Informal Empire


By Neil Simpson



  'The commerce between the two countries is carried on with English capital, on English ships, but English companies...The profits...the interest on the capital...the payments for insurance, the commissions and dividends from the business, everything goes into the pockets of Englishmen.' Brazilian minister in London, 1854

 

'And where we see the access to the Continent of Europe so hermetically sealed up, we ought to be peculiarly grateful to Providence for casting open the doors of the West, and for disclosing to us the avenues of the New World; for giving us an influence in South America, which will invigorate our commerce, and ultimately take as much of our manufactures, or more, as are now denied to the oppressed nations which were once wont to purchase them of us.' Captain Thomas Ashe, 1812

 

In 1876, on the centenary of Adam Smith's study The Wealth of Nations, the Economist noted that in Britain:

'The fetters in which pre-existing laws bound our commerce, have been removed, and the result is that we possess the greatest, the most stable, and the most lucrative commerce which the world has ever seen.'[1]

   This shift from mercantilist imperialism to free trade began in earnest with the administration of Robert Peel (1841-1846). A general reduction of import duties was introduced, and tariffs for cotton and wool abolished. This process resulted in the preference for subsidised imperial trade declining in favour of foreign markets. Thus companies like Maxwell and Wellwood Hyslop moved from the 'old' imperial markets of Jamaica to the free markets of Latin America after the period of independence.[2] Yet as the Economist went on to note, not all countries altered their laws 'in the way that Adam Smith would have suggested' and while the 'English race has gone into many countries' they 'have not been able to take their Free trade principles with them.' [3] Consequently the British employed subtle seduction and the blatant bullying of foreign rulers to open markets to free trade and secure strategic highways. Whether this amounted to 'informal empire' is central to this discussion, as is the issue of defining what 'informal empire' means.

   Semantics also confounds the term 'free trade', which meant different things at different points across the globe. That a great maritime trading empire such as Great Britain should have gained from a loosening of trade barriers and an opening of markets is obvious, yet free trade by no means conferred equality between nations in the market. Following the flow of free trade also presents problems. By its very nature free trade puts the impetus on the individual, confounding overarching theories or grand narratives of empire.

   Looking beyond the frontiers of formal empire and the 'colonies coloured red on the map'[4]  is also necessary and British influence did not exist in a vacuum. Two specific examples, Argentina and Egypt, should prove useful and generalisations will be avoided. It becomes evident that the experiences of different states – even different regions of states – varied widely. Thus South America, and more specifically Argentina, fell after the era of independence in the 1820s under British market influence. Here, more than anywhere, a strong case can be made for a British 'informal empire' based on loans, investments and trade. Egypt had a very different experience however. A passage to India and the British stake in the Suez Canal were both financially and strategically important. French incursions in North Africa also added another dimension not evident in Argentina. As a result informal influence in Egypt was bound as closely to strategic 'formal' aims as much as it was with private 'informal' ones. Consequently Egypt highlights that any attempt at looking into an 'informal empire' of free trade necessitates considerations of non-financial matters and that free trade depended as much on military and political leverage as it did on monetary.

   In 1902 Hobson noted that:

The sliding scale of political terminology along which no-man's land, or hinterland, passes into some kind of definite protectorate is often applied so as to conceal the process.

   Although primarily concerned with the 'New Imperialism' of the late 19th century, Hobson had perceived acute problem of defining informal rule.[5] The point at which influence became control is not clear cut, and a sliding scale is a useful analogy.

   Initially we should avoid the idea of an informal imperialism governed through private investments. Private British ownership of land, plantations, mines or mills does not equate to 'informal empire'. If this were the case Britain in 1880 could claim, on the basis of having invested 80% of foreign capital, to own a sizeable chunk of its former colony, the United States of America.[6] Many 'British' investors, such as the Rothschilds, were not British at all and multinational in their interests. While often aiding the British government, the Rothschilds personal interests were not superseded by it.[7] That the Rothschilds accounted for around one quarter of all foreign government bonds issued in London from 1865 to 1914 should also highlight this.[8] In short, like many investors, the Rothschilds were just as tied to foreign governments as they were to the British Empire, and business interests did not always correspond to imperial ones.[9]

   It is also important to note that free trade often only meant 'freedom to trade' and not necessarily the 'low or non-existent tariffs' that Adam Smith had advocated.[10] As a result free trade did not give the British unrestricted access to new markets; it merely opened them to speculation.

