International Economic Disintegration

WHEREAS the effect of the policy of agricultural protectionism on international economic disintegration is indisputable, it is by no means clear whether the parallel development of the industrialization of “new countries,” as furthered by protective measures, is to be considered also as a disintegrating factor. It is therefore questionable whether we are justified in regarding both developments—the contrived intensification of agriculture in the old industrial countries and the contrived industrialization of agrarian countries—as factors which are working equally, though from opposite directions, for the same result of less international trade, less rational distribution of productive factors among the different nations and of more national economic independence. It is true that both developments have very much in common with each other, and it is also true that they interact on each other, even if only in the sense that the one development is often used as a pretext or justification for the other. If our doubts, however, are justified as to whether industrialization is as disintegrating a force as agrarianization, then we should be very circumspect in classing the two together as is usually done.

It is a fact that the industrialization of new countries has been viewed pessimistically in the old industrial countries from the beginning of the modern economic era. The dispute over the economic effects of industrialization runs through the whole history of economic thought. Invariably the pessimists maintained that the spread of industries to other countries was bound to ruin the old established industrial countries. From here it was only a step to argue that if the old industrial countries were no longer able to check new industries abroad, as in the days of the old colonial policy, they would do well to put a brake on industries and to develop agriculture in order to avert the danger of being too dependent on the hazardous exportation of manufactured goods and the correspondingly insecure importation of agricultural goods. In this way the pessimistic view on the industrialization of new countries has again and again been used as an argument for agricultural nationalism.

It is a further noteworthy fact that so far no historical example has become known which might have justified the pessimistic theory. During the last two hundred years one country after another has become more or less industrialized, but it would be absurd to say that in this process of spreading industrialization the old industrial countries as a whole had suffered by the industrial development of the newcomers. In this period the volume of international trade in general, and of the exports of manufactured goods from the old industrial countries in particular, has multiplied—not in spite of, but largely because of, the industrialization of more and more countries. The bulk of international trade consists indeed of the exchange of commodities between the highly industrialized countries, and it is not by accident that these countries are usually the best customers of each other.

Industrialization has not only gone on all the time, but it is usually the way in which a country becomes incorporated into the orbit of occidental civilization and capitalism. In most cases it has been the vehicle for the spread of what we call progress, rational technique of production, efficiency and the modern outlook on life involving the breaking-away from tradition. It is this aspect which marks an enormous difference between industrialization and agricultural nationalism: no matter what the ultimate goal of a policy of industrialization may be, it is quite clear that industrialization per se is a process which is absolutely in accordance with the dominating trend in the secular development of world economy, whereas the policy of agrarianization of industrial countries is plainly reactionary in the sense of reversing the trend of development. In industrializing its economy a country is doing something which other countries have done before to the great advantage of the rest of the world; it is not deviating in principle from the line on which world economy developed heretofore. Industrialization is a process which, historically speaking, points forward, and for that reason is also a development which, ideologically, is quite inconceivable without “modernism.”

The agrarianization of industrial countries (“agricultural nationalism”) means unmistakably a retreat from world economy toward more national economic independence, and that in a double sense. It is, first, a retreat in the sense of a policy which, consciously aiming at autarky, is motivated by an ideology which the critically minded would call “romantic,” and which gives expression to the longing for a simpler and less specialized economic life and to disgust of industrialism and urbanization. Agricultural nationalism, as far as it is rooted in this anti-urban and anti-industrial ideology, is surrounded by a peculiar psychological atmosphere, which is to be interpreted as the outcome of deep-set instabilities in the economic, social, and cultural structure of the mature industrial countries and, finally, as one of the symptoms of the cultural crisis of our times. But agricultural nationalism is a retreat from world economy also in the second sense that it has the immediate effect of a lessening of foreign trade. There is no reason why the intensification of agriculture should not bring about immediately a net decrease of all the imports and probably also of all the exports of the country, and there is nothing in the process that necessarily calls for a compensating increase of imports of other commodities.

