The British Empire was the first true World Order. Over the span of almost 200 years, the empire integrated foreign and domestic markets in a fashion never seen before. They acted as the supervisor and stimulator of world trade, relying on a superior naval force, a strategic network of bases and colonies and a systematic dominance in education, business, finance, industry and management skill. The empire facilitated the secure movement of goods, funds, ideas and innovations across the world and governed some 444 million people within its imperial system, making the world rapidly more interconnected and interrelated. Of course, the Empire was far from sinfree, and has many atrocities on its name - but it was still a crucial catalyst that set the foundations of today's modern world.
So, how did it all come to be? Oversimplified history summaries sometimes suggest that a mere series of "war and conquer" campaigns created the empire - that the greed for gold and wealth hurled a few avaricious British onto the seas in search for "El Dorado", whatever the cost.
Indeed, after the rediscovery of America in 1492, England latched on to the idea of joining the gold rush and disrupting the mighty Spanish Empire. There was only one problem: the scarcity of money. In this classical mercantile era, the wealth of nations was determined by the amount of physical gold coins in the treasury. Spain had tons of it, England not so much. If they wanted to disrupt the Spaniards, they needed to disrupt Finance.
I: The 'Glorious' Anglo-Dutch Merger.
In 1688, English aristocrats, backed by the merchants of the City of London, deposed of King James II and VII (II in England and Ireland; VII in Scotland) and replaced him with Queen Mary II and the Dutch stadtholder William of Orange. It was a virtually bloodless affair, a testament to the sovereignty and strength of British financial and political institutions.
The event is called the 'Glorious Revolution' and is popularly known as an attempt by Protestant Londoners to oust the suspiciously Catholic and political ambitious King James. What is more significant however, is the financial Anglo-Dutch merger that occurred in its aftermath.
During the 17th century, the Dutch Republic was pioneering in both maritime and financial innovation. In 1602, the Dutch founded the Amsterdam Stock Exchange, with the Dutch East India Company ("VOC") making the first appearance as a publicly traded company. The Dutch then launched a new form of finance that would change the world forever: the bond market. The Dutch Republic began issuing bonds, allowing it to borrow seemingly "infinite money" from its citizens. In a world where physical gold coins determined a state's financial strength, the creation of the debt market was truly revolutionary.
In 1694, just six years after the Glorious Revolution, the Bank of England was founded to regulate a brand new British bond market. With this new institution, the British government raised £1.2m in just 12 days in government bonds. The idea of "infinite money" had truly manifested itself. The British had imported the Dutch credit system.
"In a world where physical gold coins determined a state's financial strength, the creation of the debt market was truly revolutionary."
This gave the British a huge strategic advantage over France, Spain and other empires, who still relied on physical cash. The British and the Dutch also made an agreement on trade to avoid future conflicts: the Dutch were granted full monopoly over the lucrative spice trade of the East Indies, while the British were granted monopoly over the textile trade of India. This agreement proved fateful - in just a few years, European demand for stronger textiles and fabrics surged, while the spice trade saturated. Textiles would be the backbone of subsequent British industrial growth, powered by the new and revolutionary debt market.
II: The Maritime Industrial Complex
In the 17th century, the British navy took a series of bad defeats against her foes, with perhaps the most humiliating being in 1690 when they were heavily defeated by the French at Beachy Head. It had become quite apparent that Britannia did not rule the waves at all. Nor did they seem to rule the lands. The mainland French and Prussian militaries were far superior in discipline, maneuverability and strength.
In come William Pitt, the new Prime Minister of the United Kingdom (from 1707, Scotland, Wales and England were united under a single crown). Having grown up in India, he fully understood that the power of the world lies in those who control the oceans, where virtually all of the world's trade occurs. Therefore, instead of investing limited amounts in both land forces and the navy - Pitt insisted on concentrating the national budget on the Royal Navy alone. He understood that it is futile to try to be great at everything. True strategic discipline requires a party to choose to be poor in one field, in order to be truly great in another. The question is just what skill, field or competence to prioritize.
For Britain however, focusing on the navy was quite obvious. If the Britannia could defend its islands on the seas, she would be untouched by land forces. More significantly: if the Britannia could rule the seas - she could rule world trade. She could secure her own trade routes, attracting global investors, and cut off and destabilize the trade routes of her foes - defeating them economically rather than militarily.