   This aside, the sheer dominance of British industry and finance meant that commercial treaties favouring no single country, such as the opening of Brazilian trade in 1827, did in fact disproportionately benefit Britain. Cobden noted that, 'no country, can carry on great financial transactions except through the medium of England.'[11] As a result the British vested interest in free competition misguides scholars such as Platt when he argues that Britain was looking for 'fair and equal treatment, not favoured treatment' in Latin America. Rather, Britain automatically assumed a dominant status as a result of 'free trade and equal treatment' and it had no need for other methods of control.[12]

   Robinson and Gallagher have gone beyond this assertion and claimed that a deliberate and proactive policy of 'informal empire' was pursued from the 1840s – 1880s. When the polities of new regions (such as Argentina) failed to provide the right conditions for British trade or 'strategic integration' then British power was 'used imperialistically to adjust those conditions.'[13] These 'informal means' rested on Britain's financial and industrial dominance, but also on governmental pressure and potential use of force. In other words the imperialism of the eighteenth century – all flags, fifes and naval fleets – was replaced with 'Imperialism light', where political pressure, threat of force and economic levers were operated behind a facade of a nominally independent state. As a result formal political control took back seat to the 'economic dependence and mutual good-feeling' of free trade.[14]

   Yet this informal dominance through free trade has often been exaggerated. Platt has highlighted how towns such as Diarbekr, in eastern Turkey, with 30,000 inhabitants could wield considerable economic influence. Indeed Platt has argued that a large chunk of British exports to far flung corners of the globe were in fact supplying 'what was really a piece of England in the New World or the Antipodes...'[15] While Platt avoids any price comparisons between domestic and imported prices, any sense of informal rule as a result of Diarbekr being open for business with Britain seems unlikely. [16]

   Robinson and Gallagher also highlight that in the mid-Victorian period of supposed period of imperial nonchalance, India, far from being ignored, was subjected to intense economic control 'along the best mercantilist lines.'[17] As a result free trade was used by the British for practical and not ideological reasons; if mercantilist trade barriers worked in India and free trade asserted British supremacy in Argentina there was no contradiction.

   Consequently free trade did not always mean low tariffs, and was applied practically and not ideologically by the British. As Platt has noted there is also a danger that we exaggerate the indirect consequences of the policy.[18]

   After the period of South American independence in the 1820s Britain quickly spotted the trading potential of the new region. As Strachey later noted, 'Neither Egyptian chaos nor Boer intransigence menaced the interests of the (predominantly) British bondholders and entrepreneurs in South America.'[19] Initially however, due to governments defaulting on interest payments for issued bonds, the continent did not fare well financially, and we should not exaggerate the economic significance of political events.[20]

   Development was not helped by a muddled and inconsistent British foreign policy towards the opening of the River Plate to trade either. It is from failed 'formal' attempts like these that we can understand Gladstone's later aversion to Egyptian intervention and fondness of Laissez-faire diplomacy.[21] 

   When recovery came in the 1840s, it was in large part down to British capital. From 1865 to 1913 Britain's trade with Latin America tripled, and between 1850 and 1913 it received 10% of all British exports. Latin America also attracted increasing amounts of British publicly issued capital. In 1865 it stood at #81m and by 1913 it had mushroomed to #1,180m.[22] As a result of this huge financial interest in Latin America a decline in commodity exports to Brazil and Argentina is understandable, however the financial backing continued.[23] This was massively geared towards the governments of the area. As a result Latin American governmental interests were firmly linked to the City of London. 

