Branko Milanovic on his new paper with Thomas Hauner and Suresh Naidu exploring inequality prior to World War I and providing empirical support for the classical theory of imperialism.
World War I was probably the most momentous historical event in the past 100 years, arguably even laying the roots for the Great Depression and World War II. The possibility of the outbreak of the war among major powers was anticipated and discussed extensively in the period before 1914.
Left-wing economists, many of whom were Marxists, saw the forces leading to the war in increasing power of monopolies and cartels whose needs for a wider “field of action”, together with their disproportionate political influence, led the governments of advanced countries to engage in policies of foreign conquest. Such policies pursued by several countries would, in their view, end up by provoking a conflict. A number of episodes, most notably the Anglo-French conflict in Fashoda and the two Moroccan crises that pitted Germany against France and the United Kingdom seemed to justify this point of view. Imperialism was seen to arise from domestic economic conditions; it was favored by economic interests of the elites.
A similar view, which was at the origin of left-wing imperialist literature, was formulated by John Hobson in 1902. Hobson explained imperialism by the search for new and more profitable investment opportunities needed because the major economies faced a surplus of investible funds due to high inequality. In Hobson’s view, imperial conquest was the outcome of an unequal domestic income distribution. If inequality were lower, there would be greater domestic aggregate demand and no need for the rich to look for investment outlets externally. Hobson’s hypothesis was later incorporated, fully or in parts, by Vladimir Lenin and Rosa Luxemburg and it remained influential for a long time, even as the war was going on and later as it ended, among the small group of Marxist economists. As Marxist influence in economics waned, it was gradually paid much less attention and was never tested empirically.
In a new paper, Thomas Hauner, Suresh Naidu, and I empirically explore the Hobson-Lenin-Luxemburg hypothesis using new historical data for the key belligerent countries (United Kingdom, France, Germany, and somewhat less for Austria-Hungary, Russia, and the United States).((We currently lack sufficient data for other belligerents, including the core countries of Japan, Italy, and China, but such data could be added in the future.)) Most of these data have only recently become available. We divide the hypothesis into several testable parts. If the hypothesis is correct, high domestic inequality would tend to spill into high investment in foreign assets (as a share of GDP). The mechanism is simple: we show high-wealth individuals held almost all the foreign assets, and the share of foreign assets in portfolios increased with wealth. These foreign assets should command higher returns adjusted for risks, and, most crucially, these pledges of future income streams had to be maintained by active exercise of diplomatic, naval, and military power. As Lord Palmerston noted in 1860, “Cudgels & Sabres & Carbines are necessary to keep quiet the ill-disposed People whose violence would render Trade insecure” (cited in Darwin, 2009, p, 40).
Exploring the Hobson-Lenin-Luxemburg hypothesis, we find the following:
The United Kingdom, Germany, and France not only exhibited extremely high wealth and income inequality before the war, but their inequality was at a historical peak never achieved before or after. This is most dramatically shown in the case of UK wealth inequality (see Figure 1 from Alvaredo, Atkinson, and Morelli, 2017) where the top 1 percent of wealth-holders owned an enormous 70 percent of wealth. Charlotte Bartels’ (2017) new estimates of German top income concentration yield similar results.
It is also apparent that countries’ holdings of foreign assets (measured as a share of GDP) were both high and rising and that in the case of the United Kingdom changes in inequality went pari passu with changes in foreign holdings (see Figure 2). British net foreign assets went up from less than 50 percent of GDP in 1850s to 180 percent on the eve of the war. French net foreign assets were about equal to its GDP throughout and German net foreign assets increased from 0 in 1870s to about 50 percent of GDP just before the war.
We use the extensive extant sources of financial data to show that, on average and adjusted for risk, returns on foreign equities and bonds tended to outperform the returns on their domestic equivalents. This, of course, did not hold for all years, but over 1870-1914, British bond investors gained on average 1.9 percent more annually from foreign than domestic bonds; the spread during the same periods for German investors was 1.4 percent and for the French 0.9 percent. As for the equities, we find that the spread in favor of foreign equities was a very high 2.2 percent per annum in the case of France. Even when adjusted for risk the advantage of foreign (or colonies only) bonds and equities remains (see Figure 3 which shows it in the British case).
