– the so-called ‘marriage of iron and rye’ .[109] However, even after this, substantial additional protection was accorded only to agriculture and the key heavy industries, especially the iron & steel industry, and industrial protection in general remained low.[110] As can be seen from table 2.1, the level of protection in German manufacturing was one of the
The relatively low tariff protection does not mean that the German state took a
When Frederick the Great came to power, Prussia was essentially a raw-material exporter, with woollen and linen clothes being the only manufactured export items. Continuing his father’s mercantilist policies, he promoted a large number of industries – especially textiles (linen above all), metals, armaments, porcelain, silk, and sugar refining – by providing, among other things, monopoly rights, trade protection, export subsidies, capital investments, and skilled workers from abroad.[112] Frederick also retained a number of business houses to function as (what would today be called) ‘management consultants’ in order to pioneer development of new industries, especially the cutlery, sugar-refining, metals and munitions industries. These ‘model factories’ were in many ways hothouse plants that would not have survived exposure to full market competition; however, they were important in introducing new technologies and generating ‘demonstration effects’.[113]
In his ambition to transform the country into a military power, Frederick also annexed the industrial province of Silesia and began to work on its development. In particular, he promoted the steel and linen industries, installing the first blast furnace in Germany in the province and recruiting skilled foreign weavers by giving them each a free loom. The development of Silesia as the ‘arsenal of Germany’ was further promoted after Frederick’s death by a number of dynamic bureaucrat-entrepreneurs.[114]
The most important of these was probably Graf von Reden, who successfully introduced advanced technologies from the more developed countries, especially Britain (from which he drew iron-puddling technology, the coke furnace and steam engine), by means of a combination of state-supported industrial espionage and the poaching of skilled workers during the late eighteenth and early nineteenth centuries. Another significant figure was Peter Beuth, who in 1816 became head of the department of trade and industry in the Ministry of Finance. Beuth set up the famous
By 1842, Silesia was considered technologically almost on a par with Britain, and was certainly the most developed region on the Continent. The success in Silesia was, as had been intended, confined to a narrow range of military-related industries and did not spill over into other regions easily. However, this is an important example of how in a catchup economy the state could compensate for the scarcity of entrepreneurial talent.[116]
From the early nineteenth century onward, the Prussian state also pioneered a less direct and more sophisticated form of interventionism than that used in Silesia. One important example is the government financing of road building in the Ruhr.[117] Another important example is educational reform, which involved not only building new schools and universities but also the reorientation of their teaching from theology to science and technology – this at a time when science and technology was not being taught in Oxford or Cambridge. The quality of German higher education at the time is proven by the fact that between 1820 and 1920 an estimated 9,000 Americans went to Germany to study.[118]
There were some growth-retarding effects of Prussian government intervention in the first half of the nineteenth century, such as the opposition to the development of banking. [119] However, on the whole, we cannot but agree with the statement by Milward & Saul that ‘[t]o successive industrialising countries the attitude taken by early nineteenth-century German governments seemed much more nearly in touch with economic realities than the rather idealised and frequently simplified model of what had happened in Britain or France which economists presented to them’ . [120]
After the 1840s, with the growth of the private sector, the involvement of the German state in industrial development became less pronounced. However, this did not mean a withdrawal of the state, but rather a transition from a directive to a guiding role – examples of policies of this time include scholarships to promising innovators, subsidies to competent entrepreneurs, and the organization of exhibitions of new machinery and industrial processes.[121]
During the Second Reich (1870—1914), further development of the private sector and the strengthening of the
Despite the relative decline in state capacity and involvement in industrial development during this period, however, the importance of tariff policy and cartel policy for the development of heavy industries at the time should not be underestimated. Tilly points out that tariffs made cartels more workable in heavy industries, thus enabling the firms to invest and innovate more aggressively.[124] Moreover, during this period, Germany pioneered modern social policy, which was important in maintaining social peace – and thus promoting investment – in a newly-unified country that was politically, religiously and regionally very divided (social welfare institutions are discussed below, Chapter 3, section 3.2.6.A.).
2.2.4. France
As with Germany, there is an enduring myth about French economic policy. This is the view, propagated mainly by British Liberal opinion, that France has always been a state-led economy – a kind of antithesis to
French economic policy in the pre-Revolutionary period – often known as
The Revolution upset this course significantly. Milward and Saul argue that it brought about a marked
