. The network of canals and other waterways connecting northern France with the Belgian coal fields greatly facilitated this traffic. Until the 1870s new mines were sunk in Belgium with French capital.

The cotton industry grew up around Ghent, which became the “Belgian Manchester”. It had been the principal market for the rural linen industry of Flanders and the city had already established several calico printing works, but without use of mechanical power. At the beginning of the 19th century a local entrepreneur, Lievin Bauwens, went to England and smuggled spinning machines, a steam engine and even English workers to Ghent and started the modern Belgian cotton industry. That was the end of the rural linen industry.

A traditional iron industry, fuelled by charcoal, had long existed in the Sambre-Meuse valley and the Ardennes Mountains. In Belgium the first commercially successful coke-fired blast furnace on the continent became operational in 1827, others soon followed including that of William Cockerill with the Dutch government of King Willem I as partner. In 1830 the Cockerill firm was the largest industrial enterprise in the Low Countries and probably the largest on the continent. It employed 2,000 workers. With its coal and iron mines, blast furnaces, refineries, rolling mills and machine shops it was one of the first vertically integrated metallurgical firms and served as a model.

The Belgian revolution of 1830 produced an economic depression due to political uncertainty. However a few years later an industrial boom started again due to two special factors. First, the Belgian government’s decision to build a comprehensive railway network at state expense, a boon to the coal, iron and engineering industries and second, an institutional innovation in the field of banking and finance. After the revolution the joint stock bank, authorised by King Willem I, Société General de Belgique, endowed with state capital, stimulated an investment boom unprecedented on the continent. Between 1835 and 1838 it created 31 sociétés anonym including blast furnaces, ironworks, coalmines, machine works, textile factories, sugar refineries, glass works and the Antwerp Steamship company. All these promotions were supported by James de Rothschild of Paris, the most influential investment banker of his time, who facilitated access to French capital. In 1835 another joint-stock bank, the Banque de Belgique was set up, modelled on the Société General, within few years it established 24 industrial and financial enterprises.

By 1840 Belgium was the most highly industrialised country on the continent and in per capita income terms closely followed Britain. Although its rate of industrial growth gradually declined like that of all early industrialisers, it remained the most highly industrialised nation on the continent in per capita output until 1914, second to Great Britain. The bases of this prosperity remained coal, iron, steel, other metals, engineering and to a lesser degree textiles. In the chemical industry the introduction of the Solvay ammonia-soda process boosted an otherwise slowly developing industry. Belgian engineering firms excelled abroad in the installation of narrow-gauge railways and electric street railways and interurban trains. 50 per cent of its GNP was exported, mostly to France.

France

Of all the early industrialisers France had the most varied pattern of development. Although its pattern of industrialisation differed from Great Britain, it was no less efficient, and in terms of human welfare, may have been even more efficient. It seems that the French pattern was more of a model for late successful industrialisers than the British model.

If we look at the basic determinants of economic growth in France, we can see that in the 19th century France had a surprisingly low rate of demographic growth. When all relevant measures of growth, such as GNP, industrial production, are reduced to a per capita basis, it seems that France did really well. Second is the matter of resources: British, Belgian and German industrialisation was based on an abundance of coal resources. Yet France was much less well endowed with coal and the character if the deposits made exploitation more expensive. This fact had important implications for other coal-related industries, such as iron and steel. In technology French scientists and engineers took the lead in many fields including hydro-power, steel, aluminium, automobiles and later aviation. The institutional factor is much more complex and difficult to evaluate. The Revolution and Napoleon’s regime provided the basic institutional context for most of continental Europe, but many important changes took place in the 19th century. Modern economic growth began in France in the 18th century. At that time the rates of growth were roughly the same in France and Britain, but the century ended with Britain going through the industrial revolution spurred by the cotton industry, while France was caught in political turmoil. This affected the difference of relative performance of the two economies throughout the 19th century. From 1790 until 1815 France was more or less continuously involved in warfare involving mass conscription of manpower. Under wartime demand the output of the economy expanded, but mainly along established lines with little technological progress. The important iron and chemical industries experienced technological stagnation. Britain also went to war, but it experienced much less drain on manpower, leaving most of the land warfare to its continental allies. With its control of the seas and with France cut off from its overseas markets, British exports expanded dramatically, hastening the technological modernisation of its principal industries.