From British probate records and the data on Parisian decedents’ wealth (both of which have only recently become available), we show the prevalence of foreign assets in the portfolios of the rich. Thus, for example, in the estates of the Parisian decedents in 1912, those who belonged to the top 5 percent according to wealth had some 14 percent of their wealth coming from foreign sources. That share monotonically decreases as we move toward lower wealth groups (it is 8 percent for those between the 85th and 90th percentile) and becomes zero for those below the 70th percentile of wealth distribution. British probate records between 1870 and 1902 that cover approximately the top 7 percent of British wealth-holders show that the share of foreign assets in their estates never dropped under one-fifth.
Finally, we argue that countries that had a higher share of foreign assets (compared to their GDPs) also tended to have a larger military (compared to their populations). Here we include more countries (some non-belligerent) and, based on more than 180 country/year observations, find that after controlling for country, year, GDP per capita, and democracy, a 10 percent increase in net foreign assets as a share of GDP was associated with 0.05 percent increase in the share of the military in country’s population. To put that number in perspective, we note that the British military was slightly below 1 percent of the population (and this is excluding the large Indian contingents), German around 1 percent, and French about 1.5 percent. Thus, very approximately, a 10 percent increase in foreign assets was associated, on average, with a 5 percent increase in the size of the military.
In conclusion, it could be argued that the evidence for the chain that goes from high domestic inequality to the spillover into demand for foreign assets among the rich is fairly strong, as well as the correlation between aggregate foreign assets and military buildup. Two things, however, have to be kept in mind.
First, it is very difficult or impossible to establish causation between the individual links of the chain, and especially so between the rich having been heavily vested in foreign assets and their influence on domestic pro-imperialist policies. Such policies have often been driven by extra-economic factors like national pride and power. Yet it is also hard to argue that economic factors were absent from the minds of the governments, both because colonies provided access to high-yield investment thanks to valuable raw materials and cheap labor but also because in many cases conquest of one colony necessitated the control over the trade routes connecting that colony with the metropolis. This was at its most obvious in the case of India whose unimpeded control necessitated that the British control the Mediterranean (and hence colonize Egypt) and all the Northern accesses to India (and hence the Great Game with Russia).
Second, proving the empirical underpinning for each of the links does not establish of course that the war was inevitable, much less that it had to occur when it did and in the form that it did. Establishing the evidence consistent with the Hobson-Lenin-Luxemburg hypothesis simply shows that all the ingredients necessary for a large conflict were present. It was up to human agency and historical accidents to transform such ingredients into a worldwide conflagration.
Branko Milanovic is professor at the Graduate Center, City University of New York, New York City, and senior scholar at the Stone Center for Socio-Economic Inequality. He is the author of The Haves and the Have-Nots: A Brief and Idiosyncratic History of Global Inequality (Basic Books, 2010) and Global Inequality: A New Approach for the Age of Globalization (Harvard University Press, 2016).
Bartels, Charlotte (2017), “Top incomes in Germany, 1871-2013”, draft.
Alvaredo, Facundo, Anthony Atkinson and Salvatore Morelli (2017), “Top Wealth Shares in the UK Over More than a Century”, draft.
Darwin, John (2009), The Empire Project: The Rise and Fall of the British World-System, 1830–1970, Cambridge University Press.
Hauner, Thomas, Branko Milanovic and Suresh Naidu (2017), “Inequality, Foreign Investment and Imperialism,” draft.
Hobson, John A. (1902), Imperialism: A Study. New York: James Pott & Co. Rerinted in 1965 by Ann Arbor Paperback.
