Issue 218 of SOCIALIST REVIEW Published April 1998 Copyright Socialist Review

Feature article: From tea to Toyota

Peter Morgan

Capitalism seems to be always with us. Yet it appears a very different animal today from how it looked in its infancy. This is because capitalism is a very dynamic system new methods of production emerge, old ones die out, and new forms of exploitation arise. A new book describes this process and presents a fascinating and intriguing account of how capitalism has changed, from its early days of the laissez faire free market economy that emerged in Britain, to the large scale international and multinational system that dominates the world today. The authors look at four of the major capitalist countries Britain, Germany, the US and Japan as well as case studies of some of the most important capitalist firms including Wedgwood, Rolls Royce, Deutsche Bank, Ford, IBM, and Toyota. In doing so they present a cross-section of how capitalism emerged, what political and economic factors helped it on its way, and how the system has changed.

Britain was the first country to lead the way with the Industrial Revolution. By the mid-17th century Britain was one of two or three of the most prosperous countries in Europe, yet by 1850 it had become the largest and most powerful empire the world had ever seen. Crucial to this was the role of the individual capitalist.

Britain pioneered the world in the development of modern infrastructure. This began in the 1760s with the growth of a sophisticated network of canals. Capital for this came, for the most part, from private finance. Capitalists such as Josiah Wedgwood invested heavily in transport. As a result over the second half of the 18th century infrastructure improvements helped lower the transport cost of coal by 50 percent which was crucial to the booming Industrial Revolution and the growth of factories. For Wedgwood, the dividends of investing in transport were enormous. The growth of empire meant increased demand for goods such as tea, coffee and chocolate. In 1730 Britons consumed 1.4 million pounds of tea each year, yet by 1800 this had grown to about 12 million pounds. Wedgwood was involved in the production of pottery so there was great demand for cups, pots, pitchers and sugar bowls, and he needed cheap and easy access to coal. Towards the end of the 18th century he provided financial support for a canal that would link the ports of Liverpool and Hull with the Staffordshire potteries. The Trent-Mersey canal was part of a large system that would connect the four major rivers in Britain.

Britain's industrial growth depended on cotton. By 1830 cotton cloth accounted for half of Britain's exports and Manchester had risen from obscurity to become one of Europe's foremost cities. Yet the cotton firms were typical of much of British capitalism relatively small, employing on average about 150 workers, almost always family owned with only a handful of partners.

By the end of the 19th century other capitalist countries were beginning to challenge Britain's dominance. Partly this was because by then Britain's non-colonial markets were more profitable than its colonial markets for example there was more British investment in the Americas in the 50 years before the First World War than in Britain itself. The disruption of the First World War proved costly to British exports India introduced tariffs on imported cotton which encouraged domestic production, and Japan took over a large share of the Chinese market.

But it was the emergence of both the US and Germany as major players on the world scene that changed the structure of capitalism. These countries proved to be dominant through much of the next century. New profitable industries emerged such as steel, chemicals and machinery, and the state increasingly began to play a key role in the development of capital accumulation.

Germany did not become a unified state until 1871, yet by 1900 it was a major economic force. Much of this was because of the growing importance of iron and steel around the Ruhr river. By 1913 Germany was one of the world's leading exporters of machinery and other heavy industrial products. Government was central to this process tariffs were introduced to stop the import of foreign iron and steel and institutions such as Deutsche Bank (formed in 1870) and Dresdner Bank (1872) concentrated on the financing of large scale industry. Unlike British capitalism, there was a close relationship between the banks and the growing corporations bank representatives sat on corporate boards in every major industrial sector and credits from the banks helped to finance almost half of net investment.

Another feature of German capitalism from the 1870s to 1945 was the emergence of cartels. Supported by the state, the cartels ranged from oral 'gentlemen's agreements' to well organised syndicates. The most well known of these was the coal syndicate which controlled production quotas and prices. Yet the cartels differed from what was emerging in the US at this time the big corporation. In Germany the cartels were associations of independent firms which retained their independence and avoided an excessive concentration of property. In the US the economic independence of the firms was dissolved into large powerful corporations under a single management.

