250 years of Modern Capitalism – A reconstruction of its dynamics

3. An economically polarized World

Industrialized countries and ‘Third World’ countries

Marx has long thought that The industrially more developed country only shows the less developed country the image of its own future”. (1) Marx expresses this idea, predicting the spread, adoption or imposition of capitalism throughout the planet and judging it progressive, despite its terrible consequences – especially in the colonies – since his first writings, including The Communist Manifesto. (2)

Certainly, he gradually nuances his proposition subsequently, moving from a uni-linear conception to a multi-linear vision of history; from supporting the civilizing mission of British colonialism in the name of progress to a virulent criticism; from a universalist analysis of primitive accumulation to its limitation to Western Europe; from a vision of obligatory stages to the possibility of skipping the “capitalism” box for Russia, etc. In the course of his readings, and instructed by the economic developments and the political and social struggles, he broadens his field of analysis to other geographical areas and types of societies than those he has well studied on the old continent; he also becomes aware of major divisions, and thus of important ideological obstacles, within the proletariat itself – “race” (3), gender (4); he revalues anti-colonial struggles and thus the question of national emancipation in what will become the ‘Third World’; he even envisages that the revolution can be initiated from the margins of capitalism (5); etc. Marx had already broadly developed this sensitivity with regards to the Irish question in Europe itself. (6)

However, despite these decisive theoretical advances, Marx did not leave us a completed theory of colonization; neither did he foresee one of its major consequences – the partition of the world into two major entities, (7) nor did he envisage a phase of imperial bi-polarization of the world in two major imperialist blocs, transforming most of the national emancipation struggles into inter-imperialist issues, as Rosa Luxemburg has well demonstrated.

Well, far from boosting the industrial revolution everywhere in the world, as he thought, the interest of the countries fortunate enough to have been able to develop it before 1870-80 was to limit it to their own perimeter and to undermine its possibility for the rest of the world. It is significant that, outside Europe, only a few young nations that have fiercely maintained their political independence (and even fought against their tutelary country) will be able to take the path of economic development: the United States, Japan, Russia, Argentina. This is well illustrated by the series of graphs that we comment on hereafter.

The first one shows us that, as early as the last third of the 19th Century, the bi-polarization of the world was already well established between a small group of countries (called “Developed Countries”) that had been able to boost their industrial revolution early on, and the rest of the world (called “Third World”) that would be actively deprived of it. Since then, this division of the world has only increased until the First World War through imperial domination. In other words, the European and North American industrial revolution will trigger, not its geographical extension as Marx thought in the Manifesto, but a regression and deindustrialization in the rest of the world from the 19th Century onward, as is shown by the graph below (source: P. Bairoch, 1997, Vol. III, p. 860).

Graph 3.1 : Level of industrialization per inhabitant, 1750 – 1997. UK 1900 = 100 (P. Bairoch, 1997)

Thus, relative to the UK, the level of industrialization in the ‘Third World’ was divided by 3.5 between 1750 and the First World War and it would take two centuries of increasing gaps to return painfully to the same point in 1960! One could not better illustrate this obstacle to the development of capitalism on a global scale, induced by the imperialism of the small group of the first industrialized countries! The latter have hindered the development of the productive forces in most countries of the world. Thus, in 1914, one century and a half since the take off of the industrial revolution, it is essentially limited to Europe and the United States, while 78% of the rest of the world is still agricultural, with more than a billion people, 84% of whom are illiterate, and only counting 95,000 students.

In reality, the interest of the colonies for capitalism at that time corresponded more to a logic of predation than to that of a local endogenous development. They served above all (1) as supplementary markets for the sale of the production of the metropolises; (2) as places for the export of capital and (3) as suppliers of certain raw materials.

  1. As Paul Bairoch (1997) explains very well, colonization resulted in replacing most local production by products imported from the metropolis. This explains the subsequent reverse strategies that have been promoted in an attempt to develop ‘Third World’ countries, namely the substitution of imports by local production. They were sometimes adopted locally with relative success during developmental episodes in some countries, particularly in Latin America.

