DURING THE LAST QUARTER of the nineteenth century, European nations became venture capitalists with unhappy results for them and much of the rest of the world. For the previous two hundred years the free market economy had followed the path that private investors laid out. The informal communication of the market, spoken through the language of prices and rates, directed participants to the best deal. Information itself became a material good, orienting workers, producers, and investors toward their interests. During this long gestation period, governments played a supporting role. They sponsored industrial espionage, erected tariffs, and adjudicated contracts in their courts of law. In some countries they built railroads and established national banks. Still, kings, presidents, chancellors, and prime ministers gave the high politics of diplomacy and war making the lion’s share of their attention.
European leaders were no longer willing to sit in the stands, watching their people steer this prodigy alone. They had acquired a lot of money from their wealthy subjects, and they began using it to invest in empire building, not to extract tribute as the Romans and Mongols had, but rather to command subjects’ labor and resources to make things for the market. Kings and statesmen became entrepreneurs. Much attention has been given to the challenge of accumulating capital; much less thought has gone into studying how excess capital has affected economic choices. By the end of the nineteenth century most people in the West knew that money should be making money—all the time. The idea of idle money seemed abhorrent. Rulers in this regard were no different from others. With their enhanced revenues, the heads of state for Britain, France, Belgium, Germany, and Italy turned to reckless overseas adventures. Capitalism’s unparalleled capacity to generate profits had reshaped the political landscape.
Bringing the peoples of Asia, Africa, and Latin America into capitalism’s orbit promised both power and wealth to Europe’s rulers. But, alas, capitalism hadn’t modified the intense rivalries among European nations. Thomas Paine anticipated that commerce would “cordialize” mankind, but that was not to be. Instead countries now had more money for arming themselves. More arms spawned grander ambitions. Western European countries began competing for territories abroad while Spain, France, Great Britain, and Portugal had old empires to exploit. Generating new sources of income provided the means and the motives for Europe’s rulers to engage in an international contest that ended in the disastrous First World War.
Neither the world nor capitalism would ever be the same after Western nations thrust themselves into the hinterlands of Africa in search of exotic raw materials. The difference between industrial and commercial expansion became crucial. Trade had touched only merchants, their servants, and those who lived near coasts, whereas producing goods in foreign lands involved whole populations put to work for their new masters. Typical of earlier foreign forays was the conduct of Great Britain toward China in the 1830s. Its East India Company was eager to establish a trade in opium grown in India. The Chinese government was loath to allow its people access to such an addictive drug. It prohibited the trade and expelled British merchants. Despite protests at home, the British forced their will upon China. After bombarding coastal cities, they succeeded in gaining commercial access to five Chinese ports and took control of Hong Kong. Though violent, the intrusion was limited.
Mobilizing labor abroad changed the character of capitalist enterprise, for it took more than economic incentives to ensnare the men and women found living near oil deposits and tropical forests. Harvesting tropical crops and extracting precious minerals created a need for workers close to these raw materials. Of course the factories in the fields of the seventeenth-and eighteenth-century Caribbean sugar plantations and the silver mines of Mexico and Peru offered something of a template for the new capitalist thrust to make colonies centers of production.
Governments had what companies lacked, the power to commandeer workers by extorting concessions from their compliant leaders or moving in with force where there was no recognized political order, as in much of sub-Saharan Africa. European colonies already existed on the coasts as supports to long-distance commerce. The untapped riches in the African interior stirred imperial designs. European countries began to scuffle over who would get what, with little thought of the people who lived there. Cupidity, curiosity, Christian proselytizing, and militant strong-arming came into play. Abuses, unacceptable at home, became common when capitalism moved outside its original borders. Long forgotten was how long it had taken before the forebears of the colonizers had adjusted to modern work rhythms. Their new colonial subjects just appeared to be backward, evoking little interest in their well-being from their new masters. Their resistance was met with violence.
European Missionaries to Africa
Considering the amazing reach of Western explorations, it’s quite stunning how little was known about sub-Saharan Africa before the 1850s. Somehow it had never become a candidate for colonization as had North and South America, Australia, New Zealand, Indonesia, and India. Deadly diseases, especially malaria, made it a deathtrap for Europeans. Just as remarkable, a single person, David Livingstone, opened up the eastern half of the continent.
Livingstone has one of those life records that shame mere mortals. From the age of ten until twenty-four he worked in the cotton mill of his Scottish hometown. Awakening to learning and Christianity in his late teens, he taught himself Latin, a requisite for a college education. He even contrived a way to read during his fourteen-hour shift by mounting his books on the spinning jenny. He saved enough money to go to medical schools in Glasgow and London. From there he went to South Africa as a medical missionary and soon married into a prominent missionary family. Livingstone found his twin vocations as Christian healer and intrepid explorer soon after he arrived in Cape Town in 1841. The two remained entwined for the next thirty years as he organized expeditions into “darkest Africa,” a popular designation that suggests both a lack of knowledge and the skin color of the inhabitants.
Until his death Livingstone traveled by foot and oxen into the center of the continent, following the course of rivers, going up and down and around mountain ranges where no white man had ever been. Trekking through thousands of miles of pristine savannas, plateaus, deserts, lakes, streams, and rapids, he filled his journals with evocative descriptions of Africa’s flora, fauna, and people, the whole interspersed with affirmations of his abiding Christian faith. Livingstone was the first European to cross the African continent from the Atlantic to the Indian Ocean. In these arduous trips he discovered the beauties of Africa and the fortitude of its people. Suffering bouts with both lions and malaria, he wrote copiously about the diseases he treated, among them malaria, against which he effectively used quinine. Subsequent explorers were less fortunate. Malaria remained a deadly disease, which, as late as 2006, killed a million African babies annually.
Unwittingly Livingstone stoked the avarice of his compatriots with concrete details about a land filled with resources in mint condition. Returning to England in 1857, he published Missionary Travels and Researches in South Africa, which excited readers much as Raiders of the Lost Ark does fans today. But Livingstone was no Indiana Jones. All agreed that he was the gentlest of men, a trait that explains how he always succeeded in winning over tribes hostile to his intrusion.
In the course of bringing his medical skill and Christian faith to those he met, Livingstone came face-to-face with a lively slave trade carried on in central Africa by Muslim and Swahili-speaking Africans. Powerful Arab leaders had penetrated Africa from both the west and east coasts during the nineteenth century, converting many tribes to their faith. They also enslaved Africans, sending them to buyers in Zanzibar, Persia, Madagascar, and plantations on the Arabian Peninsula. Livingstone devoted the last decade of his life to exposing the cruelties of the East African slave trade. When his Zambesi and Its Tributaries appeared in 1865, hundreds of Christians rallied to the cause of ending this nefarious trade, made even more odious to them by its Muslim imprint. Horror at this slave trade and European’s insatiable demand for ivory for their pianos, billiards, jewelry, and furniture inlays proved mutually reinforcing. The universal respect accorded Livingstone sustained a new and vigorous campaign to bring civilization to the people of the “Dark Continent,” a European conceit that covered a multitude of sins. Returning to Africa once more, Livingstone plunged into the interior, this time to find the source of the Nile. He lost all contact with European correspondents for five years, adding a fascinating mystery to his already great reputation as a humanitarian.
At this point in the story entered a Welsh immigrant from the United States, Henry Morton Stanley. A Civil War veteran, a foreign correspondent, and an amateur geographer, Stanley in 1871 accepted an assignment from the New York Herald to find the missing Livingstone. Knowing that Stanley had fought on both sides in the Civil War gives some idea of his versatility. His quest through central Africa took six months, but he had succeeded by the end of the year, when he did in fact greet the missing missionary with the famous salutation “Dr. Livingstone, I presume.” Stanley and Livingstone became household names during the next few years. They stimulated the imagination, the curiosity, and the ambition of Europeans who had come to think of the entire globe as their domain.