The transformation in the US was remarkable in 1800 the national economy was overwhelmingly agricultural, yet by the end of the century it had become the world's leading agricultural and industrial country. Unlike in Britain where the spread of infrastructure was led mainly by leading industrialists, in the US the government played a key role. For example when Jefferson became president in 1801 he secured the Louisiana Territory from Napoleon and, at a stroke, doubled the size of the US. Legislation was signed that led to the construction of a 'National Road' linking east to west.

In the 1800s the federal government gave enormous land grants to the main railroad companies in 1830 there were 23 miles of track, yet by 1890 this had increased to 208,152 miles. The national railway system provided the springboard for the American economy to take a giant leap forward. The Erie canal which flowed from Albany to Buffalo was built with funds from New York state. This project cost ten times as much as the largest manufacturing firm in America and led to massive growth of manufacturing on the east coast, while Wall Street became a world money centre.

The US Congress was consistently protectionist. A whole series of tariffs on imported goods was introduced throughout the 19th century. By the end of the century duties on foreign goods were the main source of revenue to the US treasury.

These factors helped to stimulate what has become known today as the corporation. In no other country in the world did the capitalist class have access to such a huge and unified market. So, unlike in Britain where the owner was closely associated with the firm and was often visible in the day to day running of the company, in the US the emergence of large corporations led to the employment of a large and skilled managerial layer that was responsible for the day to day running of captialist enterprises.

Towards the end of the 19th century industrialisation grew enormously in the US. The $2.7 billion invested in manufacturing in 1879 shot up to $8.2 billion in 1899 and $20.8 billion in 1914. Before the 1880s the largest manufacturing firm had seldom been worth more than $1 million. By 1900 John D Rockefeller's Standard Oil Company had grown into a multinational corporation worth $122 million, and in 1901 the huge United States Steel Corporation led by Andrew Carnegie was worth $1.4 billion (at the time US GNP was about $21 billion).

It is remarkable that about half of the largest firms in the US today originated during the period from 1880 to 1930. One of these is the giant Ford motor company. This multinational began in 1903 when Henry Ford brought together 12 investors who paid in capital of $28,000. At the time there were some 274 companies manufacturing cars in the US all producing just a few very expensive cars. There was little competition from other countries since both Britain and France believed cars would remain playthings for the rich.

Henry Ford recognised the need for a mass produced standard car. He was obsessed with the need for standardisation and evangelised about the wonders of mass production. In 1903 when cars were being built in small batches he said:

'The way to make automobiles is to make one automobile like another automobile, to make them all alike, to make them come from the factory just alike just like one pin is like another pin when it comes from a pin factory or one match is like another match when it comes from the match factory.'

Ford put resources into producing such a car and the Model T was the result the ultimate standardised machine. It was far more durable and reliable than anything else on the market. Ford concentrated all his resources on this one model, increasing volume and lowering the price it cost $850 in 1908, $600 in 1912 and fell to $290 in 1924. As a result, by the 1920s Ford was producing more than 60 percent of all motor vehicles in the US and half of those made in the entire world

Central to this expansion was a series of changes in the production process culminating in the moving production line which became fully operational by 1914. Whereas in 1913 it had taken 12 hours 28 minutes to assemble a chassis, by 1914 with the assembly line it took 1 hour 33 minutes. Along with this went the introduction of what became known as 'Taylorism', named after Frederick Winslow Taylor who in the 1880s began to develop a series of time and motion studies, which culminated in his short book, Principles of Scientific Management in 1911. Instead of one worker being involved with the total production of one product, each worker performed one process in the overall production of the good. Taylor isolated the time each task took, logged it and used this to try and speed up the process of production. By 1912 Ford had a time study department and it was clear that Taylor's ideas were used in the mass production of Model T.

Car production became one of the most important industries for the US economy. Combined with its links with steel, rubber and oil it meant that by the 1970s one out of every six businesses in the US was involved in the manufacture, distribution or operation of automotive products. Mass production and the large corporation came to symbolise US capitalism.

