The Empire Project: The Rise and Fall of the British World-System, 1830–1970 (50 page)

For all the overseas dominions, the boom in global trade had been a chance to strengthen their economies and stabilise their politics. But it had not brought greater freedom from London's commercial influence. In economic terms, as well as political, ‘nation-building’ in the white dominions meant greater dependence not less on the British market and the financial machinery of the City of London. In a global marketplace, access to capital, information and expertise from the commercial centre was more essential than ever to dominion producers whose fortunes depended upon good connections with London, perhaps even a base there. In India, which lacked self-government, the pattern was more complicated. In commercial terms, India's pattern of foreign trade was exceptionally valuable to London. India ran a trade surplus with Europe, the United States and Southeast Asia but a deficit with Britain, whose best customer it was. India's remittances of foreign exchange helped London meet Britain's trade deficits in America and Europe, lubricating the international payments system without which world trade would have expanded much more slowly. But India was also required to meet an annual bill for the interest payments on borrowed British capital, for the pensions of British officials and for the ‘hire’ of some 70,000 British troops normally stationed on the sub-continent. Since long-term borrowing was very difficult in India, and its own revenues were inelastic, the government of India relied on British lenders to supply the capital it needed for spending on public works like railways and irrigation.

In the 1880s and 1890s, this economic relationship with Britain had been strained. India had a silver-based currency and silver's value fell sharply against gold. The government of India had to find more and more silver rupees to pay its sterling debts. It faced a dangerous spiral of rising taxation (increasing discontent), heavier borrowing (to cover the deficit), ever-heavier debt service and the spectre of a default – a political and financial catastrophe of unimaginable proportions. India's double function – in Britain's payments balance and military ‘economy’ – was at risk. In practice, after 1900, this danger quickly receded. At London's insistence, the Indian government adopted a ‘gold exchange standard’. The rupee–sterling exchange rate was fixed, and a fund of gold and sterling assets established in London to maintain the value of the rupee and cover any shortfall in Indian remittances.
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The experiment was a success, but chiefly perhaps because it was launched at a time when India's foreign trade and payments surplus were also rising rapidly. India's surplus on commodity trade was about Rs 200 million in 1900 and Rs 700 million in 1910 and Rs 570 million in 1913.
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It was true that India continued to run an overall deficit with London that arose in part from British loans and the service charges that London imposed. This had to be met by further borrowing.
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But the scale was comparatively modest (perhaps £6 million per year) and part of it was due to new investment in railways and irrigation in a period of commercial expansion. It was also true that the domestic impact of India's deepening involvement in international trade was muffled by the vast scale of the rural economy much of it close to subsistence and threatened by periodic famine – although export-producing regions did experience rising living standards.
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The bar on tariffs imposed by London made diversification into industry more difficult. Overall, however, the pre-war years saw the closer integration of India into the British world-system. India remained Britain's largest market. Its export surpluses were larger. Its payments to Britain were met without strain. Most important of all, perhaps, financial stability and economic growth underwrote the political system of the Civilian Raj. Relieved by prosperity from the pressure to tax more heavily or intervene more deeply in the agrarian economy, the Raj had no need to seek wider cooperation from its Indian subjects or pay the price in concessions.
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It could balance its imperial obligations and the Indian books. This was the vital condition if it was to keep its freedom as much from its overlords in London as its subjects in India.

But perhaps nowhere were the effects of trade so striking as in Britain's new tropical dependencies in Afro-Asia. The commodity boom galvanised their economies after 1900. The rapid growth of production and export sales attracted larger British-based companies with better access to credit and capital than indigenous traders. In colonial Malaya they took the lead in rubber and tin.
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In British West Africa, rocketing exports of cocoa and palm products transformed the prospects of the ‘Coaster’ firms.
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The colonial states could push railways into their vast new hinterlands as their credit rose with their (customs-based) revenues. As the interior opened up, the scale of British business was transformed. Large British firms crowded out their local African rivals. The rush for Nigerian tin excited the City.
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Shipping and banking fell under the control of the self-made magnate Alfred Jones, chairman of Elder Dempster and the British Bank of West Africa. Liverpool had long been the real metropolis of the British West African coast. Now its commercial reach extended to the fringes of the Sahara.
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By 1905, the Lagos Chamber of Commerce was exclusively white.

After 1900, then, the British exploited to the full their comparative advantage as traders, shippers and financiers and their dominance in cotton textiles – the universal consumption good in Afro-Asian markets. The demand for their capital and commercial services and the primacy of London as the clearing-house of trade and investment deepened the mutual dependence between the different elements of the British world-system: the British Isles; India; the white dominions; and the property, assets, concessions and installations that made up the City's commercial empire in non-British countries. By 1913, perhaps one-third of British net assets were located overseas. British capital moved freely between the informal empire, the white dominions and the tropical dependencies. New business empires in railways and shipping combined interests in all three. With its monetary controls now centralised in London, the Indian economy (and its vital functions) had been brought under closer imperial supervision. For the white dominions, not only were British markets and capital indispensable, but close contacts with London were needed for local businessmen who hoped to expand abroad, invest surplus funds or exploit their expertise in less developed economies. In the British system, all (or almost all) commercial roads led to London. They would do for so long as London could play its part in global commerce; so long as the British economy could produce, consume and invest on an imperial scale; so long as its chosen partners could maintain their hectic growth; and so long as Britain was the safest and strongest haven for foreign money. But, on all these scores, even in the boom years up to 1914, there was at least some room for doubt.

