Foreign Investment and Imperialism in the 19th and 20th Centuries
Foreign Investment in the 19th and Early 20th Centuries
France was the second-largest investor abroad in the first half of the 19th century. The French invested mainly in government debt, including revolutionaries and reactionaries like Spain, Portugal, and various Italian states. They also invested in obligations of the new Belgian government, mines, and investment companies in Belgium. Investments of similar magnitude were made in Switzerland, Austria, and the German states. They invested in industrial enterprises in the same places and financed the chronic deficits of the peoples of those areas, as well as the Turkish Empire and Egypt. After the Franco-Russian alliance in 1894, huge sums were invested for public and private purposes. Unlike the British, the French put less than 10% of their investments in their colonies. The French contribution was fundamental to Europe.
Germany went from being a net debtor to a creditor. The West benefited from capital inflows from France, Belgium, and Britain. Germany saw an accumulation of foreign capital and foreign investments, mostly directed to the east and southeast of Germany’s poorest regions. It also invested in the U.S., Latin America, and other developed nations. Smaller European nations like Belgium, the Netherlands, and Switzerland also benefited from foreign investment and became creditors. Austria-Hungary invested in the Balkans. The largest recipient of foreign investment was the U.S. by far. Foreign capital helped build the railroad, finance cattle ranches, and support companies. After the Civil War, American investors began to buy foreign securities and invest directly abroad, mostly in Latin America and Canada but also in Europe, the Near and Middle East, and Asia. In the four years following the First World War, as a result of American loans to the Allies, the U.S. became a creditor nation. Within Europe, Russia was the largest recipient. The Russian rail network became a reality in large part due to foreign capital. The major investors were the French, but the Germans, Dutch, and other countries also participated. After 1917, of course, investors lost everything.
Most European nations borrowed at one time or another throughout the 19th century. As a national investment, a foreign investment must generate a revenue stream sufficient to yield a positive rate of profit and end up returning the original investment. Some European countries failed to make good use of this investment, such as the Mediterranean countries and those in Southeast Europe, who squandered it, sometimes even in a corrupt manner. The investments of most Scandinavian countries, in contrast, managed not only to finance their return but also to contribute very positively to the development of the economies in which they were made. Canada, New Zealand, and Australia got great financing compared with the size of their population. Most funds were invested in government securities and infrastructure. With relatively high per capita income, they developed national service industries and some manufacturing capacity, but continued to rely on investments from Europe. Investments in Latin America and Asia were much lower in comparison; they lacked the quantity of human capital and had other financial structures that were conducive to economic development. In these areas and in Africa, the result of foreign investment was the development of sources of raw materials for European industries.
The investments of a country such as Britain in a less developed area such as Latin America consisted of: the investment for the construction of railways and other infrastructure, except for a small part in the production of raw materials, providing an infrastructure and superstructure to allow dependent economies to participate in the international economy.
The Rebirth of Western Imperialism
The Cape Colony at the southern tip of Africa belonged to the Netherlands as a feeding station of the East India Company. During the Napoleonic Wars, the British conquered it. The policy of the British, notably the abolition of slavery, annoyed the Boers (descendants of the Dutch settlers). The Boers began their Great Trek and created new settlements on the Orange River (Orange Free State), north of the Vaal River (South Africa), and on the southeast coast (Natal). British and Boers clashed with the African tribes.
The settlements of the Boers and the British were primarily agricultural, but diamonds were discovered in 1867. One of the people who most influenced the history of Africa was Cecil Rhodes, a very ambitious Briton who soon made a fortune with the diamond mines. He organized the British South Africa Company.
Rhodes took part in political life in Africa and eventually became prime minister of the Cape. One of his ambitions was to build a railway from Cape Town to Cairo, but President Kruger of the Republic of South Africa refused to allow the railroad to cross the Transvaal. Rhodes prepared a conspiracy against Kruger that failed. England decided to deny that it knew anything about the conspiracy and forced Rhodes to resign.
In 1910, the South African Union became a completely autonomous dominion within the British Empire.
Before 1880, the only European possession in Africa, apart from British South Africa, was French Algeria. The French rounded out their North African empire in 1912, establishing a protectorate over most of Morocco after interminable diplomatic negotiations, especially with Germany.
The opening of the Suez Canal by France in 1869 revolutionized trade and jeopardized the fundamental line of communication between Britain and India. Britain did not want the canal to open, but when it did, it sought to control it and its vicinity. This goal was aided by the financial difficulties of the king of Egypt (khedive). The British Prime Minister purchased the shares of the king of Egypt. It was an effective government. Egyptian resentment of foreign domination led to violent riots. To protect the canal, the British bombarded Alexandria. The Prime Minister assured that the occupation was temporary. The British met with the French, but there were no serious conflicts. The French withdrew, making way for the British in what became known as the Anglo-Egyptian Sudan.