After a rather severe post-war depression, which affected the whole of Western Europe, even Britain, the French economy resumed its growth at even higher rates than in the 18th century. For the whole of the 19th century French economic growth rate was probably between 1.5 and 2 per cent. Figures seem to indicate that in the 19th century the German economy grew almost twice as fast as the French and the British a third as fast. The figures of overall performance can be misleading because they all have to be reduced to a per capita basis and then you find: 1.7 % growth for Germany, 1.4% for France and 1.2% for Britain. So the slow demographic growth in France seems to account for the lower growth rates. On the other hand one has to take into account that the German economy was rather backward until the middle of the 19th century and by that started its industrialisation with a much lower per capita rate. Furthermore, as a result of the Franco-Prussian war, two of France’s economically most dynamic regions, Alsace & Lorraine, became part of the new German Empire in 1871. Although the overall performance of the French economy was quite respectable, it experienced variations of growth rates.

Apart from the coal and iron industry the foundations for an important machinery and engineering industry were laid. Many of the new machines went to the domestic textile industry. Beet sugar refineries also grew, as well as chemical, glass, porcelain and paper industries, which were unexcelled for their variety and quality of the products. A number of new industries originated or were quickly domesticated in France, such as, gas lighting, matches, photography, galvanisation and vulcanised rubber. Improvements in transportation and communication, including extensive canal building, steam navigation, railways and the electric telegraph, facilitated the growth of domestic and foreign commerce. France had a sizable export surplus in commodity trade throughout that period, by which it obtained the means for its substantial foreign investments. The political and economic crisis of 1848-1851 caused a break in this favourable economic development. With the proclamation of the Second Empire French economic growth resumed its accelerated rate. The economic reforms of the 1860s, notably the free trade treaties and the liberalised incorporation laws, provided fresh stimuli for the economy. The war of 1870-71 brought again economic and political disaster, but France recovered economically astonishingly well. It suffered less from the depression of 1873 than other industrialising nations and France experienced a boom until 1881 with an extensive growth of the railway network, both coal and iron production increased fourfold. Foreign commerce increased 5% annually due to the improvements in transportation and communication. In this period growth averaged 2-4% and France was the world’s second trading nation, it increased its share of world trade to 11 per cent. The depression that set in in 1882 lasted longer in France and cost France more than any recession before. It started with a financial panic and was prolonged by disastrous diseases that seriously affected the wine and silk industries, large losses on foreign investments from defaulting governments and bankrupt railways. Worldwide a return to protectionism was noticeable and the new French tariffs and a bitter commercial war with Italy further hindered recovery. Prosperity returned just before the end of the century with the extension of the Lorraine ore fields and the advent of new industries, such as electricity, aluminium, nickel and automobiles. “La belle époque” until the outbreak of World War I was a period of material prosperity and cultural efflorescence. It is likely that the average French person in 1913 enjoyed a material standard of living as high as or even higher than that of the citizens of any other continental nation.

The following key features characterise the French pattern of industrialisation: First, the low rate of urbanisation, second, the scale and structure of enterprise and third, the sources of industrial power, which are all interrelated with the low demographic growth and the scarcity of coal. Of all the industrial nations France had the lowest rate of urbanisation; it also had the largest proportion of its labour force in agriculture (40% in 1913). That is the reason why France was the only industrial nation in Europe that at the beginning of the 20th century was self-sufficient in foodstuffs and had a surplus for export. Concerning enterprises, France was known for the small scale of its firms: according to a census of 1906 71% of all industrial firms had no wage earners, which means the owner and family members worked there and these firms constituted 27% of the French workforce. The large firms concentrated in mining, metallurgy and textiles and in between there were many small and medium-sized firms employing the majority of wage earners. The smaller ones were in traditional artisanal industries, food processing, clothing, woodworking, the larger ones in chemicals, glass, paper and rubber. Another characteristic of French enterprises was the high added value in luxury articles and the geographical dispersion. Contrary to Britain and Germany with few areas of high concentration of industry, France’s industry was highly dispersed in small towns, villages and the countryside. This was determined by the nature of the power sources available. At the beginning of the 20th century coal production per capita in France was 1/3 that of Belgium and Germany and 1/7 that of Britain, although France exploited its known reserves to the full. Many resources were in hilly central or southern regions, far away from the markets and difficult to access. So France depended on imports and to a much larger extent on water power. Thanks to improved technology water power remained competitive with steam until the middle of the 19th century. On the continent and in resource-poor countries water power retained its importance much longer than in Britain. Yet water power imposed constraints on industry: the best locations were usually remote from the centres of population; the number of users per location was limited as well as the size of the installations. Thus, water power, which was so important for French industrialisation, imposed a pattern of small firm size, geographical dispersion and low urbanisation on French industrialisation.

