Part Two: The Rise and Decline of Great Britain as the First Global Hegemonic Power. We now begin our study of the historical development of the international political economy (IPE) in the modern state era. Let’s first turn to the Mercantilist Era (1648 to 1815). The mercantilist or realist era is sometimes referred to as the classic balance of power period by political scientists.
1648 is the beginning of the modern state as we know it today. States became sovereign with the Treaty of Westphalia that ended the 30 Years War. At the beginning of this era there were several very powerful states. Among them were England, France, Russia, Prussia, Austria-Hungry, Spain, Portugal, the Netherlands, Sweden, and a few others. These states were monarchies and they dominated world politics. No one state was so dominant that it could control the other powerful states. Power was distributed somewhat equally among these powerful states. Scholars of international politics refer to this period as a multipolar system (more than two dominant states) and often call this the classic balance of power period. The powerful states typically pursued balance of power strategies to avoid conflict. Alliances were very flexible. In other words, there were no permanent enemies. Countries at odds with each other often would find themselves on the same alliance in the future in pursuing a balance of power strategy. Wars between states were fought over limited objectives. Why? These were monarchies and there was no strong sense of nationalism (where people strongly identify with the state) among their citizens. Kings had to rely upon mercenary armies supplied by the local nobles. So, not only were the militaries small in size, wars were costly. Because of this, wars were typically short lived and one state could not completely defeat another state. Kings also realized that one’s current enemy may be needed as a future alliance partner. Because power was distributed, for the most part, equally among the dominant states, a relatively minor change in power (military or economic technological advancement) could be important to a state’s relative power position in Europe and the world. States viewed the pursuit of power as a zero-sum game. If one state gained power via new economic technology, that gain was at the expense of the power of another state. Economic competition among the powerful states and the pursuit of silver and gold characterized this period. Global economic relations among the dominant states were characterized by mercantilism and was viewed as a zero-sum game.
During this period economic relations came to be guided by the so-called doctrine of mercantilism. Today, this is sometimes referred to as economic nationalism. One state’s gain in economic wealth was viewed as a loss of wealth by another state. Economic relations were viewed as a zero-sum game. States viewed themselves locked into a zero-sum conflict in the international economy. States pursued policies intended to expand economic production and wealth at home while denying similar capabilities to others. So what policies were pursued?
States did not engage in the export of their gold and silver, if possible. Regulations, such as high tariffs, were adopted to limit imports only to necessary raw materials and some luxuries. Materials that were necessary for agricultural production and later, the growth of industry, were the only items that were allowed to be imported. Once these countries began to develop a manufacturing/industrial capacity, manufactured goods were not allowed to be imported into the country. The idea was to promote local production, manufacturing, and industry rather than to depend on another country. This is the so-called infant industry mercantilist argument that was common by the mid-1700s to the end of the mercantilist era. The export of agricultural products and manufacturing goods was promoted by the state. The colonies of these states served as a source of raw materials. Colonies were only allowed to export to their “mother” country or state. Powerful states limited the export of raw materials among themselves. Exports of technology (machinery and skilled laborers) were restricted so other states could not benefit. Navigation laws were set so that foreign trade had to be carried out on the ships of one’s own country. The purpose of this was to promoted growth of a domestic ship building activities.
There are three major factors which brought about an end to the mercantilist era by 1815. The first was the rise of Napoleon. This is important because it represents the rise of nationalism in Europe. Napoleon could now rely upon thousands and thousands of proud, nationalistic Frenchmen to support him, join his army, and die for him and France. It allowed him to create the largest and most powerful army in the world at the time. It allowed him to conquer virtually all of Europe and part of Russia. Wars were no longer short and limited affairs. The Napoleonic Wars lasted from 1803 until the defeat of Napoleon in 1815. The allies that finally defeated Napoleon vowed to create an international system that would prevent the rise of another Napoleon.
The second factor that signaled the end of the mercantilist period is the reduction in the number of major powers in the world. By 1815 there were only five major powers: Great Britain, Prussia, Russia, Austria-Hungry, and France. These five states dominated Europe and the world at this time. It was easier for 5 major powers to maintain a balance of power than the 8 to 12 major powers that existed during the mercantilist era. Related to the second factor was the rise of Great Britain as the world’s first superpower or hegemonic power. Great Britain, by itself, could shift the balance of power on the European continent to prevent an outbreak of war among the other major powers. In other words, it was able to manage the balance of power among the other powerful states because it was such a dominant country. The international system had changed dramatically by 1815.
