The Course of Development

‘Scandinavia’ is an international term; it is hardly ever used by Scandinavians. In its strict sense, it means the three countries of Denmark, Norway, and Sweden, but in practice it inevitably includes Finland, not only for historical reasons but also because Finnish society, both generally and economically, is typically Scandinavian. Finland even managed to retain its Scandinavian characteristics through a century of Russian sovereignty (1809–1917). For the purposes of this paper, however, it may simplify things if the very interesting Finnish case is treated separately, after the sections on Scandinavia proper.

The combined population of Denmark, Norway, and Sweden was 4.1 million in 1800, 6.3 million in 1850, 9.7 million in 1900, and 14.6 million in 1950. Thus in 150 years it had more than trebled. It is impossible to give precise, or even imprecise, figures for the national product of the three countries during the earlier part of the period, though a recent and very tentative Danish estimate goes as far back as 1820. Comparisons are possible beginning in the 1860s. During the ninety years from 1860 to 1950 the Swedish national product increased by a factor of fourteen – perhaps a somewhat exaggerated calculation – and its Danish counterpart by a factor of ten, while the Norwegian figures show an eightfold increase during the somewhat shorter period 1865–1950. These figures must of course be treated with the greatest caution, since the definitions and the means of calculating the figures are different in the several countries.

The Industrial Revolution: Economic Models of the Labour Market

In Britain, the hundred years or so between c. 1750 and c. 1850 saw the competition of what is conventionally called the industrial revolution, and with it the corresponding transformation of the labour force from its traditional structure into a modern industrial working class. These changes constituted a stage in an irreversible social evolution, the creation of modern industrial capitalism. The new character given to society included the emergence of new classes and of new relationships between classes.

The period as a whole has a certain unity and is marked off without much difficulty as the transitional link between relatively more stable economic relations that preceded it and a re-stabilized, but different, framework that followed. Economic theorists who lived through it, beginning with the ‘classics’ of Political Economy, as well as more recent writers on economic development, have been inclined to treat it as a particular and indeed unique phase with certain laws and characteristics of its own. As far as the market for labour in this period is concerned, there has been a remarkable and indeed striking unanimity among them and among all observers. The general axiom is that in this period as a whole the market operated against labour, and that wages tended therefore to be at or near subsistence levels.

The mercantilist writers of the seventeenth and eighteenth centuries had looked upon labour as merely a factor of production, which, in a competitive world in which most industry was highly labour-intensive, should be obtained at the lowest possible cost.

Introduction

This chapter analyses the relationship between the input of capital and economic growth in Japan during the past century. Our presentation follows the broad framework set forth by Solow and Temin in the introductory chapter and is complementary to the next two chapters (by Taira and Yamamura), which deal with the inputs of labour and entrepreneurship.

The assigned task of exploring the role of investment in Japan necessarily imposes a certain sectoral as well as temporal emphasis. Only relatively little attention will have to be devoted to agriculture, since this sector never became an important recipient of either public or private capital. In Japan, at least, an understanding of the advances created by a rising level of investment deals largely with the growth of modern non–agricultural industry. This also means that (unlike Taira and Yamamura) we must concentrate especially on the history of the twentieth century, when factories, machines, and new social overhead implements reached sizeable dimensions for the first time. Of course, no attempt will be made to slight the crucial transitional years of the Meiji era or even the preceding years of Tokugawa rule, but one should always keep at the forefront the sharp distinction between the hesitant beginnings of economic modernization in the late nineteenth century and its full flowering during the past sixty–odd years.

Entrepreneur or Manager?

Regulation has been the substitute for entrepreneurship in Russia during the thousand years of its recorded economic history, and in the past five decades regulation has eliminated entrepreneurship altogether. The state cannot be considered to be the entrepreneur because this function can be exercised only by its citizens: Peter the Great established a framework of controls and incentives which induced the freemen among his subjects (and a very few foreigners) to act – and to continue to act – in new ways; Stalin's system, by contrast, prevented anyone from departing from the path which he or his officials defined as progressive. Since the First Five–year Plan, personal autonomy in the taking of economic decisions – a necessary feature of entrepreneurship – has not been permitted, but in the quarter-century before that deprivation every citizen had had the right to become an entrepreneur. In both earlier and subsequent times, however, the farm worker had much less liberty than the rest of the population. The serfs had been emancipated in 1861, but for another hundred years the country remained a predominantly rural society; townsmen, less than one-sixth of the total at the start of the century, came in 1961 exactly to equal the number of villagers, whose history had been one of uninterrupted restriction until the reform of 1906 and the Revolution of 1917. By determining the actions of those in their service, both Tsarist and Soviet governments have imposed the productive dynamism they desired.

Introduction

In the present state of our knowledge, any piece of economic history bearing the title ‘Capital Formation in Germany in the Nineteenth Century’ certainly deserves a sceptical reaction from its readers. Much basic research remains to be done before the quantitative information that title implies will be available. Recent specialized investigations into the question have stressed the difficulties in the way of obtaining a general picture, especially for the early part of the nineteenth century. German agricultural history, for example, has focused too strongly, according to one expert, on describing the experience in individual regions and branches.