Germany

Germany was the last of the early industrialisers; poor and backward in the first half of the century, politically divided, predominantly rural and agrarian. Small concentrations of handicraft or proto-industrial industry existed in the Rhineland, Saxony, Silesia and the city of Berlin. Poor transportation and communication facilities, diverging money systems and commercial policies characterised the politically fragmented area.

On the eve of World War I the unified German Empire was the most powerful industrial nation in Europe. The largest and most modern industries for the production of iron, steel and their products, electrical power and machinery and chemicals were located there. The coal output was second only to Great Britain; it was the leading producer of glass, optical instruments, metals, textiles and several other manufactured goods and it boasted one of the densest railway networks and a high degree of urbanisation.

How was this achieved? The fast industrialisation process can be divided into three periods. First, from 1800 to the Zollverein 1833, the gradual awakening of economic changes, the creation of the legal and intellectual conditions essential for the transition to a modern industrial system. Second, the period of conscious imitation and borrowing until 1870, laying the actual material foundations of modern industry, whereby transportation and finance took shape and finally, Germany quickly rose to industrial supremacy in continental Western Europe from 1871 until World War I. In each period foreign influences played an important role: in the beginning legal and intellectual influence emanating from the French Revolution and Napoleonic reorganisation, then a brisk inflow of foreign capital, technology and enterprise, in the final period the expansion of German industry into foreign markets.

The left bank of the Rhine was politically and economically united with France under Napoleon and therefore adopted the French legal system and economic institutions. Later even Prussia adopted them and further abolished serfdom in 1807 together with the distinction between noble and non-noble land, thus creating a free trade in land. Guilds were abolished together with many other restrictions on commercial and industrial activity, It improved the legal status of Jews, reformed the fiscal system, introduced central administration and the first modern educational system. In 1818 Prussia laid the foundations of the Zollverein, later the smaller and larger states of Germany joined, except Austria, which was complete in 1833. It abolished all internal tolls and customs barriers, created a common German market. A common external tariff, determined by Prussia, was introduced, which followed a liberal, low-tariff commercial policy in order to exclude protectionist Austria from participation. The railway then made the unified German economy possible. The rivalry among the various German states contributed to the number and quality of the universities, but also to a hastened railway construction. It expanded more rapidly than that of France, which also resulted in greater inter-state cooperation. From 1860s on the progress in the coal and iron industry was extremely rapid, which owed much to the extension of the railway network The key to the rapid industrialisation of Germany was the coal industry and there the Ruhr coalfield, which produced 2/3 of German coal before World War I.

Economic unification had already been achieved, a new cyclical upswing in investment, trade and industrial production had begun in 1869 and the proclamation of the empire in 1871 added euphoria to the boom, hundreds of new joint-stock companies were founded. The hyperactivity came to a halt in 1873 with the financial crisis that started a severe depression, but after the regression growth resumed more strongly than before; from 1883-1913 the domestic product grew 2 % annually per capita. The most dynamic sectors were those producing capital or intermediate goods for industrial consumption: coal, iron, steel and most of all chemicals and electricity, especially illumination and urban transport. The German economy was characterised by the extremely large size of the firms with thousands of employees, e.g. Siemens-Schuckert employed 80,000 workers, dictated by technical economies of scale and by the close connections between the banking system and manufacturing industries. Another characteristic was the prevalence of cartels, an agreement among nominally independent firms to fix prices, limit output, divide markets, or other monopolistic practices, contrary to prohibitions by law of such cartels in Great Britain and USA. By means of protective tariffs cartels could maintain high prices on the domestic market while engaging in virtually unlimited exports to foreign markets, even at prices below the average production costs if the mark-up on domestic sales could offset the nominal losses on exports. Further state-owned railways charged a lower rate for shipments to the border than for intra-country shipment. That is why German exports increased so rapidly on the world market, so that even free trade Great Britain adopted retaliatory measures.

