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24 July 2019

Capitalism: the road to world domination

In his history of capitalism’s rise, Donald Sassoon argues that for the economic system to work both the state and the population must accept its drawbacks as well as its benefits.

By Paul Collier

The Anxious Triumph is a big book of comparative history stretching across a global canvas. Written by Donald Sassoon, an emeritus professor at Queen Mary, University of London, it is hugely erudite: everyone can learn from it. A truly global history usually struggles because for most of the past, globally common forces have been negligible relative to those that are localised. But when it works, getting beyond the nation brings valuable insights: for example, Peter Frankopan’s The Silk Roads (2015) reoriented early European history on to an axis of China-Persia-Rome, and Philipp Blom’s recent book Nature’s Mutiny revealed the effects of a common climatic shock (the “Little Ice Age” of the 1600s). The late 19th century is the earliest date by which exposure to a common global economy had significant effects on national histories: elucidating this is the task Sassoon sets himself.

“Capitalism” is elusive, and as Sassoon shows, even by his chosen period of 1860- 1914 its global reach was patchy. The world has had markets and businesses for thousands of years, but this is not what “capitalism” has come to denote. At its most basic it is the technology of harnessing large-scale economies to transform productivity: factories cluster in cities, into which peasants flood. This was the transformation that began in Britain around 1800. Global capitalism begins with the intermittent spread of this technology. But related technological advances in transport dramatically reduced costs, linking markets globally through a huge expansion in trade and, more selectively, enabling substantial movements of people and capital from Europe to the Americas.

In combination, these new forces produced massive social dislocations too complex to be reduced to clichés. Since Sassoon starts his analysis mid-century he misses their onset. But by the 1840s their impact on northern Britain, the pioneer of capitalism, had inadvertently produced the social hell of overcrowding, brutality and disease that triggered Chartism. As urbanisation spread it became a great killer: cholera broke out in Bradford in 1849 and by 1892 it was killing 9,000 in Hamburg.

The dominant theme of the book is how from the 1850s national politics responded, country by country, to this spreading social chaos, and tried to tame it. By 1914 these responses had largely succeeded. Politics was helped by the gains from the productivity revolution, from trade, and from the productive reallocation of workers and capital from overworked fields in Europe to the fertile lands of the New World. In combination, these gains were spread sufficiently wide that they belatedly lifted mass living standards in Europe and the Americas. Just as Britain had led the way into social hell, it led the way out of it: per capita food consumption and income broadly doubled between 1860 and 1913, and life expectancy rose. By 1914 America had caught up with Britain, and other countries were closing the gap, but the key point is not the zero-sum contest to be the top country, but the positive-sum process of improved well-being.

Sassoon nicely debunks romanticism about the pre-capitalist era. The European peasantry epitomised the Malthusian nightmare of a population that had expanded to the point at which food consumption was at bare subsistence. The escape from Malthus during the late 19th century was unprecedented: the miracle delivered by capitalism. Nevertheless, there were major losers even in Europe and its settlements, and elsewhere the consequences were often adverse.

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Sassoon has a balanced discussion of the impact of colonialism. What might have happened to the rest of the world had global trade and imperialism not occurred – “What have the Romans done for us?” – is unknowable, but experiences between countries were very different. For China and the Congo, the violent encounters with imperialism were appalling. For Japan, the much gentler encounter with the West triggered recognition of the need to catch up: it was a valuable stimulus to change. Elsewhere, it was perhaps usually a cul-de-sac that delayed necessary transformations to what are now termed “common interest states”. By this, development economists mean societies where the interests of elites are broadly coincident with those of other citizens, because they are sufficiently similar or because there is no way for them to diverge.

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Colonialism usually found local elites that were exploitative, and when it withdrew returned power to them. Sassoon plausibly argues that while the damage to non-European societies was often considerable, as in India, the gains to the imperial powers were peripheral. Germany, whose modest empire was an unambiguous drain on its economy, shows that the success of capitalism was not dependent on empire. 

Sassoon’s core contribution is to demonstrate the accompanying conditions for the triumph over Malthus. First, capitalism needs an effective state. The “minimal state”, currently beloved of Silicon Valley libertarians, and in the 19th century embraced by a few French and Austrian economists (Jean-Baptise Say, Léon Walras, Carl Menger), is too silly for its flaws to warrant much elaboration, but for those who need convincing, Sassoon does a good job. An effective state is needed to address the social dislocations that capitalism generates, and to provide the infrastructure and risk-reduction that enables business to flourish.

Sassoon’s next step is both more important and somewhat sketchier: an effective state needs a national community (his italics). To be effective, states need to build a web of reciprocal obligations with which enough citizens are happy to comply. A domain of shared identity has to be constructed that defines these reciprocal obligations: this was a political project undertaken by elites in Europe, Japan and America. And for people to buy into this commonalty, both material conditions and mentalities need to change. Materially, most people need to be experiencing rising living standards, as they were by the late 19th century. As to mentalities, the age-old presumption that life is a zero-sum game between my group and its enemies, and that my life is hard because they have wronged me, has to give way to an optimistic sense of common progress: most people must come to believe that co-operation, rather than conflict, will deliver a better future. This inclusive optimism was the key social transformation of the late 19th century: a thesis of self-improvement laid out in the Scottish reformer Samuel Smiles’s book Self-Help (1859).