The variations between individual groups of peasant farmers – differentiated according to tenure rights (and thus according to tax or debt burden), quality of the soil, size of enterprise, as well as other criteria – were so great that one may well assume that there were large variations in agricultural income and hence in the possibilities for capital formation. Individual investigations which are limited to a few farms or villages either can reflect and confirm the broad development trends that affected production techniques, marketing conditions, or consumption in all farms, or can reflect an exceptional situation.

In a more general survey, Knut Borchardt's scepticism seemed to go still further, when he labelled any attempt to estimate the national wealth as more or less ‘jesting’, since short-run price variations would tend to dominate the few observations one could hope to make.

Concepts and Scope

The definitions used in this Chapter have to meet two requirements. First, they must be applicable within the whole period under discussion. They must be flexible and broad enough to subsume the tremendous changes occurring within entrepreneurship and management from the late eighteenth century to the twentieth. However, they need not be so broad and abstract as to cover all types of entrepreneurs and managers in history. They should rather be framed with regard to characteristics of the German economy which remained constant through this whole period (without necessarily existing at other times and places) and which were, at the same time, of central importance for the development of entrepreneurship and management. Such a characteristic we find in the fact that this has been, and – for the larger part of Germany – still is, a period of industrialization structured according to capitalist principles. The general features of industrial capitalism which are most central for the study of entrepreneurship and management during the whole period are (a) a factory system which is characterized by power-generating and manufacturing machines, by large amounts of fixed capital, by maturing techniques on an increasingly scientific basis, by the separation between organizational and operative functions, and by contractual labour working under centralized managerial authority, not at home, according to elaborate patterns of labour division; and (b) largely independent and autonomous business enterprises on the basis of the private ownership and control of capital, which is used for the production of goods and services and their sale on the commercial market, according to the criteria of profitability; business enterprises relate to each other mainly through market mechanisms.

The purpose of this volume is to advance our understanding of industrial development by describing the progress of what economists call the ‘factors of production’, i.e. the inputs out of which food, clothing, and shelter are made. It is by no means clear, however, that the increase in our ability to produce food, clothing, and shelter that we call ‘the industrial revolution’ was a direct result of an increase in the factors of production. In fact, the relation between the traditional factors of production – land, labour, and capital – and the ability of an economy to produce is far more complex than the use of the words ‘inputs’ and ‘outputs’ might suggest. We therefore introduce the discussion of the factors of production by an attempt to set forward the relations between these factors and industrial development that is the subject of this book.

It is a great abstraction to talk of the economy as a whole and of only a few factors of production. The uses of such an abstraction are obvious: it enables us to make generalizations, to compare countries with each other, and to direct our research into areas of potential usefulness. But there are also limitations to this usefulness, limitations that are directly related to the ability of this abstraction to tell us something interesting about a complex world. The relationship between the factors of production and the process of industrialization to be described shortly holds good only under a variety of restrictive assumptions.

The General Argument

Until quite recently, studies of capital formation in France were few in number and relatively cursory. This lacuna was of little importance: it seemed that the findings to be expected of such research were already well known. It was thought that the level of economic growth and of investment had remained below the level which technical advance made it possible to reach – or so it seemed from a comparison with the relevant figures for other countries or even with those for France during the earlier part of the nineteenth century. For of all the countries that underwent industrialization France was one of the few to experience an early and lasting break in development. François Perroux was the first to identify the problem. ‘About 1860’, he writes, ‘there appeared the first signs of a slowing-down of the economy; from 1880, this became a pronounced trend.’ The rate of growth fell, and this falling-off had long-lasting effects on the economy, for during its early stages – the period 1892–1914 – the second phase of industrialization was ‘much less vigorous than the first’. Various arguments have been put forward to explain this deceleration. Two of them, related to the state of the economy, have gained general acceptance in the past.

Underinvestment, runs the argument, was connected, in the first place, to the shortness of the periods during which long-term planning was possible. At the very beginning of the nineteenth century, France already laboured under this disadvantage: the stagnation of agricultural productivity and the decline in international trade had paralysed industry throughout the thirty years of insecurity and of war which lasted until 1820.

Introduction

Since the Second World War the effort to understand the process of economic growth has been a major preoccupation of the social scientist. During this quarter-century those economic historians investigating this complex phenomenon have tended to follow the lead of the late T. S. Ashton by according a critical significance to the entrepreneur; and with their growing disenchantment with the strategic roles of natural resources and capital in economic development, economists too are increasingly promoting entrepreneurship and the supply of managerial ability to a position of greater and greater importance. More and more attention is being given to the economic and social circumstances favourable to increasing the supply of entrepreneurs, and the investigation of these circumstances is becoming ever more sophisticated. Economic historians and sociologists have identified a number of beliefs, attitudes, value systems, climates of opinion, and propensities which they have found to exert a favorable influence on the generation of enterprise and of developmental initiative. They have also stressed the role of minorities and of deviant behavior in the formation of entrepreneurial groups. [And] joining in the search,… psychologists have recently undertaken to establish the dependence of development and of entrepreneurial activity on the presence of achievement motivation.

