The striking expansion of Britain's geostrategic commitments and of its spheres of influence, occupation and rule had a less visible counterpart. There was at the same time a great widening and thickening of the web of commercial relations between Britain and many other parts of the world. This ‘commercial republic’1 centred on the City of London, became one of the vital constituents of the British world-system that the late Victorians erected on its mid-Victorian foundations. Indeed, there was an obvious link between its extraordinary growth and the comparative ease with which the British world-system survived the stresses of geopolitical change after the mid-1870s. Britain's prosperity appeared to rise in direct proportion to the scale of its overseas trade and the increase of its invisible income. Income tax, estate duty, excise and postal receipts increased government revenues by nearly 50 per cent between 1870 and 1897.2 The favourable balance of payments (largely the product of invisible income) kept sterling strong and replenished the sources of investment abroad. The stream of outward-bound wealth, greasing and fuelling overseas commercial connections, was a powerful addition to British world influence. It secured Britain's claims on a huge range of assets, most of them safely remote from the great powers in Europe. It helped to sustain the flow of migration, Britain's demographic imperialism. Last, but not least, it preserved Britain's lead in communications technology, especially the telegraph and undersea cables that made London (and Britain) the information hub of the world.

But Britain's position in the new world economy could not be taken for granted. It required adaptations of practice and outlook that were just as far-reaching as those that tested political nerves in Whitehall and Westminster. The scale of commercial activity as ‘new regions’ were drawn into the ‘high-pressure zone’ of the Atlantic economy; the intricate network of multilateral payments on which trade growth depended; the demand for finance, both credit and capital; and the competitive threat posed by new industrial producers: all posed new challenges to the commercial apparatus that the mid-Victorians had fashioned.

The most obvious difficulties arose from the struggle to enter new hinterlands, open new markets and create new commodity trades. Exploiting ‘new’ lands and their productive capacity, and bringing their produce to market more cheaply than a generation before, were the great driving forces behind the late-century expansion of trade. But they required a huge effort to pay for new systems of transport and maintain the momentum of technological change. That meant the mobilisation of capital in ever increasing amounts, and finding the means to transfer it cheaply and quickly between regions, sectors and firms. It meant devising the tactics and recruiting the men that were required to drive deeper into previously closed or self-sufficient economies, sometimes against the determined resistance of entrenched local interests. It increased the importance of managing two kinds of risk: the political risk that an obstructive, enfeebled or hostile regime would frustrate or despoil a foreign-owned enterprise; and the financial risk that those who had borrowed – on public or private account – would simply default. There was also the threat, widely discussed in the 1870s and after, that large parts of the world beyond Europe would be walled off by tariffs – an economic partition to match the diplomatic division of spheres in Southeast Asia and Africa, and (as seemed increasingly likely) the Near East and China.

These actual or possible barriers to trade were a forceful reminder that success in the new global economy depended on being able to meet the transaction costs it imposed. As Douglass North pointed out, in modern large-scale economies, the costs of coordinating productive activity usually exceed the cost of production itself.3 Settling the terms of exchange for different commodities, grading their quality, and securing the claims to property rights over them (a complex operation in tradeable goods) were elaborate tasks. The long train of agents that brought products to market, and then to the consumer, cost time and effort to manage. The key to success was commercial intelligence. ‘Information’, remarked one profound economic observer, ‘is one of the principal commodities that the economic organisation is engaged in supplying.’4 The risks and transaction costs of global trade and investment were lowest where (more or less) reliable information was cheap and accessible. Their burden was lightest where commercial institutions responded most quickly to new products, new markets, new forms of exchange and the need for new kinds of investment. It was here that London's long lead as the world's principal entrepot conferred a crucial advantage. It was why it became the headquarters of the new global economy. No other port city enjoyed the double advantage of lying so close to such densely used sea-lanes, while being the capital of a wealthy state and the centre of its internal communications. No other port-city was the political centre for so many dependencies, or formed the arena where so many lobbies – imperial and colonial – contended for backers or paraded their claims. The benefits accruing to Britain were huge. Yet, as we shall see, there was no simple equation between the interests of the City with its web of commercial relations and those of British imperial power. In theory at least, the power that the City enjoyed sprang not from authority but from the leverage conferred by the need for its services, and the economic reciprocities it had helped to create. But one of the critical questions was how far the commercial republic really depended upon its ‘imperial alliance’; and whether its rapid acquisition of a huge property empire, and the income drawn from it, now made it a hostage to geopolitical fortune.

The mercantile cosmopolis

British economic success in the late nineteenth century rode on the back of the colossal growth in world trade whose value increased tenfold between 1850 and 1913. British enterprise was still better placed than any competitor to promote this expansion of trade and profit from it. Technology (especially the application of steam power), capital (accumulated from industrial and commercial success), institutions (already developed to serve a highly integrated industrial and commercial economy) and personnel (both commercial and technical) equipped it to exploit overseas opportunities all over the world. This was particularly true of the building of infrastructure on which much British effort was concentrated. Railways were the key to opening up hinterlands without access to navigable water, dragging them from subsistence into commercial production. The world's railway mileage rose from 66,000 in 1860 to 465,000 in 1910 (and 674,000 in 1920).5 Shipping tonnage more than doubled in the same period (and travelled more rapidly). Telegraph cables lengthened from approximately 8,000 miles in 1872 to reach 325,000 miles by 1922. British interests owned, managed or controlled all these enterprises on a grand scale: the vast proportion of railways outside the United States and Continental Europe and some 40% of registered shipping by the early twentieth century. By then, 40% of the world's telegraph cables were in the hands of a single British concern, the Eastern Telegraph Company and its associates.6

Trade followed construction. Building railways overseas required locomotives, rolling stock and iron rails. New customers appeared as commercial production extended. The demand for British exports rose on both accounts. It was true that, as new industrial competitors arose in Germany and the United States, Britain's share of the world's manufactured exports drifted down from 38% in 1880 to 30% in 1913.7 More generally, Britain's share of world trade fell from 25% in 1860 to 20% in 1900 and 17% by 1913.8But these figures disguised a large absolute rise in the value of British exports and a remarkable increase in the share of Britain's total production that they represented. In 1856, the ratio of exports to gross domestic product had been 14.6%. By 1873, it had reached 18.3%. In 1913 it was 25%.9 British imports also grew rapidly as dependence upon foreign food supplies became greater and greater. Indeed, the imbalance between exports and imports widened steadily after 1880 despite the falling cost of food and many raw materials from an average of around £97 million in 1880–9 to £160 million after 1900.10 In production and consumption Britain had become more dependent upon international trade and more international in outlook than ever before. Free-trade capitalism had reached its highest stage.

But the most spectacular change was the extent to which British-based interests profited from the surging growth of international trade and the scale on which they acquired assets abroad. A huge proportion of the world's trade passed through London by the early twentieth century, not so much physically but rather in all the commercial and financial operations that international commerce required: ship-broking; insurance; the grading of products; and sale. Sterling was the currency of trade, and the ‘bill on London’ the usual (because most convenient) form of payment. By 1913–14, 60 per cent of bills on London were for transactions entirely between foreign buyers and sellers.11 London was the world centre for commercial information, the listening post for commercial opportunities in every continent. London prices were, for most goods, the world's prices. Not surprisingly, British companies took the lead in providing the information and services that world trade needed, especially in shipping and insurance. Despite the huge fall in the cost of seaborne freight (by some 50 per cent between 1870 and 191312), the income from these ‘invisible’ exports rose steadily from £80 million a year to nearly £170 million by 1913.13 Large as this figure was, more than covering the trade gap, it was outstripped by the income drawn from assets built up abroad.