   Free trade also allowed individuals like Charles Morrison, a City financer, to become extremely wealthy through Latin American acquisitions. Becoming interested in Argentina in the 1860s, Morrison acquired the Mercantile Bank of the River Plate in 1881 and was investing directly in utilities by the 1890s. By 1900 he alone controlled nearly 10% of all British invested capital in Argentina.[24] These 'personal informal empires' often had a wide range of investment interests, being interested in regional investment, development (and necessarily) governmental stability, rather than specific sectors, such as railways. This level of regional integration prompted the United States consul in Buenos Aires to claim: 'it almost seems that the English have the preference in everything pertaining to the business and business interests of the country...They are "in" everything, except politics, as intimately as though it were a British colony.'[25]

   Yet who 'they' are is not always clear, and Platt has argued that British interference was mainly business and not government orientated.[26] He has noted that there are 'absurdities' in attributing a colonial relationship between 'subordinate primary producers' and 'developed industrial powers' when 'primary products were not in demand' exports of British products to the entire continent between 1841 – 50, averaged a mere #5.7 million per annum.[27] However this account only considers 'produce and manufactures' and not private finance, and Platt's limited timeframe also distorts his assertion and trade became much more significant by the end of the nineteenth century.

   Informal governmental influence becomes much clearer when crises occurred, as in the 1870s when the risk prone banks of the Banco National and Provincial Bank of Santa Fe experienced runs on their holdings. As investors flocked to the more stable London and River Plate Bank, local government attempted to stop the process, forbidding the London and River Plate Bank from issuing notes and taxing its operations. Buenos Aires eventually acted, although this was as much because of the decline in provincial revenue as it was from British naval threats. Argentina saw that there was a danger not so much from British naval threats, but rather from the risk of Argentinean government bonds loosing value in the City. [28]

   During the 1890s there was also a panic from declining revenues in exports and rising foreign debts. Initially the Argentinean government allowed the peso to depreciate in value (thus impeding British imports) and began printing inconvertible paper currency. Given that most of Argentina's debts owed were payable mainly in gold or by gold backed currency this policy, if pursued would have led to a default.

   The British bank Barings was caught out, finding itself landed with large quantities of Argentine government bonds which no one wanted. They subsequently went bankrupt. It was at this point that 'informal empire' became formal intervention, and the British government forced Argentina to continue to pay its debts to keep Barings afloat.[29] As a result the British government often exerted pressure on the Argentinean government, although close connections to the City and British creditors often meant that little more than pressure was needed. When Salisbury was encouraged by the City financers to intervene more directly he responded:

We have no intention of constituting ourselves a Providence in any South American quarrel. We have been pressed, earnestly pressed, to undertake the part of arbitrator, of compulsory arbitrator in quarrels in the west of South America...We have been earnestly pressed, also...to undertake the regeneration of Argentine finance. On neither of these subjects are Her Majesty's Government in the least degree disposed to encroach on the function of Providence.'[30]

    It would thus be crass to term the bail out of Barings and the pressure put on the Argentinean government as 'informal empire' and the process was as much connected to preventing a wider recession as it was projecting British influence abroad. Salisbury must have also recognised how much the City's interest in Latin American governments depended on confidence – something which 'formal' intervention would severely rock. [31]

   Yet the more British capital that was invested the more undeniable British influence was. Consequently interest turned to intervention in the 1830s in an effort to get trade moving into Argentina along its river ways, and the opening of markets was made smoother through the building of rail networks.[32] In 1868 the Uruguayan government actually requested assistance from H.M.S Narcissus to protect the Customs House at Montevideo. Major Munro who led the expedition was warned by Lord Stanley, that although it was difficult to lay down general rules for such situations, these dealings 'should only be resorted to under circumstances of the greatest urgency.' Admiral Ramsay on the River Plate also informed his officers to 'on no account...interfere in the disputes of the contending parties.'[33]

   If this was Imperialism then, it was not in the form that South America had experienced before. Rather than treasure draining from the Continent to fund European wars as it was in the preceding centuries, it was shipped in, often through British bond holders seeing an independent and stable regime developing. It stands to reason that investors look for stability, and as a result it should come as no surprise that a certain degree of British governmental interference was necessary. Yet the irony is that more the more British interference which occurred, the less confidence Argentinean's placed in their own government.

