Why did the German economy out strip its rivals in Britain and Europe between 1880 and 1914?

University Degree Historical and Philosophical studies

Tom Crawford

His 1

27th Oct 2003

Why did the German economy out strip its rivals in Britain and Europe between 1880 and 1914?

Germany between the period of 1880 and 1914 became a great power in Europe. In this period she managed a well thought out educational system that helped support strong economic growth. She harboured extreme potential and drive to become the powerhouse of Europe and coupled with social, economic and political factors taking effect and at time crippling the rest of Europe, Germany’s economy out stretched its rivals in Britain and Europe

The process of Industrialisation and economic change in Europe was slow and painful. From about 1870 onward industrial society matured. Family life stabilised; population growth declines. But stabilisation brought new tensions as key social groups defined their interests more clearly, and continued innovation in technology and social organisation produced its own strain. This third phase of moderation saw much of European society in disarray.

The modernisation patterns of Britain, Scandinavia and to an extent France were characterised by early industrialisation, the early decline of the birth rate, the early decline of religion, the high level of desire for mobility, a rising income, and restrained political extremes. Whereas in West Central Europe, there was more state role in industrialisation, more resistance to modernisation, more persistence of religion, the rise of political extremes (socialisation, nationalism and lower levels of protest based on personal acquisitiveness. Germany straddled both west central and east central Europe, which included Austria and the Balkan states. In this east central area there was later but successful industrialisation, a lack of rural protest, a strong urban resistance to industrialism and a climate open to fascism.

Great Britain in 1870 was the powerhouse of Europe. It was nurturing a climate for change with great political advances far ahead of mainland Europe. The 1867 Great Reform Act set in motion the opportunity for suffrage in Britain. The break through of the labour movement in 1819 was instrumental in the social reform that was gaining momentum, however the British government was still dominated by liberal democrats and conservatives until 1918, who traditionally exercised laissez-faire policies in world trade.

The pressure of foreign competition held influence in the British government to alter its lazier faire attitude regarding overseas trade. Therefore in the 1880’s and thereafter a ‘fair field and no favour’ was threatened from two sides. The oriental courts and their diplomats and the closure of the international markets by the revived Protectionism.

By 1914 Britain was debatably Germany’s greatest rival to the crown of the Europe. However it has been argued that the day after Waterloo in 1815 was the start of Britain’s fall. Britain in 1815 was the only industrialised nation. In 1850 Sandberg had noted that England was the wealthiest country in the world, hugely powerful with a vast empire however it could not compete with Germany by it self. Britain needed an, army, a navy and needed to impose its power upon the world. However it was reluctant to utilise its wealth to gain military strength. At this ...

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By 1914 Britain was debatably Germany’s greatest rival to the crown of the Europe. However it has been argued that the day after Waterloo in 1815 was the start of Britain’s fall. Britain in 1815 was the only industrialised nation. In 1850 Sandberg had noted that England was the wealthiest country in the world, hugely powerful with a vast empire however it could not compete with Germany by it self. Britain needed an, army, a navy and needed to impose its power upon the world. However it was reluctant to utilise its wealth to gain military strength. At this time Britain was employing Austrians and Russian to fight Neoplolian’s forces in France, but however much they paid them, no amount of money could buy victory and it was not until 1808 that the British , reluctantly started fighting for themselves.

The creation of Germany itself has been argued by Anderson to be “above all, a military achievement”. However it had been that Germany’s standing army was not superior to France’s in 1870’s and 1880’s. But Germany’s military prestige was immense and by the turn of the century it was France’s slow population growth that made it quite impossible for her to keep pace, in military terms with her great rival. With Britain’s reluctance to impose her military might, Frances comparatively lacking population and Germany’s alliance to Italy meant that, until the Russian army was heavily modernised before 1914, Germany’s army had been the greatest military power in Europe.

Sanderson concludes in his works Education, economic and society that advances in Britain in 1870 moved towards trying to create an education system that “would not only deal with a social problem at home but which would sustain the economy in the face of competition abroad from the industries of Germany and the United States of America. “ Germany at this time was taking the lead in education in Europe which is debatably mostly due to the authoritarian history of Germany before its unification. With Germany excelling in education, where as Britain’s educational system was neglecting the sciences that were helping Germany so much in her increasing economic strength. It has been argued that with Britain’s top officials lacking in higher education and being less attuned to innovations in products and production methods than their foreign counterparts came into play with Britain’s fall from economic grace. Germany on the other hand had a comparatively advanced educational system that held children at the age of 14 in compulsory education while England’s workforce seemed to be largely trained on the job. The reformation of the British public school supplies the reason for what Wiener calls “The Decline of the Industrial Spirit”. If the case is proven that lack of education does not have any bearing in Britain` s economic stature, what, if anything, is the cause of a generation of poor entrepreneurs, and what would be it` s effect, if any, on the economy as a whole?

It could be argued that the after 1870 the economy of the “first industrial nation” began to decelerate, comparing her with her closet rivals. This ‘deceleration’ can be put down to a number of factors as laid out in Derek Aldcoft’s article , “The entrepreneur and the British Econamy , 1870- 1914” published in 1964 , spear headed the broad indictment of the British entrenpeur…

“A/ They failed to adopt the best available techniques of production in many industries, ranging from ring-spinning and automatic weaving in cotton to the mechanical cutter and electrification of mines in coal.

B/ They underestimated the growing importance of science, investing little in laboratories and technical personnel for research or for the effective exploitation of foreign research.

C/ They over-invested in the old staple export industries such as cotton and iron, and were slow to move to the industries of the future such as chemicals, automobiles, and electrical engineering.