During the next six years Stanley continued to explore Africa, circumnavigating Lake Victoria. He located the southern sources of the Nile, ending with an epoch-making journey down the Congo River. Unlike the trusting Livingstone, Stanley traveled with a well-armed band of 190 men and displayed more the attitude of a Western master than a humble Christian. He thought much like the English who went to North America in the seventeenth century, for he considered the African continent empty of people, or at least of people who counted. Feted as one of history’s greatest discoverers when he returned to England, Stanley did his best to get the British government to claim the heart of Africa. But to no avail.1
The Imperial Ambitions of King Leopold of Belgium
Across the English Channel, there was a European of significance fired up by the promise of Africa that Stanley had advertised. He was Leopold II, king of the Belgians. Leopold had inherited a lot of money from his father, who had astutely promoted Belgium’s industrial enterprises, among them the first European railway system. Intent upon gaining a colony to enhance the importance of his little country, Leopold actually scoured the Indies archive in Madrid to learn just how much Spain had benefited from its colonies.2 He kept up with news of Africa by reading his favorite newspaper, the Times of London, which came to him early each morning by special messenger. Here he read an English explorer declaring that Africa’s “unspeakable richness” was awaiting an “enterprising capitalist.” At the time Livingstone’s posthumous journals were horrifying readers with the graphic accounts of how unscrupulous slave traders seized African men and women, even children and sold them into slavery. Enthusiasm for stamping out a slave trade that had been pretty much unknown previously played into Leopold’s plans to create a colony in Africa. He engaged missionaries, geographers, and antislavery advocates to organize on behalf of Christianity, science, and humanitarianism. Privately he laid plans to get what he called “a slice of this magnificent African cake.”3
Nothing will give you a greater sense of how the nineteenth-century world differs from ours than following Leopold as he managed with megalomaniacal determination to acquire for his country an African colony seventy-six times the size of Belgium. But that isn’t quite correct. For the Free State of Congo that Leopold created with such hubris was a personal possession that he ran as a company with the approval and financial assistance of the Belgian Parliament. Because Britain’s leaders showed no interest in acquiring a colony in the interior of Africa, Leopold was able to snag Stanley, the intrepid survivor of years of explorations. He put him under a five-year contract and forthwith sent him back to central Africa with the cash to build roads, establish stations through the Congo River network, buy land, and sign treaties. This Stanley did over the course of five years with great panache, persuading 450 chiefs of the Congo basin to accept his gifts in exchange for territorial rights.
Meanwhile in Europe, Leopold carried on a brilliant diplomatic campaign under the guise of furthering science and philanthropy. His International Association of the Congo was nothing but a front behind which he manipulated the United States, Great Britain, Germany, and France into accepting his acquisition of a vast territory in central Africa with no restrictions on his personal sovereignty.4 Leopold didn’t want to push the native inhabitants out of the land he coveted, for he had in mind using their skilled arms and strong backs to labor for him. What followed was as cruel a travesty as the world has ever seen, traceable to the West’s outsized appetite for the riches of Africa.
The Congo Free State, as Leopold styled it, was anything but free, for he established a vicious regime, exploiting the men and women as thoroughly as the slavery he had vowed to eradicate. All uncultivated land became his property, leaving most of the people landless. Backed by white soldiers and black mercenaries and working with compliant tribal chiefs, Leopold used threats of murder, backed up by the wholesale destruction of villages, to force the Congolese to collect latex from wild rubber trees, dig for diamonds, and hunt elephants for their ivory. Rubber alone made the Congo a commercial success. More like a modern CEO than a crowned head, Leopold followed market indicators closely. With astonishing ruthlessness, he sent regular shipments of rifles to his minions in the Congo. A similar melancholy tale unfolded in the Amazon basin, where professional rubber tappers brought their diseases and weapons to the indigenous population.5
By the end of the century Leopold’s treatment of the Congolese had aroused critics who could not be ignored. A company employee became suspicious of what was going on. Swedish and American missionaries who were eyewitnesses to the abuse launched a crusade against Leopold’s Congo venture. People as capable of expressing themselves as Sir Arthur Conan Doyle, Joseph Conrad, and Mark Twain began writing about Leopold’s mendacious brutality. The riches he monopolized stirred as well the indignation of British free traders. To add insult to injury, Leopold sustained the fiction of his benevolence by building the Tervuren Museum filled with displays of African art to celebrate the Congolese people’s liberation from paganism and slavery!6 Nearing his death in 1908, Leopold ceded his fiefdom to the Belgian nation, at which point it received the name Belgian Congo.
Other European Nations in Africa
Leopold’s is the most extreme record of European rapacity, but his European neighbors lost no time joining in the plunder of Africa and its people. France, having lost New France and its holdings in India at the end of the eighteenth century, started a new empire by invading Algeria in 1830. Smarting from defeat in the Franco-Prussian War a generation later, it next sent expeditions up the Senegal River. From there France eventually succeeded in seizing the northwest quarter of Africa, four million of the continent’s some twelve million square miles, including Tunisia and Morocco.7 In addition to its holdings in Africa and Indochina, France held Tahiti, where Paul Gauguin set up his studio in 1890.
Starting de novo like King Leopold, the Germans had to cast about for a colony because they had not participated in the sixteenth-century adventures in the New World. Before pushing into Africa, Germany found a place in the South Seas sun. The drastic shortage of raw cotton occasioned by the American Civil War had hit hard the Rhine Valley textile mills and the ports that depended upon cotton exports. A prominent and imaginative entrepreneur from Hamburg sent agents to the Pacific to seek spots along the equator where cotton might be grown. He managed to get a toehold in Samoa. The German government followed up by convincing Spain to sell it the majority of the islands among the Solomons, Carolines, Marianas, and Pelews. Neither France nor Great Britain was ready to cede these luxuriant South Pacific islands to Germany, so they parceled out among themselves the remaining islands in eight different groups. Farther west, Great Britain in 1898 signed a ninety-nine-year treaty with China to hold on to Hong Kong. Meanwhile back in Africa, the Germans laid claim to Togoland, Cameroon, Namibia, and Tanganyika, located on both sides of the African continent.
Italy entered this African land rush last. It acquired Libya, Eritrea, and part of Somaliland but sustained an embarrassing defeat at the hands of the Ethiopians. Only Ethiopia and Liberia, the colony that Americans established for freed slaves, held on to their independence during this European free-for-all for territory. For France and Britain, the toeholds established earlier became launching pads for further global appropriations, though with markedly different styles.
More attentive to commerce than to territorial acquisition when Leopold was finalizing his plans in 1875, Great Britain tightened its control over Egypt. Britain had acquired an interest in there after the defeat of Napoleon, who had invaded the country in 1798. Formally an Egyptian dynasty ruled the country under a loose connection to the Ottoman Empire, but practically it remained within the European sphere of influence. This humiliating arrangement became a bone of contention for Egyptian nationalists, whose agitation introduced social turmoil that threatened Great Britain’s huge investment in Egypt. On top of this, more and more of the British commercial fleets began using the Suez Canal after its opening in 1869. This hundred-mile waterway joined the Red Sea to the Mediterranean. Its vulnerability to violence was unacceptable to British investors. The British government ordered an invasion of Egypt in 1882, demonstrating the fusion of public and private economic interests that became increasingly conspicuous.
At the other end of the continent, Great Britain was having trouble in South Africa, which it had seized from the Dutch East India Company during the Napoleonic Wars. Cape Town played a crucial role in British overseas commerce, servicing commercial and royal fleets going to and from the Orient. Britain acquired as well a population of Dutch farmers who grew restive under British rule after Britain mounted a campaign against slavery in 1833. Some six thousand of these Afrikaners, or Boers, as they called themselves, decided to move north to establish their own settlements, taking with them some six thousand slaves and the herds of sheep and cattle that sustained them. The British were unwilling to yield sovereignty to either the Transvaal or the Orange Free State, especially after an African discovered a diamond there one day in 1867. Only a bloody conflict in the closing years of the century settled the matter in Britain’s favor, by which time Europeans had assumed control of most of the continent’s habitable land.
A great aid to the Europeans in their appropriation of African territory turned out to be the machine gun that the American Hiram Maxim had developed with them in mind! Someone had suggested to Maxim that if he wished to make money, he should “invent something that will enable these Europeans to cut each other’s throats with greater facility.” Instead they used their new Maxims against the Africans. This portable automatic machine gun fired five hundred rounds per minute, delivering the firing power of a hundred rifles, as it ingeniously used the energy of each bullet’s recoil to eject the spent cartridge case and insert the next round. In one engagement in what is now Zimbabwe, fifty British soldiers prevailed over some five thousand warriors with four Maxim guns. The repeating rifle and various improvements on the Maxim served Europe well whether in the hands of soldiers or of entrepreneurs who wished to speed up the pace of Africa’s occupation.