A marked tendency to invest overseas was already visible before 1880. Partly it arose as British merchants mobilised capital at home to create the kind of ‘fixed’ assets – like docks or warehouses – that would expand their business on the spot. British lenders, who readily bought government bonds (‘consols’) at home, also willingly placed money in the bonds issued by foreign states. A disinclination to risk savings in domestic commercial ventures, and the low level of government borrowing at home after mid-century, drove the surplus incomes of the wealthy abroad. The major impetus came from the construction of railways overseas, which, unlike most commercial or industrial ventures, required a very large immediate investment before any return was forthcoming. British confidence in railway technology, the early development in Britain of a market in railway shares and the prominent role of British railway contractors overseas combined to make this an especially attractive outlet for surplus British funds. As the international railway boom developed in the 1870s, a huge stream of British capital flowed abroad. Between 1870 and 1913, British investment in Indian, colonial and foreign railway companies rose fivefold to £1.5 billion – around 40 per cent of all British overseas investment. There was a similar rise in the sums invested in government bonds (both inside and outside the Empire) – often to fund state railway construction or other kinds of infrastructure. By 1913, a third category of foreign investment was growing even faster: overseas companies controlling utilities (like gas- or waterworks), banks, real estate, mines and plantations, but rarely industry.14 The result was an overall increase in the value of Britain's assets abroad from under £1,000 million in the early 1870s to around £2,000 million by 1900, and £4,000 million by 1913.15 Almost all of this was placed outside Europe and 44 per cent of the world total of foreign investment was in British hands.16 Altogether these overseas assets produced an income worth more than one-fifth of all Britain's overseas earnings.17 They made up some 34 per cent of all British assets at home and abroad. A forward glance will reveal the true scale of this astonishing mountain of wealth. By 1937, the effects of war loss and depression had driven that proportion down to 18 per cent and by 1973 to 3 per cent.18 In 1990, British overseas investment, having staged a major recovery, reached the impressive figure of £100 billion. But, measured against the overall rise of Britain's assets, this was no more than one-seventh of its value in 1913.19

The head and centre of this far-reaching financial and commercial activity was the City of London. Essentially, the City was a cluster of markets attracting buyers and sellers from all parts of the world. Some of these markets were organised as ‘exchanges’ like the Wool Exchange (established in 1875), the London Metal Exchange (1882), the Baltic Exchange (dealing in grain) and the Coal Exchange. Mincing Lane was the market for commodities like sugar, cocoa, coffee and spices, with regular auctions at its sale rooms. A large number of City firms dealt in the import or re-export of commodities, sometimes for immediate sale, sometimes as options or ‘futures’. Many tended to specialise by country or type of produce, and one entirely in the import of hair.20 Because the commodity trades usually required the advance of credit to faraway producers, and because of the lapse of time before the harvest came to market, the dealers in London were also lenders.21 They, in turn, required the services of specialised finance houses, ‘accepting houses’ or merchant banks, who could tap the reservoirs of short-term borrowing drawn to the City from bank deposits throughout the country. The merchant banks, headed by the great houses like Rothschilds, Barings (the ‘sixth great power’ until its crash of 1890),22 J. P. Morgan, Kleinworts and Schroders, but including many that were far smaller and more specialised, lent money on their own account but were usually the agents through whom large loans or an issue of securities were negotiated by public or private borrowers. Including the Bank of England and the joint stock banks catering for the ordinary public, they made up the ‘Inner City’ of high finance.23 London was also the headquarters of more than forty British-owned overseas banks like the Bank of London and the River Plate or the Chartered Bank of India, Australia and China, with branches in Bombay, Calcutta, Rangoon, Singapore, Hong Kong, Shanghai, Manila and Batavia (modern Jakarta). By 1900, banking had become increasingly cosmopolitan and British banks faced competition

Map 6 British foreign investment to 1914

from foreign banks in London serving the commercial needs of their own traders.

But the most dynamic element in the commercial life of the late-Victorian City was the Stock Exchange.24 Until mid-century it had been largely concerned with the sale of government bonds. Thereafter, railway shares and loans to foreign states rapidly widened its business. In the 1880s and 1890s, expansion was frantic. Membership (the entitlement to deal) grew from 1,400 (1871) to over 5,500 by 1905. By the early 1900s, one-third of all quoted securities around the world were traded in London and around 60 per cent of the Stock Exchange's share listings were for overseas enterprises.25 In the search for capital, most roads led to London. The Exchange itself was informally divided into sections including Consols; the ‘Yankee’ market (American railways); Home rails; and, in the 1890s, the ‘Kaffir Circus’ for South African gold shares. Stockbrokers developed specialist expertise in lines of business or regions. In 1898, the Stock Exchange Year Book listed over 650 railway companies, a large proportion of them overseas; more than 1,000 firms engaged in mining or ‘exploration’; and several thousand loosely described as ‘investment, trust and finance’ – a category which included Cecil Rhodes’ ‘British South Africa Company’ with its private empire north of the Limpopo. As the communications revolution seemed to throw open more and more commercial opportunities in the non-European world, and distant prospects were gilded by gold discoveries on the Rand, in Australia and at the Yukon, the Stock Exchange became the great arena where private savings were mobilised for investment overseas. Circling round it were the ubiquitous company promoters, scrupulous or predatory, whose role was to convert a commercial idea into a marketable security. Their skill in the ‘financial arts’, remarked the radical economist J. A. Hobson, was often exercised to ‘scoop out’ the real assets of an enterprise while selling on its ‘shrivelled carcase’ to a bamboozled public.26

Proximity to the Stock Exchange and merchant banks, and access to the flows of market information was the reason why many British-owned overseas firms based themselves in the City. This was especially true of overseas railway companies with their constant thirst for new capital. Finsbury Circus was the favoured address of British-owned Argentine rails like the Buenos Aires Great Southern or the Oeste. Similar needs made the City the world headquarters for mining enterprise.27 Large shipowners like Cunard, British India, Peninsular and Oriental and Shaw Savill (trading to Australasia) were drawn to London by its ship-chartering market. London was the principal centre for insurance. Railway, mining and shipping enterprise also required the services of non-financial expertise: consulting engineers and other technical specialists. In short, there was scarcely any large commercial or financial venture linking Britain (and much of Continental Europe) to the ‘new economies’ of the wider world that, in one aspect or many, did not pass through a London agent. In a vast swathe of the world outside Europe and the United States, commercial development and even financial solvency turned upon decisions made in the City. Here was a plenitude of influence that matched that of Whitehall and Westminster, the political capital of the British system.

Indeed, the great commercial and financial emporium centred on London (with the lesser marts of Liverpool and Glasgow) was more than just an adjunct to British world power. It was the great cosmopolitan intermediary between the British domestic economy and the outside world. It might almost be seen as an autonomous partner attached to the British world-system by sentiment, self-interest and domicile, but largely indifferent to the strategic or administrative preoccupations of its political managers – except where they impinged directly on its economic prospects. It had grown up willy-nilly over the remains of the old mercantile system liquidated after 1846. Its well-being was acknowledged as a vital national interest. Its leaders and spokesmen periodically emphasised its contribution to British wealth. It shaped powerfully the conception of the British interest in India. It massively – perhaps at times decisively – reinforced the allegiance of the white dominions to their faraway motherland. It was the conduit for the large British investment in the United States, half-rival, half-associate in a world of voracious imperialisms. But the commercial power it exerted was no mere extension of Britain's imperial influence and authority. The managers of the commercial empire, especially the City elite, had wide autonomy and fiercely resisted outside regulation. Their priorities were rarely the same as those of the political and official world at the far end of the Strand. It was true that many bankers were drawn from the same class as the political and administrative elite. But many other interests were represented in the City, and in parts of it capitalism was anything but gentlemanly.28 Even in the most respectable quarters overseas business was carried on with little regard to the ‘national interest’, partly because, with so little inclination to think analytically, such a notion existed only in the haziest form.29