The growth of the Japanese economy biggest modern rival to the US had a lot to do with state intervention. At the end of the 19th century the Japanese government made crucial investments in infrastructure including roads, the postal service and rail. In 1894 government investment amounted to 66 percent of all total investment, and until the First World War government always exceeded private investment. This was supported by the 'zaibatsu', literally meaning 'financial clique', which were central to Japan's growth. These were groups of businesses usually owned by one family which also had many subsidiary or related firms.

One of these was the Toyota company. This began in 1891 when the Japanese inventor Sakichi Toyoda began as a manufacturer of the automatic loom, but it ended 100 years later as one of the biggest multinationals in the world today. The early success of the Toyoda company was built in textiles. At the beginning of the century Britain was still the dominant power in cotton, but in less than 20 years Japan overtook Britain as the largest exporter. Much of the success for this was because of the invention of Toyoda's G type loom which meant one worker could operate 25 looms simultaneously a revolution in the industry. This provided the springboard for the launch of the Toyota motor company in 1936 the name being changed because in Japanese Toyota requires eight strokes to write and the number eight connotes 'rising prosperity'.

There were a number of factors that more or less guaranteed the success of Toyota throughout the second half of the 20th century. The Second World War saw the government place huge demand on Toyota products, and the Korean War saw the US placing large orders for Japanese trucks. The Japanese government also imposed a very stringent protectionist policy towards overseas vehicles. Whereas in 1951 imports comprised 45 percent of the Japanese market, by 1966 this was down to 1 percent. And the Japanese car manufacturers Toyota, Nissan and Isuzu along with support from the government, cooperated to smash the unions in the early 1950s which had long term implications for the industry.

As a result Toyota became one of the largest car retailers in the US in the 1980s making up 20 percent of all vehicles sold and an astonishing 67 percent of all US imports. Japan also surpassed the US as the world's leading producer of motor vehicles. And so, as with textiles in the 1930s, Japan had risen from obscurity to become the world leader.

Government support was crucial to the growth of Japanese capitalism through its key department the Ministry of International Trade and Industry (MITI). Throughout the 1960s and 1970s this ensured credit, tax incentives and research were spent on so called 'sunrise industries'. It was also key in promoting two of the largest multinationals the Mitsubishi Corporation and Mitsui and Co. At the heart of the group is a main bank which supports a whole host of other subsidiary industries. These two companies between them are involved in the production of everything from noodles to subway cars, and they handle an almost unbelievable volume of trade in the 1980s they handled 29 percent of Japanese exports and 43 percent of imports.

The history of capitalism, therefore, is one of a system that is in perpetual motion. It never stands still. But as the system progresses we also see the concentration of capital in fewer and fewer hands. Capitalism began as a system largely based on the small firm with a small workforce in a laissez faire economy, and developed into one involving huge corporations with massive amounts of government intervention, employing millions of people throughout the world.

Over this period the number of competing firms has got smaller and a handful of very large firms have come to dominate whole industries and economies. If any one of these large firms goes bust it threatens to do enormous damage to the rest of the system. Whereas during the early days of capitalism the destruction of some firms would be to the benefit of others since their rate of profit could be restored, today if any of the big multinationals go bust it threatens a black hole which could pull the whole system into a deep and protracted crisis.

Today the state is much more involved in the day to day running of the system as it tries to stem the problems of a deepening crisis. In Japan, for example, there have been massive injections of public money to attempt to reflate a stagnant economy. State subsidy is used in various countries to prop up ailing industries. Despite the bosses' talk of the 'free market' they panic whenever any one of the giant companies is threatened and do everything they can to keep it afloat until the crisis breaks again the next time round which again threatens the very existence of the system.

So while it's true to say that capitalism has changed, firms have got bigger and the problems have got deeper, the essential elements have remained the same the need to accumulate more capital and the need to exploit the working class. It is this which drives the system forward, but ultimately it is this that will bring it tumbling down. The working class is a major player on the world stage and the more capitalism has developed the more it has created this class which contains within it the seeds of the capitalists' destruction.

Creating Modern Capitalism, edited by Thomas McCraw (Harvard University Press, 19.95)

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