Branko Milanovic na Thomas Haunner na Suresh Naidu wanafanya utafiti wa kutofautiana kabla ya Vita Kuu ya Kwanza ya Dunia na kutoa msaada wa empirical kwa nadharia ya kawaida ya imperialism. Vita Kuu ya Kwanza ya Dunia ilikuwa tukio muhimu zaidi katika historia ya miaka 100 iliyopita, na labda hata kuweka mizizi ya Mshuko Mkubwa wa Kiuchumi na Vita Kuu ya Pili. Uwezekano wa kuzuka kwa vita kati ya mataifa makubwa ulitarajiwa na kujadiliwa kwa kina katika kipindi kabla ya 1914. Wataalamu wa uchumi wa kushoto, wengi wao wakiwa ni wa Marx, waliona nguvu zinazoongoza kwenye vita katika kuongezeka kwa nguvu za monopolies na cartels ambazo mahitaji yao kwa <unk> uwanja wa hatua <unk> pana, pamoja na ushawishi wao wa kisiasa usio wa kawaida, uliongoza serikali za nchi za maendeleo kushiriki katika sera za ushindi wa kigeni. Sera kama hizo zinazofuatwa na nchi kadhaa, kwa maoni yao, zingemalizika kwa kusababisha mgogoro. Katika kipindi cha vita vya Fashahada, vita vya Uingereza na Ufaransa, na vita vya Morocco, Ujerumani ilishindana na Ufaransa na Uingereza. Ubeberu ulionwa kutokea kutokana na hali za kiuchumi za ndani; uliungwa mkono na maslahi ya kiuchumi ya wasomi. Maoni kama hayo, ambayo yalikuwa chanzo cha fasihi ya upinzani wa kushoto, yalielezwa na John Hobson mwaka 1902. Hobson alielezea ubeberu kwa kutafuta fursa mpya na zenye faida zaidi za uwekezaji zinazohitajika kwa sababu uchumi mkubwa ulikabiliwa na ziada ya fedha za uwekezaji kwa sababu ya ukosefu mkubwa wa usawa. Kwa maoni ya Hobson, ushindi wa kifalme ulikuwa matokeo ya usambazaji usio wa usawa wa mapato ya ndani. Kama ukosefu wa usawa ungekuwa mdogo, kungekuwa na mahitaji makubwa ya ndani na hakuna haja ya matajiri kutafuta njia za uwekezaji nje. Nadharia ya Hobson baadaye iliingizwa, kabisa au kwa sehemu, na Vladimir Lenin na Rosa Luxemburg na ilibaki kuwa na ushawishi kwa muda mrefu, hata wakati vita vilipokuwa vikiendelea na baadaye ilipokwisha, kati ya kikundi kidogo cha wachumi wa Marxist. Kadiri uvutano wa Marx katika uchumi ulivyopungua, hatua kwa hatua ulipewa uangalifu mdogo sana na haukuwahi kupimwa kwa njia ya majaribio. Katika makala yetu ya hivi karibuni, Thomas Haunner, Suresh Naidu na mimi, tunachunguza nadharia ya Hobson-Lenin-Luxembourg kwa kutumia data mpya za kihistoria kwa nchi kuu za vita (Uingereza, Ufaransa, Ujerumani, na kidogo kwa Austria-Hungary, Urusi, na Marekani). """Kwa sasa hatuna data ya kutosha kwa ajili ya wapiganaji wengine, ikiwa ni pamoja na nchi za msingi za Japan, Italia na China, lakini data kama hizo zinaweza kuongezwa katika siku zijazo." Takwimu nyingi kati ya hizo zimetolewa hivi karibuni tu. Sisi kugawanya nadharia katika sehemu kadhaa testable. Kama nadharia ni sahihi, kubwa ya usawa wa ndani ingekuwa na mwelekeo wa kuenea katika uwekezaji mkubwa katika mali za kigeni (kama sehemu ya Pato la Taifa). Mchakato ni rahisi: tunaonyesha watu tajiri sana walioshikilia karibu mali zote za kigeni, na sehemu ya mali za kigeni katika kwingineko iliongezeka na utajiri. Mali hizo za kigeni zilipaswa kuongoza mapato ya juu zaidi, na muhimu zaidi, ahadi hizi za mapato ya baadaye zilipaswa kudumishwa kwa kutumia nguvu za kidiplomasia, za majini na za kijeshi. "Kama Lord Palmerston alivyosema mwaka 1860, ""Cudgel na Sabers na