For their part, officials and politicians were inclined to treat the commercial cosmopolis as an allied but not necessarily friendly power. Its independence was warily recognised. But its political judgment was laughed at;30 and its morals widely distrusted. The sensational growth in the wealth and social power concentrated in the City after 1890 aroused alarm as well as satisfaction. On both Left and Right, the appearance of a new City-based ‘plutocracy’ was regarded with deep suspicion.31 On both political wings, the ‘cosmopolitan’ outlook of the financial world was equated with rootlessness, restlessness and the readiness to sacrifice public good for private gain. The cosmopolitan financier, indifferent to any consideration but profit, was the villain in J. A. Hobson's radical unmasking of the hidden forces behind imperial expansion and the South African War. His famous analysis of the export of capital, on which the City prospered, insisted that its social function was to perpetuate poverty and ‘under-consumption’ at home by rewarding the ‘over-saving’ of the rich.32 The Tariff Reformers blamed cosmopolitan indifference to the domestic industrial economy for the hostility of the financial world towards their programme of imperial unity. In his ‘City’ speech in January 1904, Joseph Chamberlain warned his audience not to forget that ‘the future of this country and of the British race lay in our colonies and possessions…the natural buttresses of our Imperial State’.33 His economic expert, W. J. Ashley, gloomily forecast Britain's future as a declining rentier state: ‘the history of Holland is to be repeated.’34

There were other grounds for doubting the congruence of the interests of the City with those of nation or empire. The Barings crisis in 1890 and the American crash in 1907 showed that the City's huge exposure to overseas markets could destabilise the whole financial system. Some observers warned that the speculative manias and fraudulent promotions bred by the Stock Exchange could damage Britain's real interests overseas and unsettle her imperial ties.35 But, down to 1914, this criticism made little headway. Economic orthodoxy proclaimed the unalloyed benefit of a large foreign portfolio and even Leftish opinion came to concede that the City's influence in world affairs was benignly pacific.36 Nor was there yet much sign of conflict between the City's cosmopolitan functions as the owner and manager of a vast property empire outside British sovereignty and its role as the emporium for ‘Imperial’ trade between Britain, the dominions, India and the Crown Colonies. Quite the contrary. London easily mobilised the vast stream of capital that flowed to Canada after 1900. Its multilateral payments system made it much easier for Britain to profit from India's surplus on foreign (i.e. non-Empire) trade, remitted to London as the ‘home charges’.37 Its foreign investments stimulated British production of cotton, ships, locomotives and coal – for bunkering and as the outward freight that made British shipping so widely profitable.38 It made Britain the ‘telegraph exchange of the world’,39 and hence ‘British’ news the most widely circulated. Its vast income stream lifted the social and cultural prestige of the British metropolis to its zenith.40

New frontiers of commerce

In all these ways, the City (with the smaller cosmopolises in Glasgow and Liverpool) was the grand ally of the (formal) Empire. Its own sphere of unofficial or ‘semi-colonial’ expansion was also growing rapidly after 1880. Here it was engaged in turning the sketchy ‘informal empire’ of mid-Victorian times into prosperous new tributaries of its great commercial republic. Four great zones lay at the edge of the ‘developed’ world but beyond the imperial frontier: tropical Africa, the Middle East, China and Latin America.

None of these was wholly unfamiliar to British merchants and lenders, but none had lived up to its early promise. By the 1860s and 1870s they had become much more appealing. In part this was a side-effect of accelerated commercial development elsewhere. As new regions were ‘colonised’ by banks, railways, shippers and brokers, merchant houses scoured remoter neighbourhoods for fresh trades where competition was less harsh and windfall gains more likely.41 Technology was on their side. With the rising volume of long-distance trade, seaborne travel became faster, cheaper and more regular, lowering the start-up costs of merchant enterprise. After 1870, the Suez Canal changed the geography of shipping in the Indian Ocean in Europe's favour. The expanding telegraph network carried the ‘information-head’ of market intelligence into ever deeper hinterlands, reducing business risk. With a weekly steamer service even the mystery and horror of the West African coast was tamed.42 Secondly, merchants and lenders could hope to profit from the increasing readiness of previously conservative, secluded or simply disorganised states to embrace financial and administrative modernisation – sometimes by ‘quick-fixes’ like the Reuter's Concession in Iran where most of the modern commercial sector was handed over (if only briefly) to a single foreign entrepreneur.43 Thirdly, British-based enterprises were well placed in the later nineteenth century to piggy-back on older mercantile pioneers. It was usually local men who first opened the trade paths in ‘backward’ regions, plugging them into larger commercial circuits. But, once their trade was worth the taking, they were often no match for interlopers with cheaper credit, better shipping and vastly superior commercial intelligence of markets and prices. Europeans were sometimes ‘trade-makers’, but they were just as likely to be ‘take-over’ merchants, squeezing out or subordinating older practitioners – nowhere more so than in Africa.44

In principle, this extension of commercial activity ought to have been self-reliant – much more so than in early Victorian times. In the age of contract, the diplomatic glove, let alone the mailed imperial fist, should have been redundant. The momentum of commercial change was greater, its rewards more visible, its necessity more accepted. Businessmen had access to more capital and better information. In the era of the limited company, it was easier to transfer capital to regions promising quicker profits. And, as the tide of economic change lapped higher in the non-Western world, finding local partners should have been as straightforward as squaring ‘progress’-hungry rulers. And, up to a point, it was.

In practice, it was much less clear that, even in its own semi-colonial sphere, the City could dispense with political Empire. There were three reasons for this. In some parts of the semi-colonial world, the limited scope of political institutions threw upon the trader the onus of defending his property and commercial rights by agreement if possible, by force if necessary. Produce, markets and especially labour were prizes for those with the strength to seize and hold them. But, to enforce his ‘contractual’ claims in the face of other foreign interlopers, the trader needed either the protection of his government or a licence (like a charter) to make treaties, levy taxes and dispense ‘justice’. Secondly, there were parts of the extra-European world where foreign trade or investment were concessions in the gift of patrimonial or bureaucratic regimes. Here the merchant existed on sufferance or by favour. His status and prospects depended upon the help of diplomatic intermediaries without whose protection the privileges (freedom from taxation, arrest and bureaucratic harassment) that made his business profitable would lapse. Thirdly, there was the question of how the merchant (or investor) could secure himself against default, when the debtor was also the ruler. As trade and finance moved deeper into the Outer World and their stakes grew higher, these ‘political’ risks loomed large in their calculations.

For a late-Victorian government, however, smoothing the merchant's path and standing guard for the investor were not to be undertaken lightly. Each threatened it with complications, embarrassment and expense. Each laid it open to accusations of favouritism or worse. But, where commercial interests could mobilise wider support or claim some higher purpose, they were not so easily brushed aside. They might even be useful to some diplomatic ploy. The result was a frontier of commercial expansion in which the role of government varied between a maximum (annexation) and a minimum (diplomatic inertia). It was a revealing irony that annexation was most likely where local and international conditions made it easiest, not where its economic dividend looked most promising.

British business in Africa

Tropical Africa represented the extreme case. Here was a vast region between the Sahara and South Africa where British (and other European) traders had scarcely ventured beyond the West African coast. Access to the hinterland was barred by physical obstacles or the obstruction of suspicious ‘middlemen’; there were no modern states to lend to nor landed property to mortgage; and commercial information about the interior was often, literally, at the exploratory stage. Even more daunting, perhaps, was the fact that, in the 1880s and 1890s, tropical Africa's commodities – such as they were – were of marginal interest to industrialising Europe, and the principal commercial export, palm-oil from West Africa, sank to its lowest price level in that period.45 Indeed, tropical Africa had a declining share in the trade of an expanding world economy. Yet none of this deterred British entrepreneurs from striking into the interior to carve new business empires out of the African bush.