  2. Colonization gave rise to an intense export of capital to Third World countries, particularly in large infrastructure projects that made it possible to better plunder them: the Suez Canal, the Indian railway network, port construction, etc. The first globalization from the end of the 19th Century to the First World War generated a considerable influx of capital into these countries, so considerable that it is far from being overtaken in this respect by current globalization (see the following graph)!

Graph 3.2: Foreign assets, 1810 – 2018 (Th. Piketty, 2019)
  1. The colonies were also used to provide certain raw materials. If the essential part of those required to carry out the industrial revolution (like wood, coal, iron, etc.) came from the soil and subsoil of the countries that knew it, the colonies in the 19th Century nevertheless provided certain agricultural, forestry or mining products that were indispensable, even strategic like tin, rubber or copper (Chalmin, 2019).

Cause and consequences of this bi-polarization

This regression and deindustrialization in the rest of the world since the 19th Century result from its colonization by the handful of early developed countries. The importance this colonization has acquired on the eve of the First World War, and which has essentially been deployed during the last quarter of the 19th Century, is illustrated by the following graph. AsFritz Sternberg has underlined: “These figures indicate that the colonial possessions have increased by more than half during the last quarter of the 19th Century…” (8) Of the world’s 1.8 billion inhabitants in 1914, 55% to 60% lived in colonies or semi-colonies like China.

Graph 3.3: World population and colonized population, 1760 – 1938 (F. Sternberg, 1951)

This destructive impact of colonial capitalism will bring about a dramatic shift in the distribution of wealth in the world: while India and China still held half of the world’s wealth at the beginning of the industrial revolution (1820, see the following graph), their share will progressively decline to 7% one century and a half later. Conversely, Europe and the United States will take advantage of this opportunity to capture nearly two-thirds of all the world’s wealth at the time of the Second World War, and still half of it at the end of the ‘Thirty glorious Years’ (1975).

Graph 3.4: Share of Global GDP, 1820 – 2012: USA, Europe, China, India, Latin America
(A. Maddison, IMF)

The emblematic case of India

Britain’s colonial domination of India is emblematic of this process of blocking the development of productive forces in the world outside the imperial powers. Thus, when it approached the 17th and 18th Centuries, and in the same way as Europe, India already had a long textile tradition, as evidenced by the success of its cottons in the major European courts. Such success that at the beginning of the 19th Century India was the first textile producer in the world, ahead of Great Britain which had begun its industrial revolution half a century earlier. Indian textile production exceeded that of England not only in quantity but also in quality. Surprisingly enough, as the dominant history reflects the Eurocentric vision of the victors, India was at that time a developed country since its exports were one and a half times higher than its imports and its export structure was typical of that of an advanced country since England exported to India coarse cottons while India exported to England luxury cottons! (9)

This international competitiveness of Indian production is the result of a production system structurally very similar to that of Europe at the same time: proto-industrialization. From the abundance and know-how of the urban and rural labor force an urban and rural custom craftsmanship and urban manufactures for the final production process develop. In Bombay and Calcutta, indigenous urban merchants-entrepreneurs – commercially and financially linked to the agents of the European Indian Companies who export production to Europe – distribute the raw material in the countryside, particularly to women, and often provide the working tools: spinning wheels and looms. In the cities, they concentrate the textile workshops and factories where both men and women work, for the last finishing touches before marketing. This creates a manufacturing proletariat and a small artisanal business in the industrial cities, and a significant supplement of resources for peasant families in the countryside.

Thus, at the beginning of the 19th Century, many Indian regions were transformed by the development of a true market economy. For example, in 1807, in ‘Indian Lancashire’, there were almost 1.5 million home spinners and weavers in the countryside, out of a population of 14 million, without the workers in the workshops and factories of the exporting towns. They thus represent 10.4% of the total population, which is probably at least 20 to 40% of the working population. This non-agricultural activity brings an additional income of 8.5 million Rupiahs to the countryside, of which 30% is generated in Patna district alone.