Latecomers: Austro-Hungary, Netherlands, Scandinavia

The Austro-Hungarian Empire

Austro-Hungary had an unjustified reputation of economic backwardness in the 19th century, but only some portions of the empire were really backward. To an even greater extent than France or Germany, Austro-Hungary was characterised by regional diversity and disparity. The western provinces, especially Bohemia, Moravia and Austria proper were far more advanced economically than the east. Their first stirrings of modern economic growth could be observed as early as the second half of the 18th century, but topography made internal and international transport and communication difficult and expensive. Furthermore the empire suffered from a poverty of natural resources, especially coal.

In the 18th century textile, glass, iron and paper industries grew up in Austria proper and the Czech lands. Textile industries were by far the largest, especially wool and linen, a fledgling cotton industry existed since 1763. The technology was traditional, but already a few proto-industries, large workshops with mechanical power, had been set up, but most production was carried out under the putting-out system. Mechanisation began at the end of the 18th century and spread to the woollen and linen industry later. By the 1840s the empire was second only to France on the continent in the production of cotton goods. The well-established industries of the west continued to expand gradually after the revolution 1848. As everywhere the business cycle produced short-term fluctuations in the rate of growth. But social institutions were hostile to growth; most of all the persistence of serfdom until 1848. Yet the reforms of Joseph II in the 1780s already allowed peasants to leave the land of their lords and to market their crops as they chose and they paid rent and taxes to their feudal lords, little more. The abolition of serfdom was to grant the peasants freehold tenures and substitute taxes paid to the state that were formerly paid to the lord. Improvement in agricultural productivity had already been started by the noble landowners. In 1850 the abolition of all internal customs frontiers and the creation of an empire-wide customs union boosted economic growth, but territorial division of labour was already well established before: the export of manufactured goods from Austria to Hungary and Hungarian exports of agricultural products to Austria.

Another obstacle to more rapid growth was the monarchy’s foreign trade policy. It remained staunchly protectionist, which helped Prussia to exclude it from the Zollverein. High tariffs limited imports and exports because high-cost protected industries were unable to compete on the world market. Another major reason for slow growth was the levels of education and literacy. In the Austrian half of the empire it was the same as in France, but unevenly distributed, but in the Hungarian half it was even lower; the same west – east gradient is visible. There is a high correlation between literacy, industrialisation and per capita income.

The crucial role of transport also hindered growth: much of the country is mountainous. Land transport was therefore expensive and water transport virtually non-existent on the few canals. The Danube and a few other large rivers flow eastward and southward, away from the large markets and industrial centres. Since the 1830s only steamboats could be used for upstream navigation. The earliest railways in Austria and the Czech lands consolidated the geographical division of labour; after the Compromise with Hungary 1867 more railways were built in Hungary, too. Hungary got more. Mainly grain and flour was transported there and Budapest became an industrial centre as the largest milling centre in Europe, using manufactured machines, later even electrical machinery. The Hungarian Industries concentrated mostly on food products: sugar refinery from beets, preserved fruits, beer and spirits. Austria and Bohemia put an emphasis on textiles.

A charcoal-fired iron industry had existed in the Alps for centuries as well as in Bohemia with its long tradition of metal working. With the advent of coke, charcoal industries declined. In Bohemia and Austrian Silesia, better endowed with coal, modern metallurgical industries developed since the 1830s; not only primary production of pig iron, but refining and fabricating as well, such as machinery and machine-tool factories, heavy chemical industries. Some rather sophisticated industries grew up around Vienna and Lower Austria, for example the locomotive factory in Wiener Neustadt in the 1840s. Austria steadily fell behind the united Germany in industrial growth, but the industry in the western half continued to grow while the eastern half caught up after1867. At the beginning of the 20th century the western half was about the same level of development as the average for western Europe, while the eastern half was lagging behind, but was well in advance of the rest of eastern Europe.