Now let’s turn to the rise of Great Britain as the first hegemonic power. By 1815 Great Britain found itself as the most powerful country in the world, the first superpower, or what scholars call a global hegemon or hegemonic power. We are going to look at the factors that gave rise to British hegemony and the factors that led to the fall of British hegemony.
When Napoleon dominated Europe, he placed an economic embargo on Great Britain. Europe could not trade with Great Britain. This forced the British to trade with the rest of the world during this period. Great Britain had to expand its already large merchant and naval fleets and open markets literally all over the world to sell its goods and open markets to British companies and investments.
It is significant that the industrial revolution came to Great Britain first by the late 1700s. Britain had created a unified market with England, Scotland, and Wales and had developed an extensive road and water transportation system or economic infrastructure. With a growing labor force in urban areas, Britain began to see greater social and economic mobility among its people. The beginning of a middle class could be seen. Finally, it was new technologies or leading economic sectors which powered the British economy into the industrial age as the most powerful economy in the world. From 1780 to 1820 the British economy was driven by cotton textiles (textile mills), the development of an iron industry, and extensive use of water power for agriculture. From 1840 to 1870, the development of steam power for both ships and railroads made the British economy even more powerful. According to Joseph Schumpeter, a leading economic sector or technology is one that will drive economic growth in all areas of the national economy. Textiles, iron, waterpower, and the steam engine made Great Britain the first truly global hegemonic power.
With Napoleon’s defeat, the British and the other victorious allies wanted to make sure that there would never again be a Napoleon who could conquer all of Europe. They created the Concert of Europe which was an international organization in which the major powers would meet periodically and try to deal with problems before they could turn into conflicts. The idea was to prevent the outbreak of major wars via diplomacy and the acceptance of new standards of state behavior. This was the beginning of the extensive development and acceptance of diplomatic and international law. It must be noted that because of the superior British Navy and Army coupled with the development of the steam engine, Britain was able to play the “swing man” role in Europe. It could, by itself, correct the balance of power between Russia, Prussia, France, and Austria-Hungary. If one or two states became powerful and threatened war, Great Britain could simply enter into an alliance with the weaker states, correct the balance of power, and prevent war. Britain was able to keep the peace on the continent until the Franco-Prussian War of 1870 and WWI.
Remember that Napoleon’s continental system (embargo against Great Britain) had forced it to establish a global trading system. Britain was able to see the benefits of an open, free trading global economic system. This realization of the benefits of freer trade also coincided with the writings of Adam Smith, David Ricardo, and John Stuart Mill who argued the principles of liberalism (capitalism) were the best way to maximize economic wealth. Thus, Britain as the hegemonic power turned away from mercantilist doctrines and moved to implement a liberal global trading system. As the dominant power in the world, other countries began to or were forced follow these new rules. Thus, Britain created a global free trade system or regime based on the principles of liberalism (capitalism).
How did Great Britain dismantle the mercantilist system and implement a global liberal or freer trade system? The Hechscher-Olin model of trade serves to predict which groups within a state advocate for mercantilist policies such as tariffs and which advocate for liberal policies such as freer trade. Economics teaches us that land, labor, and capital (finance, banks, and industry) are so-called factors of production and are used to create more wealth. The Hechscher-Olin model argues that abundant factors relative to scarce factors will favor liberalism and scarce factors will favor mercantilism/realism. Thus, if land is abundant relative to labor and capital, then land (agricultural businesses, farmers) will advocate for liberal policies and labor (workers, unions) and capital (banks, financial businesses) will advocate for mercantilism. It is interesting to note that labor and capital were abundant in Great Britain relative to land. Thus, labor and capital benefitted from and supported liberal policies and land (farmers) supported mercantilist policies. Prior to the Napoleonic era, land dominated British politics and thus British policies were mercantilist. After Napoleon, British politics changed and capital and labor came to control the political processes. British policies switched from mercantilist to liberal.