This paradox, and Africa's subjection to a diplomatic rather than a commercial partition, have led some writers to argue that the motive for commercial activity was only superficially economic, or better described as ‘meta-economic’ – driven less by hope of commercial gain than by a vision of how Africa should be fitted for a commercial future.46 But there was no doubt that those who launched new business ventures into Africa were eager for profits and needed them to attract both capital and publicity. The peculiarity of tropical Africa lay in the harshness of its physical and commercial environment away from the beachheads where Europeans had sheltered hitherto. It was no coincidence that military drop-outs, imperial visionaries, down-at-heel aristocrats and redundant explorers found a berth in African commerce. Nor that the projects for exploiting the interior needed to appeal to a broader constituency of investors in Britain – those who wanted an ‘ethical’ investment to spread the Gospel and stamp out the slave trade as well as those who gambled on a lucky strike. For a century past, British opinion had regarded Africa as an object of charity and as an Aladdin's cave.

In the last quarter of the nineteenth century, British enterprise entered the African interior by three different routes: from South Africa, from India and from Europe. In West Africa, there was a direct connection from Britain to the ‘Coast’ – a vast maritime zone stretching from Sierra Leone to the Congo. British commerce was most active on the Gold Coast, at Lagos – the gateway to the Yoruba states – and at the Niger delta, the so-called ‘Oil Rivers’, where the palm-oil trade was concentrated.47 In 1841 and again in 1858–64, the British government had supported attempts to open the Lower Niger as far as the Benue confluence at Lokoja as part of its anti-slave-trade policy.48 Both efforts had failed, and, apart from a consular ‘presence’ (as consul in West Africa 1861–3, Richard Burton had made the offshore island of Fernando Po his base) and a periodic gunboat, the British oil traders at the Niger mouth carried on their business under the skimpiest kind of informal empire.49

The new departure of the 1880s seems to have sprung less from hopes of commercial expansion than from fears of collapse. Between 1876 and 1881 the price of palm oil fell by more than 16 per cent and was to fall further.50 To protect their position, four of the oil companies trading up-river merged to form the United Africa Company in 1879. The architect of the merger was George Goldie (1846–1925), a failed soldier without obvious talents or prospects.51 Goldie came from a gentry family on the Isle of Man with family interests in one of the merged companies. A visit to West Africa in 1877–8 had suggested how the oil traders’ difficulties could be solved. Goldie revived the old idea of opening the Niger as a thoroughfare for direct trade with the Hausa emirates upstream, cutting out the African middlemen who skimmed the profits. It was obvious enough that this was beyond the means of four struggling companies, amalgamated or not. Goldie's solution was ingenious. In 1881, he reorganised the company on a grand scale as the ‘National African Company’ with a nominal capital of £1 million (far in excess of its modest assets) and offices in Ludgate Hill. He recruited as directors a reputable private banker from the City, a major cotton merchant from Manchester with West African interests (James Hutton) and, as chairman, Lord Aberdare, a former minister, a confidant of Gladstone and president of the Royal Geographical Society. Goldie's real purpose was to obtain a charter for his company, and transform it from a frail commercial bark into an armoured cruiser. A charter from the imperial government would entitle his company to act as its agent in the Niger interior. It would give him the right to acquire territory, levy taxes and maintain a private army to enforce the company's rights. Events played into Goldie's hands. By the early 1880s, the Gladstone government was so alarmed that a French occupation of the Niger would drive out British trade that it reinforced its consular supervision and then, in 1885, declared its own protectorate in the Niger delta. Granting a charter to the importunate Goldie and his influential friends in 1886 solved the tiresome problem of how to pay for this unprepossessing imperial annex.

Goldie's genius was to turn a rickety British enterprise into an Afro-European hybrid, well adapted to its frontier habitat. Behind its European mask, the Company was a modern-day forest kingdom, ruling the trade paths like Ashanti or Dahomey. It gathered treaties and cessions from African rulers in the Niger hinterland and diverted the interior trade into its own forts, factories and steamers. The charter strictly forbade monopoly, but this was a dead letter.52 As a result, Goldie's relations with the independent Liverpool companies still trading in the Delta through African middlemen were bitter. With the middlemen themselves, the Company was virtually at war. By the early 1890s, under growing pressure from French and German competitors, the Company became even more openly a crudely organised state, conducting private diplomacy, waging private war, levying private taxes and paying its way through a commercial monopoly backed by force. It was a risky, but successful, formula. Except for 1886–8, the Company paid a steady dividend, often well over 6 per cent53 and attracted many small shareholders.54 By 1894, it had bought out the remaining Liverpool traders on the river (though not in the Delta). But its main achievement was to turn its ramshackle collection of claims and treaties into an ‘asset’ which the imperial government dared not renounce.

Goldie achieved this through careful politicking and a ruthless publicity campaign. He recruited Frederick Lugard, a half-pay officer lionised for his exploits against Arab slave traders in East Africa. Lugard was a brilliant publicist. Within a few months in 1895–6 he published thirteen major articles reciting British claims, interests and achievements in tropical Africa.55The Times came to Goldie's aid. Goldie himself rushed out to lead the fight against the Company's toughest African enemies. As the West African competition grew fiercer, Chamberlain sought the Company's help to drive the French from the hinterlands of Lagos Colony and the Gold Coast while the Company's own military weakness became more and more glaring.56 By 1898, both the French and British governments were eager to settle the local feud in the Niger valley for fear of its wider repercussions. As Goldie had long realised, an imperial partition in West Africa meant that he would have to be bought out, to appease the French, the ‘colonial’ interest in Lagos (whose black merchants reciprocated his hatred) and Liverpool. The pay-out was a bonanza: at £865,000 nearly three times the Company's real assets. The Company lost its charter and its royal prefix and reverted to lawful trade.

In East Africa, the impetus behind British commercial activity came not from London or Liverpool but from India. With the cutting of the Suez Canal and the new short steamship route between Europe and India, opening up ‘branch lines’ into the Persian Gulf and East Africa became much more attractive. The pioneers of this new trade were Mackinnon Mackenzie, a British merchant house based in Calcutta. Its senior partner, William Mackinnon (1823–93) was now manager of the shipping line British India and keen to extend its business into new ports and hinterlands. His partner, George Mackenzie, spent several years reconnoitring the commercial prospects of the Persian Gulf.57 In the 1870s, Mackinnon had tried to lease a stretch of the East African mainland opposite Zanzibar as a bridgehead for a new business empire.58

This came to nothing, but Mackinnon's choice had not been accidental. Zanzibar was already part of an Indo-Arab trading world and Indians were well established as merchants and moneyed men on the East African coast. Zanzibar itself had long been considered part of British India's sphere of influence. By the mid-nineteenth century, its merchants had built a commercial system that linked together the huge country between the Zambezi, the Great Lakes and the Indian Ocean at a time when European traders were barely in evidence. Zanzibar became a great emporium for ivory and the entrepot of the whole coast. Here was a goose ripe for plucking. Secondly, after Stanley's epic trans-African journey in 1874–7, much more was known about the undeveloped wealth of the lacustrine interior and Uganda, which Stanley described as the ‘pearl of Africa’. Thirdly, Mackinnon, like many other Scottish merchants, was deeply affected by Livingstone's call for the reclaiming of Africa by commerce and Christianity at his famous Cambridge lecture in 1857.59

Livingstone's death and burial in 1874 in Westminster Abbey (a measure of his saintly status) was the trigger for a new effort to plant a large missionary centre, ‘Livingstonia’, on Lake Nyasa, where slave-raiding was at its most intense. Mackinnon was heavily committed to the African Lakes Company, set up in 1878 to support the mission project. But his own plans for commercial philanthropy stalled until the German ‘occupation’ of East Africa in 1885 transformed the politics of the East Coast. With the large inland sphere conceded (for Egyptian reasons) by London in 1886, it was obvious to the British consul in Zanzibar (and even more to the Sultan) that the island state was doomed to commercial strangulation and a gradual slide into German control. So Mackinnon revived his scheme for a coastal lease, this time with the Sultan's support, and formed his East African Association to bring the Ugandan pearl to market.

