Key drivers of the growth of global capitalism

The past 300 years have seen an incredible amount of overall progress in terms of quality of life. Many of the drivers of that project have also been the drivers of immense suffering. Much of this progress and suffering is tied to what we call “global capitalism”.

The book Empire of Cotton charts the rise of the global cotton trade, which drove much of the development of global capitalism. In the spirit of learning from what has successfully fostered human development and condemning what hasn’t, I’d like to provide a summary of what, to my understanding, have been the most important factors in the development of global capitalism.

Development of markets to determine allocation of capital: The development of industry networks, contract law, and financial instruments like credit, insurance, and futures, allow capital to be allocated efficiently (“efficiently” not in a normative sense, but in the sense of producing the most outputs for the least inputs). This makes possible innovation that can allow processes such as farming, manufacturing, and shipping to be done even more efficiently.

Land seizure and clear private property rights: The ability for a large company to grow lots of cotton requires lots of land, and a state that can enforce clear property ownership laws. State capacity was built up with the support of industry leaders and merchants, and land was seized by force from native peoples in places such as India and the U.S. 

Specialization of land and labor: Before the 1800s, many people in the world lived through subsistence farming. They grew what they needed, and bought relatively little. Colonial powers, largely through coercion, forced a shift towards growing cotton for export and then buying your own food. This specialization allows goods to be produced more efficiently and increases demand for those goods, but comes at the cost of increased instability (e.g., higher likelihood of famines when low cotton prices means inability for workers to buy food).

All-compassing control of labor including slavery: The extremely low prices of finished cotton goods require incredibly low production costs. To keep these production costs low, cotton manufacturers kidnapped people from Africa to work on farms as slaves (euphemistically referred to as “elasticity of the labor supply”). They took children from orphanages to work in factories for 12 hours a day. They built dormitories for factory workers to live in and locked the doors at night so they could not escape.

Government protectionism, investment, and coordination: Government tariffs and bans on imports are needed to allow development of nascent manufacturing industries. Infrastructure such as railroads and canals allow goods to be grown in more locations and to be transported more quickly (reductions were dramatic: Getting cotton to the coast in Togo took 15 days in 1900 and just a few hours in 1907). Governments also served a coordination function in the gathering and dissemination of market data.

Commoditization of goods: Manufacturing products at a large scale requires getting resources from many different suppliers. This is very difficult if each supplier gives you a slightly different version of the good. Commoditization, as typified in the development of quality standards during the early 1800s, allows a manufacturer in 1820 Liverpool to buy 200 bales of “choice prime cotton” coming from many different growers in the U.S. and India, and trust that they will all be usable.