In both these respects industrialization is different. First of all it is different, as we have seen, in its motivating spirit. It means that, with youthful fervour and sometimes with a real inferiority complex toward the old industrial countries, the latter are to be imitated as thoroughly and as swiftly as possible. This pro-industrial attitude may reach an excessive degree, so that everything which is urban, industrial and European will appear a sign of a higher form of existence; one is ashamed to live in a “merely agricultural” country, and one is impatient to have a share in the happiness and prosperity which industry seems to bestow upon the occidental countries.1 It would be an interesting task to analyse this attitude and to discover the ultimate reason for the almost uncanny attraction, like that of a candle on a moth, which occidental civilization is exerting on all countries and which has made it the most universal civilization of all times. Besides the essentially positivist character of our civilization and the increase in material well-being which it promises, one of the most powerful causes of its universal imitation is probably the fact that it brings military and political power against which a country cannot hope to defend its independence unless it allows itself to become occidentalized. This is the destiny of all non-occidental countries, a destiny which they can hardly escape in the end. What is needed is not only the military technique of the West, but also the entire technical, economic and intellectual foundation on which the power of the Occident is based. The rest then follows relentlessly, particularly the occidentalization of the whole culture and the high esteem of everything that is Western and industrial.

It is of course not only possible but altogether probable and in conformance with actual experience that, together with the other achievements of the West, also nationalism in all its forms will be imported. It is therefore not by accident that the spirit of industrialization will be strongly flavoured with nationalist ideologies, with emancipatory sentiments and with a pugnacious attitude toward the old industrial countries, especially if the country in question has had hitherto reasons to complain of imperialistic oppression. Not only the spirit of Saint-Simon but also those of Friedrich List and Karl Marx will be invoked. But, to whatever length this industrial nationalism may go and whatever the ultimate result may be, so much is certain: the process of industrialization, quite in contrast with agricultural nationalism, cannot lead immediately or even within a longer period to more economic independence and less foreign trade. Industrialization means, of course, that there will be less imports of some products, but the very process of industrialization makes it necessary that there will be more imports of other goods. Nobody has ever denied and no trade statistics have ever disproved the fact that industrialization necessitates the imports of machines, implements, locomotives, automobiles, rails, and other capital goods which are needed in order to establish factories and to improve the means of transportation. Every industrialization has to go through a number of stages, beginning with the simplest industries of consumption goods and then slowly proceeding to other lines of production which presuppose not only the highest degree of experience and technical knowledge but also a large market that can exist only in a fully developed industrial country. It is exactly the capital goods industry which largely belongs to the latter class. Though cement plants or even high furnaces may be erected in a rather early phase of industrialization, no country can start industrialization with the engineering industry and kindred industries. Even Soviet Russia, which surely presents the extreme example of a country set upon emancipation from the West, could not escape this iron law of industrialization; it has become one of the largest buyers of machinery in recent years. The pessimists in the old industrial countries may argue that these exports of machinery and other capital goods to the new countries amount to an economic suicide for the future when the new countries, equipped with modern machines, may drive the industries of the old countries out of business. Even in arguing thus the pessimists are probably wrong, but they never could question the palpable fact that, at least during the initial phase of industrialization, the new country becomes a larger market for capital goods, and this by force of necessity. Since the process of industrialization has gone on all through the last century, it is to be presumed that the exports of the old industrial countries will be marked by an increasing share of capital goods and a decreasing share of consumption goods, a presumption amply corroborated by actual statistics.2