Faced with this formidable Indian competition, not only on the “open” Asian markets, but also on its own national and European market, the English textile industry is worried. Taking advantage of its colonial position in India, it will demand from the crown a policy of intervention, in total contradiction with its free trade principles proclaimed (and often imposed) in other parts of the world. Through differential import-export taxes, abusive regulations on working conditions, prohibition of local production for one reason or another (all infringements of these unequal legislations were very often punished by the amputation of the hands of weavers), the colonial administrators of British India were going to bring about the ruin and closure of most Indian companies and to replace Indian fabrics with cotton imported from England on the local market. In two or three decades, trade flows will dramatically reverse as shown in the following table:

Table 3.1: English trade balance with India, 1813 vs. 1835

 
Indian exports to England
English exports to India
English balance
1813
£1,266,608 luxury cottons
£818,208 coarse cottons
33% deficient
1835
£306,086
£51,777,277
17,000% surplus!!
 
– 76 %
+ 6,330%
 
Sources : J. Piel, 1989.

If in 1813, Indian exports to England were still 1.55 times higher than English exports to India, in 1835, it is now the latter which are 169 times higher than Indian exports! This figure of £51.8 million indicates that trade now goes beyond complementing national production, but that the English, through the deconstruction of the local production apparatus, have managed to replace Indian producers and supply a large part of the subcontinent’s market.

This process, which began in 1813 when the British East India Company had its monopoly withdrawn in favor of direct colonial administration by the Crown, was roughly completed around 1835-1840. It caused widespread impoverishment and re-ruralization in the former proto-industrial regions of India: many workers and craftsmen in cities with no other resources were forced to become homeless or to return to the countryside, which also lost the support of textile work at home. English colonization thus engendered a veritable economic genocide of tens of millions of Indians whose bones were reduced to fertilizer, hence the image used by the Governor General of India who wrote in his 1834-35 report that “the bones of the weavers bleached the plains of India”. This veritable industrial counter-revolution, in return, allowed the acceleration of the industrial revolution in England, particularly in Lancashire, by eliminating Indian competition in Europe and imposing English competition in India. Deindustrialized by Great Britain, India was now part of the ‘Third World’ for a century and a half. It is only from the 1990s that this country began to extricate itself from this curse. (10)

At the end of the 19th Century, the whole world was under European control. A dozen countries shared it, deindustrialized it and exploited it for their sole benefit. This dominated world suffered a violent atrophy of its productive forces, well illustrated in Graph 3.5 below. In 1750, the future small group of industrialized countries accounted for less than 20 percent of world industrial production while the rest of the world accounted for more than 80 percent. In 1913, the distribution is exactly the opposite, with the colonizers taking 80% and the rest of the world only the remaining 20%. China’s share went from 33% to 4% and the Indian subcontinent’s from 25% to 1%. This deindustrialization is so rapid and brutal that it is both relative (in percentage terms) and absolute (in terms of quantity produced), as all the great economic historians note: “British competition deindustrialized practically all of Asia and Africa… (…) Not only had British production grown considerably, but industry had, in absolute terms, declined in China and India, where textiles and metallurgy were pushed out by the mechanized production of the West.” (Allen, 2014: 16-20); “India had a larger industry than any other country that fell under European colonial rule, and was unique in that it exported manufactured goods prior to colonial times. Colonial rule wiped out large parts of this industry.” (Maddison, 2001: 123); “…the phenomenon of colonization, or neo-colonization, had, during the nineteenth Century, led to the decline of traditional industry in most Third World countries. This evolution continued during the first years of the 20th Century and it can be considered that around 1920-1930 the phenomenon had reached its limits. At that time, everything that could be provided in a profitable way, for the exporting countries, by the manufactures of the developed countries was indeed provided. In short, what is generally referred to as the ‘de-industrialization of the Third World’ was at its peak. For the Third World as a whole, the level of industrialization per capita around 1900 was less than one-third of the 1750 level.” (Bairoch, 1997: 858).

Graph 3.5: Breakdown of world industrial production, 1750 – 2006 (R.C. Allen, 2014)

As in the case of India, one could multiply the examples of dominated countries, but they all come to the same conclusion: far from developing the productive forces and extending capitalism throughout the world throughout the 19th Century, the small group of colonizing countries will atrophy them and prevent the emergence of new competitors on the world market. This configuration, which was put in place on the eve of the First World War, will continue until the end of the ‘Thirty glorious Years’ and the break-up of the imperialist blocs.