    Platt has also noted the limited influence of British free trade in Argentina, and even by the mid-1890s between 70 and 80% of government revenue continued to come from tariffs.[34] We should also not forget that on balance shipping troops to relatively poor countries, such as Peru, made little sense when more valuable prizes, such as India, were under increased threat.[35] 

   Like South America British informal influence in Egypt and the Levant was evident in its domination of finance and trade. The fact that by 1880 Egyptian debt had climbed to #100 million (when exports were gathering a mere #13 million) highlights the bind the country was in by 1882.[36] That 80% of the exports were shipped to Britain, and 44% of all Egyptian imports were British shows the extent of Britain's interests in Egypt.[37] British shipping also dominated the Suez Canal, with 2,250 ships out of 2,727 vessels using the canal in 1881 being British. More generally the Ottoman Empire had colossal debts which had risen from #9m in 1855 to #251m in 1875, and by the latter date around half of all revenue was paying of interest on debts alone. Egypt was in a similar situation and its public debt of #76m in 1876 was roughly ten times its total tax revenue.[38] While the root of increased British interest is unclear, it is undeniable, that there was a massive increase in Egypt's main export, cotton, during the American Civil War.

   Consequently Hobson advanced the view that financial 'parasites' with 'sectional interests' usurped public interest for private gain.[39] Moneyed interests, he argued, had created a form of informal dominance. Indeed this view was confirmed by certain legal ambiguities in Egypt at the time. As the Economist noted in 1876 constitutional problems within Egypt meant courts were legally entitled to sue the Egyptian government for not meeting debt repayments. These courts were 'created by treaty with foreign Powers, and which therefore claim to have an authority against, and a title superior to that of the Egyptian Government.'[40]

   Whether the riot in Alexandria in June of 1882 actually presented any serious risk to Britain's financial interests (and thus, in Hobson's, view merited intervention) is debatable. The fact that 50 foreigners were singled out and killed should also be noted, and the Economist predicted on 17 June that 'very great losses must be incurred and great disturbances to business must arise if no effort was made to contain the disorder.'[41]

   Yet informal influence in Egypt was as much about strategic securities as it was about financial ones. Mclean has perceptively argued that although informal economic pressure carried some weight, the idea of foreign policy and threat of 'hard power' spreading informal rule has a much 'greater bearing.'[42] Indeed confidence in government (and thus financial mechanisms) was intrinsically linked to military effectiveness. Thus the difference in policy between the Levant and Latin America is most clearly displayed in the British reluctance to intervene during the Latin American 'anarchy' of the 1820s, while subsequent arguments for intervention in Egypt were based on a need to restore order and suppress 'anarchy'.[43]

The Lion's Share

   Imperial rivalry was also evident, and Ferguson has noted that 'until the end of the 1860s, France and Britain were more or less neck and neck as foreign lenders.'[44] 1881 saw the French occupy Tunis, and far from Disraeli winning a majority stake in Suez (as Punch would have had it) they were in fact catching up on the French share.[45] As a result Britain was much more willing to use the possibility of military intervention in Egypt than in Latin America due to wider European rivalries, and concerns regarding Russian ambitions.

  

   It should come as no surprise that a country that provided two fifth of all the world's exported capital between 1870 and 1914 should have had a certain amount of unofficial and non-governmental influence.[46] That no more than one quarter of this was ever invested in Empire, also highlights the extent to which the wealth flowed beyond the red areas of the map.[47] In this respect Robinson and Gallagher do not present as earth shattering an argument as many have assumed. Free trade was bound to be of a disproportionate value to a country as dominant in finance and trade, and the rise in free trade led to a decrease in the government influence in investments and the Stock Market. It thus becomes harder as the century goes on to make a case for an Imperial financial plan based on investments.

   Consequently this cannot confer 'informal empire' although a certain amount of informal influence is undeniable. Hobson's recognition of a sliding scale remains useful in this respect. Even the very nature of the word 'informal empire' is oxymoronic; empire implying a certain amount of formal control.

Dogs of War

   Regional variations are also crucial to understanding the effects of free trade policy, and as the two examples highlight, experiences were divergent in different geographical areas. In Egypt a wider official imperial strategy is evident, as is informal British governmental interference. Here an attempt to prop up a government was initially made after free trade had led to uncontrollable debt. Through this intervention free trade was then re-imposed and as a result there is no simple free trade to 'informal empire' process.