Like any frontier, Africa attracted freebooters who sometimes acted as the point men for their country’s acquisitions. Such a man was Cecil Rhodes. Rhodes followed his brother to South Africa in 1870. Within a decade he put together the De Beers Mining Company, which extracted the bulk of the diamonds taken from Africa over the course of the next century. Rhodes was inspired by a vision of planting the British flag “from Cape Town to Cairo.” This alarmed the Portuguese in Mozambique and the Germans busy settling into East Africa. With the effrontery that sometimes builds great empires, Rhodes took over a territory that bore his name for half a century. Slow to respond to his high-handed ways, the British government finally asserted its sovereign power. Thanks to the disgraced Rhodes, that power now extended over a substantial hunk of southern Africa.
During its long history, capitalism often acted like a talent scout finding new uses for plants and products that had been around for ages. Rubber was one such. Grown wild in the rain forests of the Congo and in equatorial lands from Brazil through Malaysia and India, rubber had waterproofing qualities as well as elasticity, which had been appreciated. The American Charles Goodyear discovered how to take the stickiness out of the product, but it was not until the Englishman John Dunlop successfully made pneumatic tires for his son’s tricycle in 1887 that its capacity to give wheeled vehicles a smooth ride found a major commercial use. A bicycle craze ensued. Just around the next corner in technology’s forward movement was the automobile with prototypes of the modern car being developed in half a dozen countries. The demand for rubber for automobiles promised to integrate the previously neglected equatorial and Middle Eastern areas into the world economy.
It was not just rubber that found new uses; oil, nitrates, even cactus leaves acquired commercial value. The mechanical reaper was transforming American agriculture. Its widespread use occasioned another farm mechanism, a knotting device that bound wheat shafts with twine. Landholders in the poor and dry Yucatán Peninsula somehow learned of this and saw the possibility of making twine from cactus. A group of entrepreneurs emerged ready to enslave the peasants, if necessary, to get them to use their machetes to cut off the cactus leaves. As so often happens in the history of capitalism, as one group suffered from a development, another prospered. This was the case here: While Mexican workers hacked at cactus leaves with little reward, farming families on the American plains prospered from the mechanization of their labor.8 The long reach of capitalist innovation in our time found coltan, a very special metallic ore from the Congo, which helps shrink the size of cell phones.
The leading European industrial powers sometimes treated their less advanced neighbors with the same arrogant sense of entitlement that they displayed in Africa. In 1873 a consortium of German and British companies bought the Spanish mines in the Andalucian coastline along the Río Tinto that legend said were none other than those of King Solomon. Probably the oldest copper mines in the world, they date back to the time of the Phoenicians. The new Rio Tinto Company brought in modern equipment and set up a residential community for its British employees. This may have been one of the world’s first “gated communities,” designed principally to keep out the Spanish. Any Englishman who married a Spaniard lost the right to live in Bellavista. The company quickly turned the area into a moonscape and caused an environmental disaster by regularly burning pyramids of copper sulfides. More than twelve thousand outraged local sufferers, tired of breathing sulfur, in 1888 launched a protest that Spanish authorities put down with unstinting violence.9 The Rio Tinto Company made news again in 2008, when the Aluminum Corporation of America joined forces with the Aluminum Corporation of China to buy 12 percent of Rio Tinto’s shares.
During most of the nineteenth century the United States had expanded by pushing aside the Indians living beyond the Appalachian Mountains. Armed settlers backed by the U.S. Army helped the country fulfill what it considered its “manifest destiny” to occupy the North American continent. With the states of California, Oregon, and Washington filling up rapidly, the country’s leaders began to see the United States as a Pacific as well as an Atlantic power. The rage for empire infected many Americans. An opportunity arose just ninety miles off the coast of Florida. While other European powers were racing to acquire new colonies, Spain was having trouble hanging on to Cuba, Puerto Rico, and the Philippines, the last three possessions of its once-great empire. In 1898 the Cuban struggle for independence captured the sympathy of Americans, whose new tabloid newspapers sensationalized the rebellion going on there.
Blaming Spain for the explosion on an American battleship, the U.S. Congress gave the president authority to use force against Spain and, incidentally, declared Cuba independent. Once at war, the United States sank the Spanish fleet in Manila Bay, more than ten thousand miles from Cuba. The United States forthwith annexed Guam, Midway, and Wake. The Hawaiian Islands had already been formed into an American protectorate in 1893. Meanwhile back in the Caribbean, after a few skirmishes, Spain granted Cuba its independence and ceded the Philippines to the United States. Furious at being handed over to another country, independence-minded Filipinos struggled against their new masters for sixteen years. The fight was brutal. Even American soldiers were horrified at the atrocities committed by their army. Despite a vigorous anti-imperialism movement at home, the United States joined the imperial club. The Filipinos had to wait another forty-eight years to achieve their autonomy. American imperialists, like those in Europe, touted the expansion in manufacturing, trade, and employment their new conquests would nurture.10
The Awakening Conscience of the West
In the years following the great divvying up of Africa, David Livingstone and Henry Morton Stanley became emblematic of the two impulses that had brought Europeans to Africa. Stanley stood for arrogant exploitation while Livingstone represented dedication to the well-being of others, both physical and spiritual. Private ventures like Stanley’s upended the cultural integrity of countries strong in many things except the capacity to repel the might of the West. Christian missionaries cared about the African people but were just as intent on changing them. Despite the moral chasm that lay between Stanley and Livingstone, both men displayed traits remarkably congruent with venture capital: their insatiable curiosity, their endurance of short-run discomfort to achieve long-run goals, and their overriding tenacity.
Commercial avarice, heightened by the rivalries within Europe, had changed the world. When the burst of acquisitions ended, half the earth was under the control of nine nations. If you were to assign colors to Spain, Portugal, Britain, France, the Netherlands, Germany, the United States, and Belgium to designate their areas of domination—even Denmark would need one for Greenland—the map of the world would look like a colorful fabric design. These national carriers of Western capitalism had to coin new words for their possessions, conjuring up “mandates,” “spheres of influence,” “protectorates,” and “annexations” to specify the particular nature of their domination around the world. At a conference in Berlin in 1884–1885 they put their seal of approval on the African holdings of all nations present.
Westerners continued their march across the globe, considering it part of the grand plan of human progress. The urge to exploit resources everywhere was rarely seen as part of the capitalist dynamic. More often it got folded into the assumption that Europeans were agents of historical development. They did accomplish many good things abroad, and they witnessed firsthand the great cruelty of local potentates and the rigidity of social hierarchies that guaranteed the oppression of the many by the few. Still, their wounding arrogance blinded them to the harm that they were doing among people whom they little understood or cared about. Whatever advances can be associated with Western domination outside Europe, they came at the high price of giving their foreign subjects a lingering and debilitating sense of inferiority.
In the twentieth century, Hannah Arendt put her finger on the problem: Outside their own boundaries, Europeans were willing to engage in practices intolerable at home.11 Europeans weren’t more violent than their contemporaries around the world, but they could, as others could not, inflict death and destruction on a grander scale. The capitalist motor, acquiring more horsepower with every decade, drove Europeans to easy conquests. Contempt for those with different faces immured in strange customs eased the consciences of these carriers of civilization, as it had slavery among white Americans. One might say in retrospect that capitalism acquired a sinister patina when governments took the initiative away from the private investors who had been running the capitalist show.
Defenders of capitalism are wont to tout their positive features while drowning accounts of their abuses in a pool of references to the human capacity to do wrong. That capacity for violence is certainly pervasive. Jared Diamond gives us a particularly shocking example of it in the case of an isolated South Sea island whose inhabitants had long fostered gentle habits. Hearing about their lack of any weapons, an expedition of Maoris, distant relatives who had been separated for centuries, sailed to the island and wiped out the community, slaughtering all the men and carrying off the women and children.12 Europeans got hoisted on their own petard by insisting on their superior virtue while pursuing ugly ends.