Mackinnon's scheme was ambitious and attracted some heavyweight support. Among his directors were Goldie's friends, James Hutton and Lord Aberdare. There were two ex-consuls and a brace of generals. There was Lord Brassey, the greatest railway contractor of the age. Reborn as the Imperial British East Africa Company, the Association gained its royal charter on the nod in 1887. With its mainland lease, and its right to tax, make treaties and acquire territory, it seemed the perfect commercial vehicle to carve out an informal empire north and west of the German sphere. Uganda would be ruled in all but name from its office in Pall Mall. When German competition threatened its Uganda hinterland, it successfully pressurised a sceptical Salisbury into demanding its inclusion in the new British sphere in East Africa agreed with Germany in 1890. When Salisbury wavered, Mackinnon and his fellow directors threatened to resign and close the Company down.60 In reality, the Company's position was desperately fragile. Its capital was modest – only £250,000 had been subscribed. Its outgoings were heavy. Worst of all, unlike Goldie's company, there was no established trade to divert and no convenient route to the interior. Uganda lay three months’ walk away over a dangerous path skirting the warlike Masai and Kikuyu. Stanley told Mackinnon that he would need 500 men and a railway. Salisbury and his man on the spot, Gerald Portal, thought the Company a shambles and Mackinnon a dilettante.61

The result was a fiasco for which company and government blamed each other. With the Barings crash in 1890, no more capital could be gleaned in London, and the Company faced bankruptcy. It abandoned hope of a private empire by Lake Victoria: only a government take-over could supply the political infrastructure needed for its commercial and philanthropic aims. After a bitter Cabinet struggle, a publicity campaign in which Lugard and Stanley were prominent, and a face-saving mission of inquiry, Uganda was annexed in 1894 and ‘British East Africa’ (modern Kenya) in 1895. Like Goldie, the East Africa Company's backers had successfully exploited public anxiety (about the fate of Christian missionaries and their converts) to goad the government into a forward policy. Like Goldie, they were helped by its grudging recognition that an administrative take-over was the only answer to the runaway competition of traders, missionaries and soldiers whose well-publicised jostling might derail their diplomacy in Europe and the Mediterranean. Unlike Goldie, however, Mackinnon's group profited little from the government buy-out. They were paid off with half of their costs, mostly at Zanzibar's expense.62

In the classic case of the African Scramble, private imperialists with their commercial roots in London, Liverpool, Glasgow or India were usually at cross-purposes with the agents of official policy. In West and East Africa, the chartered companies were meant to limit imperial liability while protecting a commercial interest. In both cases, they proved more successful at increasing the liability than in guarding the interest. Both were as much political as commercial enterprises whose ‘virtual’ assets could only be realised if the transaction costs of external protection were transferred to the imperial government. It was the peculiarity of tropical Africa in the 1890s that the technical, administrative and financial cost of transfer was so low; the mobilisation of public interest sufficient; and the diplomatic argument so pressing: conditions which favoured a sudden, swift and complete partition. Only in Southern Africa was private imperialism strong enough to resist the imperial take-over, build a state – and start a war.63

The Middle East and East Asia

In the Middle East and China, commercial conditions were quite different. Here, where three old empires struggled to modernise, diplomatic rivalry was intensified by the prospect of their collapse and partition. In Turkey and China, profit from trade was outshone by the lure of investment in government loans secured on state revenues or the grant of concessions for railways or other enterprises. Merchants and investors were forced to depend upon the mediation of diplomats who had an entree to the inner bureaucratic world where such transactions were finalised. Nor, in the cockpit atmosphere of great power diplomacy, could they impose their commercial claims where these conflicted with the interests of strategy or prestige.

The Middle East was particularly risk-laden. By 1880, both the Ottoman Empire and Egypt (its autonomous tributary) were bankrupt and their politics in crisis. The Ottoman government had lost some of its most valuable provinces in the treaty of 1878. In 1881, after six years of default, a new loan regime was created to regulate its borrowing under international supervision and repay the bondholders. The ‘Ottoman Public Debt Administration’ and its foreign managers controlled a large part of Turkey's public revenues, and directed to all intents its public investment. But, despite their previous interest in Ottoman bonds, British investors played a much smaller role in financing Turkey's new-style public debt than their counterparts in France where more than half the total was held by 1913.64 The commercial promise of the Anatolian hinterland – the scene of numerous railway schemes in the 1890s – was meagre compared with that of the Americas or South Africa. Worst of all, British lenders faced fierce competition from French and German banks represented on the Debt Administration. Success required furious diplomatic lobbying since the allocation of loans and the concessions they brought with them were a barometer of great-power influence at the Ottoman court. While the Foreign Office was keen to encourage British investment as a diplomatic instrument, the need to reach an accommodation with France or Germany made it an unreliable champion of the City's interests at the best of times.65

Egypt was a special case. Before the bankruptcy of 1876, it was the most dynamic zone on the European periphery, attracting trade and investment by the speed with which its great programme of public works was extending the cotton production of the Nile delta. The Suez Canal, the engineering marvel of its day, symbolised the importance to the international economy of Egypt's openness to foreign interests and influences.66 The eagerness with which the landholding elite responded to new commercial opportunities contrasted favourably with much of Afro-Asia.67 But the long crisis that followed default, and reached a climax in the revolution of 1881, threatened this steady transformation of Egypt into a satellite economy of Europe. Whatever its constitutional programme, Arabi's following, the ’Urabiya, drew upon widespread popular resentment against European artisans, merchants and landowners.68 The outcry of this ‘semi-colonial’ community was amplified by the press and the local agents of the British government. It contributed, as we have seen, to London's belief that a xenophobic Islamist movement was about to roll up British interests: economic, political and strategic.

With the ‘temporary occupation’ of 1882 and its tacit prolongation by 1890 into the indefinite future, Egypt was drawn more firmly than any other part of the Middle East into Britain's commercial orbit. The British dared not annex, and they were forced to respect the clumsy international machinery of the Caisse de la Dette, Cairo's version of the Ottoman Public Debt Administration. But, as the real (if hidden) force in the Egyptian government after 1883, the British consul-general Evelyn Baring (Lord Cromer) shaped a financial regime that turned Egypt into a pocket India.69Free trade, public works and an ironclad guarantee against default made it a happy hunting ground for banks and land companies financed in London. By 1897, 11 per cent of Egypt's cultivable land was owned by foreign nationals, with heavy concentration in the Delta provinces.70 But the existence of this quasi-colonial regime can only partly explain the £66 million of British capital invested by 1914.71 The exceptional growth of cotton output and the fertility of new lands reclaimed for cultivation made Egypt the richest and most productive economy in the Middle East.72

In Egypt, British commercial interests benefited from official London's determination to exclude rival powers from the Nile Valley after 1882 and from Britain's ability, at considerable diplomatic cost, to maintain a monopoly of influence in Cairo. Commerce and empire were in harmony. In China, the commercial and diplomatic interests interlocked quite differently. Here British merchants (like Swires or Jardine Matheson) dominated foreign trade by 1880. But progress in tapping the vast hinterland behind the treaty-ports had been slow. Exportable commodities were sparse. With a population larger than India's, China took only 8 per cent of Britain's cotton exports (in 1896) to India's 27 per cent. The result was an involution of the trading frontier back towards the treaty-ports as the large British firms diversified into services like banking, shipping and utilities.73British visitors were inclined to blame a treaty-port culture of sloth and complacency. The intrepid Isabella Bird demanded more ‘capital, push, a preference for business over athletics, a working knowledge of the Chinese language and business methods and a determination to succeed’.74 But, marooned at the edge of a vast non-Western world, British traders needed more than the spirit of enterprise to transform their economic environment. Less ambitious men hoped for the reform of China's pre-modern currency and the abolition of internal tariffs, the likin. But the real challenge was to persuade the Chinese authorities to sanction a railway programme: the one sure instrument of commercial progress.