It should be noted that this bipolarization of the world between a small group of industrialized countries and this vast group of extremely poor countries is not limited to the economic domain but affects all aspects of life: education, health, demography, etc. This can be seen in the latter domain with the help of the following graph (Rosling, 2019) which gives, for the year 1965, the percentage of children surviving to the age of 5 years according to the number of births per woman (the percentage of survival increases when the number of children per woman decreases): each bubble represents a country and the size of the bubble is proportional to its population (the largest bubbles represent India and China). The higher a country is, the more likely a child is to survive. Thus, at that date (1965), the world was clearly divided into two quite distinct groups: one grouping 125 countries belonging to the ‘Third World’ and the other grouping 44 developed countries. Between the two, there are no more than 15 countries with only 2% of the world’s population.

Graph 3.6: Children alive at 5 years of age and births per woman, 1965 (H. Rosling, 2019)

This economic bipolarization of the world will thus persist until the end of the ‘Thirty glorious Years’ and even, for some of its features, until the beginning of the 1990s. Why is this? This is what we shall examine below by taking up the essential part of our data from P. Bairoch (1997, volume III, pp.858-898).

‘Third World’, the Interbellum and the ‘Thirty glorious Years’

The colonial domain, both in surface area and in population, reached its maximum during an interwar period that remained in an imperial logic. However, several underdeveloped countries took advantage of this period to loosen the stranglehold imposed by the metropolises and begin a tremor of industrialization. They are helped in this by their distance from the theater of operations of the two world wars and by their role as suppliers of goods for the countries more directly in conflict.

We are thus witnessing a resumption of industrialization in the ‘Third World’ after the First World War, but this resumption is very timid and concerns only a few countries, some of which had already gained political independence as early as the 18th Century: Brazil (1822), Mexico (1810), India (1947) and China (1949). This tremor, which had begun as early as 1900, was however limited to sectors with low technological content such as consumer goods (food, beverages and tobacco, for example), cotton fabrics and industries for the primary processing of agricultural or mining products, later supplemented by the steel industry in the 1920s. In the 1930s, countries such as Turkey, Iran, Thailand and Bolivia were added in the same sectors. It is this timidity that explains why the absolute gap between developed countries and the ‘Third World’ continues to grow strongly. As proof, on the eve of the Second World War and in terms of GDP per capita this time, Brazil’s level was barely higher than Europe’s before the Industrial Revolution and, for China and India, it was about half of it!

To set the scene for the general evolution, it was only during the ‘Thirty glorious Years’, after the national independence acquired following the Second World War, that the ‘Third World’ experienced the beginning of an industrial catch-up. However, although vigorous, it also remained confined to sectors with low technological content and was concentrated in only a few countries. It was not until the effects of the return of competition on wages in the developed countries (de- and relocation of industrial production to low-wage countries) and the end of the suffocating division of the world into two large imperialist blocs after the fall of the Berlin Wall in 1989 that the productive forces were freed up in a good number of ‘Third World’ countries.

In detail: The post-Second World War period saw most of the colonies achieve their independence through a negotiated transition – with the exception of a few violent anti-colonial conflicts such as in Vietnam, Algeria, Angola, etc. – but it was a relative independence, more formal than real because it did not abolish many bonds of dependence and because the world was dominated by the imperialist polarization between two great blocs (the so-called Cold War) whose two leading countries in 1950 (the United States and the USSR) alone accounted for 54% of world GDP (Chalmin, 2019).

Nevertheless, in spite of this neo-colonial control, some ‘Third World’ countries experienced a very strong surge in industrialization at a rate of 5 to 6% per capita per year between their independence and 1975, which was very high, because these rates exceed all that the developed countries experienced. In order to establish their national independence, these countries are trying to reverse one of the major economic logics of the colonial era by pursuing vigorous policies of import substitution from developed countries. In other words, they produce everything they can locally in order to reduce their imports and equalize their trade balance. The objective was to reverse the phenomenon of colonial deindustrialization where imports from developed countries replaced local production.