During the eighteenth century, a revolution in sensibilities had taken place, one that was initially directed to the evils within European societies. A new humanitarianism, based on personal empathy for other human beings, however different, had taken root. Vividly expressed in European literature, philosophy, and the arts, this humanitarianism offered Europeans a new and more benign identity.13 The father of E. I. du Pont named his son Eleuthère Irénée, which means “happiness and peace,” in celebration of the goals of the Enlightenment. Captured in the French Revolutionary slogan of “Liberty, equality, and fraternity,” this new spirit lost some of its appeal in Napoleon’s campaign to dominate Europe. Then scientific investigations in the nineteenth century, without disavowing humanitarianism, led to studies describing how and why racial differences existed. This discourse gave European empire builders some cover for their aggressive conduct.
At the popular level, two justifications were offered for European transgressions: The men and women affected were too ignorant, lazy, and superstitious to know what was happening to them, or Europeans were carriers of great gifts from their superior culture, manifested in its religion, its tools, and its wealth. As civilized nations they would bring public education, higher standards of cleanliness, better transportation, and more respectful attitudes toward women to their benighted new subjects. When reformers publicized the wide gap between projected benefits and actual accomplishments, empire building lost its luster, even though its forward moment was strong enough to cause a war that stretched like Europe’s possessions across the globe.
A New Rival in the East
Under the radar, during this period of European expansion, Japan had been undergoing a remarkable transformation, culminating when the feudal Tokugawa regime gave way to the Meiji Restoration in 1867. For reasons that remain obscure, in 1637 the third shogun of the ruling Tokugawa line in Japan had issued a “closing of the country” decree.14 He was probably reacting defensively to the presence of Spain, Portugal, the Netherlands, France, and England in the Indian and Pacific oceans. This self-denying ordinance certainly accords well with the xenophobic attitude in the Japanese national spirit, but it rankled Westerners, who were used to going where they wanted. Western impatience with countries that preferred not to join a trading system stacked against them became marked as imperialism swept up European leaders. A British fleet bombarded Kagoshima in 1863 in order to gain access to the southern Japanese area of Satsuma. The bombardment destroyed one-third of the city.
Two dramatic events led Japan to reverse course: the arrival of an American fleet demanding that Japan join the informal world trade system and a more or less peaceful coup d’etat, the first in 1853; the second in 1869. The American appetite for trade throughout the Pacific had been whetted by the acquisition of California ports in the Mexican-American War, which ended in 1848. Japan appeared to Americans as an oyster that just needed a little pressure to reveal its pearls. They sent Commodore Matthew Perry with a fleet across the Pacific to pry it open. Perry was the right man for the job. He studied his subject well and arrived with an impressive combination of modern weaponry and the elaborate trappings of ceremony. His heavily armored steamboats were meant to impress the Japanese with Western technology, as the imposing black line in the harbor of Toyko most certainly did.
Perry would deal only with the highest authority and demonstrated his readiness to fight by repelling any Japanese who attempted to board one of his ships. He also had patience, giving the Japanese half a year to make up their minds. It proved enough time for them to realize that the only way they could create the strength to repel outside influence would be to tap into the modern power of foreigners. After fifteen months of tense negotiations, underlined with threats to use force, Perry succeeded in gaining a treaty and wounding Japanese pride.
While these so-called openings were battering Japan, a reforming wing of the samurai, the traditional aristocracy, which composed about 7 percent of the Japanese population, orchestrated a reshuffling of noble and imperial power. The leaders of the Meiji Restoration, named after the young emperor, were opportunistic enough to borrow every Western idea that might turn Japan into a modern nation. Unhappy with the commercial treaties that had been foisted upon their country, they strengthened distinctive Japanese institutions like the Shinto belief in the emperor’s divinity. A shared religion became important as a unifying force. Schools and the army also helped instill loyalty and a strong sense of civic duty among the Japanese. Perhaps even more important, Meiji reformers replaced the old classical, moral, and Confucian education with a more scientific and technical one. In an interesting paradox, if not contradiction, Meiji leaders wanted both to preserve what made Japan unique and to prepare their people to enter a multinational, modern world.
Longer-term changes were already converting the country’s network of self-sufficient villages into an integrated, commercial economy. With a vibrant agriculture, Japan’s standard of living was probably as much as a third higher than that of its neighbors. A nascent middle class made up of wealthy farmers, small traders, and urban professionals provided critical support to the restoration effort. Over the next few decades, the central and centralizing authorities went on a crash course to modernize Japan while using industrial power to build up its military. The goal became achieving “Great Power Status.”15
Merchants and artisans in the rural area favored the restoration, hoping for a larger ambit for enterprise along with opportunities to participate in politics. In 1889 a constitution was promulgated, setting up a bicameral legislature, composed of a lower house—the Diet—and a House of Peers. The constitution reserved most powers for the emperor, but these were exercised by his advisers. Political parties existed, but a dominant concern with harmony and a new aristocracy to interpret what that harmony consisted of severely limited their effectiveness. The constitution itself represented the acme of achievement for those Meiji critics hoping for a more liberal order than they got.16
Meiji administrators turned out to be experimental and pragmatic without yielding on their goal of catching up with the West. “Catching up,” as it turned out, meant jettisoning the country’s feudal arrangements, its addiction to traditions, its costly samurai, and a tax system that favored the feudal overlords over farmers. They turned samurai stipends into bonds that could be used as bank capital and unified the multiple currencies into one. The old and new sectors of the economy grew concurrently and were often mutually enhancing. In fact the capital for modernizing came from accelerating growth in venerable craft and textile trades.
Japanese farmers had a long tradition of using family labor in both agriculture and cottage industry. They continued to make textiles at home long after modern factories had been established in the cities. This labor-intensive work went a long way to compensate for Japan’s lack of capital. Japan exported cotton yarn and cotton cloth, silk spun yarn and cloth, and an array of inexpensive parasols, European-style umbrellas, paper products, pottery, glass bottles, lamps, ropes, mats, and soap.17 Foreign trade brought fertilizers to farmers and cotton dyes to textile makers. Export demand for Japanese silk doubled in five years.18
The new government developed a national banking system. It reordered the nation’s finances by reducing the stipends to the samurai. It replaced the old agricultural tax with a set land tax, turning land into a capital asset and giving the new farmer-landlords, rather than overlords, the benefits of improvement. It recapitulated swiftly the agricultural changes in sixteenth-and seventeenth-century England that had released workers and capital for commercial and industrial enterprises. The government invested heavily in railroads, highways, and a merchant marine. Under the slogan “Rich country, strong army,” the new leadership changed the laws, the schools, and the priorities of the country. It abandoned the lunar calendar derived from China in favor of the Gregorian calendar, which England had adopted in 1752, necessitating a loss of eleven days as September 3 of the old Julian calendar became September 14 of the new. Soon smokestacks, telephone poles, railroad tracks, shipyards, and coal mines dotted the picture-perfect Japanese landscape.19
The dislike of foreigners that had kept the country isolated found expression in a domestic ideology of emperor worship. Japanese xenophobia actually got stood on its head as copying Western dress, aesthetics, and technology became identified with patriotism. The forced concessions wrested by Great Britain and the United States continued to abrade Japanese pride and provide the emotional fuel for an expansive foreign policy. More menacingly, Russia was moving east toward Manchuria, Sakhalin, and Korea, as the Trans-Siberian Railway took shape during the 1890s. China too was angling for more control over Korea, something intolerable to the Japanese government, which was willing to spend one-third of the national budget on soldiers and weapon systems.
Integral to Japan’s drive for autonomy was the determination to repel Western powers that intruded too far into East Asia. They’d all already arrived—the British in Hong Kong, the Dutch in Macao and Timor, the Spanish in the Philippines, the French on the Pacific island of Tahiti—and then, in 1867, the United States bought Alaska and the Aleutian Islands from Russia and acquired Midway Island. The new Meiji government was able to dispatch a challenge from China in the successful prosecutions of the Sino-Japanese War of 1894–1895. When Russia extended into Manchuria, more action was called for. Negotiations over mutually exclusive spheres of influence broke down, leading to a Japanese attack on Port Arthur in Manchuria in early 1904. A very swift war ensued, with Japan again emerging victorious. Peace negotiations in New Hampshire brought an end to hostilities and a Nobel Peace Prize to President Theodore Roosevelt in 1906.