Some of the symptoms of later weakness were already visible. For an advanced economy, the British were much too dependent upon the comparatively simple and labour-intensive technology of textile-making. They depended too heavily on coal, as an export and as a fuel. Their rate of saving was low and the failure to invest at home was reflected in stagnating industrial productivity. As many social critics complained, too much of the population was paid too little, a consequence of widespread under-employment. This limited consumption and promoted the migration that remained so marked a feature of British life. Among Britain's most dynamic trading partners, there were signs that the furious expansion of their agrarian economies was levelling off: in New Zealand, Canada and Argentina. Nor was the City's great role as banker to the world without risk. The American crisis of 1907 had shown that funds that rushed in could also rush out. The large volume of short-term funds that London attracted were potentially destabilising. Just holding them there might mean interest rates too high for domestic growth. Above all, perhaps, by relying so much on the proceeds of global trade, the British had staked their future on a world without war, or, at least, on a world without world-war. Some of these anxieties lay behind the campaign for tariff reform in Britain. Protection was meant to reduce Britain's over-exposure to external economic forces. Protectionists like Milner insisted that, in the age of world-states, cosmopolitanism was dead and its champions deluded. At the time prosperity helped deflate the protectionist cause. The imperialism of free trade still ruled. Its theory and practice had been the secret of both Victorian expansion and its Edwardian climax. The implications of its breakdown were massive. Acceptance of its logic and recognition of its benefits had held together the disparate elements of the British world-system. It weathered the Edwardian squalls. But its real test was to come.

The politics of cohesion

Like any worldwide empire, the British system was a prey to centrifugal forces. Resentment, recalcitrance, resistance and rebellion came naturally to those who felt (in different ways) the weight of British political and financial power. Political independence, economic self-sufficiency, or cultural autonomy promised obvious gains to at least some colonial (and semi-colonial) elites. But only if the conditions were right, the costs were low and the benefits clear.

In the long Edwardian decade, the economic and geopolitical conditions we have examined were, in general,
imperially
benign. They favoured not the break-up of empire but its cohesion and closer integration. In terms of grand strategy, the danger to imperial solidarity had been twofold. If British power was insufficient to exclude rival influence from its spheres, or promised inadequate protection against external attack, colonial leaders would drift towards home-grown policies in defence and diplomacy. In dependencies, the prestige of British rule would fall, forcing a choice between coercion and concession. The second danger was that the costs of defence would spiral uncontrollably. In the British system, they would fall most heavily on taxpayers at home and in India. The likely consequence would be a domestic revolt against imperial commitments and an Indian revolt against a grasping Raj.

In the event, both dangers were contained with surprising ease. Great power competition after 1900 was largely turned to Britain's advantage. Crucially, the main burden of defence was naval, and the main focus of fear was home not colonial – in Britain itself. Hence British opinion was easily rallied and the Indian taxpayer left unscathed. As an added bonus, the self-governing dominions were readily persuaded of the threat to British sea-power and of the urgency of offering (some) help. Though friction persisted (within the dominions and between their governments and London), it was smoothed by the credibility of British power, the aggressive demeanour of German diplomacy and the global scale of great power rivalry: isolation was not an option. Economic trends were similarly favourable. In the race for growth, colonial politicians and businessmen looked more than ever to Britain for money, markets or migrants. In a world of dynamic commerce, autarky was a cul-de-sac. Profits came from large combines and wide connections. In Britain, commercial buoyancy was especially timely. Naval spending floated on a high tide of revenue. Lloyd George's new taxes, controversial as they were, easily paid for the increase in naval and social expenditure.
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The economic burden of rearmament was easily carried by the enormous surplus in the balance of payments. The sense of general prosperity checked the appeal of tariffs and helped smother the campaign for imperial preference. Since tariff reform and its political rider ‘imperial unity’ (between Britain and the white dominions) were at odds with the free trade basis of commercial empire and excluded India, their disruptive potential for the British system would have been considerable. Of course, the Edwardians were not free from economic anxiety. In
The Nation's Wealth
(1914), the radical MP Leo Chiozza Money gloomily compared Britain's natural resources with those of Germany and the United States. But even he conceded that Britain was still at the mid-point of her greatness: decline lay more than a century away.

In Britain, then, the political climate was sympathetic to empire but unpropitious for schemes of imperial ‘reform’. Public alarm over defence shone a fitful spotlight on the white dominions as sources of loyal manpower. Their commercial prospects and migrant appeal were touted more aggressively in the British press.
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Imperial news was more widely and professionally reported. An influential section of the political elite (on both sides of the party line) was attracted to the idea of ‘closer union’ with the sister nations of ‘Greater Britain’. But wide differences existed on timing and method even among the enthusiasts. A broader consensus prevailed that, while imperial unity was desirable, perhaps even inevitable, imperial federation was at best premature, at worst unworkable.
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Towards India and the tropical dependencies, British opinion was complacent. The Morley–Minto reforms had taken India off the political agenda. The commercial promise of tropical territories bought off half the critics of imperial aggrandisement. The new gospel of imperial duty, artfully diffused (not least in
The Times
), disarmed most of the rest. The radical critique of empire, fanned into flame by the South African War, burned low by the decade's end. In the age of diplomatic detente, constitutional devolution (in South Africa and India) and social reform, ‘imperialism’ was less easily damned as the road to national ruin.
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