"...if the Britannia could rule the seas - she could rule world trade."
The Parliament voted in favour of Pitt's proposals, recruiting 55,000 seamen and building 105 line ships (compared to France's 70), a web of shipyards and dockyards, ports and other infrastructure, supply lines and maritime academies. The Royal Dockyards became the largest industrial enterprise in the world, and UK schools focused fiercely on maritime science to give British seamen technological advantages as well. A network of strategically located navy bases and colonies were attained, like Gibraltar and Minorca, which gave the British an unparalleled leverage over Mediterranean trade. How did they pay for all this? Bonds.
Pitt's investment in the Royal Navy certainly yielded great returns: in 1759, the French desperately tried to invade Britain. The result was a crushing defeat of the French navy and an immediate blockade of French trade and communication lines that forced France to comply with British demands. The tables had indeed turned. In the Victorian age, the Royal Navy was the largest in the world - featuring 240 line ships, 40 000 seamen, the first iron-clad steamship, and owned 1/3 of all the world's merchant tonnage.
III: The Rediscovery of Tax
In the 18th century, power struggles, geopolitical games and wars often centred around control over commodity markets. That's part of the reason why most trading companies had their own private armies to protect their commercial interest from pirates or wartime enemies. These Companies would also begin to interfere with local politics, trying to install leaders that would give them favourable trading terms.
In come Robert Clive, a military officer and privateer who successfully meddled with Indian politics in Bengal to expand British indirect power of the region, and sometimes relying on the private army of the East India Company in case the Indian armies retaliated. Although Clive managed to conquer sways of new land to the Company, his most significant victory was that over the Mughal Empire - the most powerful state on the Indian subcontinent. The war culminated with the Treaty of Allahabad, where the Mughals granted the Company the right to collect taxes in Bengal, Bihar and Orissa. This meant the Company had become the imperial tax collector for over 22 million people (in return, they had to pay an annual, fixed tribute of £260,000 to the Mughals). It was an astonishingly lucrative deal. Clive became a multi-millionaire and the Company's share price skyrocketed. The British had just discovered what's more profitable than commodities: tax.
Once you go tax, you never go back. The Treaty of Allahabad is recognised as the beginning of British rule in India - and tax was too addictive to ignore, hence the incentive to gain civil administration over more territories. Within a few decades, the East India Company had taken control over most of the subcontinent. It was later converted into a formal British colony.
This tax income would form the bedrock of Imperial expansion and finances. It enabled Britain to leverage up even more (meaning, to take on more debt). The combination of advanced debt markets with the enormous tax income led to an unchallenged financing base that solidified British global superiority for a century. Her superiority would ultimately lead to the rise of imperial challengers - laying the seeds for the First and Second World Wars.
"The British had just discovered what's more profitable than commodities: tax."
Strategies or Paradigms
These three events, which can also be thought of as deliberate (or accidental) strategies, set the British Empire on the course to becoming history's first true world order. The Dutch merger enabled London to have financial advantage over other competitors, allowing it to, among other things, finance the massive upstart of the British maritime industrial complex, which would be one of the most determining factors as to why Britain was able to rule the waves - and thus trade - so unchallenged. Finally, the "rediscovery" of taxation was a powerful incentive for land occupation, driving the British to eventually cover 1/4 of the world's land mass and 444 million people by 1909.
Of course, this article is a simplification. Nations do not rise and fall due to a handful of correct strategies. Arguably, it is the ruling paradigms and institutional efficiency that determine the growth or decline of nations. For Britain, the values of private ownership, the limited power of the monarch (that originated with the Magna Carta as early as 1215) and institutional strength of the Parliament (which bolstered the quality of the British democracy) certainly comes to mind as extremely powerful political and socio-economic principles. Without these, Britain certainly wouldn't have managed to devise these strategies or even function in the way it did.
However, while these institutions and strategies may have given Britain its enormous Imperial power, it is then fitting to evaluate how Britain used its power - for both good and evil. The Empire would go on create systems that led to huge prosperity for millions - but also malign constructions that supressed particular cultures and led to huge suffering. This is the twofold nature of any Empire.
This article was inspired by and based on research from Niall Ferguson's "Empire".