As the hegemonic power, countries typically followed or by necessity were forced to follow British rules and behaviors if they wanted to engage in global trade. From 1823 to 1827 Britain began to unilaterally reduce its own tariffs. Between 1815 and 1846 the British Corn Laws were repealed. The Corn Laws restricted grain imports into Great Britain and served to protect British farmers from competition. By 1824, machinery (technology) was allowed to be exported. By the following year, skilled craftsmen and technicians were allowed to emigrate or leave the country. Britain modified its navigation laws. British companies often had monopoly status in its colonial areas. This practice was abolished. By 1849 the fabled British East India Company had lost its monopoly status in India. British colonies or companies no longer had to use British merchant ships to get their goods from one port to another.
Britain also began to implement a series of international treaties which provided for the reduction of tariffs between the major countries of the world. In 1860 Britain negotiated the Cobden-Chevalier Treaty with France. Great Britain lowered its tariffs on French wine and brandy and France lowered its tariffs on British coal, iron, textiles, and machinery. Note that this treaty is significant because it set the pattern for trade negotiation that we still see today. Negotiations are based upon reciprocity and most favored nation status. Reciprocity means that each state will reduce its tariffs. Most favored nation status means that if three or more countries are part of the agreement or trade group, if two of the member countries agree to reduce their tariffs at some point in the future, then those tariff reductions automatically apply to all the member countries. This is one way to make bilateral tariff reductions automatically multilateral. Trade negotiations today are typically based upon reciprocity and most favored nation status.
Great Britain, the global hegemonic power, and all the states increased their economic wealth within this growing global, liberal trading order. But, there are certain risks involved in international trade and business. In particular, there is the problem of states having different currencies with different values. There is a risk involved in changing from one currency to the next, especially if one does not know what that currency is really worth. A second problem has to do with contracts signed between a business in one country and a business in another. Who will guarantee that the business owners in each country actually live up to the contract? Providing an international currency with a stable value and protecting and enforcing international business contracts are examples of global public goods. Great Britain, as the hegemonic power, stepped up to provide these public goods to the global economic order. The British pound was set in value based upon so much gold and Britain promised to convert its currency to gold on demand. Thus, the British pound became an international standard of value that could be used in international economic exchanges. It created a global monetary regime or rules based upon the pound sterling. The pound was the only currency that was accepted globally for payments. Remember that Great Britain traded globally so many countries already had access to the pound to do business and the pound’s value was set in terms of so much gold, so everyone knew its worth. So, if one country wanted to do business with another country, the business transaction was often carried out in pounds rather than their own state currencies. The value of local currencies were defined in terms of British pounds and could be exchanged based on those values. This global monetary regime (a regime refers to an accepted set of rules by which states follow) greatly facilitated the growth of global trade by reducing risk. Finally, the question of the enforcement of international contracts had to be addressed to encourage more international trade. In essence, British banks which were all over the world became the guarantor of international contracts. So, if a US company contracted with a French company to buy so many shirts from the French company, the American company paid for the shirts via the British bank in France, which held onto the payment until the French shirts arrived in the US. Thus, Great Britain reduced the risks associated with international contracts and provided this public good throughout the world.
By 1860 Britain was well on its way to creating a global, liberal economic regime. Regime refers to a set of rules that all states follow. Great Britain had experienced the benefits of freer trade and open markets when it was forced to trade outside of Europe during the Napoleonic period. As the hegemonic power and the country that first benefitted from the industrial revolution via its leading sectors of cotton textiles, the iron industry, steam power, and railroads, it saw the benefits of creating a global liberal economic regime in which all states would benefit and increase their economic wealth. It had dismantled its own mercantilist policies and opened itself up to freer trade. It created international trade agreements that facilitated the reduction of tariffs with states across the world. As the hegemonic power, it served as the guarantor of global public goods such as providing an international currency and enforcing international contracts from which all states benefitted.