The 1890s brought a breakthrough, or so it seemed. China's shock defeat by Japan in 1895 brought a new urge to ‘self-strengthen’, and a new need for loans.75 The difficulty was that, as in the Ottoman Empire, the allocation of loans, and the concessions that went with them, was bound up with speculation about a future partition. A loan might become a mortgage on the property of a bankrupt. To negotiate a loan under these conditions required forceful diplomacy at Peking, as much as commercial intelligence in Shanghai or financial backing in London. To British commercial interests on the spot, it was obvious that any reasonable allocation should reflect their pre-eminence. ‘Our true heritage in Asia is all Southeastern Asia up to the Yangtse valley’, wrote the Timescorrespondent in Peking to J. O. P. Bland, who was to play a leading role in pressing for railway concessions.76 China was now ripe for modernisation under British guidance, urged the young Charles Addis, the rising star of the Hong Kong and Shanghai Bank.77

But, as we have seen, official London was reluctant to risk the diplomatic confrontations to which the aggressive pursuit of British commercial interests might lead. The Hong Kong Bank was encouraged to arrange separate spheres of concession-hunting with the Deutsche Bank. An agreement was reached with Russia in 1899 to refuse official support for British concession-seekers in Manchuria in return for Russian self-denial in the Yangtse. Peking was persuaded to grant a fistful of railway concessions in 1898 to match those granted to Russia and France.78 But a concession was one thing; transforming it into a finished railway quite another. That required constant diplomatic pressure on the Chinese authorities. With the outbreak of the South African War in October 1899, followed by the Boxer Rebellion in 1900, it became harder and harder to drive the concessions through the provincial bureaucracies whose cooperation was essential. To Bland, who aspired to be the Chinese Rhodes, the solution was obvious. ‘Either we must adopt the methods of our successful competitors or go under…[T]he Russians pay their Chinese friends well to block our roads.’ What was needed was ‘a Government institution like the Russian Bank which should engineer commercial and financial undertakings’, and a candid recognition ‘that the obtaining of a concession in China meant certain payments to the officials concerned’.79 But, as he constantly complained, there was no diplomatic will in London for this or for the negotiation of railway zones in which the concessionaires would have security against the interference of the provincial authorities.80 By 1903, not a mile of line had been laid.81 Nor, though they toyed with the idea at the height of the Boxer Rebellion, would the policy-makers contemplate declaring a Yangtse protectorate – a Chinese Egypt – for which a strong group of China merchants had campaigned,82 to safeguard the prime region of British trade behind Shanghai.

The British government's real decision was to ally itself with the strongest commercial force in China, the Hong Kong and Shanghai Bank. It was a marriage of true convenience. The Bank was an exchange bank, an investment bank and a bank of issue, as well as being Whitehall's financial agent in China.83 It transacted business throughout China and hoped for more. It had no interest in a policy of spheres, still less in a Yangtse protectorate.84 It was anxious for good relations with the Chinese government, not least because any loans it might float would have to be secured on its revenues and not on those of the provinces.85 It was also well placed to dominate the international banking consortia which official London favoured as the instrument of development without spheres. With the Bank on its side, Whitehall could fend off complaints from the City and claim plausibly to be defending Britain's commercial stake in China. The Bank in return gained official support against its rivals in London and its critics among the British community in China.

The results were mixed. The defeat of the Boxers, the Anglo-Japanese alliance of 1902 and the defeat of Russia in 1905 might have been expected to open the golden age of Anglo-Chinese railway-building. In fact, the City proved reluctant to invest in China. The Foreign Office and the Bank argued over who should be admitted to the loan consortium: after the Entente cordiale of 1904, French participation became a diplomatic necessity.86 In the face of Chinese resistance, there was little prospect by 1908 of enforcing the kind of concession in which foreign interests kept full control over the construction and operation of a railway, as well as its finance. To Bland, that had seemed vital.87 As Peking lost control of its provinces and the ‘rights recovery’ movement gathered pace among the provincial gentry, the grandiose schemes for the opening of China to the trade of the treaty-ports and Hong Kong were quietly shelved. British trade and investment was more rooted than ever within the safe haven of the treaty-ports and diversified there into industry and services. The Bank fell back upon its favoured policy of promoting the international loan consortia through which it hoped to maximise its influence. But, within five years, the Chinese revolution and the outbreak of the First World War changed the political and economic landscape beyond recognition.

Despite the scale of Britain's commercial interests and the expected value of the China market, the modest scope of British action in the crucial decade after 1895 stood in marked contrast to the intervention, partition and annexation favoured in Egypt and Africa. This was not because official policy was inflexibly committed to a united and independent China, as the flirtation with a Yangtse protectorate showed. Nor because British interests were thought strong enough to fend for themselves. In the Chinese interior, that had never been true. The reality was that in China Britain's power was too limited, her unofficial protégés too weak, her international rivals too strong and the Chinese ‘host’ much too resilient for a solution along African or Egyptian lines to be imposed.88 The larger aim of promoting British commercial interests throughout China by official pressure was even more impractical. After 1905, the more perceptive of the China hands recognised that the future lay not in attempts at the colonial subordination of China, still less in partition, but in ‘normalising’ her relations with the West, especially through currency reform, the greatest single barrier to trade.89 European financial cooperation, thought Addis, would be the instrument of modernity.90 It was a banker's dream. But, in the time of troubles that lay ahead, it was a vision to which British leaders would return with almost desperate faith.

Latin America: the swing to the West

Up to 1914 (and long after), foreign-owned business in China remained the step-child of diplomacy or was confined to the shelter of treaty-ports. By contrast, Latin America was a fair field of commercial enterprise, offering exceptionally favourable conditions after 1880 for the growth of a vast business empire pivoted upon London. Latin America was far away from the great geopolitical faultline that ran from Vienna through Constantinople to Teheran and Peking. Latin American states were defective by European standards, but after c.1850 they were far more robust and commerce-friendly than almost anything to be found in tropical Africa.91 There was neither the need nor the opportunity to engage in the costly privatised state-building to which Goldie, Mackinnon and Rhodes had resorted. Nor was there a great imperial bureaucracy, like that in China, to confine the commercial intruder to a coastal enclave. Latin American elites, far from resisting a disruptive alien culture, eagerly embraced European models of ‘order and progress’ and identified with Europe's colonising drive elsewhere in the world. They saw themselves as the vanguard of civilisation among their benighted countrymen, especially where those countrymen were Indian or black.92 Amid the enthusiasm with which they opened their economies to the outside world, the clumsy apparatus of semi-colonialism erected in China would have been an absurd irrelevance.

Three other circumstances shaped the economic connection between Britain and Latin America. No Latin American state in 1880 remotely compared with the United States in population, accessible resources, commercial infrastructure or industrial development. There was neither the means nor the will to challenge Britain's financial, commercial and industrial superiority by building a manufacturing base behind tariff walls. Secondly, Latin America's mineral wealth and its rich zones of tropical, sub-tropical and temperate agriculture promised a huge stream of primary products at the very moment when Europe's urban and industrial transformation was moving into high gear. Finally, Latin American governments, notably in Brazil, Argentina and Uruguay, were now ready to exploit their natural resources with a vast immigrant workforce drawn from the stagnant rural economies of Italy and Spain.

