Colonialism and Capitalism Form a Feedback Loop

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From Colonisation to Early Capitalism

Colonisation can be seen as an expansion of the supply zones of European citiesDeLanda (2011)

. The resulting “First Globalisation”Allen (2011), 16

created new, unidirectional flows of material and wealth: European countries used their political and military Power to extract and trade to import gold, spices and other riches, which led to an early accumulation of capital and the birth of mercantile capitalism.

The extraction gains allowed the growth of a manufacturing and export-oriented industry. But while “English and Dutch trade with [or more appropriately: appropriation from] their colonies drove their economies forward”ibid., 20

, “American loot” wasn’t able to stimulate Spain’s and Portugal’s economy in the long run: “Globalization spurred northwestern Europe forward but held southern Europe back”.ibid., 24

One explanation is the Spanish “Price Revolution” that lasted from the mid 1500s to around 1700. It was a feedback loop driven by Spanish imperialism: The import of loot caused inflation, extended inflation increased lending costs, higher lending costs motivated the king to import more loot etc.

An alternative explanatione.g. in Harari (2014)

is a competition between kleptocratic (Spain) vs. early capitalist (Low Countries) ideologies, in which the latter proved more adaptive. Here we have another feedback loop: Early-capitalist ideology enabled growth of the finance sector, i.e. investment, which fuelled the expansion of colonialism, which lead to internal economic growth which “validated” early capitalist ideology etc.

The Birth of Industrial Capitalism

As a result, Northern Europe was well-positioned for further “economic development”, i.e. accumulation of wealth:

First, the growth in urbanization and rural manufacturing increased the demand for labour and led to tight labour markets and high wages. … Second, growing cities and a high-wage economy put great demands on agriculture for food and labour. The result was agricultural revolutions in both England and the Netherlands. … Third, growing urban demand also led to energy revolutions in both England and the Netherlands. In the Middle Ages, charcoal and firewood were the principal fuels burned in cities. As the cities grew, wood prices skyrocketed, and substitute fuels were developed.Allen (2011), 25

The British economy was in an especially good position due to a comparably large existing manufacturing sector and immense coal deposits. The Industrial Revolution was British because of

Britain’s unique structure of wages and prices. Britain’s high-wage, cheap-energy economy made it profitable for British firms to invent and use the breakthrough technologies of the Industrial Revolution.ibid., 31

Another material flow from the colonies helped keep wages stable after their pre-industrial riseAllen (2007)

despite enormous productivity gains: newly available, cheap “sugar had become a major source of calories in working class diets”.Harvey (2019)

Slave labour enabled mass sugar production, cheap import, and further accumulation of capital in two distinct ways: directly through profits based on slave labour in the Caribbean, indirectly through skimming off more profit from productivity gains in Europe.DeLanda (2011)

Taken together, these factors enabled the Industrial Revolution in Britain and a rapid transition from mercantile to industrial capitalism in which Innovation fuels continuous growth:

[T]he great achievement of the British Industrial Revolution was that it led to continuous growth, so that income compounded to the mass prosperity of today.Allen (2011), 27

The Cycle of Endless Growth

The growth trajectory began with high productivity and high wages:

As a result of these differences in wages and prices, businesses in England found it profitable to use technology that saved on expensive labour by increasing the use of cheap energy and capital. With more capital and energy at their disposal, British workers became more productive – the secret of economic growth.ibid., 32

This started another feedback loop: Productivity enables Economic Growth, which enables investment, which increases Innovation and productivity, which enables further growth etc. But this feedback loop has since turned into an addiction: higher productivity not only enables further growth, but also needs it – Innovation fuels continuous growth because it lowers the need for labour and thus forces continued growth to avoid collapse. Capitalist growth is like a bicycle – if it stops, you fall off.Jackson (2017)

Catch-up in the Global North …

While the continuous industrial “expansion came at the expense of India, China, and the Middle East”Allen (2011), 32

, the catch-up of the other European countries was enabled by development policies denied to “Developing Countries” later on:

create a large national market by abolishing internal tariffs and improving transportation; erect an external tariff to protect ‘infant industries’ from British competition; create banks to stabilize the currency and provide business with capital; and, finally, establish mass education to speed the adoption and invention of technology. This development Strategy helped continental Europe to catch up to Britain.ibid., 41 f.

Though empirically validated, this strategy was scrapped in the aftermath of the dismantling of the European empires in favour of unproven “neoliberal” ideas that, based on equilibrium economics, misunderstood Complex Systems and in fact extended colonialism into neo-colonialism by protecting Global North economic interests without the need for a formal empire.See Harari (2014).

Meanwhile,

the high wages of rich countries induced them to invent products that economized on labour by increasing the use of capital. This led to an ascending spiral of progress: high wages induced more capital-intensive production that, in turn, led to higher wages. This spiral underlies the rising incomes of rich countries.Allen (2011), 47

… and Underdevelopment in the Global South

At the same time, a technological lead and the resulting productivity advantages, combined with free trade policies, meant that prices for raw materials would fall in the Global North while they would rise in the Global South. This lead to “de-industrialization big time”ibid., 59

in the colonies, which were largely downgraded to agricultural societies.

This European-induced civilisational decline then became the main justification for colonialism, similar to how Racism is a justification for exploitation.

In the long run, the early accumulation of wealth and technological capacities and the resulting economic disparity between Global North and South became “locked in”Arthur (1983)

due to the ban of protection (ideologically denounced as “protectionism”) and a lack incentives for innovation due to low wages and agricultural orientation, both a direct result of colonialism.

The change in the world’s technology consisted in getting more output per worker by pushing capital per worker to levels higher than those reached before. The beneficiaries of these improvements were the rich countries operating with highly capital-intensive technologies in 1965. These were also the countries that invented the new technologies of 1990. These improvements did not automatically trickle down to poorer countries.Allen (2011), 48 f.

Tackling poorer countries’ disadvantage is not “a problem of modernizing ‘traditional societies’”ibid., 61

, but one of overcoming a historical injustice:

Underdevelopment was the product of 19th-century globalization and Western industrial development.ibid.

From Catch-up to New Colonialism

Where countries successfully closed the gap, they used the validated “standard strategy” or even more radical, state-focused programmes:

Some countries that were poor in the 19th century, however, did much better in the 20th by following the standard strategy and also by going beyond it to effect a Big Push … .ibid., 63

China is on track to fulfil the Big Push’s full potential:

China is completing a historical cycle. If the country grows as rapidly in the next three decades as it has since 1978, it will close the gap with the West. China will become the world’s biggest manufacturing nation just as it was before the voyages of Christopher Columbus and Vasco da Gama. The world will have come full circle.ibid., 145

But the Chinese synthesis of capitalism and statism comes with its own colonialism attached. As a Congolese lawyer noted back in 2010:

China is taking the place of the West: they take our raw materials and they sell finished goods to the world. What Africans are getting in exchange, whether it is roads or schools or finished goods, doesn’t really matter. We remain under the same old schema: our cobalt goes off to China in the form of dusty ore and returns here in the form of expensive batteries.French (2010)

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