However, in spite of this undeniable success, as during the interwar period, this industrialization still only concerns sectors with low technological content and is concentrated in a limited number of countries. Technological, neo-colonial and imperialist dependence remains pervasive. Moreover, these countries are suffering the repercussions of the economic slowdown of the developed countries in the 1970s and 1980s and their policies of shifting the burden of the crisis to the periphery, as evidenced by the Structural Adjustment Plans (SAPs) of the International Monetary Fund and the World Bank suffered by many of them. (11) Thus, industrialization was reduced to 0.8% per capita per year between 1975-95 for the ‘Third World’ market economy (with the exception of the Newly Industrialized Countries (NICs), i.e. South Korea, Taiwan, Hong Kong and Singapore). As for the experiments piloted by the USSR, in spite of some initial successes, they mostly ended in failures then known as “cathedrals of the desert”! Finally, the vigorous industrial growth of the NICs, which is very real and which is experiencing a rise in technological sectors, can be explained above all by competition between the blocs and by the vigorous American policy aimed at countering the advances of the Soviet bloc in Asia.

In other words, if one could still speak of the ‘Third World’ as a group of countries whose state of development was – for the most part – the result of the torments of the colonial period, this configuration began to diversify after the Second World War: timidly following the acquisition of a certain political independence and dramatically following the attenuation of the geo-economic and geo-political bipolarization of the world from the 1980s and even more so after the implosion of the Eastern bloc.

The break-up of the ‘Third World’

The geoeconomic and geopolitical bipolarization of the world dating from the 19th Century will gradually erupt through two major processes, the first after the end of the ‘Thirty glorious Years’, the second after the fall of the Berlin Wall (1989), and which will combine to take on increasing magnitude thereafter. The first stems from the abandonment of post-war wage increases under contract, which had the advantage of suppressing competition by the lowest wage earners (this abandonment was aimed at redressing the rate of profit, which had fallen sharply from the late 1960s in the industrialized countries). With wage costs once again becoming a competitive advantage, this paved the way for a massive relocation of production to certain low-wage zones. The second process stems from the end of the division of the world into two imperialist blocs, allowing many countries to escape the neo-colonial lock imposed by their tutelage. The combination of these two factors then offers development opportunities to countries that had gained political independence in the previous period but had not really been able to take advantage of it until then. This growth induced by the conjunction of these two processes will make it possible to liberate the development of productive forces in certain ‘Third World’ countries, a growth which, until then, remained stifled by this double geo-economic and geopolitical bipolarization of the World.

This is illustrated in the following graph, which provides a clear visualization of the two phases described above. The first extends from the beginning of the Industrial Revolution (1800) to the end of the ‘Thirty glorious Years’ (1975). It generates the bi-modal curve of 1975, that is, the progressive geo-economic bipolarization of the world between a majority of ‘Third World’ countries living below the extreme poverty line (the hump on the left around $0.9 per day) and a small number of rich Western countries (the hump on the right around $15 per day). The second phase which then opens – which we will detail later – is characterized by a rapid growth localized in a significant number of countries belonging to the former ‘Third World’ (including China and India but also other countries such as Poland, Vietnam, Laos, Malaysia for three to four decades and, Turkey, Chile, Indonesia, Thailand since the 2000s). It generates the 2015 uni-modal curve in Graph 3.7. It shows us that, while the population living below the poverty line was 87% in 1800, 64% in 1914 and 50% in 1975, the vast majority, 89%, now lives well above this line and that the bipolarization of the world into two major groups is being relatively reduced.

Graph 3.7: Global income distribution in 1800, 1975 and 2015

In the Communist Manifesto of 1848, Marx and Engels predicted that: “By the rapid improvement of the instruments of production and the infinite improvement of the means of communication, the bourgeoisie is dragging even the most barbaric nations into the stream of civilization. The cheapness of its products is the heavy artillery that breaches all the walls of China and forces the most stubbornly hostile barbarians to surrender. On pain of death, it forces all nations to adopt the bourgeois mode of production; it forces them to introduce the so-called civilization, that is to say, to become bourgeois. In a word, it shapes a world in its own image.” If through their colonial policy, the industrial metropolises did indeed drag ‘Third World’ countries into the sphere of global exchanges and engendered locally a minority and concentrated proletariat, this premonitory vision of Marx’s did not unfold either in the nineteenth Century or even in the twentieth Century. For the most part, it was put on hold for 125 years by the imperial domination of the small group of early industrialized countries. It was not until the end of the ‘Thirty glorious Years’ in the latter countries and the implosion of world domination between two large imperialist blocs (1989) that these forecasts could truly be deployed on a world scale.