British businessmen were perfectly placed to exploit this dynamic new commercial frontier. They could move out from the old mercantile bridgeheads first occupied during or before the 1820s. They commanded an ample reservoir of commercial credit and a versatile shipping network. They were attuned to the commodity markets in London and well supplied with commercial intelligence. Above all, they enjoyed ready access, through merchant banks and the Stock Exchange, to a stream of capital. Credit, capital and commercial know-how were their supreme comparative advantage for, though none of these was entirely lacking in Latin American economies, local businessmen preferred familiar assets like land or housing to riskier long-term projects subject to the ebb and flow of foreign markets.93 As the Latin American economies were drawn more fully into the web of international trade, their commercial association with Britain grew closer and closer.

The results were impressive. In 1880, Britain exported goods worth some £17 million to Latin America. By 1890, the figure had risen to nearly £29 million, and had surged past £50 million by 1910.94 By that date, British purchases had grown even faster to exceed £70 million. By the eve of the First World War, around 10 per cent of British trade was with the Latin American states. But much more striking than the growth of trade was the astronomical rise in British investment. In 1875, when Latin American borrowing was already under way, the total had been £175 million. Thirty years later, it had increased fourfold, and by 1913 stood at nearly £1,200 million95 (these figures must be treated as orders of magnitude since the amount of private investment, as opposed to quoted securities is necessarily conjectural). By 1913, two-thirds of that total was invested in enterprises rather than government bonds (the reverse had been true in 1885). Perhaps half of all British investment was in railways, and there were British-owned railways in every South American country and in Mexico, Guatemala and Costa Rica. More British capital was poured into docks, harbours, tramways and utilities to serve the booming cities, including Buenos Aires, the ‘Paris of the southern hemisphere’.96‘Nowhere in the world’, remarked James Bryce of Buenos Aires, ‘does one feel a stronger sense of exuberant wealth.’97 In this benign environment, British businessmen like the Johnston family in Brazil,98 the banker George Wilkinson Drabble in Argentina,99Colonel North, the ‘nitrate king’, in Chile100 and the great contractor Weetman Pearson (later Lord Cowdray) in Mexico101 could build up their interests on an imperial scale.

In fact, British interests were scattered prodigally across Central and South America. Even in inhospitable states like Paraguay and Venezuela, there were British-owned railways like the Paraguay Central and the Bolivar.102 Sixty per cent of Colombia's network was British-owned.103 In Peru, where the government had defaulted on its railway loans in 1879, a British holding company, the Peruvian Corporation, administered the country's railways, guano deposits and certain utilities under the ‘Grace Contract’ of 1890.104 In Chile, British capital controlled one-third of nitrates production – Chile's principal export and its main source of public revenue – by the 1880s.105 In fact, British capital was concentrated in Mexico, Chile and along the Atlantic coast in Brazil, Uruguay and Argentina. Mexico ranked third in 1913, with some £132 million in railways, mines and the oil concessions into which the Pearson interests had diversified – a figure broadly equal to that of American investment.106 In Uruguay, British commercial predominance was proverbial. ‘All of the industrial enterprises…of any importance are in English hands’, remarked the British minister in 1881.107 Transport, communications, utilities, insurance, banking, meat-processing and ranching were largely British-owned or managed by 1900,108 and the Uruguayan president ruefully described himself as the ‘manager of a great ranch whose board of directors is in London’.109In Brazil, the growth of British banks and insurance companies followed in the wake of the large trading houses dealing in coffee and sugar. The British-owned Sao Paulo Railway, the great trunk route into the coffee-growing heartland, was the most profitable British railway anywhere in South America.110

But it was in Argentina that British interests had flourished most of all. Argentina was the miracle economy of the age and the most dynamic in Latin America.111 Its seemingly boundless resources prompted comparisons with the United States. Between 1880 and 1913, its population increased fourfold to eight million, nearly half the increase being due to immigration. Its production of cereals grew by forty times. In 1913, it was by far the world's greatest exporter of maize. It became a major supplier of frozen meat and the second largest producer of wool. Its railway network by 1910 covered more than 17,000 miles of line112 and was still growing rapidly. The maize and wheat lands west of Buenos Aires were crisscrossed by the densest railway system in South America. By 1913, Argentina had long since overtaken Brazil as Britain's main trading partner and dominated British trade with the continent. Not surprisingly, this exceptional growth and the close commercial tie with Britain were reflected in the volume of British capital directed to the country. In 1880, British investment had stood at £20 million; a decade later at £157 million;113 and by 1913 at £360 million – as much as in India. More than half this sum had been placed in the railway system, the key to export-led growth. The Buenos and Great Southern, the Buenos Aires and Pacific, the Central Argentine, the Western, the Central Cordoba and other British lines made up 70 per cent of Argentina's network.114 After 1900, the Southern returned a consistent dividend of 7 per cent.115 The railway companies were also linked to docks and harbour companies and to shipping lines. Other British capital went into water, gas and tramways. And, by the late nineteenth century, British banks like the Bank of London and South America dominated the finance of trade.

The British stake in Argentina's development was huge. But, both there and elsewhere in Latin America, it was based on a tacit accommodation with local elites. Even in Colombia, a congressman could urge that ‘we…offer Europe raw materials and open our ports to manufactures to facilitate trade and the advantages it brings’.116 The ‘open economy’ favoured the political, commercial and cultural aspirations of a dominant landed class, nowhere more so than in Argentina where estanciero supremacy had been consolidated in the pampas war against the Indians – the sordid prelude to the economic miracle. Import substitution occurred and capital was accumulated locally. But any deliberate policy of large-scale industrial development faced insuperable difficulties in the transitional phase. It could hardly be undertaken without the protection of tariffs. But tariffs would produce a slackening of trade, reducing exports and foreign income. The inflow of capital would tail off threatening an adverse balance of payments and destabilising the whole economy and its fragile superstructure. Hence, while development ‘towards the interior’ had its advocates and appealed to important local interests, they were rarely strong enough to challenge the agrarian class and its commercial allies before 1914.

Even so, in a region of such rapid economic and social change, where political institutions were relatively weak, foreign interests could not escape the side-effects of instability and sometimes faced frontal attack. The Peruvian Corporation representative in Lima, Clinton Dawkins, complained bitterly of breaches of the 1890 agreement under which the loan default was being paid off: the Peruvian president was ‘bestially stupid’.117 With its guano running out, its nitrates lost and silver's value in steep decline, Peru was going to ruin ‘not by degrees but by sheer strides’.118 In Chile, the civil war of 1891 threatened British nitrate interests with a government take-over. In Brazil, political upheaval in the 1890s and a policy of industrialisation choked off foreign capital and wrecked the exchange rate.119 Worst of all was the great crisis of 1890 in Argentina. Reckless over-investment by the great banking house of Barings crashed into the reckless inflation of its paper currency by the Argentinian government. As Argentina's ability to meet its fixed payments on railway and government loans (payable in gold not paper) came into question, panic spread in London about the value of British holdings, the solvency of Barings and the stability of the City's whole enormous stake in international lending.120

The instinct to punish default by diplomatic intervention and a blockade of cruisers had not entirely disappeared, but on the British side it was widely recognised as clumsy and inappropriate. Diplomatic pressure in Chile was abandoned when it was realised that local British opinion was as divided as the Chileans over the rights and wrongs of the civil conflict.121 In Peru, Dawkins (an ardent imperialist) jeered at the ‘absurd notions’ of his London board ‘about diplomatic interference, British squadrons, Johnny Atkins and all that fustian’.122 In the aftermath of the Barings crisis, Lord Salisbury curtly dismissed the idea of official involvement in a stabilisation agreement as ‘dreams’.123 In fact, political coercion was redundant, if not counter-productive. Subtler means lay to hand. The British could exploit their ‘structural’ advantages as the source of credit, capital and information.124 Nationalisation in Chile was resisted as fiercely by Chilean as by British owners.125 Elsewhere, the penalties of financial default were felt as keenly by the South American elites as by their British creditors. It meant an indefinite stoppage of new capital whose inflow had become essential not just to the growth of the export economy but to the efficient working of the export-import cycle, with its dependence on credit and its exposure to volatile price movements. Credit starvation heralded a total breakdown of the commercial economy, with a revolution close behind. Hence the focus of South American diplomacy in London in the troubled 1890s was not the Foreign Office but New Court, the Rothschild offices in the City. It was Rothschilds who negotiated the Romero agreement with Argentina in 1893,126 and a loan to stabilise the Brazilian exchange in 1898.127 For both countries, the price was a sharp deflation, and the strengthening of British-based banks and railway companies over local competitors. The adoption (or re-adoption) of the gold standard with its fixed parities by Peru (1897–9), Argentina (1899), Mexico (1904) and Brazil (1906)128 was further evidence that they were willing to accept the financial discipline imposed by the City.