Carbines ni muhimu ili kuweka kimya watu wenye tabia mbaya ambao vurugu zao zingefanya biashara kuwa isiyo salama"" (Cited in Darwin, 2009: 40)." "Kama tulivyoona katika Hobson-Lenin-Luxembourg hypothesis, ""Uingereza, Ujerumani na Ufaransa hazikuwa na utajiri mkubwa sana na ukosefu wa usawa wa mapato kabla ya vita, lakini ukosefu wao wa usawa ulikuwa katika kilele cha kihistoria ambacho hakikuwahi kupatikana kabla au baada ya vita.""" Hii inaonyeshwa kwa njia ya kushangaza zaidi katika kesi ya ukosefu wa usawa wa utajiri wa Uingereza (tazama Picha ya 1 kutoka Alvarado, Atkinson, na Morelli, 2017), ambapo asilimia 1 ya juu ya wamiliki wa utajiri walikuwa na asilimia kubwa ya utajiri. Charlotte Bartels <unk> (2017) makadirio mapya ya Ujerumani juu ya mapato mkusanyiko kuzalisha matokeo sawa. Pia ni dhahiri kwamba nchi za uhifadhi wa mali za kigeni (zilipimwa kama sehemu ya Pato la Taifa) zilikuwa na kuongezeka na kwamba katika kesi ya Uingereza mabadiliko katika ukosefu wa usawa yalienda pari passu na mabadiliko katika uhifadhi wa kigeni (tazama Mchoro 2). Uwezo wa Uingereza wa fedha za kigeni uliongezeka kutoka asilimia 50 ya Pato la Taifa katika miaka ya 1850 hadi asilimia 180 kabla ya vita. Uwezo wa Ufaransa wa nje wa nchi nzima ulikuwa sawa na Pato la Taifa (GDP) na utajiri wa Ujerumani wa nje wa nchi uliongezeka kutoka 0 katika miaka ya 1870 hadi asilimia 50 ya Pato la Taifa (GDP) kabla ya vita. Kwa kutumia vyanzo vingi vya data za kifedha, tumeonyesha kwamba, kwa wastani na kurekebishwa kwa hatari, mapato ya hisa za kigeni na dhamana zinaelekea kuzidi mapato ya sawa zao za ndani. Hii, bila shaka, haikushikilia kwa miaka yote, lakini zaidi ya 1870 hadi 1914, wawekezaji wa dhamana ya Uingereza walipata wastani wa asilimia 1.9 zaidi kila mwaka kutoka kwa dhamana za kigeni kuliko za ndani; kuenea kwa muda huo huo kwa wawekezaji wa Ujerumani ilikuwa asilimia 1.4 na kwa wafaransa asilimia 0.9. Kwa upande wa hisa, tumeona kwamba kuenea kwa faida ya hisa za kigeni ilikuwa juu sana 2.2 asilimia kwa mwaka katika kesi ya Ufaransa. Hata wakati adjusted kwa ajili ya hatari faida ya kigeni (au koloni tu) dhamana na hisa bado (tazama Picha 3 ambayo inaonyesha katika kesi ya Uingereza). Kutokana na rekodi za Uingereza za kurithi na data juu ya utajiri wa wafiwa wa Paris (zote mbili ambazo zimepatikana hivi karibuni tu), tunaonyesha kuenea kwa mali za kigeni katika kwingineko za matajiri. Kwa mfano, katika mali ya watu wa Paris waliokufa mwaka 1912, wale waliowekwa katika asilimia tano ya watu wenye utajiri mkubwa zaidi walikuwa na asilimia 14 ya utajiri wao ukitoka nje ya nchi. Sehemu hiyo hupungua kwa kasi tunapoelekea kwenye makundi ya chini ya utajiri (ni asilimia 8 kwa wale walio kati ya asilimia 85 na 90) na inakuwa sifuri kwa wale walio chini ya asilimia 70 ya usambazaji wa utajiri. "Kulingana na rekodi za Uingereza za ukiritimba kati ya 1870 na 1902, ambazo zinafunika takriban asilimia saba ya wamiliki wa utajiri wa Uingereza, ""sehemu ya mali za kigeni katika mali zao hazikushuka chini ya moja ya tano.""" Kwa upande mwingine, nchi ambazo zina utajiri mkubwa wa fedha za kigeni (kilinganishwa na Pato lao la Taifa) pia zina nguvu za kijeshi kubwa. "Hapa tunajumuisha nchi zaidi (baada ya baadhi ya nchi zisizo na