Transformation of Leading World Economic Powers

excerpted from the book

Wealth and Democracy

a political history of the American rich

by Kevin Phillips

Broadway Books, 2002, paper

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The seed of imperial ruin and national decay-the unnatural gap between the rich and the poor. . . the exploitation of ... labor, the physical degeneration which seems to follow so swiftly on civilized poverty . . . the swift increase of vulgar, jobless luxury-are the enemies (of Britain).

Winston Churchill, 1908

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Great powers in particular have found history full of meaningful repetition, especially in broad outline. What Americans were asking themselves at the end of the twentieth century and the beginning of the next was what the Dutch had asked in 1750 and many British had pondered in the decades leading up to the world war: Was their increasing national reliance on finance and services rather than physical commerce and goods production the secure and reliable evolution of a genuinely new economy-or was it a familiar and vulnerable twilight stage of a great economic power?

Historians on both sides of the Atlantic had chewed on the subject for over a century. In The Law of Civilization and Decay, published in 1896, historian Brooks Adams-of the Boston Adamses-related a nation's decline to the rise of financiers and their values, a breed he saw everywhere in the U.S. of his era. Theodore Roosevelt, reviewing the book, disagreed in part-Adams was certainly premature in assessing U.S. vulnerability- but added that "with Adams' contempt for the deification of the stock market . . . all generous souls must agree."

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Leading economic powers are not made or unmade overnight. Each of the three that preceded the United States gained that status over roughly a half century, always amid a powerful convergence of commercial, political, geographic, and cultural forces.

Greater Spain became the world's most important political and economic force by the 1540s and 1550s. Shipments of gold and silver from the New World, only a trickle in the decades following Columbus's explorations, now arrived on a large enough scale to help bring on what scholars have called the "sixteenth-century price revolution." Dynastic upheaval also extended Spain's reach. Ferdinand and Isabella had ruled Castile and Aragon. Their Hapsburg son-in-law, Charles V, by 1520 would not just be king of Spain, but ruler of Austria, southern Italy, Burgundy, and Flanders as well as the elected Holy Roman Emperor.

Imperial economics gained sophistication in the late 1550s as the Spanish Crown, already sovereign over Antwerp and the Low Countries, allied itself with the merchant bankers of the rich, maritime republic of Genoa. Besides the Flemings and Augsburgers, the Hapsburgs ruling in Madrid had now enlisted another financial elite with an influential network across Europe. After these convergences, Greater Spain was not displaced as Europe's leading power until the drain of the Thirty Years' War (1618-48) and the full-fledged emergence of an independent Holland.

The United Provinces of the Netherlands, born of a late-sixteenth century revolt against Hapsburg authority, started their own extraordinary climb to commercial leadership while Spain's might was still in place. The engines of Dutch advance were maritime, commercial, and even religious. The expulsion of Protestants in 1585 from the Spanish Netherlands (later Belgium) sent so many bankers, merchants, and artisans fleeing to the Protestant north that in the words of one refugee, "Antwerp became Amsterdam." Mushrooming from 30,000 residents in 1580 to 105,000 in 1622 and 201,000 by 1662, Amsterdam replaced Antwerp as Europe's commercial capital.

Frugal and commercially adept, the Dutch, only a million or so in contrast to 16 million Frenchmen and 20 million Spaniards, soon boasted the world's largest merchant fleet-some 6,000 ships in 1669, virtually as many as the rest of Europe-as well as its largest pool of investment capital. The Dutch also developed Europe's most advanced technology, and through it large and successful textile, shipbuilding, fishing, and specialized industries. In the 1600s, Dutch shipping jumped from regional importance to lucrative control of the so-called "rich trades" to the Baltic, the Levant, and the Indies, an edge they held for another hundred years. By the 1700s, although Amsterdam remained Europe's great lending center, the Dutch elite had begun to shift their own investments to the next great economic power: Britain.

The precise timing of Britain's own emergence is a continuing debate. Defeat of the French in 1763 gave the British a huge global empire, to say nothing of diplomatic precedence over the representatives of King Louis. Besides launching the Industrial Revolution, Britain also controlled the world's largest navy and verged on replacing Holland as Europe's principal pool of investment capital. Defeat of Napoleon in 1815 made British industry, capital, and empire paramount. But after a mid-Victorian heyday, large portions of British manufacturing were becoming obsolescent by the early twentieth century even while finance and national wealth were still reaching a zenith. Two world wars completed Britain's decline and transferred global economic leadership to the United States.