While the English were learning of these victories, they were also enjoying Gilbert and Sullivan’s popular spoof of imperial Japan in their 1885 operetta The Mikado with little thought of the wounds to Japanese pride. Japan added the colony of Korea in 1910 to that of Taiwan, acquired in 1895, and annexed Korea in 1910. With little regard for the neighbors that they would “save” from the West, Japan moved into China next. Like its European imperialist mentors, Japan saw its mission as civilizing its backward neighbors. At the same time, American and European artists and architects discovered the Japanese aesthetic and began incorporating Japanese designs into their work. Western consumers, attuned to novelty, responded with great enthusiasm to these objects and styles.20
The well-known slogan of the Meiji Restoration about “enriching the country and strengthening the armed forces” describes what happened as Japan replaced backward methods with the latest Western technology, but what it doesn’t reveal is even more important. Japan yielded to demands to come out of its isolation at the same time that its leaders worked diligently to achieve the autonomy that had eluded so many of the non-Western countries brought into the Western orbit. This meant to them maintaining government direction of economic development in order to build a strong military presence. Skilled administrators, not business leaders, oversaw industrialization, though the latter were always ready to take advantage of any economic opportunities that opened up. Japan became famous for its borrowings. Even its constitution reflected a respect for English political institutions, but its leaders eschewed the West’s faith in the free market to allocate resources. You might say that Japan copied every arrow in the Western economic quiver except its theories about free enterprise.21
While Japan had startled the West by handily sinking the Russian Baltic fleet in Tsushima Strait, the impact of this display of its prowess astounded Asians. It thrilled them, for Europe’s long dominance of their homelands had left a legacy of anger, bitterly larded with a sense of inferiority. One of their own defeated the mighty Europeans, even if it was the backward czarist Russia.22 Never had Europeans sustained such a resounding defeat at the hands of an Asian nation. The novelist Pramoedya Ananta Toer in his Buru Quartet gives lyrical expression to the exhilaration felt as far away as Malaysia at this stunning, unexpected triumph over the arrogant Europeans.
Imperial Japan actually acted as midwife for two revolutions, both precursors of world-shaking ones. The humiliating defeat of Russia spurred the leaders of the premature Russian Revolution of 1905. More directly, Japanese leaders encouraged Chinese revolutionaries, reasoning that it would facilitate their plans to control Manchuria. The five hundred Chinese students who came to Japan to study in 1902 had grown to thirteen thousand by 1906. Many of these political radicals returned home to support Sun Yat-sen. The Japanese government had subsidized the successful creation of a Chinese Republic in 1912, figuring that it would open up a power vacuum in Manchuria.
Since the Meiji Restoration, Japan had come to control considerable territory outside its island borders. These acquisitions strengthened the military as well as financial and industrial leaders, who began to participate in the political parties previously dominated by the landlord class.23When the United States invaded the Philippines in 1898 during the Spanish-American War, it announced the policy of the open door. Although it sounded benign in its invitation to all to participate, the Japanese saw it as a threat to their maturing plans for dominance in China. The Japanese military, which had grown stronger with every decade, joined Japan’s big industrialists in backing the government’s view of Manchuria as a prime colonial area. The stage was set for protracted conflict.
Restructuring of Corporations
At the turn of the twentieth century, that chameleon capitalism changed pace and structure once more. In sharp contrast with the imperialists’ pell-mell approach to acquiring new territory, business firms, now the key players, were becoming more rational and efficient, and much better organized. The earlier development of railroads and telegraphy had made complex business structures both possible and necessary. Trains and telegrams broke down the isolation of villages and towns and linked cities far apart. Their lines and rails kept up a constant movement of people, goods, and information. When the new firms were organized well, their size made possible cutting costs while buying materials, organizing production, and attracting customers. Bigness promoted organizational restructuring and paid for it.
By the opening of the twentieth century capitalism was no longer an obnoxious intruder disturbing settled ways. It was the ascendant economic system in Europe, the United States, and Japan. The previous century had demonstrated the potent connection between an ever-evolving technology and risk-taking entrepreneurs. The experience of Germany and the United States in surpassing Great Britain offered many lessons, though rarely were they studied. For starters, risk taking was an essential, but disruptive, part of the capitalist dynamic. Innovation sustained economic development, and cultivating consumption was as important as enlarging production. Panics and recessions reminded people that no one was explicitly in charge of an entrepreneurial economy, even if some participants had a great deal more power than others. Coming to terms with that fact alone has proved difficult for people and governments. The accumulation of market choices expressed in private decisions to produce, save, spend, hire, work, lend, and borrow could, can, and will continue to deliver surprises, not all of them pleasant.
In the closing decades of the nineteenth century, fierce competition was eating up profits throughout the capitalist world, and it happened while technological innovations soaked up more money. At first, trade associations held out the hope of moderating price wars; creating a holding company of many outfits was an even more effective solution. The “firm”—a shorthand term to refer to private companies—took over at the closing of the Vanderbilt-Carnegie-Rockefeller era. In fact, Rockefeller made a novel move when his Standard Oil Company of Ohio achieved a near monopoly of oil fields, pipelines, and refineries. Under his Ohio charter, he could not legally own stock outside Ohio, so he came up with a new strategy. He created a board of trustees to hold stock in his various enterprises, creating the Oil Trust in 1881. Not only was competition suppressed, but the new firm became big enough to both need and pay for a managerial make-over.
Surprising as it sounds, bureaucracy is what distinguished the firm from earlier business arrangements, bureaucracy and the separation of ownership from management. Long before the U.S. government set up its landmark bureaucracies with their alphabet soup acronyms like ICC and SEC, the Pennsylvania Railroad, DuPont, Standard Oil, and International Telephone and Telegraph put together sophisticated organizations whose very complexity brought into being a new profession, management. Managers acquired prestige as they learned new skills. Concurrent developments merged to create more complex organizations. Compulsory education upgraded the work force while trained managers learned how to use statistics, financial reports, procurement strategies, and technical papers.
You can grasp the principle behind the new business structures if you imagine the typical organizational chart with its stacks of boxes, descending from the top layer. The boxes looked at vertically denote authority; the board of directors with final authority sits atop the chart, but the presidents were in charge 24/7. Salaried executives, who later were called chief executive officers, instead of owners, now ran the companies. Each organizational unit in the firm had a specific task in the operation along with its own hierarchy of managers, their staffs, accountants, engineers, technicians, salespersons, and, for production units, workers and foremen. These unit managers reported to those above them through an established chain of command and connected to one another through a flow of information pulsating back and forth.
Though the new organization was slightly military in its rigid structure, its essence was fluidity, the ability to respond quickly to subtle changes in all the markets the firm had to deal with. There was an incentive for firms that relied more upon capital than labor to adopt the new organizational structure because they benefited most from following the drumbeat of regular upgrading.24 No one heard the whistle of competition more loudly than the CEO and his team of middle managers. Like good generals, professional managers kept their teams attuned to ways for widening their market, staying abreast of innovation, riding hard on competitors, and cutting costs.25 Research and development had to be constant. Many of the new firms were big enough to dominate their line of business. The concept of market share now joined steady profits in the lexicon of success. Alfred P. Sloan, Jr., the legendary organizer of General Motors, for example, raised GM’s market share from 12 to 52 percent over the course of his career from 1920 to 1956.
In 1893 another downturn in the economy coupled with price wars among capital-intensive industries created incentives to dampen competition through amalgamation. New Jersey gave American companies a break with an incorporation statute that let corporations hold stock shares of other corporations, regardless of where the corporations had been chartered. Merging companies then became a favorite strategy for reducing competition in the United States. Mergers, following the time-honored principle of the economy of scale enabled three or four large companies to enjoy the cost savings of size, but bigness is beneficial only if it leads to savings.26
Cooperating businesses had the choice of forming a trust or getting a state charter for a new company that pooled the shares of existing firms. The return of prosperity set off the largest merger movement yet seen. More than 157 giant corporations swallowed up 1,800 separate businesses between 1895 and 1904. Close to 100 of these new corporations had a commanding share—from 40 to 70 percent—of their markets. Large companies in oil, tobacco, steel, and automobile making obviously flourished, but literally hundreds of other attempts to follow this model failed because they couldn’t benefit from either size or scope.27
For many firms, the most treacherous passage was the one from family company to impersonal corporation. Families, like the Swifts, Deeres, Eastmans, Schwabs, Firestones, Dows, Watsons, McCormicks, Westinghouses, and Armours maintained control over their firms longest because they grew through internal developments rather than acquisitions. Still, while personal attachment counted for much, the challenges to grow and diversify intensified. Not all heirs were equally able, steering expansion required a breadth of knowledge, and most family firms did not have the deep pockets to meet the considerable costs of vertical integration and managerial reorganization. For instance, only the Vanderbilts had the money to modernize their railroad system.