M. Roelandts (Ch.3: March 17, 2020)

Source: 250 Ans de Capitalisme, forthcoming at: Capitalisme & Crises Économiques; version of March 17, 2020.

Translation: H.C., November 19, 2020.

Proofreading and corrections: M.R., November 22, 2020.

Latest update: 11/24/20.

Notes:

1 Preface to the first edition of Capital (Volume 1), Karl Marx, 25 July 1867 (MEW Vol. 23).

2 “By the rapid improvement of the instruments of production and the infinite improvement of the means of communication, the bourgeoisie is dragging even the most barbaric nations into the stream of civilization. The cheapness of its products is the heavy artillery that breaches all the walls of China and forces the most stubbornly hostile barbarians to surrender. On pain of death, it forces all nations to adopt the bourgeois mode of production; it forces them to introduce the so-called civilization, that is to say, to become bourgeois. In a word, it shapes a world in its own image.” (Chapter I. Bourgeois and Proletarians)

3 “Labor in white skin cannot emancipate itself there, where it is marked in black skin.” (Capital, Volume 1, Ch.8, The working day, §7)

4 “Within the family he [the husband] is the bourgeois and the wife represents the proletariat” (F. Engels, Origins of the Family, Private Property, and the State (1884). II. The Family; 4. The Monogamous Family)

5 Marx explicitly envisages it for Russia and China.“(…) Now the question is: can the Russian obshchina, though greatly undermined, yet a form of primeval common ownership of land, pass directly to the higher form of Communist common ownership? Or, on the contrary, must it first pass through the same process of dissolution such as constitutes the historical evolution of the West? The only answer to that possible today is this: If the Russian Revolution becomes the signal for a proletarian revolution in the West, so that both complement each other, the present Russian common ownership of land may serve as the starting point for a communist development.” (Preface to the 1882 Russian Edition of the Manifesto) “Complete isolation was the prime condition of the preservation of Old China. That isolation having come to a violent end by the medium of England, dissolution must follow as surely as that of any mummy carefully preserved in a hermetically sealed coffin, whenever it is brought into contact with the open air. Now, England having brought about the revolution of China, the question is how that revolution will in time react on England, and through England on Europe.” (‘Revolution in China and In Europe’, Karl Marx in the New York Daily Tribune, June 14, 1853)

7 The small group of countries that experienced their industrial revolution in the 18th and 19th centuries (Western Europe, the USA, Canada, Australia, New Zealand, Japan and Russia in part) and the others that will suffer the imperial rule and the brake of their development exerted by the latter.

8 F. Sternberg, Le conflit du siècle, p. 34.

9 On this subject, read Jean Batou’s beautiful doctoral thesis (1990) on forgotten industrializations in what would later become the Third World: Egypt, Paraguay, India…. Unfortunately unpublished, it is however well summarized by Odile Castel (1998), from whom we draw inspiration here.

10 It should be noted In passing, that this reversal in India’s trade balance is not the result of free trade advocated by the British but of a deliberately coercive colonialist policy. It is the English colonial intervention that will de-industrialize an India exporting textile products with high added value and reduce it to an exporting country of raw materials bought at low prices by England (cotton, jute, etc.). If the English had followed the precepts of the liberal theory that they professed everywhere (see Ricardo’s comparative trade chart), they would have had to continue to specialize in low value-added fabric pieces and continue to import high value-added Indian fabrics, and it would have been India that would have become a great industrial power and Great Britain a peripheral zone!

11 In 1979, the G7 called on the World Bank and the International Monetary Fund to introduce SAPs (Structural Adjustment Plans). Nearly a hundred countries have been subject to them since then, especially after the debt crisis that began in 1982. For these institutions, the causes of the Southern countries’ difficulties are the external deficit and inflation. As for the solution, it would reside in a return to major macroeconomic balances through austerity and devaluation accompanied by structural reforms (privatization and deregulation) to create a “dynamic and open” market economy.

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