Even these short capsules preview some striking recurrences. The early decades of each emerging economic primacy-Greater Spain in the 1520s and 1530s, Holland in 1600 or 1615, late Georgian and regency Britain-were fat years for each nation's economic elite. But it was the subsequent heydays, the golden ages, that brought the flood tide of commercial opportunity, new markets, and wealth that produced the broadest benefit for the largest number. Thereafter, each nation's relative distribution of wealth and income would narrow. Stratification would set in. But for now we will examine the relative breadth of opportunity and wealth of each nation's best years.

For all that Spain's economic data is least reliable, these years stretched from the 1530s, when the gold and silver began pouring in, to the 1580s, after new techniques had further increased New World silver output, bringing what Spaniards called the largueza-the abundance of money. Besides restoring national confidence, shaken by periodic royal bankruptcies, the largueza also underwrote the ill-fated armada against England. Commercial and manufacturing towns like Toledo, Segovia, and Burgos grew through the 1570s or 1580s. Seville, principal base of the American trade, increased its population from 70,000 in 1530 to about 150,000 in 1588, the Armada year. A turning point is often found in 1596, when yet another royal bankruptcy from overspending produced a wave of national pessimism.

The golden age of the United Provinces, in turn, came between 1647, when Dutch ships were readmitted to seaports under the Spanish Crown, and the French invasion of 1672. Some historians have stretched it further, from the 1630s up to 1702 and the economic disruptions of the War of the Spanish Succession. Dutch commercial success in the first half of the seventeenth century was middle-class and relatively unpretentious. This cultural conservatism is still apparent in the cautious, calculating faces painted by Rembrandt or Hals and the sober facades of their great houses on Amsterdam's Heerengracht.

If thrifty Holland had Europe's first industrial proletariat, it was a relatively well-paid one-wages were two or three times higher than in Switzerland or nearby Germany. Dutch municipal neatness and sanitation was the wonderment of visitors. Commercial centers like Amsterdam, Leiden, Haarlem, Delft, and Zaandam doubled and trebled their population in the first half of the seventeenth century (even while Castilian towns far to the south were shrinking by almost the same ratios). Yet the Dutch prosperity and wealth that most impressed foreign observers was that of the brede middenstand-the broad middle of the population whose ratios were unmatched elsewhere in Europe. In the words of one historian, "The Republic was an island of plenty in an ocean of want. Its artisans, even its unskilled workers and its farmers (for it seems a misnomer to call them peasants), enjoyed higher real incomes, better diets and safer livelihoods than anywhere else on the continent."

The third golden age, Britain's, stretched from the great railway boom of 1846-47 through the symbolic Crystal Palace Exposition of 1851 and into the 1870s. R. F. Delderfield set his most famous novel, God is an Englishman, in the Kentish Weald of the heady 1850s. His metaphor was the success of a small provincial transport entrepreneur in an era that saw England become a vibrant grid of factories, railroads, and canals. These sped manufactured goods-textiles especially, but also ironware and machinery-to docksides in London, Liverpool, and Bristol for shipment around the world.

Up 30 percent between 1800 and 1830, international trade then jumped fivefold between 1840 and 1870, with British vessels and manufactured exports accounting for about half of the total. London's population climbed from just over 2 million in 1841 to just under 5 million in 1881. Metalworking Sheffield swelled from 111,000 to 285,000 and textile-based Salford from 53,000 to 176,000. Coal mining centers in Wales and northeast England quadrupled their smaller head counts. Industrial slums also thickened their gloom and squalor-tenements untouched by daylight, rivers like dye vats-but the wages of ordinary Britons, adjusted for inflation, rose by about one-third in the quarter century between 1850 and 1874-75. Skilled Britons became the wage elites of European labor.

The British middle and lower middle classes, 15 to 25 percent of the population depending on one's calculus, gained even more rapidly. Suburbs began spreading around London. Household sugar consumption soared in the 1850s and 1860s, and more middle-class families could afford at least one servant. Elements of the middle class became a leisure class. By 1871, out of a British population of 26 million, 170,000 "persons of rank and property" without visible occupation, mostly women (many widowed or unmarried), lived on the interest and dividends from a half century of commercial and railroad expansion.

Let us underscore this next point: What all three "golden ages" involved, first and foremost, was a wave of success that brought broad enough status and prosperity to set the generality of Spaniards, then Dutch and Britons, ahead of their peers elsewhere. At first God was Spanish, which the banners of the sixteenth-century galleons more or less proclaimed. To Holland's favored brede middenstand, the Almighty must have been a Dutch burgomaster. And on Delderfield's bustling mid-nineteenth-century Kentish plain southeast of London, God was an Englishman.

The equivalent heyday in the United States, as we have seen, spans the years from World War II to some point in the 1960s or the early 1970s- the "good years" following the Good War, the era of the Great Compression, when income growth was high and the distance between bottom and upper wage levels was at its narrowest.

The next stage for each leading power began to erode this relatively

Wealth and Democracy

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