The gifts of Pierre du Pont make this point better. Responsible for restructuring the DuPont Company after 1904 and General Motors after 1920, du Pont was both wealthy and astute enough in financial affairs not to have to repair to Wall Street for expansion. He had an intuitive sense of which managers would succeed and the good sense to get out of their way as they tackled the daunting task of modernizing operations while maintaining profits. At General Motors, du Pont’s promotion of Alfred Sloan was enough to secure the company’s prosperity.28 But his rare success raises another point. If unusual talent is needed to carry complex organizations like a corporation across the bridge of critical change, which plays the more important part in success: the unique individual or the optimal structure?29
A list of the two hundred largest firms in 1917 gives us a picture of what had replaced the local meat-packer, farmer-retailer, seamstress, and wheelwright. Think American Tobacco, United States Rubber, Quaker Oats, Standard Oil, and Pittsburgh Plate Glass. With assets in the millions and employees in the thousands, these corporations produced food, tobacco, textiles, apparel, lumber, furniture, paper, printed items, chemicals, petroleum, rubber, leather, glass, metals, machinery, transportation equipment, and instruments.30 Sometimes referred to as managerial capitalism, this consolidation into behemoths depended on the legal foundation of the corporation for perpetuity, limited liability, and a protected scope of action. Given incorporation generously by state governments, stockholders rarely recognized it as the gift that it was.31
Private banks like that of J. P. Morgan created a market in shares of industrial securities. These sales financed the many mergers that were consolidating whole industries. Banks bought sufficiently large blocks of equity to be able to have their weight felt in dividend and investment policies at shareholders’ meetings. This arrangement worked until the bankers’ influence appeared as a threat to the interests of the public, whose advocates demanded laws curtailing this financial capitalism. Over time banks lost some of the power they had exercised at the end of the nineteenth century. Not only was there more federal regulation, there were new sources of capital available to big companies, like their savings or stock issues. New or expanding smaller companies became the Wall Street banks best customers.32 As the separation of management and ownership widened, shareholders’ capacity to monitor management weakened.
Just as new machinery made it possible to break up the production process into individual steps, so the complex arrangements of offices and departments facilitated the paper work of ordering, billing, bookkeeping, letter writing, and preparing marketing material to be assigned and accounted for in separate units, each with its own managerial team. The goal was to coordinate the diverse activities that stretched from buying raw materials, building plants, and training a work force through to the manufacturing, marketing, and delivering of goods to cutting checks, accounting for costs, and carrying on relevant research. Employing workers, which used to be done by the shop foremen, got professionalized with the addition of personnel offices and efficiency experts. With this elaboration of business bureaucracies came the new language of bureaucratese we’re so familiar with, captured in phrases like “functional specialization.”
The deep pockets of corporations paid for the expensive transformation of innovative design into sellable commodities. In the United States, where government remained relatively small, these business enterprises became the country’s largest, most intricate social organizations. Government at the state level offered few obstacles and some important incentives to corporate reorganizations. As the New Jersey statute suggests, the federal system with shared power between the state and national governments served business interests well. States competed for resources; chartering corporations brought in tax revenues; incentives were strong to give corporate boards what they wanted. New Jersey attracted the majority of incorporations with its accommodating law. Despite the trend toward building giant corporations, more efforts failed than succeeded. National Novelty, National Salt, National Starch, National Wallpaper, and National Cordage all bit the dust. Even today most people work for small businesses. Of the Fortune 500 firms established before 1910, only twenty-nine exist today.33
The competition that promoted the formation of large, market-commanding corporations in the United States had a different result in Germany. There the depression of 1873–1896 encouraged manufacturers to form cartels, organization of producers within a single sector directed to achieving collective goals. By 1911 there were more than five hundred cartels; by 1923, fifteen hundred. The common law of England and the United States construed the price regulations of a cartel as a restraint of trade. When Franklin Delano Roosevelt in the midst of the Great Depression of the 1930s shepherded through Congress the National Recovery Act, which imposed cooperative rules upon manufacturing companies, the Supreme Court declared it unconstitutional. No such obstacle operated under Europe’s civil law. This meant that in Britain or the United States cartels could be formed, but their rules could not be enforced in a court of law. The scrappy competition that marked enterprises in the eighteenth and early nineteenth centuries had given way to the imperative to moderate the destructive aspects of competition.
Cartels reflected a cautious, defensive strategy. Aimed at conserving earnings rather than exploiting opportunities, cartels promoted slow, orderly advances in their particular industry, usually setting prices at the level of the least efficient producer. When it became obvious that stability required more than price setting, cartels became even more intrusive by allocating shares of the market, or quotas, to individual firms. Like most institutions that prevail for a long time, cartels had both advantages and disadvantages.34 They tended to reduce obsolete practices through the spread of information, and they prevented erratic swings in returns by setting prices. They encumbered individual decision making and sometimes the innovations that came along with it.
As a collaborative endeavor, a cartel relied upon direction from professional administrators working at cartel headquarters to make industrywide decisions that would smooth out the ups and downs of trade. They also protected individual companies from being swallowed up by larger outfits. Whereas Carnegie Steel and Federal Steel each produced 35 percent of steel ingots and 45 percent of rails in the United States, no steelmaker in the Ruhr Valley produced as much as 10 percent of either product.35
With its own highly bureaucratized regime in place, the German imperial government was in a position to channel economic developments, but in fact both the federal and state governments pretty much left the industrialists alone. What the Prussian government had done since the beginning of the nineteenth century was to initiate technical and scientific research that was diffused through a network of engineering schools.36 This became the source of Germany’s competitive edge in chemicals, metals, and electrical and heavy machinery. Having put in place tariffs to protect the German steel and iron industries from English and Belgian competition, the government left it to its industrialists to run their companies. The United States followed other European countries in raising tariff walls to protect their “home” industries. By the 1890s German and American economic preeminence was pronounced and accelerating.
The English, the pioneer of free trade policies, along with the Netherlands and Belgium, declined to erect tariff barriers, and they suffered from that decision. Not that they got much credit for it. A typically jaundiced view was expressed by a diplomat who compared Great Britain’s free trade policy with someone climbing a tree full of fruit and kicking away the ladder to it.37 But in fact everyone benefited. Britain’s willingness to hold to free trade during downturns in the world economy meant that countries suffering from gluts had some outlet for their goods, a not inconsiderable service that stabilized the market for the long run, despite short-run costs to itself.38 Everyone came to appreciate this service after it ended when adverse circumstances forced Great Britain to abandon its leadership in 1931. In another “peculiarity of the British,” they had a penchant for keeping control of businesses in the hands of family owners and so did not undertake the corporate restructuring that the Americans and Germans had done. The failure to do so was painful as these firms watched the biggest shares in the international markets in steel products, electrical equipment, and dyestuffs pass to their competitors. Small may have been beautiful, but it was not as effective at the end of the nineteenth century.
One might expect cartels and tariffs to breed a complacent business environment, but German producers performed well, competing for shares of the domestic market. The momentum created at mid-century by railroad building was strong enough for an almost seamless transition to the new technologies in electricity, chemistry, and precision engineering.39 The Germans became the world’s trailblazers with these new winners of capitalism. The German electrical engineering industry was moving toward global dominance. By the early twentieth century it was marketing half the electrical products in the international market. At the same time Germany achieved almost a monopoly of European commerce in fine chemicals, dyestuffs, and optics.
