The Sun Sets on the British Empire
England is just a small island. Its roads and houses are small. With few exceptions, it doesn’t make things that people in the rest of the world want to buy. And if it hadn’t been separated from the continent by water, it almost certainly would have been lost to Hitler’s ambitions. Yet only two lifetimes ago, Britain ruled the largest and wealthiest empire in the history of humankind. Britain controlled a quarter of the earth’s land and a quarter of the earth’s population.
Late in the eighteenth century, after the loss of their American colonies, the British set out to compensate for what had been lost, first by defeating Napoleonic France and then by expanding the reach of the crown in colonies from India to the tip of South America and from Africa to the islands of the Western Pacific.
Britain’s might was military, having built the most powerful navy the world had ever seen. But what enabled their military superiority was their industrial might. The British had pioneered the Industrial Revolution, and they enthusiastically promoted free trade, understanding the huge export potential for their products. By 1860, the nation’s economy was the biggest in the world.
But maintaining leadership proved more difficult than achieving it. Whereas other nations extended the manufacturing revolution by embracing new technology and innovation, the British reversed course and tried to contain it. The country’s culture of class immobility stymied the entrepreneurialism and initiative that propel a competitive economy. From owner to laborer, the British were eager to protect the status quo. Industrialists secured subsidies for themselves and tariffs on foreigners rather than face foreign competition and technology head-on. When subsidies proved insufficient for the most unproductive businesses, the government took them over. The nation spent national resources to keep sick companies alive rather than inventing new ones and investing in those that were strong.
Britain’s economic missteps were compounded when it was forced to fight and endure the cost of two world wars. By the end of World War II, its national debt had tripled. Massive loans were required to shore up the ailing economy; they came from its former colony.
There are similarities between the different countries’ paths of decline. Many turned toward isolation; most important, isolation from knowledge: the Ottomans, Spanish, Portuguese, and Chinese purposefully shut out foreign invention and learning. And they adopted economic isolation as well: China, Spain, Britain, and the Ottomans expressly or effectively retreated behind barriers to foreign trade, each convinced that competition had made them weaker. Their retreat from the marketplace of ideas and their retreat from the marketplace of goods inevitably led to their retreat from the pinnacle of leadership.
This is a lesson that shouldn’t be lost on us. When we face challenge, there will always be cries for protection. They will be heartfelt and not entirely illogical. Foreign competition will seem unfair— after all, if foreign products and services are more desirable to consumers, it must be due to some form of advantage. And if one’s competitor has an advantage, that doesn’t feel fair. If the advantage persists, it will mean that jobs will be lost, well-connected people will be affected, and government will lose revenues.
The only successful way to overcome foreign advantage, however, is to create an advantage of one’s own— to innovate. And if you conclude that your competitor’s advantage is permanent and insurmountable, the best course is to choose new paths and new products. Over the centuries, the siren songs of protectionism and isolationism have taken down some very impressive empires.
Some of these failed powers were weakened as well by wealth and spending that exceeded their own production— in other words, by easy money. The spoils of the Ottoman pillage, the gold the Spanish stole from the Americas, and the tribute the Portuguese exacted from trade— all allowed each of these nations to live well in excess of their productivity. In the same way that inherited wealth can lead descendants to profligate spending and economic ruin, easy money weakened these nations’ willingness to work and invest. In the same way that inherited wealth can lead descendants to profligate spending and economic ruin, easy money weakened these nations’ willingness to work and invest.
Harvard historian David Landes, in his book The Wealth and Poverty of Nations, sees an even more fundamental factor in the rise and fall of powers: “If we learn anything from the history of economic development,” he writes, “it is that culture makes all the difference.” Just as Islamic culture rejected foreign influence, so the Ottomans rejected foreign technology. The religious beliefs of the Spanish and Portuguese led them to deny foreign discovery and innovation. China’s economic isolation was the logical extension of its rejection of cultural diversity. And the British culture of order, organization, and rigid structure— once assets in Britain’s conquest of nations in the undeveloped world— may have prevented it from developing the risk-taking approach and entrepreneurialism critical in free markets. Culture did indeed make a difference.
Of course, America can learn from these historic causes of failure; in some ways, they are eerily familiar. We, too, have been lavishly spending the easy money we obtained through excessive borrowing; there are growing calls for protectionism; government is expending resources to preserve the failed practices of declining industries; and the culture that led us to become the world’s greatest nation is under attack. Following the same path that has led the great to decline in the past is reckless and perilous.
The history of leading nations that have fallen has even more to teach us, however, perhaps at a more fundamental level. In the face of evident decline, why do nations fail to act? Are there cases where nations have instead acted to halt their decline? What accounts for the difference between the two? The answers to these questions may be the most instructive because they can suggest a course of vigilance in the modern world very different from that of the Ottomans, the Spanish, the Portuguese, or even the British.