No author writing of such a vast subject can fairly be criticised for leaving things out, but I think this profound shift in popular mentality could be captured by the Great Exhibition of 1851, which Sassoon does not mention. Perhaps it is too neat for a serious historian that the first half of the 19th century should close with the failure of Chartism and the widespread European rebellions of 1848: dead-end manifestations of (fully justified) grievance against elites; while the second half should open with a mass celebration of technological optimism. Six million people visited the exhibition, travelling there by the new technological magic of the railways, to be inspired by a myriad of industrial innovations, all displayed within the technological miracle of a “crystal palace”.

This was a highly effective reset of mentalities from backward-looking group grievance, to forward-looking common enthusiasm for “Progress”. Post-1918, the mass mentality shifted again, from optimism to morbidity and despondency.

By what criteria should we judge the capitalist system? Sassoon accepts the conflation of purpose with profit as inherent: the system is unethical, but is justified by its result: mass material progress warrants the designation “triumph”. But the neoliberal profit-as-purpose philosophy is very much a post-1950s, America-driven intellectual fashion that is already in retreat. During the late 19th century, while there were plenty of unethical capitalists, there were also many remarkably ethical ones. Sassoon is somewhat light on capitalists as human beings: the Quakers warrant five descriptive lines for being “extraordinarily active in business”. But this profoundly understates their contribution in pioneering purposive capitalism. Quakers, and other ethical capitalists, thought the purpose of business was to create profitable solutions to human problems. John Cadbury, a Quaker, sold hot chocolate expressly as a nutritious and delicious alternative to alcohol: ethical business families shared with the grass-roots Temperance Movement the goal of ridding Britain of Gin Alley. By 1914 this alliance made real progress. Further, we now better understand that the sort of capitalism that emerges depends upon public policy.

Sassoon is heavy on politics but light on banks, yet the details of bank regulation matter. During the 19th century banking grew locally in each of the major industrial cities. Local banks experienced a roller-coaster: triumph amid the accelerated growth of local businesses, coupled with the anxiety of knowing that if the local economy slumped, they would fail. Around the turn of the century, British banking policy resolved the anxieties by amalgamating the banks into national giants, whereas Germany kept the banks local but added insurance. A century later, these differing policies have contributed to social divergence: lacking local banks, the British financial system has little stake in local economies.

But neither the material progress in mass consumption, nor the ethical stance of business are adequate criteria by which to assess a socio-economic system. The real miracle of late-19th-century capitalism was its inherent dynamism of creative destruction, coupled with a new fluidity in social cooperation: in combination, they quickened the pace of “social learning”, not just in technology, but in social and political responses to problems. The major innovations in addressing the new social disruptions were social reform, trades unions, and protectionism. The impetus for social reform was the new sense of national community – inspired by social activists, but engineered and embraced by pragmatic political leaders of the centre right – such as Bismarck, Christian democrats in various European countries, and Disraeli in the UK; the political power of social democracy, which vastly expanded social co-operation, had to wait until the 1940s.

Trades unions were the pragmatic responses of workers to the horrors of factories: membership grew massively and businesses mostly learnt that accommodation was wiser than confrontation. Protectionism was partly a social response – for example, to protect European farmers from the threat posed by cheap American grain – and partly a strategic response by governments intent on catching up through industrialisation. Prior to 1914, protectionism merely tempered the remarkable fall in transport costs: global trade expanded massively.

As Sassoon argues, anxiety is intrinsic to capitalism: its inherent dynamism propels societies into the unknown. Mass material success and rapid social learning are not enough: a dynamic society is a dangerous society unless it builds systems for resilience: this was the tragic failure of 1850-1914. Sassoon shows that the belle époque exuded not anxiety but complacency. European society was about to discover that this complacency was unwarranted. Far from being resilient, the societies of 1914 were catastrophically fragile: the next three decades saw two global wars, a global slump, and the triumph of extremist ideologies – bringing in their wake the fascist-induced catastrophe of the Holocaust, and the communist-induced catastrophe of the 1932/33 Ukrainian famine.

Sassoon identifies the complacency but not what was missing. I suggest that the key misdesign was that while effective nation states were essential to the escape from the Malthusian trap, too much power became lodged at that level. Eventually this encroached on local autonomy, but the immediate disaster was the failure to construct the patchwork of supra-national collaboration that the newly globalised system of strong states needed. We know from both evolutionary biology and the anthropological work of Elinor Ostrom that resilience depends upon polycentric governance: overlapping authorities, duplication, and built-in redundancy. Post-1945, the rudiments of such an international system were, painfully, built: the G7, the G20, the WTO, the World Bank, the IMF, the UN, the Bank for International Settlements, the G77, the EU, Nato, Asean, the Africa Union and hundreds of overlapping regional groupings. It is no accident that since the war global society has been much safer, measured both by inter-state conflict and by economic volatility.

The structure is far from perfect, and periodically encounters new challenges such as climate change, that need further ad hoc solutions. But it is far superior both to the empty cupboard of 1914, and to the centralising fantasies of “world government”. It is currently under attack from Trump, but our recent mounting problems have predominantly been intra-national, reflecting the overcentralisation of political power within the nation. We face mutinies of the regions resulting from the concentration of political power in metropoles.

In reducing a vast topic to manageable, evidence-based proportions, Sassoon, a historian, has done social scientists a service. From his work we can distil wisdom on the conditions for states to be effective without being dangerous, and for keeping capitalism within manageable bounds. 

Paul Collier is the author of “The Future of Capitalism: Facing the New Anxieties”

The Anxious Triumph: A Global History of Capitalism, 1860-1914
Donald Sassoon
Allen Lane, 800pp, £30