The Scope of Industries
Germans devoted substantial resources to scientific education even while they shared the high premium Europeans put on classical studies. German researchers during the nineteenth century only later found practical applications for their discoveries. And those applications were astounding! Germans gained more knowledge of energy, electricity, and optics than their peers in France and Great Britain combined. Academic researchers and business leaders worked hand in glove in what contemporaries sometimes called a secret marriage. By 1890 there were twice as many chemists in Germany as in Great Britain. They gave their country a virtual monopoly of dyestuffs before 1914. Their laboratories led the way in synthesizing natural materials, like fertilizer and dyes. After Germany’s humiliating defeat by Napoleon some concluded that their country would do better concentrating on science and the economy.40 From Waterloo to Verdun, Germany industrial production grew an amazing forty-fivefold while agricultural output increased by three and a half times with population more than doubling. Malthus had been proven wrong; agricultural productivity had kept up with population growth.
Again the technological trajectory of the United States differed from that of Germany. Individual American inventors, like Thomas Alva Edison and Alexander Graham Bell, built major companies from their own workshops. Both men set up laboratories from the early returns of their inventions. They succeeded in establishing landmark corporations to capitalize on what electricity had wrought. They had been born in the same year, 1847, but it would be hard to find two more different men. Bell was the son and grandson of distinguished Scottish educators and came to the telephone by way of a career devoted to helping the deaf. Edison was an autodidact. When he quit school, he left behind teachers convinced that he was a slow learner. He educated himself in chemistry while working as a telegraph operator.
Remembered most for the incandescent light bulb, which banished the darkness of night without smoke, soot, heat, or the danger of fire, Edison had a genius that was as prolific as it was profitable. With 1,093 patents, he still holds the world’s record. He also nurtured the talent of others. From Edison’s lab came Nikola Tesla, a Hungarian immigrant whose patent for the radio the Supreme Court upheld. Simultaneously, a slew of talented men from many countries had been working on the radio, including James Clerk Maxwell, a Scotsman; Mahlon Loomis, an American dentist; and the Italian Guglielmo Marconi. Many of Edison’s ideas emanated from telegraphy. Bell too began with telegraphy, and his great contribution was making electricity do the work of transmitting sound. Others working with both electricity and telegraphy developed phonographs, telephones, and motion pictures. The commercialization of these inventions fostered popular modes of entertainment that became the cultural signature of the twentieth century.
Electricity did more than inspire new inventions; it provided a new form of power. Switching from steam to electrical power in manufacturing proved complicated and costly. It was not just a question of turning on a switch, but of converting the entire equipment of a plant. Sources for electrical power had to be secured. Both water—hydropower—and steam-driven turbines produced electricity for manufacturers who could either purchase their electricity from a new utility company or generate it at their sites. George Westinghouse played a major role in popularizing electricity by developing the transformer, which could deliver electricity over long distances. He tapped the power of Niagara Falls through generating stations that lit up Buffalo twenty miles away. He was also the champion of alternating current when Edison championed direct current. Direct current had the disadvantage of fading after traveling a mile while Westinghouse’s alternating current went hundreds of power-filled miles. This contest took a bizarre twist when publicists claimed that the danger of AC was proved by its efficient use in New York’s electric chair.
The transfer from steam to electricity was uneven and took more than half a century. Apparel and printing firms led the way, with fabricated metals and transportation equipment following closely behind.41 Unforeseen ramifications unfolded. Elevators, for instance, made possible the skyscrapers that characterized modern architecture. Electricity changed one of the most conservative occupations, that of the building trade. The circular saw, lathe, router, and drill sped up the work of construction, but the rhythms remained human. The man (and sometimes woman) walking the beams on a building site still control the tool in his or her hand. The same could be said about the wonderful gadgets that began filling kitchens and home laundries.
In almost every Western country a mechanical wizard was working on a model of an “automobile.” As early as 1771, the Frenchman Nicholas Joseph Cugnot had designed a steam-powered vehicle. The Germans Gottlieb Daimler and Wilhelm Maybach succeeded with a two-cylinder internal-combustion engine. Their competitor Karl Benz put a car into production. He celebrated his three-wheeler’s success by taking his wife on a motor tour in 1888. The American Ransom Olds enthralled the American public in 1901 with his “merry Oldsmobile,” the first car produced in any quantity. At the turn of the century there were fifty start-up companies attracting millions of venture dollars, marks, francs, and pounds, each trying to exploit the potential of placing a machine inside a carriage and letting it rip. The group backing the new Ford Motor Company wanted to produce cars for the rich. Their inventor, Henry Ford, had a different idea. He wanted to figure out how to cut costs, speed up production, make partners out of his salesmen, and supply cars for Mr. Everyman.42
His 161 patents demonstrated Ford’s technical prowess, but his real genius turned out to be in the classic capitalist activities of production, competition, labor management, and marketing. In all these aspects of running a successful company, everything Ford did was original, totally original. His investors were not. When they failed to get on board his program, he bought them out. Most critical to Ford’s phenomenal success was his vision that the car could be a popular acquisition if he could cut costs and enhance efficiency on the shop floor. This was his lodestar.
When Ford began, cars were made by craftsmen, one at a time. He revolutionized production by taking unskilled laborers, assigning them simple tasks in a thorough division of the labor, and assembling the cars in a line. He invented mass production. His mass producers at one factory spoke fifty different languages, but it didn’t matter, because they needed to know how to do only one task.43 Ford’s success can be measured by the fact that his famous assembly line, when perfected, could turn out a car in ninety-eight minutes! The Model T made its appearance in 1908; it was elegant in design and engineering and available in any color, Ford announced, “as long as it was black.” More important, most middle-class Americans could afford one, including Ford’s workers, whom he started paying five dollars a day in 1914. His goal was for his men to earn wages high enough for them to buy what they produced. And buy they did.
The scientific management of labor had already attracted the attention of Frederick Winslow Taylor, who carefully observed men working in the steel industry in the 1880s and 1890s. Taylor brought to his research the conviction that scientific management could blend the interests of bosses and workers. This was probably too much to be expected, but Taylor did describe how to make time and motion at the work site more precise and management more attuned to workers’ rhythms. He introduced the idea of rest breaks in the work schedule. Production rates rose. Taylor had the distinction of being admired by both Adolf Hitler and V. I. Lenin. Taylorism became the perfect complement to the rationalization of corporation management and what came to be known as Fordism, a melding of mass production and mass consumption.
By 1929 the River Rouge plant in Michigan was turning out a car every ten seconds. In the previous two decades the cost of a Model T had dropped from $850 to $260—or fifty-two daily paychecks for someone working the Ford assembly line. The 122 million Americans then, half of them under the age of twenty-six, were enjoying the pleasure of driving seventeen million cars, a good percentage of them Fords.44 At the same time, France, Germany, and Great Britain, with an aggregate population comparable to that of the United States, had fewer than two million cars. Amazingly, America led the world in both agricultural and industrial output.
Ford pioneered another marketing innovation. He established dealerships where his Model Ts, or tin lizzies, as they were called, might be bought and serviced. By 1912 seven thousand Ford dealerships had opened with fancy showrooms to lure in consumers from Harrisburg to Houston, Portsmouth to Portland. Still, he had to compete with 273 other companies manufacturing cars in 1909!45 The automobile had taken the place of the railroad as the first gear of the economy by 1920. When Henry Ford closed down his River Rouge plant for six months in 1927 in order to switch to the Model A, America’s industrial production index dropped 11 percent.46
William Durant proved that there was room for more than one genius in the automobile industry. Beginning with the Buick, Durant next acquired Oldsmobile and seized the chance during the stock market panic of 1907 to buy up lots of other automobile companies along with firms that made automobile accessories. By 1908 he had created General Motors, which was to give Ford more than a run for its money. Like a cat with more than one life, Durant went under in 1911, only to bounce back with a fierce competitor to the Model T that he called Chevrolet. Seeing an opening in Ford’s insistence upon making black cars that looked like boxes, Durant offered buyers attractive colors, softer seats, and the chance to buy one of GM’s five cars—Cadillac, Buick, Oldsmoble, Pontiac, and Chevrolet—on credit.47 As a later president of General Motors, Alfred Sloan, said, a “car for every purse and every purpose.” Soon Ford had to follow suit; a pattern had been set for Detroit automakers.
Moving through the ranks of the automobile industry was Alfred P. Sloan, Jr., who became GM’s president in 1923. An electrical engineer and graduate of the Massachusetts Institute of Technology, Sloan turned General Motors into the largest automotive corporation in the world—a leader in both sales and profits. In the 1930s he made the Chevy, not the Ford, the car of choice for most American buyers. Taking advantage of Ford’s fetish about standardization, Sloan introduced style changes for each year’s models, much to the delight of American consumers.