As a result of the creation of the global, liberal economic regime under British hegemony, global wealth increased dramatically by the 1860s. Global trade increased dramatically. The major states of the world were noticeably wealthier. This is just what the liberal (capitalism) school of IPE tells us will happen. All benefit from freer trade and wealth is maximized. It is also important to note that there was only one war between the major powers from 1815 to 1914 and that was the brief Franco-Prussian War of 1870/71. In other words, British hegemony facilitated peace among the major powers of the world for nearly 100 years. Some scholars call the period the British Peace or the Pax Britannica. The peak of British hegemony was the 1860s because we are able to trace its relative decline in power beginning in 1870. The term relative is important. Other states were gaining relative power or closing the gap in terms of power between themselves and Great Britain. This included Prussia prior to 1870, Germany and Austria-Hungary prior to WWI, and Germany and Japan prior to WWII. One also began to witness the rise of the United States by the turn of 20th century. 1870 is important because this signals the beginning of the Franco-Prussian War which Great Britain could not prevent as it had been able to do since 1815 by attempting a policy of balance of power. This was the first signal that Great Britain was in relative decline. Of course, this is followed by WWI and WWII which the British could not prevent. These events marked the end of British hegemony.
What caused this relative decline of Great Britain? There are two general answers as to what causes the relative decline of hegemonic powers. Robert Gilpin argues that it is the diffusion of technology that causes it. Great Britain created a liberal global economic regime. Technology was shared or bought by other states and they used this technology to improve themselves and begin to “catch up” with Great Britain. Other states begin to develop powerful leading economic sectors. Paul Kennedy argues that the relative decline of hegemonic powers is due to what he calls imperial overstretch. Military power is critical for any global hegemonic power. Great Britain had to keep a military presence throughout the world. This costs a lot of money and eventually becomes a drag on the economy. Money spent on the military is not as productive as money spent in the economy (it has a lower multiplier effect), thus as more and more money goes to maintain its global military presence, less money is placed into the economy and this allows other states to begin to “catch up” with the hegemon in relative economic terms. Thus, the argument is that Great Britain was in relative decline because of its own liberal economic policies of allowing the export of technology and the fact that it had to maintain a global military presence. This allowed other states to begin to “catch up” with Great Britain in terms of overall relative power.
With the relative decline of Great Britain, states in Europe began to violate the rules of the liberal global economic regime. In other words, the 5 major powers of the world: Great Britain, Prussia/Germany, France, Russia, and Austria/Hungary began to adopt mercantilist policies because they were more equal to each other in relative terms of military and economic power. A small increase in either military or economic power could change a state’s relative power standing in the world. By 1890, nearly all the countries in Europe had re-imposed higher tariffs.
In particular, by 1866 Prussia began to see itself as a competitor to what it viewed as French dominance of the European continent, it began to see the world through a realist view. With the major states more equal in terms of relative power, realist or mercantilist policies could make a difference in the relative change or position for a state in global power. The brief Franco-Prussian War of 1870-71, which Britain could not prevent, led to the unification of Prussia and the Germanic states into the modern German state and the final unification of Italy. Nationalism in Europe also began to play a role as Prussia/Germany seized the iron-ore and industrialized French territory of Alsace Lorraine. French and Prussians/Germans could no longer resolve their differences largely due to a heightened sense of national identity that led to an unwillingness to compromise or cooperate with each other. It should be noted that nationalism was contained under British hegemony between 1815 and 1870. Nationalism played a role in the resurgence of mercantilism/realism.
By the late 1800s there was also a renewed or second wave of colonialism in Africa and Asia by the major powers. Similar to the earlier mercantilist period, the colonies were restricted to trade only with the colonial power. WWI destroyed the global liberal economic regime completely and in reality marked the end of British hegemony. Between the wars Britain tried to re-establish a global monetary system based on the pound but was unable to do so because the pound was overvalued and the other currencies were undervalued. The great depression was global largely due to mercantilist policies of states who retaliated against the US mercantilist policies (the Smoot Hawley tariff and currency devaluation). In other words, mercantilist policies made the great depression a global depression. The return of mercantilism, the depression, rising nationalism, and the absence of a hegemonic power ultimately led to WWII. WWII dramatically altered the global balance of power.
In part 3 of Lectures in Political Economy – Understanding Global Hegemony and its Implications, I turn to the rise and decline of the United States as the second global hegemonic power.
For more information see the writings of Joseph Nye, Robert Keohane, Stephen Krasner, Joseph Schumpeter, Robert Gilpin, Paul Kennedy, and Herman Schwartz.
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