These interrelated explorations leave the student of the phenomenon of entrepreneurship both stimulated and not a little bewildered. The arguments advanced by both sociologists and psychologists are often fascinating, but the majority of them are as yet imprecise, chronologically ill-fitting, and empirically insubstantial.

On 20 September 1870 the Italian army forced its way into Rome after token resistance and ended (for fifty-nine years) the papal state. To whom now did Vatican Library and Archives belong? Soon the new government started to appropriate Church property in the city. Were these the archives of the state like the Public Record Office, or were they the letters of a private but sovereign family like the papers in Windsor Castle? Had the Italian army captured the equivalent of the British Museum, or the equivalent of the Lambeth Library? Some Italians wanted the new Italian state to declare Vatican Library and Vatican Archives to be national property, in the same way that it took the Pope's palace on the Quirinal and property of religious orders in the city. In the first few days (and first few months) after the occupation, wild fears circulated, that the Italians were ready to take over library and archives as national property, or that papalists would try to destroy compromising but precious documents before they fell into the hands of the invader. There were rumours that all the archives were being shipped off to Malta for safety, then it was thought that they would sail for the United States, men expected a raid of troops into the archives to prevent their export. The mood of the time is illustrated by the alleged behaviour of Lord Acton over the Liber Diurnus.

In the debates over papal authority inside and outside the Vatican Council during 1869-70, the Liber Diurnus was prominent.

By common agreement all governments restrict access to their papers. For a time at least reason of state demands that historians be allowed no access. The British government has brought this time down to thirty years – but only for that majority of papers which reason of state allows. The needs of government and the wishes of the historian conflict.

Acton, who was as personally engaged in the problem as any historian, defined it as the enmity between the truth of history and the reason of state, between sincere quest and official secrecy.

Two different kinds of institution generate special difficulty of this nature. One is a personal monarchy. The Queen makes the Royal Archives available to authorized enquirers. But the Royal Archives contain not only some records of government but the papers of a private family, and a family is entitled to that privacy conceded to every other less prominent family. The other special case is a Church, especially the Roman Catholic Church.

Certain key-words made fanatics more fanatical: words like Pope, Jesuit, Index, Inquisition. If you open all the archives until thirty years ago, you open them to historians. You open them also to minds eager to find what discredits. Is it possible that the impartiality of history is better served if the archives are closed than if they are open? Since feelings roused by religions run as deep in the human soul as passions roused by national conflict, the events of the past live in the present.

Soon after the Council of Trent ended its third sitting in 1563, Pope Pius IV had the plan of publishing to all the world the full acts. If he had done so, the history of European controversy would have been different. But he died, and his successor would not publish. On reflection, Rome saw that to publish the discussion which lay behind the decrees would lead to argument on the meaning of the decrees. It was better to have the decrees unadorned, part now of the laws of the Church. The Acta, diligently collected by the secretary of the Council, Angelo Massarelli, were gathered into eight volumes bound in leather with gilt edges and deposited for security in the Castel Sant’ Angelo. With them were then or later deposited eighteen more volumes of reports and letters. At first the security was not very strict. About the end of the sixteenth century we find men consulting the papers for aid in their discussions. By Massarelli's diligence, no Council in Church history was better documented. But at that date, probably with the intention of silencing unnecessary discussion about predestination and grace, popes consciously adopted the policy of allowing no one to consult these papers. Not to make them available became an established rule of the Roman Curia. Papers were slowly added, under the general heading Concilio. By the time of the prefect Garampi in the third quarter of the eighteenth century the number of volumes had grown to 104; by 1940 it was 155.

The rule against access acquired a kind of theological defence, which survived even into the middle of the nineteenth century when it looked peculiar.

Catholic historians had not tried to paint the Borgia Pope white. In the official continuation of the Annals of Baronius Rinaldi uttered a condemnation. Catholic historians of the nineteenth century, like Mohler and Hergenrother, were frank. Before he became a cardinal, in his handbook of Church history, Hergenrother wrote: ‘As Cardinal, Borgia was immoral and vicious. As Pope he was unworthy, and at his death Christendom was delivered from a great scandal.’ When Catholics were open, anti-Catholic historians like Gregorovius helped themselves to the evidence and anti-Catholic journalists like Victor Hugo helped themselves to more than the evidence.

The argument over papal power in the middle of the nineteenth century drew the attention of the world to bad popes. In theory the authority of the institution in matters of faith was nothing to do with the morality of the occupants of the office. But it seemed to have much to do, and bad popes, or whether popes were bad, were parts of the European debate. Inevitably at such a season the apologists intruded. In the very year of the Vatican Council a Dominican defended Pope Alexander VI as maligned. In the year that Pius IX died a German published an apologia at Regensburg. Two years later an Italian produced at Bologna three volumes of whitewash. The debate took a European form. Even while Lord Acton was intent upon the business of the Vatican Council, he found time to write for the North British Review a learned and balanced article on ‘The Borgias and their latest historian’.