While the kinks were being worked out of automobile production during the first decade of the twentieth century, Wilbur and Orville Wright had been experimenting with kites, gliders, and biplanes in anticipation of their highly publicized fifteen-second airplane flight from Kitty Hawk, North Carolina, in 1908.
Imperatives of Automobile Driving
Retrospectively, the conversion to private transportation seems to have unfolded smoothly, but consider what a demanding novelty the car was. Instead of sitting in a bus or train, ordinary people had to learn to operate a complicated machine. Driving any distance depended upon the construction of roads as well as the availability of fuel. Formerly bought in grocery stores, the oil needed by the car promoted a new retailing business, drive-in gas stations along the roads between cities. People even had to acquire new mores to accommodate the automobile. The limited distance covered by a walker or horseback rider had now extended far beyond the watchful eyes of parents, bosses, and policemen. Greater mobility and an enclosed space allowed for greater sexual freedom—or at least parents feared this was so.
Initially cars used the rutted roads of carriages, carts, and wagons, but the rattling of passengers’ teeth drove home the point that a smoother ride would be desirable. Macadam roads made of pressurized broken stone had been around for a half century; with cars, various additives were tried to give the macadamized roads more stability. Tar with crushed rocks did yeoman service for a while until cars triggered their own solution to the paving challenge. The steady demand for petroleum produced more and more by-products, like asphalt, that proved excellent in surfacing roadbeds. Urbanites preferred cement, which was smoother and better suited for making curbs, a new addition to the modern city. It’s staggering to think of the thousands of construction teams sent out across the country to level, grade, and lay mile upon mile of paved roads, all summoned by the automobile and its rough cousin the truck.
Cars also had the capability of hurting people and damaging property, so they gave the insurance industry a big boost. And then there was the need for trained mechanics to tune these complicated machines lodged in the garages of millions of people for whom a look under the hood was an invitation to vertigo. That did change, and many an American lad spent his Saturdays lying underneath the family car tinkering with its engine. Tires frequently went flat; changing them became an imperative skill in the male repertoire until radial tires, introduced in the 1970s, made flats a thing of the past. Microprocessors now operating in cars have taken their repair out of the hands of amateurs.
Probably no other invention matched the automobile in its global reach or its power to accelerate the commercialization of raw materials like rubber and oil. Ford may have turned out his Model Ts in ninety-eight minutes, but it took a lot more time to get the needed supplies to the assembly line. Rubber, growing wild in King Leopold’s Free State of Congo, Brazil’s Amazon basin, and Malaysian jungles acquired a new value. With profits beckoning, these “tappers” were virtually enslaved. Even with control, their habits appeared too chaotic for the increasingly rationalized economic system capitalism was becoming. When a British botanist, Henry Alexander Wickham, hybridized seeds sent from Brazil, Great Britain established rubber plantations in Malaysia that in time wiped out the harvesting of wild rubber in Brazil, Africa, and elsewhere. The next step was to make a synthetic rubber, but that development awaited the stimulus of acute rubber shortages during the Second World War.48
And of course there was the automobile’s voracious appetite for fuel. Bubbling up to surfaces all over the globe, oil had been a source of heat, though kerosene had been used in lamps. Gasoline had been an unimportant by-product. When Ford, Olds, Buick, Benz, Daimler, Austin, Morris, and the Peugeot brothers began rolling out their new automobiles, the demand for gasoline soared. Internal-combustion engines soon drove buses, trucks, and military vehicles. They made Rockefeller the wealthiest man in America. As the demand for oil and its many by-products expanded, oil entrepreneurs fanned out across the globe in search of the fossil fuel hidden for millennia beneath the earth’s surface. Enriching foreign investors and local potentates, the “black gold” craze for oil put a premium on local labor. In Europe in the 1880s both the Rothschilds of the banking family and the Nobels of the explosives family became involved in producing oil in the Baku region of Russia.
A Nobel scion had gone to the Caucasus with twenty-five thousand rubles to buy walnut rifle stocks for his brother’s company. Arriving in the midst of an oil boom, he bought a refinery instead and plunged his family into the international oil business. Competition from the likes of Rothschilds and Nobels forced Rockefeller to turn Standard Oil into an international corporation.49 Finding oil in Sumatra, a Dutch visitor started drilling in this jungle site, even gaining permission from William III of the Netherlands to call his company Royal Shell. When oil was found in Curaçao in 1914, the island again became a part of world capitalism. On the site of the old slave market rose a complex of oil refining equipment built by the Royal Shell Company and the Dutch government. Discarded kerosene cans, either blue for Standard Oil or red for Shell, got converted into stoves all over Asia.
British, Dutch, and American firms made a fateful decision when they sought out oil in the Arabian Peninsula and adjacent lands. They found it in great abundance, but not without planting seeds of hatred. As Abdelrahman Munif’s brilliant novel Cities of Saltpoignantly demonstrates, many Middle Easterners’ first contact with Westerners came from the arrogant company managers and roustabouts on oil rigs that were built in the 1930s. As in Africa, so in the Middle East, the Europeans and Americans involved in foreign enterprises had little respect for the people or the cultures they encountered. They exploited the resources of distant lands as though there were no tomorrow and relied on compliant local leaders to give them access to laborers and the resources they wanted.
Because of the spectacular speed with which the United States outpaced all other countries in the opening decades of the twentieth century, its mass production and managerial organization have taken on the aura of an inexorable and optimal development generated from within the very logic of capitalist enterprise. This orthodox interpretation is misleading. By no means inevitable or sealed off from larger trends, the mergers and reorganization of American corporations were very much the product of political circumstances and social values. To name three: the weakness of government, an abundance of cheap labor, and a large public receptive to standardized products. Americans readily took up the role of consumer, snapping up cheap goods, even if they all looked and tasted alike. This receptivity to standardized items meant that companies could benefit from the cost savings of mass production, a reaction businesses could not always count on in Europe, where buyers still appreciated handcrafted goods.
American Federal Power
The first serious curtailment of corporate power came in 1887, when Congress created the Interstate Commerce Commission, which could regulate transportation lines that extended beyond state lines. Three years later, the Sherman Antitrust Act made a first stab at regulating large corporations whose size could be interpreted as restraining trade. But the horses had already left the stable. Corporations made their moves toward consolidation before the era of big government began. Within twenty years, fewer than six hundred corporations controlled half the assets of the country’s four hundred thousand corporations. Only when the Supreme Court ruled that trusts came under the Antitrust Act did mergers taper off a bit.
Forced to dissolve his trust, Rockefeller created a cluster of smaller Standard Oils. And therein lies a capitalist morality play. When in 1909 a federal court ordered the dissolution of Standard Oil, managers who had chafed under the centralization of authority in the company’s New York City headquarters had the chance to try new techniques. There’s almost a law hidden here, a corollary to Joseph Schumpeter’s famous remark that capitalism involved creative destruction. Capitalism benefits from periodic liberation from established authorities, freeing those who yearn to experiment, innovate, and learn from fresh ideas.50
Corporate power in the United States waxed strong as the nineteenth century came to an end. The imperialist forays of Western governments into Africa and Asia made them more accommodating of their domestic capitalists. It took ratification of the Sixteenth Amendment to the Constitution in 1913 before the federal government had an effective way to raise revenue, but the difficulty of passing an income tax gives a sense of the unusual limits on government power when confronting business interests in the United States.51 On racial and sexual matters, on the other hand, states drastically restricted the movement of African Americans and dictated the norms of intimate behavior.
When the twentieth century began, Western nations, most of them monarchies, had embarked on their own capitalist adventures, carrying modern objects, attitudes, and institutions to Asia and Africa along with attitudes of cultural superiority. They exercised overwhelming, not to mention overweening, power over those they considered backward, and they congratulated themselves on their civilizing mission. Within the private sector, there had been a weeding out of small firms as giant corporations consolidated their markets. With a more populous planet and more mechanized production the use of natural resources, particularly fossil fuel, increased at an alarming rate. Small countries outside the West and advocates for the public realm within the West struggled to come to terms with the fact that imperial states and expanding corporations were in the driver’s seat and likely to run roughshod over them.