So much, then, is undisputed. It is both a fact and an inescapable conclusion that, during the initial phase of industrialization (which may be very long or may never end), the decrease in imports of consumption goods now produced by the new country finds its counterpart in the increase of the imports of capital goods. But now there arises the question of what is likely to happen after this initial phase. In putting this question we are entering a field where the realm of necessity ends and that of debatable probabilities begins. It is not necessary, but it is probable that the compensation brought about by increasing imports of capital will be supplemented by two other sorts of compensation: (a) by the increasing imports (or decreasing exports) of raw materials and / or foodstuffs which the industrialization will bring about, and which will increase the purchasing power of third countries available for the imports of manufactured goods from the old industrial countries; (b) by the increasing national income of the new country which now may import either in larger quantities or in higher qualities those industrial products which are not produced by the national industry, but which will be increasingly demanded by the population of the country. In order to understand the second point fully, one must not forget that the term “industry” comprises the greatest variety of manufactures for which a high degree of specialization may develop between the different industrial countries. This accounts for the very significant fact that up to the war, for instance, almost 50% of the German exports of machinery went to the highly industrialized countries, a fact which disproves the pessimistic view that the exports of capital goods will taper off with the gradual industrialization of the new country. The appropriate reasoning seems therefore the following: more industrialization means more prosperity; more prosperity means greater differentiation of demand for all sorts of commodities, and this growing demand for a greater variety of higher valued goods can only be satisfied by imports from the old industrial countries which are specializing more and more on the production of these highly differentiated and higher priced goods.

All this seems plausible enough, but there is of course a strong reason why a more pessimistic view has always found a wide acceptance. The conception of a newly industrialized country as a competitor for the old industrial countries is only another example of the “fallacy of misplaced concreteness” (Whitehead) which is so common in all questions connected with international trade. The old industrial country and the newly industrialized country appear like two firms competing with each other in the same line of business; if both are making bicycles it is clear that, other things being equal, the one must lose what the other gains. In reality, however, the term “industrial country” is nothing but a convenient name for a great number of individual firms of the greatest variety. Since this is the case on both sides there will be real competition only between special firms or industries, while for the rest co-operation may be greater than rivalry. The political implications of the industrialization of a new country should not close our eyes to the fact that it is a process which is not essentially different from the spread of industries to new regions within the same country.3 The pessimistic view, therefore, is too prone to identify the special case of the industries which have directly to suffer from the competition of the new industries abroad with the general case of all the industries together. Nobody ever denied that the industrialization of new countries involves losses and hardships for special industries and the painful necessity of adaptation to the structural change implied by industrialization, and few will fail to sympathize with these industries which are adversely affected. It is also quite comprehensible that those immediate losses and hardships may be perceived more clearly than the indirect compensations. It is all the more necessary, however, to keep the general aspect always in mind and to separate it from the special problems.

It has already been indicated that one must beware of dogmatism in this matter and weigh the various probabilities. Consequently, there is wide scope for discussion of the right interpretation of the process of industrialization and of its effect on world economy. It cannot be denied, however, that the international spread of industries in the past has had the results which the optimistic view assumes. One country after another has become industrialized, not to the detriment of, but to the clear net benefit of the old industrial countries, and world trade has taken that ascending course with which we are all familiar. Since the Great War this process has gone on more rapidly than ever, and it seems that the development of modern production technique in the old industrial countries is facilitating more and more the task of the newcomers. It is true that this is only the continuation of a secular process. The question we have to answer, however, is whether this still means for the world economy and for the old industrial countries what it meant in the past or whether it has taken on new aspects which must alter our view. That is the question which will be taken up in the last chapter of this part, after several other questions have been dealt with.

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4 It is one of the few merits of the book by M. Manoilesco, Théorie du protectionnisme et de l’échange international, Paris, 1929, that it gives a good picture of this attitude. Cf. especially pp. 292-293, where the “travail brut” of the agrarian countries is opposed to the “travail noble” of the industrial countries.

5 See especially the calculations given by E. Wagemann in his book on Struktur und Rhythmus der Weltwirtschaft (Hamburg, 1931), p. 145. The whole subject of the process of industrialization has been thoroughly analysed by Walther Hoffmann, Stadien und Typen der Industrialisierung, Jena, 1931. Cf. also Otfried Fröhlich, Die Wirkungen der Industrialisierung junger Länder auf ihre Einfuhr, Dresden, 1936; Heinrich Dietzel, Bedeutet Export von Produktionsmitteln volks-wirtscliaftlichen Selbstmord? Berlin, 1907; Karl Lange, “Bedeutet Maschinenausfuhr volkswirtschaftlichen Selbstmord?” Wirtschaftsdienst (Hamburg), No. 26, 26th June, 1931.