The Netherlands and Scandinavia

Lumping together Scandinavian countries has cultural, not economic reasons. In fact the economies of the Netherlands and Denmark have more in common with each other than Denmark with Norway or Sweden and while Belgium was an early industrialiser with a developed coal and heavy industry, the Netherlands were a latecomer in industrialisation, although the Netherlands and Belgium are usually lumped together, too.

All four countries were considerably lagging behind in industrialisation in the first half of the 19th century and then boosted their economic growth in the second half, especially in the last 2 or 3 decades. From 1870-1913 Sweden had the highest rate of growth of output per capita of any country in Europe at 2.3%, Denmark was second with 2.1%. Norway at 1.4% had approximately the same per capita growth as France and also the Netherlands seemed to have experienced high growth rates in this period. By 1914 those four countries had achieved standards of living comparable with those of the early industrialisers on the continent. In view of their late start and their lack of coal, we have to investigate their reasons for success.

All of them had small populations: at the beginning of the 19th century Denmark and Norway had fewer than 1 million and Sweden and the Netherlands fewer than 2.5 million inhabitants. All countries more than doubled in population by 1900. Density varied greatly, the Netherlands had one of the highest densities in Europe, whereas Norway and Sweden the lowest, even lower than Russia. Denmark was closer to the Netherlands. Considering human capital as a characteristic of the population, we can say that all four of them were extremely well endowed. In both 1850 and 1914 the Scandinavian countries had the highest literacy rates in Europe and in the world and the Netherlands was well above European average. This fact was of inestimable value in helping the national economies to find their niches in the international economy.

With respect to resources, the most significant fact is that all four lacked coal and that is undoubtedly the reason why they were not early industrialisers and why they did not develop a sizable heavy industrial sector. As for other resources, Sweden was well endowed with iron ore deposits, timber and water power, as well as Norway with less metallic ores. Water power in Sweden and Norway was a significant factor in their development early in the 19th century; in 1820 Norway had nearly 30.000 water mills. Water power became extremely important with the harnessing of hydroelectric power after 1890. Denmark and the Netherlands were almost as devoid of water power as of coal, but they had wind power. Unfortunately this could not serve as a basis of a major industrial development.

Location was an important factor, too, as all of them had immediate and extensive access to the sea. This had important implications for an abundance of a natural resource, namely fish, for cheap transport, merchant marines and the ship building industry. The Dutch with a long tradition of fisheries and mercantile shipping had at first difficulties in developing good harbours for steamships, but eventually did so in Rotterdam and Amsterdam with spectacular results in transit trade with Germany and Central Europe and for the processing of overseas foodstuffs and raw materials, such as sugar, tobacco, chocolate, grain and eventually oil. Denmark also had a venerable commercial history with traffic through the Öresund. The abolishment of tolls boosted traffic in the Öresund and in the port of Copenhagen. Norway became a major supplier of fish and timber in the European market in the first half of the century and had the second largest merchant marine after Britain in the second half of the 19th century. Sweden was slower in developing its merchant marine, but profited from the removal of restrictions on international trade and from the reduced transport charges on bulk goods, such as timber, iron and oats, especially after Britain repealed its Navigation Acts in 1849.

The political institutions in all four countries did not pose any significant barriers to industrialisation and economic growth. The post-Napoleonic settlement detached Norway from Denmark and attached it to Sweden, from which it seceded in 1905. Sweden lost Finland to Russia in 1809. The Congress of Vienna created the kingdom of the United Netherlands, from which Belgium seceded in 1830. Prussia seized Schleswig Holstein from Denmark in 1864. Otherwise the 19th century passed almost peacefully with a progressive democratisation process in all four countries. They were reasonably well-governed without corruption or costly state projects. In all the countries the government aided the railway construction. As small countries dependant on foreign markets, they followed a liberal trade policy, although a protectionist movement developed in Sweden. In Denmark and Sweden agrarian reforms took place gradually from the late 18th century to the first half of the 19th century. The reforms resulted in the abolition of any remnants of serfdom and the creation of a new class of independent proprietors with a pronounced market orientation.