D/ They were bad salesmen, especially abroad.

E/ They were insufficiently aggressive in organising cartels to extract monopoly profits from the world at large.”

Britain’s decline continued into the mid 70’s where it was becoming obvious that foreign competition would threaten the pattern of overseas trade. This came at the same time as the international commercial depression of 1870’s and 80’s which drove the message home that Britain needed to maintain as much as possible of her share in the diminished markets of the world. Germany’s lead was shown when the Royal Commission of the Depression of Trade and Industry gave evidence in it’s final report (December 1886) showing Britain had lost her advantage in production and that the adaptability of the German’s was placing them ahead in the neutral markets and the East. Britain’s previously unquestioned monopoly in over seas trade was now being dislodged. Additionally, the revival of the Protection in the 1870’s had sunk British hopes for universal free trade. This saw British exporters excluded from their traditional European markets and increasingly from the World markets in which they were looking to compensate.

Aiding in Germany’s economic expansion, a sophisticated system of compulsory insurance against illness was established for most industrial workers in 1883; up to thirteen weeks of sickness were covered. This was followed by accident disability insurance in 1884 which employers paid for. This established the basic welfare program for Germany and between 1885 and 1900, 50 million Germans received from the program benefits worth $750 million, $250 million more that the workers had contributed. Germany regulated hours of work and conditions of pay. This went towards the most complete welfare programme offered by any nation in Europe and aided Germany's economic growth, allowing it to out rival Britain and the rest of Europe by 1914.

By 1890 well over half the labour force in German, Britain and Belgium was employed in firms with more than twenty workers. By 1890 the Allemeine Elektizitats Gesellschaaft and the Siemens concern dominated the electrical industry in Germany. Siemens controlled over 90 per cent of German production and had important international links. Each firm could set the terms for many leading buyers on the strength of its great size; beyond this the firms made agreements with each other on market allocation, which made price fixing even simpler. The steady growth of firm size allowed the utilisation of more massive and efficient equipment. It also allowed a greater possibility for profits, even aside from efficiency, by permitting greater control of research, supplies, sales and position in the market. This lead to greater economic growth and international power, allowing Germany to dominate Europe during this period.

The German Darmstadter bank and Diskontongesellschaft arose in the same decade, along with a number of less solid banks that collapsed after contributing to a speculative mania. Other investment banks, such as the Deutsche and the Dresdener, arose in the prosperous period of the 1870s when the French war indemnity was filling German coffers. The Dressener Bank developed close ties with the Krupp industrial complex and served as a major source of Krupp's funds. In Germany in particularly, but to some extent everywhere, industrial investment banks greatly increased the amount of capital available and thereby promoted the development of larger firms, thereby ensure the successful development of the German economy

In the early 1870’s after the war of 1866 and the Franco Prussian war of 1870-71 and the German government expenditure widely exceeded government revenue. The government could finance such a spending because of the reparations paid by France, am mounting to a total of five million Gold Francs, paid in rates since 1871.

The German economy benefited along side the economies of Europe, in her strong period of growth in 1871-1874 when she was hit by the recession of 1873. The economy then began to pickup with the boom excelling in 1888. This period is internationally referred to as the ‘second industrial revolution’ or Gruenderzeit (Founders era 1870-1900), where many Germany’s larger enterprises were founded in this period, including Werner von Siemens, Hoesch and Thyssen.

Germany at this time exercised a mixed economy policy with a combination of interference and non-interference . Protective tariffs were raised from imports in order to protect the domestic steel industry and Agriculture. The successful new currency the Reich mark , which was based on the gold standard, was being used in opposition to the hitherto practiced gold and silver standard and was seen as a model for stability in Europe.

Therefore in conclusion I believe that the main reasons for the German economy out striping her rivals between 1880 and 1914 are a superior education system, well organised world trading, and the down sizing of her rivals. With Britain’s gradual dislocation from her thrown as the leading country in the world caused by a mix of social upheaval, reluctance and disability to properly fund and manage business ventures coupled with Russia’s sluggish progression into the industrial era and France’s slow revolutionary traditions, Germany managed to excel economically.

Bibliography

M.S Anderson, The Ascendancy of Europe 1815-1914 – USA New York 1985

Michael Sanderson, Education, economic change and society in England 1780—1870 2nd Edition Cambridge University Press 1995

Clive Emsley, Conflict and Stability in Europe .England 1979

Donald N. McCloskey with Lars G. Sandberg, “From damnation to Redemption: Judgements on the Late Victorian Entrepreneur,”(Internet Source)

European Society in Upheaval Peter N Sterns (Internet source)

D.C.M. Platt, Economic factors in British policy during the ‘New Imperialism’ source; Past and Present, no. 39, April 1968 pp. 120-38

European Society in Upheaval Peter N Sterns

The Ascendancy of Europe 1815-1914 Anderson – (USA New York 1985)

Micheal Sanderson - Education, economic change and society in England 1780 – 1870.

Donald N. McCloskey with Lars G. Sandberg, “From damnation to Redemption: Judgements on the Late Victorian Entrepreneur,” In Derek Aldcroft, `The entrepreneur and the British economy`, in `Economic History Review`2nd ser., 17 (August 1964) pp .113-134.

Derek Aldcroft, `The entrepreneur and the British economy`, in `Economic History Review`2nd ser., 17 (August 1964) pp .113-134. In Donald N. McCloskey with Lars G. Sandberg, “From damnation to Redemption: Judgements on the Late Victorian Entrepreneur,”