vita) na, kulingana na uchunguzi zaidi ya nchi 180 kwa mwaka, tunapata kwamba baada ya kudhibiti kwa nchi, mwaka, Pato la Taifa kwa kila mtu, na demokrasia, ongezeko la asilimia 10 la mali safi za kigeni kama sehemu ya Pato la Taifa lilihusishwa na ongezeko la asilimia 0.05 katika sehemu ya jeshi katika idadi ya watu.""" Kwa kuzingatia idadi hiyo, tunatambua kwamba jeshi la Uingereza lilikuwa chini kidogo ya asilimia 1 ya idadi ya watu (na hii ni mbali na vikosi vikubwa vya India), Ujerumani karibu asilimia 1 na Ufaransa karibu asilimia 1.5. Kwa hivyo, kwa wastani, ongezeko la asilimia 10 la mali za kigeni lilihusishwa na ongezeko la asilimia 5 la ukubwa wa jeshi. Kwa kumalizia, inaweza kusemwa kwamba ushahidi wa mlolongo ambao unaanzia ukosefu mkubwa wa usawa wa ndani hadi kuenea kwa mahitaji ya mali za kigeni kati ya matajiri ni nguvu sana, pamoja na uhusiano kati ya jumla ya mali za kigeni na ujenzi wa kijeshi. Hata hivyo, mambo mawili yanapaswa kukumbukwa. Kwanza, ni vigumu sana au haiwezekani kuanzisha uhusiano kati ya viungo vya mnyororo, na hasa kati ya matajiri kuwa na nguvu kubwa katika mali za kigeni na ushawishi wao juu ya sera za ndani pro-imperialist. Sera hizo mara nyingi zimesukumwa na mambo ya nje ya kiuchumi kama vile fahari ya kitaifa na nguvu. Hata hivyo, ni vigumu kusema kwamba mambo ya kiuchumi hayakuwa katika mawazo ya serikali, kwa sababu makoloni yaliandaa upatikanaji wa uwekezaji wenye faida kubwa kwa sababu ya malighafi zenye thamani na kazi ya bei nafuu, lakini pia kwa sababu katika visa vingi ushindi wa koloni moja ulihitaji udhibiti wa njia za biashara zinazounganisha koloni hiyo na mji mkuu. Hii ilikuwa wazi zaidi katika kesi ya India, ambayo udhibiti usio na vizuizi ulihitaji kwamba Waingereza wadhibiti Mediterania (na kwa hivyo wakoloni Misri) na ufikiaji wote wa Kaskazini wa India (na kwa hivyo Mchezo Mkuu na Urusi). Pili, kuthibitisha msingi wa kihistoria kwa kila moja ya viungo haijui kwamba vita ilikuwa ya kuepukika, hata kidogo kwamba ilikuwa lazima kutokea wakati ilifanyika na katika fomu ambayo ilifanyika. "Kutengeneza ushahidi unaopatana na nadharia ya Hobson-Lenin-Luxembourg inaonyesha tu kwamba viungo vyote muhimu kwa mgogoro mkubwa vilikuwapo.""" Ilikuwa juu ya shirika la kibinadamu na aksidenti za kihistoria kubadilisha viungo hivyo kuwa moto wa ulimwenguni pote. Branko Milanovic ni profesa katika Chuo Kikuu cha New York City na msomi mwandamizi katika Kituo cha Stone cha Usawa wa Jamii na Kiuchumi. Yeye ni mwandishi wa The Haves and the Have Nots: A Brief and Idiosyncratic History of Global Inequality (Basic Books, 2010) na Global Inequality: A New Approach for the Age of Globalization (Harvard University Press, 2016). Bartels, Charlotte (2017), <unk> Mapato ya juu nchini Ujerumani, 1871-2013<unk>, rasimu. Alvarado, Facundo, Anthony Atkinson na Salvatore Morelli (2017), < Top Wealth Shares in the UK Over More than a Century <, rasimu. Darwin, John (2009) Mradi wa Milki: Kuinuka na Kuanguka kwa Mfumo wa Ulimwengu wa Uingereza, 1830-1970; Cambridge University Press. Hauner, Thomas, Branko Milanovic na Suresh Naidu (2017), <unk>Ukosefu wa usawa, Uwekezaji wa kigeni na Utawala, <unk> rasimu. Hobson, John A. (1902), Imperialism: A Study. "James Pott & Co. "" (Kichapo cha Ann Arbor) "