The key factor in the success of the four countries along with high literacy rates was their ability to adapt to the international division of labour determined by the early industrialisers and to stake out areas of specialisation in international markets for which they were especially well suited. This meant a great dependence on international commerce, which showed frequent fluctuations, but it also meant high returns. In Sweden exports accounted for 22% of national income, Denmark exported 63% of its agricultural produce, Norwegian exports, mainly timber, fish and shipping services accounted for 30% of national income at the beginning of the 20th century – shipping services alone constituted 40% of foreign earnings. The Netherlands depended heavily on service occupations for earnings, too. The service sector employed 38% of the work force and produced 57% of national income in 1909.

Although all these countries entered the international market in the middle of the 19th century with exports of raw materials and lightly refined consumer goods, they had all developed a highly sophisticated industry by the beginning of the 20th century. This is called “Upstream industrialisation”, which means: a country that once exported raw materials begins to process them and exports them in the form of semi-manufactured or finished goods. Sweden’s timber trade is an example of this: First timber was exported as logs, in the 1840s sawmills were built with water power and lumber was exported, then paper production was introduced, from which over half was exported, mainly to Germany and Britain. Although Sweden’s charcoal-smelted iron could not compete in price with coke-smelted iron, its higher quality made it especially valuable.

The main reasons for the acceleration of growth rates in the two decades preceding World War I are first, the period was one of general prosperity with rising prices and buoyant demand, second, large-scale imports of capital in Scandinavia, whereas the Netherlands were themselves an exporter of capital, and third, the rapid spread of the electrical industry. Electricity was a great boon in the economies of all four countries. Norway and Sweden with their vast hydro-electric potential were especially favoured, but also Denmark and the Netherlands benefited. All countries quickly developed important industries for the manufacture of electrical machinery and products, e.g. light bulbs in the Netherlands. Especially Swedish, but also Norwegian and Danish engineers became pioneers of the electrical industry, e.g. Sweden was the first country to produce smelt iron by means of electricity on a large scale. Electricity allowed these countries to develop metal-fabricating, machinery and machine tool industries, including ship building without coal or primary metals industries.

The example of these four countries shows that it was possible to develop sophisticated industries and a high standard of living without indigenous coal or iron supplies and that there is no single model for successful industrialisation.

The No-Shows: Southern and Eastern Europe and Russia

Southern and Eastern Europe

These are the reasons why these areas did not industrialise in the 19th century. The failure to industrialise significantly before 1914 was due to low levels of per capita income and high poverty rates. But the regions showed marked regional variations with a few islands of modernity, for example in the north of Italy, surrounded by seas of backwardness. Second, very low levels of human capital were responsible for the lack of economic growth; Italy, Spain and Russia were at the bottom of adult literacy and primary school enrolment. Third, the lack of any meaningful agrarian reform and low levels of agricultural productivity impeded industrialisation processes and finally the countries suffered under varying degrees of autocratic, authoritarian, corrupt and inefficient governments.

Russia

The large absolute amounts in textile and heavy industry production are misleading because Russia’s per capita production and consumption of coal was well below that of even Austro-Hungary. Russia was predominantly agrarian; 2/3 of the labour force was involved in agriculture, but productivity in agriculture was abysmally low due to primitive technology, scarcity of capital and persisting serfdom until 1861. The beginnings of Russian industrialisation in the 18th century under Peter the Great were promising, but with the exception of the Ural iron industry these enterprises were not economically viable. Since 1830 industrialisation became more visible, but most of the workers were nominal serfs who made cash payments to their lords from their money wages instead of customary labour services. Paradoxically there were also a number of serf entrepreneurs. After the Crimean War (1853-1856) the government started a programme of railway construction with foreign capital, it modernised the banking system with positive effects visible in 1880s. “The Great Spurt” of industrial production took place in the 1890s when the state-owned Trans-Siberian Railway was built in 1891 together with associated mining and metallurgical industries. Foreign entrepreneurs and capital contributed decisively. The boom of Russian industrialisation in the 1890s was followed by a slump in the beginning of the 20th century. After the revolution of 1905-06 important agricultural reforms that increased productivity were carried out. Although Russia had undergone substantial change in the direction of a modern system it was still far behind Western Europe. Its economic weakness became acute during World War I and contributed to revolutions and defeat.

Literature:

Cameron, Rondo, & Neal, Larry, A Concise Economic History of the World, Oxford University Press 2002

Hobsbawn, Eric, The Age of Empire 1875-1914, Abacus 1997