   It is also crucial to see a separation between business interests and informal governmental interest. Argentina, and more broadly Latin America highlight, that influence was just as easily spread through private initiative and 'self help' as it was through governmental power. As Platt has also noted there continued to be considerable tariffs in Argentina until the mid 1890s.

   As a result we can recognise informal influence and pressure was often employed by the British government, although this was often poorly carried out, frequently resulting in botched and clumsy attempts to impose authority. There does not, in Egypt or Argentina however, appear to have been any systematic policy of informal rule. Free trade rather created a framework in which self help and private initiative could flourish, as it did with Charles Morrison, although it was less effective in spreading British governmental interests and it did not confer 'informal empire'.



[1] Economist, June 1876.

[2] Platt, D.C.M., Latin America and British Trade 1806 – 1914, (London, 1972), p.26.

[3] Economist, June 1876.

[4] Gallagher, J. and Robinson, R., 'The Imperialism of Free Trade', Economic History Review, Volume 6, (1953), p.1.

[5] Hobson, J.A, Imperialism: A Study, (London, 1961), p.21.

[6] Davis, L.E. and Huttenback, R. A., Mammon and the Pursuit of Empire: The Political Economy of British Imperialism, 1860 – 1912  (Cambridge, 1986), p. 38.

[7] Richard Graham in Roger Louis, W.M., (ed.), The Robinson and Gallagher Controversy, (London, 1976), p.220.

[8] Ferguson, N., The Cash Nexus: Money and Power in the Modern World, 1700 – 2000, (New York, 2000), p.266.

[9] The Rothschilds, as a financial house with bases in London, Frankfurt, Paris and Amsterdam, also indulged in arbitrage. This meant when gold prices were high in Paris the Rothschilds would sell their gold for bills of exchange, and with these buy a larger quantity of gold in London. This process also highlights the hardnosed and individualist side of many financiers not tied to any national ideology or imperial project. Ferguson, N., The Ascent of Money: A Financial History of the World, Allen Lane, (London 2008), pp.82 – 83.

[10] Miller, R., Britain and Latin America in the Nineteenth and Twentieth Centuries, (London, 1993), p.72. Consequently, as Platt is keen to highlight, Argentina maintained tariffs throughout the 1820s and 1830s despite the 'opening' of new markets. In 1835, the adoption of the Rosas tariff was 'totally protective.' Platt, D.C.M., Latin America and British Trade 1806 – 1914, (London, 1972), p.76.

[11] Semmel, B., The Rise of Free Trade Imperialism: Classical Political Economy the Empire of Free Trade and Imperialism , (Cambridge, 1970)

[12] Platt, D.C.M., Finance, Trade and Politics in British Foreign Policy: 1815 – 1914, (Oxford, 1968), pp.315 – 316.

[13] Gallagher, J. and Robinson, R., 'The Imperialism of Free Trade', EHR, (1953), p.5.

[14] Ibid, p.4.

[15] Platt,  D. C. M., 'Further Objections to an "Imperialism of Free Trade", 1830 – 60, EHR, Volume 26,  (1973), p. 82.

[16] Platt notes that in 1863 some 1,400 looms were working and 2,710 in the region of Diarbekr Sanjak. There were also 2,041 shops and workshops; 7 ironsmiths; 47 tinmen and coppersmiths; 35 sail needle, nail and sword makers; 27 carpenters; 42 silversmiths; 6 watchmakers; 8 pot and jar makers; 10 pipe makers; 13 brassfounders; 25 pack saddle and haircloth makers; 27 farriers; 22 saddlers; 95 shoe makers; 14 rope makers; 10 candlemakers; 25 tanners and 3 gunsmiths. In short, Platt highlights that we should not underestimate the economic power of small localities in being able to supply themselves. Ibid, p. 81.

[17] Gallagher, J. and Robinson, R., 'The Imperialism of Free Trade', EHR, (1953), p.4.

[18] Ibid, p.5.

[19] Platt, D.C.M., Finance, Trade and Politics in British Foreign Policy: 1815 – 1914, (Oxford, 1968), p. 309.

