A Comparative History of Commerce and Industry, Volume I

Historical accounts of social institutions such as this one are inherently selective. Moreover, they reflect the experiences, background, and points of view of the analyst. This history of the institution of business is no exception. I have included the historical events and trends that I feel have contributed most to making each country’s business system what it is today. If others’ explanations or preferences have been omitted, there remains room in the fertile, but often ignored, field of business history for yet another treatment of the material. The comparative historical research approach reflects these core themes: “Comparative historical researchers explicitly analyze historical sequences and take seriously the unfolding of processes over time…. because events are themselves located in time, comparative historical analysts explicitly consider the effects of the timing of events relative to one another” (Mahoney and Rueschemeyer 2003, 12).

This book, the first in a two-volume set, is one author’s story of the history of commerce, trade and industry in four regions of the world: the United Kingdom, particularly what we know as England and Wales; of the Holy Roman empire and its modern manifestation, what we now know as Germany; the early Asian economic power of Japan; and of the North American colonies that became the United States of America. The story focuses on the evolution of economic activity in those regions of the world, including the institutions of business, commerce, trade, and industry. “Business” has been defined by Pride, Hughes, and Kapoor (2010, 9) as the “organized effort of individuals to produce and sell, for a profit, the goods and services that satisfy society’s needs.” “Commerce” is used as a broader term and incorporates all the activities necessary to facilitate the exchange of goods and services. It can be carried out by businesses, nonprofit organizations, or governments.

To understand how and why Great Britain came to be a great trading nation and the first country to make the shift from an agricultural to an industrial economy, one must begin with its position as an island nation. Located some twenty miles off the coast of France and separated from northern Europe by the North Sea, Britain was close enough to be able to take advantage of a huge continental market, but far enough away to evolve in a slightly different pattern. It was not forced to trade just with its immediate neighbors, nor was it restricted by neighbors’ trade restrictions, tolls, or tariffs. From the beginning, when it wanted to communicate with other societies, it had to turn to the sea. Its comparative advantage of location was augmented by seafaring skills. In later years, when local north-south continental trade gave way to long-distance, east-west international trade, British traders were particularly well equipped to take advantage of the new business opportunities.

The processes through which the business system of Great Britain approached industrialization was shaped by a series of economic, social, and technological developments that took place beginning in the last half of the eighteenth century and ending in the late 1800s, roughly a hundred and fifty or so years later. During this time the British economy changed from a base firmly founded first and foremost on agriculture, supplemented by important contributions of the international trade of products produced by others and small-scale craftsmanship for only the local or domestic market. Over these 150 years British entrepreneurs expanded their interests and activities to become the “workshop of the world,” in control of more than 40 percent of the entire world’s manufactures (Marshall 1962).

From the end of the Napoleonic Wars in 1815 up to a decade or two before World War I in 1914, British manufacturing and international trade dominated the rest of the world. After 1919, however, its leadership entered into a long, slow decline, to be overtaken in the West eventually by both Germany and the United States. Only since the last of the 1980s and early 1990s has it been able to stop the decline and turn itself around. Today, the business system of Great Britain appears to have returned to a leadership position of influence in banking, finance, and the petrochemical industry. Britain’s businesses also play an important role in the nations of the European Union and in global markets as well.

Germany’s business history from the High Middle Ages to the modern age may be conveniently grouped into three distinct periods of roughly 150 years each. Selected characteristics of each era are shown in Table 7.1. The first period runs from 1350 to 1500. It coincides with the end of feudalism and the first great town-building period. The second, from 1500 to 1650, may be seen as a transition period separating the Middle Ages from early modern times. Its key characteristics were the Reformation, which brought an end to Christian unity in Europe, and the Thirty Years’ War. This period was one of severe economic retrenchment, war, pestilence, and final collapse of the unifying force once represented by the Holy Roman Empire: from 20 to 30 percent of Germany’s population died from the war or disease, towns and cities lost their freedom, political fragmentation reached its zenith, and the Hanseatic League withered away to irrelevance. Estimates of the dead from this European war, most of whom were Germans, range from 3 to 7.5 million (Parker 1997, 188).

The Japanese business system was forged out of a social and cultural environment that stressed intense loyalty to one’s family and community, a rigid set of rules for relationships between individuals and groups, and a willingness to adopt technologies, ideas, and practices from other societies while remolding them to fit specific needs and traditions of Japan and the Japanese. Except for the indigenous religion of Shinto, the earliest philosophical and religious borrowings came from China and Korea. Later ideas were taken from the West, although these did not influence Japan greatly until after the end of the Tokugawa shogunate.

The Kamakura and Ashikaga periods from 1185 to nearly 1600 instituted some 500 years of shogun dominance in the Japanese empire. In the early years of the era, weak Japanese emperors continued to hold court at Kyoto on the western side of Honshu. During the first half of this era, from 1185 to 1333, a duplicate military de facto government under the shoguns operated from the seacoast village of Kamakura on the eastern side of Honshu; shogun-led forces fought several successful but costly battles against Mongol invaders, the last of which instilled a belief in divine protection in Japan.

The Tokugawa period, also known as the Edo period, began in 1603 and continued until 1868, when Japan finally ended her policy of isolationism. This was the last of Japan’s feudal shogunates. The founder of the dynasty, Ieyasu Tokugawa, emerged victorious from a series of great civil war battles that raged during the end of the sixteenth century. Tokugawa established his military government at the small village of Edo, located at the head of what is now Tokyo Bay. Over the next several decades, Edo grew rapidly, in part due the edict of the third Tokugawa shogun, which dictated that all 270 of Japan’s clans build and maintain residences at the capital. Right up until 1862, clan leaders were required to keep their families at Edo all year, while they themselves had to spend every other year at their country estates overseeing agricultural production. With about half of Japan’s lords in court attendance in any one year, the town soon grew to be a great commercial as well as political center. The richest lords brought thousands of retainers with them to Edo and required all kinds of services, from fresh food to new clothing and housing, paper and glass, leather goods and weapons, and many more.

The great migration of Europeans from the Old World to the New that began as a trickle in the sixteenth century continued for the next three centuries, often achieving the status of a flood. The early settlers, regardless of their reasons for giving up everything they knew to migrate to the Americas and other emerging colonies, soon established a business system and institutions similar to the ones they knew at home. However, it was not long before the colonial business system took on a character of its own, one that was best suited to the exigencies of poor internal transportation, isolated settlements, and the mercantilist policies of the mother country (McAllister 1989).

Commerce and industry in the United States underwent vast changes in the decades between 1789 and the Civil War. In a conclusion that ran counter to many earlier historians, Edwin Perkins (1989) emphasized that this transformation process was evolutionary, not revolutionary. Big changes were, indeed, needed when the revolution cut the colonies’ ties with the mother country. The changes began with a transition from nearly complete dependence upon British markets for their products and British suppliers for the goods and services they could not produce themselves. As noted in chapter 12, the British Navigation Acts and the resulting loss of access to their traditional markets and suppliers drove many American traders to find new markets or develop new businesses. Southern planters and Philadelphia merchants, for example, joined together to begin shipping American tobacco directly to continental European markets, sidestepping English or Scottish middlemen.

In the 50 years between the end of the Civil War and the start of the World War I in Europe, the United States drifted steadily away from its agrarian foundations to become an urbanized, industrialized nation with an economy controlled for the most part by big business. It was, as historian Vernon L. Parrington (1963, 6) described, a time in which “capitalism was master of the country.”