Kicking Away the Ladder. Development Strategy in Historical Perspective

least because of the competition from protected British producers. However, Belgium maintained its industrial strengths and was the second nation – after Britain – to start an Industrial Revolution.

By the early nineteenth century Belgium was one of the most industrialized parts of Continental Europe, although it was significantly disadvantaged by its relatively small size and political weakness vis-a-vis France and Germany. At the time it was the world’s technological leader in certain industries, particularly wool manufacturing. Although some of its technological edge had been lost to its competitors by the middle of the nineteenth century, it remained one of the most industrialized and richest countries in the world, specialising in industries like textiles, steel, non-ferrous metals, and chemicals.[155]

Not least because of this technological superiority, Belgium remained one of the less protected economies throughout most of the nineteenth and early twentieth centuries (table 2.1). Hens and Solar argue that the country remained an ‘ardent free trader’, particularly between the 1860s and the First World War.[156]

However, before this period, Belgium was considerably more protectionist than the Netherlands or Switzerland (see below). During the first three-quarters of the eighteenth century, the Austrian government, which then ruled what was later to become Belgium, protected it strongly from British and Dutch competition and invested in industrial infrastructure.[157] During the early nineteenth century it was subject to active ITT policies as part of the United Kingdom of the Netherlands (1815-30) under William I (see below). Moreover, until the 1850s, some industries were quite heavily protected – tariffs reached 30-60 per cent for cotton, woollen and linen yarn, and 85 per cent on iron. Its Corn Law was only abolished in 1850.[158]

B. The Netherlands

During the seventeenth century the Netherlands was the world’s dominant naval and commercial power; during this period, its ‘Golden Century’, the Dutch East India Company outshone even the British East India Company. However, its naval and commercial strength showed a marked decline in the eighteenth century, the so- called ‘Periwig Period’ (Pruikentijd), with its defeat in the 1780 Fourth Anglo-Dutch War symbolically marking the end of its international supremacy.[159]

It is not easy to explain why the Netherlands failed to translate its naval and commercial strengths into industrial and overall economic domination. Part of the reason must have been that it was simply the natural thing to do – when you have a world-class commercial basis like, say, Hong Kong today, why bother about industry? However, the British government exploited similar strengths to the full in developing its industries (for example, it passed various Navigation Acts .that made it compulsory to ship goods in and out of Britain on British vessels). So why did the Netherlands not do the same? That they did not is especially puzzling, given that the Dutch state had not been shy of using aggressive ‘mercantilist’ regulations on navigation, fishing, and international trade when it was trying to establish its commercial supremacy in the sixteenth and early seventeenth centuries.[160]

Many explanations for this have been offered: high wages due to heavy consumption taxes; lack of coal and iron deposits; the decline of entrepreneurship and the rise of a rentier mentality; and conspicuous consumption, to name just a few. Some historians have also suggested that Belgium’s industrial strength was always an obstacle to neighbouring Netherlands’ industrial development.[161] Most interestingly, List suggests that the Netherlands’ relative decline was due to its failure to construct the set of public policies and institutions necessary for industrial development; Wright meanwhile proposes that low tariffs hampered the development of Dutch industries.[162]

Whatever the exact cause was, the Netherlands failed to industrialize to the same extent as its competitor countries, Britain, Germany and Belgium. Nevertheless, thanks to the strengths of its commercial network, it remained one of the richest countries in the world until the early twentieth century.[163]

One exception to the policy paralysis that seemed to have gripped the Netherlands between the late seventeenth and early twentieth centuries was the effort made by King William I (1815—40). William I established many agencies providing subsidized industrial financing, the most important of which was the Netherlands Trading Company (Nederlandsche Handels-Maatschappij) set up in 1824. The Company supported Dutch industries by means of targeted procurement policies (especially in sugar refining, shipbuilding and textiles), using the profits from its monopoly trade with the colony of Java, which from 1831 onward was forced to produce cash crops such as coffee, sugar and indigo.[164] William I also founded the Fund for the National Industry (1821), the Amortisation Syndicate (1822), and the General Society for Furthering the National Industry (1822). During the 1830s, strong state support was also provided for the development of modern cotton textile industry, especially in the Twente region.[165]

However, from the late 1840s, the country reverted to a laissez-faire regime, which lasted until the First World War, and to an extent until the Second World War. First of all, as we can see in table 2.1, the Netherlands remained the least protected economy among the NDCs, except for Britain in the late nineteenth century and Japan before the restoration of tariff autonomy. Second, in 1869 the country abolished patent law (which was first introduced in 1817) on the grounds that it created an artificial monopoly. This move was partly inspired by the anti-patent movement that was sweeping Europe at the time, which in fact had a strong association with the free trade movement (see section 3.2.3.B for further details). Despite international pressures, the country refused to reintroduce the patent law until 1912 (more on this later).[166] Third, the Dutch government deliberately created a private sector company in order to compete with two existing private sector companies in managing the national railway, which it organized and financed.[167] This practice was hardly heard of at the time, and although it is strictly speaking not a laissez-faire policy, it is nevertheless a precursor of modern pro-competitive activist industrial policy.

During this extreme laissez-faire period, the Dutch economy remained on the whole rather sluggish, and its industrialization relatively shallow. According to the authoritative estimate by Maddison, measured in 1990 dollars, the Netherlands was still the second richest country in the world in 1820 after the UK, even after a century of relative decline ($1,756 vs. $1,561). A century later (1913), however, it had been overtaken by no fewer than six countries – Australia, New Zealand, the USA, Canada, Switzerland and Belgium – and almost by Germany. Germany’s per capita income was only about 60 per cent that of the Netherlands in 1820 ($1,561 as opposed to $1,112), but by 1913 was only a shade below it ($3,950 vs. $3,833-for detailed income figures, see table 3.7 in Chapter 3).[168]

It was largely for this reason that the end of the Second World War saw the introduction of more interventionist policies. An active industrial policy was practised, especially in the years up to 1963. This included measures like financial supports for two large firms (one in steel, the other in soda), subsidies to industrialize backward areas, the encouragement of technical education, promoting the development of the aluminium industry through subsidized gas, and the development of key infrastructures.[169]

C. Switzerland

Switzerland was one of Europe’s earliest industrializers. Biucchi argues that Switzerland’s Industrial Revolution started barely 20 years later than Britain’s did. By 1850 Switzerland, like Belgium, was one of the most industrialized economies in the world, although the heterogenous and decentralized nature of the country meant that the degree of industrialization remained uneven across different cantons. [170]