#34 Catching Up and Falling Behind

Catching up economically with the leading and most powerful nation has been a critical element of national politics since the end of 1815. It is always difficult to put yourself today in the place of other National leaders in past centuries. It is even more difficult to realise that your own State was seen by others as aggressive and dangerous. But after the wars that ended in 1815 and then the invasion of China in the 1840s, many of the old Empires, (this included the Russian, Ottomans, Austro/Hungarians and Japanese) still in existence realised that they needed to arm themselves with European weapons if they were to survive.

In a simple sentence, they needed to catch up. ‘Weaker’ nations have always felt threatened by the more powerful. Today is no different from over 200 years ago. ‘Weaker’ nations like Iran, China, Venezuela and Cuba, were and still are threatened by invasion, sanctions, and interference of many kinds.

The urge to be independent of such threats was, and remains, a dominant element in international relations. The desire for states to ‘catch up’ has remained a dominant theme of national politics everywhere. The Western nations today provide their own people with an array of words (specifically ‘democracy’) which hides the fact that they are seen by “weaker” nation-States as a threat to well-being. Catching up has been a major incentive of Nations for over 200 years.

Catching Up - What did that mean?

Before the advent of industrialisation there was no mechanism for one Nation to compare itself against another. But once industrialisation was underway, national statistics of growth made it relatively simple to compare one society against another. As the Europeans appeared aggressively across the globe in the 19th century, most of the old regimes attempted to ‘catch up’. The main way they attempted to do so was through purchasing western arms.

How well a nation was able to catch up in comparison to the powerful empires of France, Britain, the Netherlands and latterly Germany and the USA setting the pace of industrial and economic development became an important characteristic of nation’s progress in the 19th century, as it has been globally ever since. Global capitalism, as with competitive colonialism, has always been a predatory system. A small weak nation was threatened by more powerful states. In the 19th century, we can see the beginning of the ‘catch-up’ process in action through the proliferation of international finance and banking.

International Colonial  Finance and Banking

In one sense, each growing economy in Europe adapted its own banking to its peculiar needs. Britain, the leading 19th century nation in Europe, developed its private banking structure for the needs of colonial trade: long-term capital investment opportunities abroad. Germany, on the other hand, developed its banking structure with the purpose of 'catching up'.

Germany had begun to create its own banking structures from the 1830s to the 1840s: the period before it was unified in 1871. The largest banks were privately owned. In this period, the Deutsche, Berliner, and Dresdner Banks led Germany’s industrialisation after 1870. The central bank, the Reichsbank, was not created until 1871. Germany developed a series of local, publicly owned, and co-operative banks that were non-profitmaking – a banking structure rarely discussed in England or America.

The privately-owned banks in Germany played a major role in setting up joint-stock companies; the banks financed the railway systems in Germany from the 1830s from their own funds. Thereafter, these banks played a major role in the rapid industrialisation that occurred after 1871, setting up the companies, and then investing their own money in the enterprises. The German banking structure was consciously used to catch up.

Banking was not the sole explanation for why German industrialisation grew more rapidly than Britain’s. Germany established a unified system of education for all of its people earlier than Britain. The German established rulers understood that they needed an educated middle class for the wide range of tasks that an urban industrialised society threw up. Britain’s rulers on the other hand had by the middle of the 19th century become used to the idea that the free market was dominant in every sphere. The thought that the State should look after the unemployed or educate a new middle class was antithetical to the dominance of the free market. In brief, the British rulers had become used to the idea of their global dominance and place in the international order, so they ignored any of the evidence that Germany was ‘catching up’ in terms of annual growth or in industrial production. It was not until the early 20th century did they realise that Germany was a global threat to their predominant world position. By then it was too late to find any solution beyond world war, as I explore in later blogs.

“Bahnkarte von Deutschland und Nachbarländern 1849. Dünne Linien sind Straßen.” - Railway map of Germany and neighboring countries 1849. Thin lines are roads. View details on Wikipedia.

The USA also caught up to Britain and industrialised rapidly during the 19th century. Because the USA was ‘far away’ in terms of sailing time across the sea she did not appear so much of a threat compared to Germany to British global dominance. At the beginning of the 19th century, the USA was not even a unified whole as we know it today. The colonial settlers had not totally defeated the indigenous population and slavery became a key component of US life, which was to be expressed in a destructive civil war in the middle of the 19th century. Yet despite all of this, the USA unified her economy, built railways (often with British loans), and industrialised her economy. She managed early in the century to steal the secrets of the spinning jenny. She created a new industrialised society which by the end of the 19th century was already larger in GDP terms than the British.

By 1900 both Germany and the USA had caught up with Britain. As we will see in later blogs, Britain wished to make an alliance with the USA to defeat Germany.

Japan’s Transformation, The Meiji Revolution

Japan should also be included in this blog about society’s moves to ‘catch up’.  Like Germany, Japan became aware of the threat that the European powers posed to Japan’s long held independence soon into the 1840s. Around this time, the American’s threatened to open Japanese society to free trade when the British defeated China in the Opium Wars. However, the Japanese had had the advantage of Dutch books on the subject of industrialisation. The Japanese had allowed a small Dutch trading post some two hundred years earlier in 1641 at Dejima close to Nagasaki. Dutch books had been translated into Japanese. An elite Japanese group had been able to study Dutch transformation over these 200 years. By the early 19th century, Japanese scholars became aware of the depth of change that they needed to make if their society was able to compete; the transformation required to overthrow the old regime. Japanese society faced similar humiliation as the Chinese in the opium wars of the 1840s. As so often in these blogs I cut long stories short in order to arrive at the center of the issue. The Meiji rebellion overthrew the emperor and the old regime in 1871. Japan then was able to rapidly industrialised its society after this date. By 1900 she had became a new colonial power.

Ground-plan of the Dutch trade-post on the island Dejima at Nagasaki. Source: Wikimedia Commons.

Japan was a non-colonised society in the 1840s. Thereafter in the 19th century Japan understood that importing modern weapons, modernising the armed forces, and even altering many of the ancient laws of the regime was insufficient to catch up and protect their independence from domination by the predatory colonising powers. Critically, industrialisation involved a new social middle class who needed political power. This meant the old regime was unable to make the necessary changes that industrialisation demanded. The Meiji rebellion was the answer.

Further Reading

See C. Freeman's the Third Kondratieff Wave: Age of Steel, Electrification and Imperialism, Oxford Scholarship Online 2003. Freeman manages to capture both German and USA economic development in the 19th century.

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