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Waves of Prosperity

How Global Trade Transformed The World

Greg Clydesdale

More books on Trade and Business

History shows that the wealthiest nations are those which have gone through a period of innovation. But they usually begin that period of innovation by imitating other nations that previously had a superior record. In the C19, the US copied the technologies that had been invented in Europe, and tool them to a higher level. In C20, the Japanese did the same thing.

It seems that industrial leadership is a process of imitation , innovation, supremacy and decline.

From C15 to C18, the Indian Ocean was dominated by Gujarat. They had a highly developed economy with specialized craftsmen, brokers, merchants and seamen, all reliant on each other for their prosperity. Even after the Europeans conquered the Atlantic and the Pacific, and found new routes to Asia, the Indians still dominated the oceans of the east, both in terms of value and volume.

The Dutch led the investment in new tech and new business organizations. Imports + windmills = new industries; Dutch East India Company a multinational corp spanning the globe. The British copied the Dutch innovations, and then, with better resources (lots of coal) surpassed them. Coal-powered steamships, which could carry bigger cargoes when and where they wanted to, signalled the end of Asian dominance in their own waters.

After the fall of Rome, Europe was an economic runt. A patchwork of kingdoms and principalities lacking strength and vitality. Feudal economies of peasants , priests, warriors and artisans. Few merchants and no banking system, so difficult to grow past subsistence stage. Low levels of education, and what there was, dominated by the church.

The imitative nature of Euro banking shows in its basic vocab - cheque, ream, fund, risk all come from Arabic. The partnership model for financing speculative trading ventures was copied, first by Italians, from their Arabic trading partners after the dislocations of the Crusades. Double entry book-keeping came from India.

The Italian states had a very narrow agricultural base, so sea trade quickly became an impt part of the economy, and so the interests of the merchants became impt to the state, and merchants came to be prominent in city govt. That nudged other Euro countries to realize the value of trade and merchants. The wealth could finance armies and navies, and thus power.

The Vikings were the first to cross the Atlantic, island-hopping from the Faroes to Iceland to Greenland to 'Vinland' (Newfoundland/Nova Scotia). But they didn't lead to any new trade routes, so Leif Ericcson's voyages became obscure folklore.

Today, Henry the Navigator is hailed as an astute visionary, bc of his achievements - mainly in getting Portuguese ships past Cape Bojador, a major geographic and mental barrier, and on to southern Africa, where they could trade for gold and slaves. But in his day, he had a rep for being rash and a poor planner, particularly of military campaigns.

1577 Francis Drake, with financial backing from QE1, set off to sail around the world, plundering Spanish galleons en route. From one galleon alone they took 80lbs of gold and 24 tons of silver. And the Spanish charts, which were probably even more valuable. After 3 years at sea, Drake returned with the largest treasure ever seen in England. The queen's share alone was £300,000, enough to pay off the national debt and still leave her with £42,000 to invest in the Levant Company.

The Dutch loom, a powered loom that needed 1 man to do 4 men's work, was resisted in London, but in Lancashire there were no well -organized craft groups to oppose them.

In the C17 it was common to hear comments about Britain that we used to hear about Japan in mid C20 - viz that they were good at imitating and perfecting the inventions of others, but had none of their own.

British beat the Dutch by virtue of their navy, not their traders. British advantage of being able to put all their spending into navy, as opposed to Dutch, who had borders with France and Germany, ad so needed a standing army. With naval protection, British ships could carry fewer guns and so more cargo, and also reduce crew size and lower insurance costs.

Dutch prosperity had been based on being the first Euro to exploit the Spice Islands, and used the wealth from that to develop new ship designs, new tech and new organizations. But they lost their competitive advantage as other nations copied their innovations, and failed to evolve to keep up. Instead of co-operating to find new opportunities, they squabbled over declining resources.

The (English) East India Company made a deliberate decision to concentrate on long distance trade between England and Asia, allowing private merchants to trade intra-Asia. One of these was Jardine Matheson. Jardine was a company doctor who used his allotted space on EIC ships to import narcotics, and quickly realized trading was more profitable than doctoring. The EIC grew opium in India, but were not allowed to sell it in China as it was contraband. So they sold it to agents such as JM who shipped it to China (with EIC ships protecting the shipments).

France was cradle of auto industry. Garage, chauffeur, automobile are all French words. France built fine roads to move armies, so driving far more enjoyable. Paris at end of C19 was the gayest city in the world, attracting playboys with money to burn.

Ford led the way to make cars affordable enough for mass market, but he made some serious business errors. He clung to Model T one-size-fits-all far too long, allowing GM to overtake him by introducing a variety of cars at different price levels. He also believed he didn't need a management team, with the result that finances were a shambles and lost money almost every year from late 20's until 1947.

In 1914 Britain was a phenomenally rich country. It had the biggest empire the world had ever seen, ruling a quarter of the world's population. Coal was the foundation. Provided the energy for the iron, steel and engineering trades. It fuelled the ships and gave them an outward cargo which meant it could charge less for the return trip carrying imports. It was self-evident that the British were a superior race/culture, just as the Chinese had believed before the Opium Wars.

But their education system was geared to producing bureaucrats and colonial administrators, not astute businessmen. This flowed through into govt, where the overwhelming policy was to put stability ahead of growth. Change was to be avoided, bc it might lead to social unrest.

Courtaulds, a British textile maker, paid £100,000 for an American patent to make artificial silk, which they sold as rayon. And made £100m in next decade.

The largest car producer in Britain in 1913, which built 3000 cars that year. In contrast, Ford was building 1000 a day, a rate that no Euro manufacturer matched until 40 years later. This was symptomatic of a broader reluctance to modernise - manufacturers were content to do things the same old way. While America and Germany educated thousands of engineers, and poured money into R & D, Britain graduated a few hundred, and shunned investment. The successful formulas of the past blinded them to the need to change.

America and Japan short of skilled labour in industries such as textiles, so made sense for them to adopt labour saving machines which cd be operated by unskilled, and which then lowered the cost of production. Britain had lots of skilled labour, so little benefit in adopting new machinery, so stuck with high costs. And obvious result that the cheaper producers undercut the dear. Ironically this was exactly the situation from 200 years earlier, when the skilled cotton workers of Gujerat were undercut by the new English factories using water and steam power.

Between the wars, British firms overwhelmingly small, undercapitalised, and family controlled. Managers appointed by family connections rather than merit, and snobbishly ignored the lessons of American capitalism. Again, a re-run of what happened in China - foreign production tech rejected on the basis that it threatened the nation's values.

And the replacement of coal by oil took away a fundamental advantage of English shippers, in being able to profitably carry an export cargo, reducing costs of shipping imports. Like the Dutch, Spanish and Chinese before them, the British were convinced that they were the world's most expert shippers. But the world changed radically and quickly, and the British simply couldn't adapt to change.

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