6 Goetz Briefs, “Revierbildung und provinziale Streuung der Industrie,” Archiv für Sozialwissenschaft und Sozialpolitik, vol. 67, 1932, pp. 29-52. Outstanding and well-known examples of such “industrialization” within industrial countries are in our days the rapid development of new industries in the southern districts of England and the shift of industries towards the southern states in the United States. Cf. on the latter: B. Mitchell, The Rise of Cotton Mills in the South, Baltimore, 1921; A. Predöhl, “Die Südwanderung der amerikanischen Baumwollindustrie,” Weltwirtschaftliches Archiv, January, 1929, pp. 106-159.

• 1Cf. my paper “A Value Judgment on Value Judgments” in which I am explaining my attitude in this very important methodological question. It will probably be published in the “American Economic Review.”
• 2The following pages are largely based on a memorandum which the author wrote together with Professor Alexander Rüstow (University of Istanbul) in the summer of 1938.
• 3See also: W. Röpke, Die entscheidenden Probleme des weltwirtschaftlichen Verfalls, Zeitschrift für schweizerische Statistik und Volkswirtschaft, 1938, No. 4.
• 4The purpose of this book is to make a new and more promising approach to the diagnostics of that long-run crisis in international economic relations which is one of the most striking symptoms of the general economic, social, and political crisis of occidental society. I believe that the urgent necessity of such an approach has been enhanced rather than diminished by the outbreak of the war. However, I would betray my own philosophy if I regarded this book as anything more than a mere beginning, an invitation to constructive criticism, and a way of opening or furthering a discussion for which the world seems to be ripe. In submitting this book to criticism, I am not afraid to expose myself as one who believes not only in the scientific legitimacy but even in the utmost scientific necessity of employing a measure of judgments, which is ultimately based on a definite conception of what is wrong with the world, and of what should be done in order to put it right again. Those who are shocked by such an attitude may be reassured that I gave more thought to this methodological problem than I am able to explain on this occasion.
• 5(b) This crisis puts social science in a new situation, which is itself highly critical and which no partial investigation in any field of this science whatever can ignore without running the risk of missing its aim. Nobody conversant with the current development of the social sciences can overlook the fact that the feeling of being on insecure ground is becoming more and more widespread, until even the most tenacious followers of the traditional lines of approach sense the need for reorientation. The growing literature on methodological questions even in countries like England, where it was formerly distinctly unpopular, is a sure token of this scientific situation, as is also the fact that it has been felt necessary to open the present report in such a roundabout way as would have appeared rather strange even five years ago.
• 6As the present historical crisis finds its first, its most painful and its most conspicuous manifestation in the economic sphere, and since the nineteenth century has accustomed us to treat the economic problems as the main ones, it is easy to understand why the crisis is conceived primarily as an economic one and why, therefore, the traditional approaches of economics have been relied upon thus far. Whether or not this traditional conception corresponds to the inner convictions of our scholars and statesmen, it is at least exemplified in the character of by far the greater part of scientific activity in our field. Accordingly, men and means have been mobilized, during the last ten years, on an unprecedented scale. Facts have been piled up sky-high; conferences have been held in endless succession; economic analysis has been brought to an ever greater degree of refinement (and, incidentally, to an ever greater degree of unreality); vast and detailed programmes of research have been elaborated; a complicated machinery of institutionalized science has been set up; and questionnaires have been sent to almost every country and to every section of the population. It would surely be no pessimistic over-statement to say that nobody feels that this hectic activity has brought us any nearer the fundamental diagnosis which alone could serve as the basis for effective therapy.