[20] Platt, D.C.M., Latin America and British Trade 1806 – 1914, (London, 1972), p. 4.

[21] Miller, R., Britain and Latin America, (London, 1993), p.52. Gladstone had noted in an Economist article of 1853: 'It is good that England should give a full assurance to the world, by her Peace Conferences and the declarations of her Ministers, that she abhors war. Her best interests – perhaps her safety – are indissolubly bound up with peace...' Economist, October 15, 1853.

[22] Cain, P.J and Hopkins, A.G., British Imperialism: Innovation and Expansion 1688 – 1914, (London, 1993), p.283.

[23] Ibid, pp.286-287.

[24] Ibid, pp.289 – 290.

[25] Miller, R., Britain and Latin America, (London, 1993), p.5. Similar influence can be seen in Peru in 1834, when the government was granted a #7,400 loan by British merchants, on the condition it would abolish existing commercial codes. Mathew, W. M., 'The Imperialism of Free Trade: Peru 1820 – 70', EHR, Volume 21, (1961), p.566.

[26] Platt, D.C.M. (ed.), Business Imperialism 1840 – 1930: An Inquiry Based on British Experience in Latin America, (Oxford, 1977)

[27] Platt,  D. C. M., 'Further Objections to an "Imperialism of Free Trade", 1830 – 60', EHR, Volume 26,  (1973), p.84.

[28] Cain, P.J and Hopkins, A.G., British Imperialism, (London, 1993), p.292.

[29] Ibid, pp. 293 – 294.

[30] Platt, D. C. M., 'The Imperialism of Free Trade: Some Reservations', EHR, Volume 21 (1968), p.301.

[31] This level is well illustrated in the Dominican Republic in 1904, when the government of Dr Morales was threatened by a revolt in the area of Puerto Plata. The danger to foreign residence meant the USS Detroit and H.M.S Pallas were forced to land troops and literally create a cordon around the city ordering no fighting to take place within it. Platt, D.C.M., Finance, Trade and Politics in British Foreign Policy: 1815 – 1914, (Oxford, 1968), p.321.

[32] Gallagher, J. and Robinson, R., 'The Imperialism of Free Trade', EHR, (1953), p.9.

[33] Platt, D.C.M., Finance, Trade and Politics in British Foreign Policy: 1815 – 1914, (Oxford, 1968), p. 319.

[34] Platt, D.C.M., Latin America and British Trade 1806 – 1914, (London, 1972), pp. 78 – 79.

[35] Mathew, W. M., 'The Imperialism of Free Trade', EHR, (1961), pp.567 – 568.

[36] James, L., The Rise and Fall of the British Empire, (London, 2001), p.269.

[37] Even Gladstone had a personal stake in the country, with 37% of his portfolio bound up in the country. Cain, P.J and Hopkins, A.G., British Imperialism, (London, 1993), pp.364 – 365.

[38] Ferguson, N., The Cash Nexus, (New York, 2000), p.280.

[39] Hobson, J.A, Imperialism, (London, 1961) , p.46.

[40] Economist, July 1876.

 

[41] James, L., The Rise and Fall of the British Empire, (London, 2001), p.271.

[42] Mclean, D., 'Finance and "Informal Empire" before the First World War', EHR, Volume 29, (1976), pp. 292.

[43] According to Milner, 'the flame of anarchy spread too fast for the slow movements of diplomacy.' As a result the stoic British were dragged into the Egyptian 'imbroglio' as the French 'shirked at the last moment and left us to settle the whole matter alone.' Milner in Hopkins, A.G., 'The Victorians and Africa: A Reconsideration of the Occupation of Egypt, 1882', Journal of African History, Volume 27, (1986), p.367.

 

[44] Ferguson, N., The Cash Nexus, (New York, 2000), p.278.

[45] James, L., The Rise and Fall of the British Empire, (London, 2001), p.271.

[46] Cain, P.J and Hopkins, A.G., British Imperialism, Second Edition, (London, 2001)

[47] Cain in Porter, A. (ed.), Oxford History of the British Empire, Volume II: The Nineteenth Century, (Oxford, 1999), p.43.


Appendices