To the official classes in Britain, Latin America was the dark side of the moon. ‘South America…is quite out of the currents of the world’, wrote Dawkins wistfully, hankering after official preferment in Egypt or India.129 The continent was a diplomat's graveyard. But, by 1913, it was the brightest jewel in the City's crown, the richest province of its business empire and the great white hope of the investing classes. It was the perfect illustration of the third dimension of British power, springing not from conquest or settlement but from collaboration in the pursuit of wealth. By 1913, Latin America was providing around a quarter of Britain's overseas property income. It employed nearly a quarter of Britain's long-distance shipping fleet130 and contributed heavily to her invisible earnings. Its expanding railways were the perfect vehicle for British financial, technical and managerial expertise, as well as being large consumers of British coal – whose bulk export was the key to the profitability of British shipping: 85 per cent of outward cargoes to Brazil were coal.131 The British commercial and professional communities in Latin America were small in numbers, but wealthy, well-educated and influential.132 In a continent (increasingly) of European immigrants, and in cities like Buenos Aires where foreigners made up three-quarters of the adult population by 1914,133 their cosmopolitan origins and outlook were no handicap. In Buenos Aires in 1909, there were 7,113 British among 7,444 Germans, 27,000 French, 277,000 Italians and 174,000 Spanish.134

In a wider perspective, the remarkable florescence of British commerce in Latin America around 1900 can be seen as part of a ‘swing to the West’ – a subtle rebalancing of Britain's global interests and commitments between Europe, the Americas and the Eastern world. The huge flow of capital towards Argentina had its counterpart in the great migration of men and money to Canada in the decade before 1914 and the dramatic growth of Anglo-Canadian trade. British investment in the United States also surged upwards from £500 million in 1899 to £800 million by 1914.135The Anglo-American rapprochement and the careful accommodation of British interests in Central America to American regional predominance136 was part of this new Atlantic pattern. By 1913, the Americas accounted for one-fifth of Britain's exports, one-third of her imports, more than half of her overseas investment and almost three-quarters of her oceanic shipping. Here, far away from the cockpits of imperial rivalry, was a vast zone of safety, stability and wealth: some compensation for the strain of defending British interests in Asia or, after 1910, for the strategic burden in Europe.

Of course, in Latin America at least, this happy conjuncture could not be taken for granted. The growing size and scale of British enterprise bred resentment.137 The nativist reaction of the early 1900s in Argentina and elsewhere revealed the strains of nation-building under conditions of hectic growth and foreign influence.138 Ultimately, the ‘order and progress’ in which the British had invested so heavily rested upon the primacy of the local agro-commercial elites. In turn, their fate and their readiness to comply with external financial discipline depended on the booming demand for their commodity exports and London's ability to supply the capital on which growth and stability relied. In 1914, with appalling suddenness, this great experiment in business empire came to a grinding halt.

Commerce or empire?

The union of commercial and imperial muscle was the foundation of the British world-system. The vast scale of British trade, the fleets of merchant shipping, the treasure chest of overseas investment and the resources it commanded were widely seen as the real embodiment of British world power. They supplied the economic energy to sustain the show of empire and pay for its defence. They formed the invisible chains that bound the visible empire of dependencies and settler states to their far-off metropole. They provided the means to expand the sphere of British influence and turn the ‘undeveloped estates’ of empire into imperial assets. In a world in which a handful of imperial ‘superstates’ was expected to hold sway, they were the guarantee of premier status, and of independence.

Yet the project of a free-standing commercial republic, no longer reliant on political, diplomatic or military support, had made little headway outside the favoured zones of South and Central America. Even there, it depended to a degree upon British political and cultural prestige. ‘The educated Englishman who arrives in Latin America’, remarked a traveller in 1913, ‘must generally assume the prestige as well as the burden of his empire.’139 Elsewhere, beyond the developed world of the United States and the ‘white dominions’, commerce needed empire more than ever. This was especially true in the Eastern world south and east of Suez where a large proportion of British trade and investment was still to be found. Eighteen per cent of British investment was in India and East Asia: the total for Asia, Africa and Australasia was 41 per cent. In India, the largest market for Britain's largest export, cotton textiles, colonial rule pegged open a market that would otherwise have been snapped shut by tariffs and homemade competition. It was decisive in the early and rapid construction of railways, underwritten by colonial revenues and pressed forward at London's command. The contrast with China, whose disorganised network was barely one-sixth the length of India's by 1913, was telling. Indeed, there, the security of British investment, the organisation of foreign trade and the prospects for commercial development seemed to require the enforcement of the ‘unequal treaties’ and the defence of the colonial and semi-colonial enclaves scattered the length of the China coast. To its British residents, treaty-port Shanghai was as much a part of the Empire as Sydney or Cape Town and entitled to the same protection140 – a claim which the policy-makers acknowledged down to the 1930s. To the champions of tariff reform after 1903, it was precisely this reliance on force to open new markets in Asia and save old ones that condemned free trade. ‘Not feeling quite strong enough to keep the door open in Europe by threat of force’, Leo Amery told Milner, ‘[England] tries to do so elsewhere by forcibly retarding the expansion of other powers. The policy has increased our armaments and our territory enormously in the last twenty years.’141

Experience of India, China, the Middle East and Africa also kept alive, in the heyday of laissez-faire, a variant of political or imperial capitalism that had little in common with the rational entrepreneurship imagined by Joseph Schumpeter in his Imperialism and Social Classes (1919). To businessmen like Goldie, Mackinnon, the Liverpool traders on the Niger, the taipans of the China coast and railway promoters like Bland, it was self-evident that political power should be used if necessary against the threat of monopolistic rivals and to clear the path of local ‘obstructions’. To them, commercial development, local progress and the imperial interest were bound up inseparably, and the cavils of diplomats and administrators either myopic or self-serving. It was a short step from this to the harder face of political capitalism in those parts of Afro-Asia where resources were scantier, the resistance tougher and the environment harsher. In sub-Saharan Africa, especially, coercion became the fastest means of accumulating wealth. Force was used to uphold a commercial monopoly against local competition (on the Niger); and to appropriate land and cattle (in East and Central Africa). Coercion ensured the supply of labour from African societies whose manpower was scarce and valuable. The threat of collective vengeance became the shield behind which traders, settlers and miners could practise a quasi-coercive production system with remarkable security and at negligible cost.142 With the rise of a vulgar ‘ethnic Darwinism’ in the later nineteenth century, these cruder forms of political capitalism could also be dignified as instruments of ‘moral and material progress’.

In all these ways the commercial republic was heavily dependent upon the well-being of the British world-system as a whole. To its fiercer critics it seemed ever more reliant on profits extracted by coercive methods and regions exploited by political power. This was too pessimistic. What was beyond doubt was the extent to which the vast commercial system pivoted on London needed the support of its British host: to guard its long lines of communication and the vulnerable installations of trade; to preserve free trade, the magnet of commerce and finance; and to maintain the advanced industrial base whose products it traded. In return, it supplied much of the influence and wealth that late-Victorian opinion had come to see as its birthright.

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